Salmon Farming Stalemate In British Columbia

| About: Marine Harvest (MHG)

Summary

Salmon farming is facing significant regulatory challenges in British Columbia in the face of a recent legal decision and new scientific findings.

The salmon farming industry is suffering the effects of its own success having grown to big for environmentally unsound practices, transferring risk to investors in the old technology.

The future of fish farming in tanks is looking better from all angles.

Salmon farming has existed in British Columbia since the 1980s and it has grown rapidly, but that growth is forcing change as the industry is on a collision course with court rulings, loss of social licence and scientific scrutiny.

Norwegian MP Jon Lilletun testified at a Canadian parliamentary subcommittee in 1990 with a warning to Canada. "We are very strict about the quality and the environment questions. Therefore, some of the fish farmers went to Canada. They said want bigger fish farms; we can do as we like. That is a very hot subject I think" (Hansard 12-9-1991). He was right. It is hot subject today.

Salmon farms exist in a legal grey zone because in Canada no one can own a fish in the ocean, or privatize ocean spaces and this industry seeks to do both. Industry regulation, a political hot potato, has been passed back and forth between the federal and provincial governments because they are neither "farm" nor "fishery."

The first time I took Marine Harvest (NYSE:MHG) to court was in 2009, where the BC Supreme Court declared salmon farming is a "fishery" not a "farm" and therefore had to be regulated by the federal, not provincial government. Important to investors, part of this court decision dealt with the question who owns the fish in the pens? The lawyers argued, are farm salmon more like chickens or fish? In the end, because salmon farmers in BC must have a fishing licence to recapture escaped farm salmon, it was decided they do not own the fish in their pens.

Marine Harvest tried to appeal this decision on the narrow grounds that the fish in their pens are indeed private property. Investors want to know who owns the livestock. However, the appeal was denied and the uncertainty persists.

Marine Harvest is a socially proactive company, engaging in many community activities. However, when a child refused to wear Marine Harvest's logo on her soccer uniform, Marine Harvest told her she should consider a different sport. This was viewed as poor form and aggressive and became an international story. Canada's premier current affairs magazine, Macleans, characterized the Norwegian salmon farmers as "rapacious." Salmon farming does not enjoy social licence in Canada.

There is increasing friction between salmon farming companies and the Indigenous People, whose territory they use. For example, in 2014 the Dzawada'enuxw Nation stated opposition to replacement of all salmon farm licences in their territory, including Marine Harvest and Cermaq farms and the Ahousaht recently occupied a farm until Cermaq removed it. The new Liberal government of Canada has committed to adopting the United Nations Declaration on the Rights of Indigenous Peoples, granting them the right to protect their resources, including wild salmon.

The impact of sea lice from salmon farms on wild salmon in Musgamagw Dzawada'enuxw and other territories has been extensively documented in the scientific literature and continues today. Marine Harvest CEO, Alf-Helg Aarskog made headlines in Norway in 2014 when he said "Whoever solves sea lice come and see me, because we need help." Many feel that an industry that can't control its lice at home should not export this risk to the highly prized wild Pacific salmon. I have published 16 years of sea lice science and there is not enough visible progress to allay the fears of the people engaged in the wild salmon economy. This means that as Indigenous Peoples engage their rights, salmon farm tenures in large geographic regions will be put at risk.

However all of this pales to the current developing situation.

June 2015, the Federal Court of Canada ruled Marine Harvest could no longer put fish carrying disease into marine net pens without the express authorization from the Minister of Fisheries. Marine Harvest and Fisheries and Oceans Canada appealed this decision. The hearing date was set for May 26th, but just days before Canada asked for an adjournment to consider "new information." The lawyer for Canada wrote: "The other parties may also want to consider whether their positions are impacted." Three days later Fisheries and Oceans Canada announced that Heart and Skeletal Muscle Inflammation appears to be in BC salmon farms, similar to Norway.

Why is this important to investors? The scientific evidence suggests this disease is caused by the piscine reovirus and the BC salmon farming industry is heavily infected with this virus. Going forward each individual transfer of young salmon into marine grow-out farms is going to require permission from the Minister of Fisheries and this is going to be a high-risk activity for any politician hoping to be re-elected.

It is unclear if the salmon farming industry has enough piscine reovirus-free fish to continue farming in British Columbia.

Aquaculture may be a good investment, but the days of using net pens that release tons of fecal waste daily, millions of larval sea lice and billions of infectious viruses per hour are rapidly drawing to a close. The industry itself is being heavily impacted by devastating algal blooms in the new climate regime we are entering.

The salmon farming industry's problems are a side-effect of success, they have outgrown the waters they farm in and thus they are suffering biological and social impacts. Net pen farmed Atlantic salmon is currently red-listed by Seafood Watch, a high impact consumer awareness organization.

Perhaps the time is right for investment in closed - containment tanks to meet the increasingly conscious consumer demand for sustainable fish.

In fact, there may be millions of young salmon growing up in BC hatcheries right now that are looking for tanks to grow up in.

Whoever successfully masters land-based fish farming, stands to benefit as the older dirty technology is phase, legislated or outlawed out of existence.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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