Answer & Explanation:Case: Case: Marine Harvest: Leading Salmon Aquaculture 9-512-042
What are some distinctive characteristics of the aquaculture industry? How is the aquaculture industry changing?How is Marine Harvest performing within the industry?Which of the three options mentioned in the case should CEO Aarskog choose? Why?What other recommendations would you suggest for Marine Harvest? Case Write-ups should be around 5 pages (1000-1200 words) maximum, 10 point font, double-spaced, in addition to exhibits. Please also use exhibits and charts as necessary to support your text answers.
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DAVID E. BELL
RYAN JOHNSON
Marine Harvest: Leading Salmon Aquaculture
We still measure our success by the tons of salmon we produce each year. We need to go beyond that mentality
if we are to grow the value of the company.
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— Alf-Helge Aarskog, CEO, Marine Harvest
In August 2011, Alf-Helge Aarskog had been CEO of Marine Harvest Group (Marine Harvest) for
just over a year. His nearly $3 billion revenue company was a leader in the fastest-growing protein
sector in the food industry: aquaculture. Many world experts saw aquaculture as the major solution to
supplying the additional 50% of protein production that would be needed to feed the world in 2030.
Marine Harvest, which was based in Norway, was the clear market leader in farmed salmon. Precisely
because it was a fast-moving industry, Aarskog believed this was the moment, if ever there was one,
to “seize the day.”
As Aarskog saw it, phase one of the company’s development (2006 to 2011) was complete; Marine
Harvest had learned how to farm salmon in a reliable, cost effective way. He saw three possibilities for
phase two. The most obvious was to continue to acquire salmon-raising capacity. Norwegian
regulations limited the domestic market share of any one firm and Marine Harvest was approaching
these limits. However, the company owned farms in other countries where there was no such cap.
Chile was a particularly ripe candidate either for acquiring existing farms or establishing new
greenfield sites, but the country had been hampered with their fair share of biological challenges.
A second possibility was for Marine Harvest to integrate forward into value-added fish products.
The company already owned a market-leading fish distributor based in Bruges, Belgium, which had
satellites in France, Holland and Poland. Marine Harvest VAP Europe (MHVAP), Marine Harvest’s
dedicated distribution business unit, had many retailers as clients; for example, it provided all fish
products to the Dutch retail giant Albert Heijn. Aarskog wondered if MHVAP’s operations should be
expanded, and if so, should the firm go beyond private label and wholesale distribution and into
consumer branded products?
The third possibility was for Marine Harvest to backward integrate into the fish-feed business. Feed
made up more than half the cost of fish production, and prices and margins for fish feed producers
continued to rise. Taking further control of the chain would allow for greater synergies, potentially
driving down cost and increasing fish growth efficiency. However, the feed business was somewhat
HBS Professor David E. Bell and Research Associate Ryan Johnson (Global Research Group) prepared this case. It was reviewed and approved
before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the
company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary
data, or illustrations of effective or ineffective management.
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Marine Harvest: Leading Salmon Aquaculture
complex and capital intensive, and had strong existing industry leaders. Aarskog wondered if it was
desirable, or indeed feasible, to break into the feed industry.
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Company Overview
As recently as 2000, global salmon farming had been fragmented. Traditional farmers with land
near the coast had found it a useful way to add revenue to their existing operations. But consolidation
had occurred rapidly in the intervening years, and in 2006 Marine Harvest, headquartered in Bergen,
was born from a three-way merger of Pan Fish ASA and Fjord Seafood ASA, both Norwegian
companies, and Marine Harvest N.V., a Dutch firm. Marine Harvest was the largest global producer of
farmed Atlantic salmon and the leading producer in Norway, Canada, Scotland and Chile. In 2011,
Marine Harvest had salmon production of 335,000 tons (220,000 tons produced in Norway) out of a
global production total of 1,400,000 tons. The company had been the brainchild of John Fredriksen,
thought to be the richest man in Norway, who believed in aquaculture as an energy efficient way to
produce protein. After three CEOs in six years, Aarskog had been hired from a competitor, Leroy
Seafood, to get Marine Harvest on the right track. Aarskog had brought with him Ola Brattvoll, who
he made head of all customer facing activities including sales, marketing and value-added products.
