(Bloomberg) -- A U.S. factory about 800 miles from the nearest ocean may hold the key to making fish farming more sustainable.
The $200 million plant in the midwestern town of Blair, Nebraska, started production this week of an oil made from algae that its owners say could help solve one of the most vexing conundrums facing the global aquaculture industry, estimated to be worth $180 billion.
Farming has increased fish supplies at a time when the ocean’s stocks are dwindling and consumer demand is growing. Yet the sector largely relies on grinding up wild catch like anchovy and herring to make feed that contains oils rich in omega 3 fatty acids -- essential to producing fish like salmon that are so nutritious. Attempts to substitute plant-derived alternatives have led to a drop in omega 3 levels.
Enter two powerhouses of the European chemical industry: Royal DSM NV of the Netherlands and Germany’s Evonik Industries AG. The companies have put aside their rivalries to set up the Nebraska joint venture called Veramaris. They say it’ll make enough algae-based oil, with the two necessary types of omega 3 fatty acids, to meet 15% of annual demand from the $1.5 billion global salmon-farming industry. That would replace 1.2 million metric tons of wild fish that would have been destined for feed -- the equivalent of the annual catch from the Mediterranean Sea.
“It’s absolutely huge, one of the most exciting things that’s happened for a really long time,” said Jacqueline Claudia, chief executive officer of Love The Wild, a Colorado-based supplier of ready-to-cook frozen fish entreess like salmon with maple mustard to Whole Foods and other supermarkets. The company has pledged to use only sustainable fish, and Claudia buys from a network of 15 farmers, some of whom are already working with plant-based oils.
DSM and Evonik built the factory in Nebraska because of the state’s abundance of corn and experience in industrial fermentation. The venture’s omega 3 fatty acids that provide nutritional benefits to the oil are produced by combining corn and sugar in steel tanks to be fermented with ocean algae.
“It’s relatively simple to replace fish meal,” said Karim Kurmaly, head of the venture. Replacing fish oil is the more difficult step. “If you’re able to replace fish oil like we are, now we can produce vegetarian salmon, a diet completely free of fish ingredients.”
Veramaris’s initial customers will be salmon farmers based in Norway, the world’s biggest producer and the first to stop giving their farmed fish antibiotics. Chilean fish farmers are the next target, he said.
Veramaris’s challenge will be to make its investment profitable, as a competitor has found. Two years ago, Dutch enzyme and vitamin-maker Corbion NV bought a bankrupt Brazilian company also making algae-based oil for fish feed. It’s now ramping up production of a product that contains one omega 3 fatty acid as opposed to the two in the Veramaris version.
The economics of getting fish farmers to start using products made from algae is tricky. Fish-derived oil high in omega 3 sells for about $2.3 a kilo versus the $4 that Corbion charges for a kilo of its product. Corbion’s oil is being used as a supplement in fish feed rather than a full replacement for fish oil. Short of a collapse in the global fishing industry, the price could prevent algae-based alternatives from becoming the norm for years.
Even with Veramaris, Corbion and other producers like Cargill Inc., aquaculture probably won’t ever be 100% plant-based, said Scott Nichols, founder of aquaculture consultancy Food’s Future.
“Harvests will likely continue and probably unabated,” he said, noting that the meal from those wild fish also serves a purpose. “The addition of these other producers affords us the expansion of aquaculture.”
Veramaris declined to discuss prices, but margins of up to 25% could be achievable, DSM CEO Feike Sijbesma said in an interview. Production at the Nebraska plant will be ramped up in the second half, and total revenue from the asset could approach $200 million a year once it’s fully up and running, he added.
DSM has already had success supplying algae-based fatty acids for the highly regulated market of infant formula. It acquired the technology via the $1 billion purchase of Martek in 2010.
“We are the front runner because, in a nutshell, we cannot see a similar product out there,” said Evonik CEO Christian Kullmann in an interview. “And don’t forget about pet food. The potential opportunity is huge for this product.”
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