Aquaculture projects seek public funding as de-risking measure

Chloe Cheung, a former banker and now a senior advisor on sustainable finance at WWF Hong Kong, is seeking government support for a new multitrophic aquaculture project, following a recently completed feasibility study showing the potential of farming of multiple species together.

Cheung and WWF have asked for the support of Hong Kong’s government in helping it pay the HKD 2 million (USD 1.08 million, EUR 1.17 million) required to purchase a license for the project.

“If government can put up the initial HKD 2 million, then commercial investors are more likely to come in, as some risks have been taken away,” Cheung said.

Cheung said she is modeling the project, which involves raising a popular local fish known as batfish, on a separate successful aquaculture project that relied on both government and corporate money. The Mekong Delta Integrated Rice and Aquaculture Project was launched in 2021 and involved Vietnam’s top shrimp producer, Minh Phu Seafood, partnering with WWF, the Dutch Fund for Climate and Development (DFCD), and three provincial governments in Vietnam to implement rice and shrimp farming in the Mekong Delta region.

Under the partnership, WWF and DFCD granted Minh Phu EUR 350,000 (USD 380,000) and the government issued EUR 450,000 (USD 489,000) for the trial, and Minh Phu subsequently seeking a 10-year loan worth EUR 35 million (USD 38 million) to implement the full project by the second quarter of 2022. The company plans to increase its total integrated rice-shrimp farming area to 30,000 hectares by 2028 and to a million hectares in later phases of the project.

“We pitched it to Minh Phu,” Cheung told SeafoodSource. “It took us a while to get to the CEO but he bought in and loved the idea. Sustainability makes sense to him. He has a long-term vision.”

Cheung also mentioned Urchinomics, a firm that harvests and cultivates sea urchins blamed for denuding sea kelp forests vital to sequestering carbon, as another successful public-private partnership in the aquaculture sector. The governments of Norway, Ecuador, China, several Southeast Asian countries, and elsewhere also provide subsidies of various types benefitting the aquaculture industry, including infrastructure, capacity-building, export supports, subsidized fuel, genetics programs, and biosecurity protocols.

John Diener, the CEO of Vertical Oceans, a Hong Kong-based shrimp aquaculture company pioneering the use of stacked recirculating aquaculture systems (RAS), said aquaculture projects must eventually be able to survive without government cash, but said that new technologies deserve support.

“Some nascent projects or technologies need support to get started. This starts with understanding the techno-economics, including capital and production costs, and clearly defined biological thresholds to make the concept commercially viable. Projects that can demonstrate a path to consistently achieving those biological thresholds under realistic assumptions should be supported,” Diener told SeafoodSource. “Aquaculture should receive the same levels of support as other crops.  Because aquaculture tends to require higher upfront capital costs, government should support the sector with project finance more than subsidies on production.

The challenge for government is how to evaluate the risk, Diener said.

“Most people have some intuitive understanding of livestock or terrestrial crops, but much less so for aquaculture, which is more complex,” he said. “To provide support effectively, governments need to secure expertise to properly evaluate aquaculture techno-economics. Otherwise, you may see a tendency to back low-risk, incremental projects over breakthrough technologies.”

David Little, a professor with the University of Sterling’s Institute of Aquaculture, questioned government’s ability to scrutinize the business case for such investments.

“[I’ve] seen many failures and white elephants with ill-conceived government overseas development assistance investments based on immature technologies and or technologies where a skilled workforce is not in place,” he said. “Building a reliable workforce is tough enough based around conventional technologies in most contexts. Often [business] scenarios are very optimistic on price in the market reflecting timing of delivery and consistent quality [of the seafood produced]. In my experience, government agencies rarely consider such issues and lack capacity for due diligence around what are attractive and sustainable business ideas.”

That’s not to say that government support hasn’t also played a useful role in the rise of aquaculture globally, Little said. 

“The right type of government support, in the right form, and at the right time can be crucial,” he said. “Like the establishment of provincial fish hatcheries in Thailand 40 years ago supporting the growth of the sector – but of course in parallel with quite large investments in staff education and training at vocational and university levels – [resulted] in what was a fast growth domestic and subsequently export markets.”

Little said he believes governments should invest in aquaculture projects that have focused on a technological model unproven at scale and those that focus on high-priced, premium seafood products.

“If aquaculture in Asia or anywhere else can produce a product attractive in the market and return a good margin, then the investment should not require derisking,” he said.

Rabobank Senior Global Seafood Specialist Gorjan Nikolik said, due to its potential of providing more food to a growing population, aquaculture has emerged as a more-popular asset class for investors, but still requires more investment than is currently being provided by the private sector. 

“Aquaculture is an increasingly popular investment idea for investors, but it is not yet attracting large sums of capital from mainstream investors such as private equity and venture capital,” Nikolik told SeafoodSource.

But the sector could use more de-risking to unlock more private-sector investment, Nikolik said.

“The main issue is that most opportunities Western investors have seen are either in salmon farming, and here they have opted to invest in listed companies or are approached for projects such as RAS, which are seen by many as too risky, unproven, and have a high lead-time,” he said. “The main investment capital comes from either the sector itself or adjacent sectors such as agriculture – commodities or animal proteins.”

Photo courtesy of Chloe Cheung/LinkedIn