One of the things we love most about investing in the stock market is that it allows you to be curious (and make money from that curiosity). This article was a classic example of that. Bakkafrost is the world’s third-largest fish farming company and the largest private employer in the Faroe Islands (the Faroe Islands is a group of islands north of the UK, between Norway and Iceland).
We knew next to nothing about the farmed salmon industry before reading this article. But it was fascinating to learn. The supply and demand dynamics of salmon are favourable. Supply is tightly limited by geography, water conditions and strong regulations. Demand remains healthy in developed countries and is increasing in emerging markets, particularly in China. Bakkafrost is a premium producer, earning on average a 20% premium to the spot price of salmon. This all adds up to favourable market dynamics.
Climate change is a risk factor for the salmon industry, but according to this article, Bakkafrost may be in a better position that its competitors. Water temperatures around the Faroe Islands are expected to be less affected than other parts of the world, meaning Bakkafrost’s operations may be affected less than competitors.
All that being said, fish farming is still a difficult business. Salmon is a commodity – subject to market forces and changing supply and demand dynamics. There is also a risk of increased mortality in the salmon population, and a number of ‘good operators’ have had to issue profit warnings in recent years because of it.
We love articles like this because they allow us to go down a rabbit hole (or salmon stream?) that we wouldn’t otherwise. Esoteric knowledge like ‘which salmon populations will be least affected by climate change’ is not often useful. But in investing it all adds up.
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