INTRO TO VENTURE CAPITAL – Article #2 Diving into Aquaculture

Benjamin Fong, Business Development

In this series, I will cover short and simple thoughts on the Venture Capital (VC) industry from the perspective of someone new to it, to get you from 0 to 1.

For this article, the team took a dive into the aquaculture scene, looking at

  1. What is aquaculture?
  2. Its answer to sustainable food production
  3. Its potential in reducing income inequality
  4. Some challenges the industry faces
  5. The role of investments from funds or accelerators in addressing those gaps

1. What is aquaculture?

Aquaculture refers to the process of farming aquatic organisms, ranging from fish to crustaceans and even molluscs like oysters. The process normally consists of four key production segments, the hatchery, farm, feed mills and processing facility. The hatchery, where fish are first bred, hatched and reared till maturity before being transferred to the farm, where they will be bred till a harvestable size. Throughout this, feed mills will be constantly supplying farms and hatcheries with nutrient packed feed to sustain their growth. Finally, the harvested fish will be transferred to the processing facility, where they are packaged and sent to retail stores for our consumption.

2. Aquaculture provides a sustainable, accessible alternative to catch fisheries

According to the Food and Agriculture Organization(FAO) of the United Nations, total food fish consumption has risen across the world.

There has been a 122% rise in total food fish consumption from 1990 to 2018, which has been coupled with a 527% increase in global aquaculture production during the same period.

On the contrary, the supply is unable to meet the demand. Global capture fisheries production only rose by 14%. This indicates that while global fish demand is rising, conventional capture fisheries are unable to meet that demand and have allowed aquaculture supply to catch up significantly. This is largely due to global trends of overfishing, resulting in the decline from 90% of fish stocks within biologically sustainable levels in 1990, to a mere 65.8% in 2017.

Aquaculture disrupts the market by offering a sustainable yet more efficient solution to the supply deficiencies. Many adopt demand-driven models like contract farming, where there are pre-agreed supply and purchase agreements between farmers and buyers, which reduces the chances of overproduction and wastage, a persistent thorn in the side of conventional catch fisheries.

Furthermore, aquaculture offers increased accessibility to seafood for consumers limited by income or geography, such as in landlocked countries like Sudan and Ethiopia. Aquaculture can be operated in almost all environments, without being subject to the risks and potential supply shortages that open sea fishing hold. In fact, inland aquaculture produced the most farmed fish, 62.5% of the world total in 2018.

As a testament of its growth, the FAO reported that aquaculture’s contribution to global fish production reached 46.0% in 2018, up from 25.7% in 2000, highlighting the growing sentiment towards aquaculture as a key tool in sustainable food production.

3. The aquaculture business models are optimised for the inclusion of smallholders and provides a spillover effect through employment and retail opportunities to reduce inequality in rural economies.

Aquaculture is a strong source of economic opportunity, especially for regions with dense rural economies like Asia, with 95% of global aquaculture employment found in Asia.

Common business models used in aquaculture, such as micro-franchising and contract farming also facilitate economic upgrading of impoverished communities, due to their low barriers to entry and the steady revenue streams respectively.

As an example of micro-franchising, the Shiblee Hatchery Farms project in Bangladesh was launched in 2013 to enable 100 landless farmers to cultivate tilapia under a franchise model, where Shiblee Hatchery Farms would provide access to high-quality logistical inputs like seeds, advice and training for the farmers, as well as a stable flow of customers for the farmers.

This allows low-income groups to overcome constraints like lack of knowledge of aquaculture, as well as lack of assets with production capability like land or farms, since the franchisor would provide for such needs.

With all that said, there still exist key problems in the aquaculture industry, especially pertaining to smallholders in the aquaculture value chain.

4. Smallholders lack access to quality inputs, technology and might not be well coordinated with other value chain actors

Even within the aquaculture industry, there exist levels of inequality, with poorer farmers not receiving the same quality of feed and seed that larger firms have, as well as a lack of the advanced analytics and monitoring systems larger firms can rely on. Additionally, the nature of smallholders being spatially disbursed and more unorganised results in lower engagement levels with quality retailers or suppliers which offer more competitive rates and have access to the wider markets.

5. Investors can bridge the gap by funding innovative technologies and companies that leverage off smallholder’s capabilities

Investments from aquaculture focused investors like Hatch, an accelerator, and AquaSpark, an investment fund, serve to provide funding and expertise that drive technological advancements in aquaculture across all market players.

For instance, Hatch, an aquaculture accelerator, provides personal mentorship from long-term industry professionals, access to discounted R&D facilities as well as networking and pitch opportunities for the companies in their program. As part of their Hatch Fund 1, one of the companies they invested in was Aquaconnect, a Chennai-based startup which utilizes tracking technology to monitor water quality and suggest ways to enhance water quality and reduce diseases amongst the fish via their FarmMOJO app.

Companies like these not only raise the level of technology and efficiency of aquaculture, they also do so in an equitable manner, empowering smallholders with their technologies by keeping the cost of the technology low and actively reaching out to community farmers.

Another example would be AquaSpark’s investment in Chicoa Fish Farm, which supports regional smallholders in aquaculture by being a supplier of quality seed and fish feed to these smaller farmers, as well as providing training for them, with an ultimate goal of providing a sustainable blueprint for an aquaculture industry in Africa. Access to such inputs provides potential for economically sustainable aquaculture smallholders to develop, contributing to the overall growth and vertical upgrade of employment opportunities within the aquaculture industry.

For instance, Hatch, an aquaculture accelerator, one of the companies they invested in was Aquaconnect, a Chennai-based startup which utilizes tracking technology to monitor water quality and suggest ways to enhance water quality and reduce diseases amongst the fish via their FarmMOJO app.

Conclusion

Overall, the strong growth of aquaculture industries globally, both in higher and lower income regions would bode well not just for environmental sustainability efforts such as the United Nation’s SDG (Sustainable Development Goals), but in the area of economic opportunities as well, in terms of employment and investment opportunities.

With a projected USD224.2 billion market in 2022 by a 2018 Technavio report, there are no signs of the aquaculture train stopping, and climbing on board certainly does not seem like a bad idea.


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