Seaweed - Greenwashing or Real Opportunity? This year's annual...

Seaweed - Greenwashing or Real Opportunity?
This year's annual report, Farmers of Ocean and Land, featured some bull kelp growing off the Tasmanian coast. That makes it salmon: 17, prawns: 0, seaweed: 1. @desertredlion and I were musing about the potential of seaweed as the third pillar for Tassal, so I decided to dig a little bit deeper.

What is the seaweed opportunity?
Seaweedbiomass can be used for an array of possible uses including food, animal feed,high-value pharmaceutical/ industrial compounds, biofuels, and fertilisers. Itcan be cultivated either on land in tanks, or at sea where it has fewenvironmental costs – and may, depending on the context, have environmentalbenefits (Gentry et al., 2019)

The Australian Seaweed Industry Blueprint was developed by AgriFutures and Fisheries Research and Development Council. Aim isto develop a strategy that by 2025 would support$100m GVP (gross value of production) – and potentially $1.5bn by 2040, reducing AusGHG by 3%.
https://www.agrifutures.com.au/wp-content/uploads/2020/09/20-072.pdf

Four growing methods: land based, ocean-based coastal, ocean-based off-shore and wild harvest. Currently only land-based and wild harvest exists, though big opportunities are in ocean-based that assist in overcoming the technical, logistical, economic and environmental barriers of the current methods. Barriers are R&D (innovation requiredin cultivation and developing products for the market) and large ocean leases.



The potential market
Globalprice is around AUD$5.4/kgdry weight. Global market is ~AUD$16.8bnor 30m tonnes. Growing 10% CAGR. China (48%) andIndonesia (39%) are major producers. US,Europe, Scandinavia and Chile are about 5yrs ahead of Australia in developingtheir industries.

Australian market has one major exporteron King Island which is for a niche biofertilizer product from Bull Kelp worth$1.5m p/a. We are net importer of $40mp/a, of which 85% is for human consumption. The average import price is AUD$19.30/kg, well above the globalprice. In terms of processing, majorproducers are Seasol (fertilizer) and Marinova (health and nutrition market) from bullkelp. Estimates are for up to $20m GVP p/a by 2025 and $100m by 2040 for KelpIMTA; and $100 and $1000m for Asparagopsis. Let's look a bit more at the specific technology and opportunities.


Integrated Multitrophic Aquaculture (IMTA)
Growth of seaweed in high nutrient watersis gaining interest. Specifically,Integrated multitropic aquaculture systems (IMTA) can be usefulto reduce environmental impacts of salmon – seaweed sucks up the fish feacalmatters and uneaten feed. Still notadopted more broadly due mainly to licensing issues, but also social andtechnical.
https://salmonbusiness.com/integrated-aquaculture-offers-potential-for-salmon-farming/



I am unaware of any commercial use of IMTA by salmon producers anywhere in the world. There are two research projects in Australia as of 2020 that were actually growing seaweed (so in the field, not just in the books), and both were IMTA. Oneis Tassal / Spring Bay Seafoods / UTAS, first harvest probably achieved now. Thisis focused on integrated multitrophic aquaculture which is combining with salmon production to reduce environmental impacts. Second research is with Huon / UTAS.

While there is potential for around $20-40m p/a bull kelp IMTA by 2025, this caps out at around $100m p/a by 2040. The challenge is that for it to be effective, you need to grow 7-13kg of seaweed per 1kg of salmon. Therefore, I feel that it likely to be a niche, could have some economic and environmental benefits, but is not the real big opportunity in Australia.



Asparagopsis
NativeAustralian Asparagopsis cultivation is the near term opportunity for growth at scale, and this is where most of the new starts have been in Australia. The potential for Asparagopsis is huge: if you add 1-2% of it in livestock feed, it improves the feed converstion by up to 20% and reduces 10-60% of GHG emissions. FutureFeed (CSIRO, Meat and LivestockAustralia, and James Cook University jointpartnership)have been developing the seaweedand production processes. FutureFeed’s investors includeWoolworths, Graincorp, Harvest Road, and AGP Sustaainable Real Assets-Sparklabs Cultivate Joint Partnership. https://www.publish.csiro.au/an/an15576 orhttps://www.abc.net.au/news/2021-03-07/asparagopsis-seaweed-trials/13215426

Licensees of FutureFeed areCH4 in Australia/NZand BlueOcean Barns inthe US. In Australia, CH4 is partneringwith Nurranga National Aboriginal Corporation NNAC) inSouth Austraila, who in March 2021 was granted 10ha(potential up to 800ha) of ocean leases to grow Asparagopsis. Further, Sea Forest in Tasmania, who have partnerships with Fonterra (NZDairy company) received $1m from Fed Government to fast track commercialization. There is a of government interests, regulatory support, but still a nascent industry. There has been no references by Tassal of their involvement in this industry.


A side note on great barrier reef
There is some interest to use seaweed as a nutrient filter in the great barrier reef. I am not aware of any commercialisation related to this, and doubt that it would directly relate to Tassal's prawns production.


A side note on the global opportunities for investing in seaweed
While seaweed is a big industry, there are few players that are directly involved. Either they are small companies, or it is a small part of a big company.


Corbion is an interesting company basedout of Amsterdam ($CRBN.AS). Their emphasis is on sustainable / natural food solutions and lacticacids & specialities – essentially they create lactic acids and the likewhich are then applied to the dairy, meat, bakery, etcfor enhancing food preservation and shelf life, while also applying thoseproducts to biomedical, hygiene and health industries. They have around 40% of the naturalpreservation global market share, and these two sectors account for around900mEuro revenue per annum, with around 13-15% EBITDA margins, and growing ataround 4-7% p/a with expansions in Thai lactic acids manufacturing. However, leveraging these natural fermentingcapacities, they have an incubator strategy to grow sustainable algae-basedomega 3 salmon feed (would support sustainable aquaculture through feed inputs,though currently not price competitive with fish oil omega 3); algae-basedprotein whereby they already have a partnership with Nestle to developmicroalgae products; and even algaebased polymers. Omega3 has a SAM of EUR400mp/a, andalgae-based protein 1bnEUR. While the incubator only accounts for 1.5% of revenue of13mEUR in FY20, it has grown in 1H21 by 118% .

Valuation of Tassal's Seaweed Ventures
Seaweed may have been on the front cover, but only once was the word use in the annual report ("We are actively exploring partnerships and initiativesto unlock Blue Carbon opportunities through seaweedand support food systems adaption", p.9). In comparison, prawns were mentioned 48 times, and salmon 95. It is unlikely to me that Tassal will have any substantial impacts on their financials through bull kelp / IMTA, though it may improve their salmon business as well as have environmental benefits. No partnerships or investments that I am aware of have been focused on Asparagopsisis. I would assume a $0 valuation for their seaweed plans at this stage.

TL;DR: Greenwashing.