In charge of the production (farming) side of the business was COO Marit Solberg, a longtime
employee of the company and a marine biologist by training. Rounding out the senior team was CFO
Jorgen Andersen.
Listed on the Oslo Stock Exchange, in 2010 the company had 5,000 employees in 21 countries, sales
to 50 countries, and grossed NOK15 billion1 (about US$2.75 billion).2 The majority of its sales came
from Norway. (See Exhibit 1 for Marine Harvest financials and Exhibit 2 for key data.) The price of
salmon had fallen dramatically in the last few months of 2011, from about NOK42 per kg to NOK22
per kg as production in Chile recovered from collapse. As a result, the market capitalization of the
company had fallen from NOK26 billion in May 2011 to NOK10 billion in August 2011. This only
intensified Aarskog’s desire to pin down a growth strategy for the company.
Aquaculture
Aquaculture was the business of cultivating marine fish, freshwater fish, shellfish or aquatic plants
under controlled conditions. About 120 million tons of fish were produced in 2010 by the seafood
industry, representing about 30% of the world’s protein supply, about half of which was wild-caught
and the other half farmed. The United Nations Food and Agriculture Organization (FAO) forecasted
that by 2030 total fish production would reach 180 million tons, split about equally between wild and
farmed fish. The FAO warned that production had to expand rapidly to help feed the world’s growing
population. However, overfishing could lead to a collapse of wild fishing stocks. Already one-third of
all fishing stocks worldwide had collapsed,3 making aquaculture an important solution to the world
food problem.
1 NOK was the recognized symbol for Norway’s currency, the Kroner.
2 Exchange rate was approximately NOK1 = US$0.18 in 2011.
3 Fishery collapse was defined as a fishery that has severely depleted catches, well below historical levels, irrespective of the
amount of fishing effort exerted. While definitions varied, a fishery with less than 10% of historical catch levels was usually
considered a collapsed fishery that was unlikely to recover without closing the fishery completely.
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Aquaculture production had risen from less than 1 kg per capita globally (out of 9 kg total fish
consumption per capita) in 1965 to about 8 kg (out of 15 kg) in 2005. Aquaculture was the world’s
fastest growing source of protein, growing 60% from 32.4 million tons in 2000 to 52.5 million tons in
2008. Farmed-fish species included finfish, crustaceans and abalone as well as oysters, mussels, clams,
cockles and scallops.1 Freshwater species made up 60% of farmed production by quantity, followed by
seawater species at 32% and brackish water species at 8%.2 China was the world’s largest aquaculture
producer, contributing 62% of global production; 80% of the seafood consumed in China was produced
on fish farms.3 Major species production tended to be regionalized. China led in carp production,
Southeast Asia and India led in shrimps and prawns, and Norway and Chile led in salmon.
Aquaculture also had environmental challenges, especially on a local basis. Fish had been known
to escape from farms which could lead to crossbreeding with wild species, the sea cages could cause
pollution and local habitat destruction from built-up fecal matter and unused feed if not managed
properly. Other issues included: the unintended consequences from the use of antibiotics, antifoulants
and pesticides at farm sites on its surrounding habitat and wildlife; concern that the diseases and
parasites that formed on farm sites could infect wild fish and other nearby farms; and the attraction of
predators to farm sites. Perhaps the largest environmental challenge was that the feed for farmed fish
itself contained wild fish products, including fish meal and fish oil. The fish harvested for these
products, known as pelagic for reduction, were typically small, bony fish that were not used directly for
human consumption. About 25% of caught wild fish became feed.
While the environmental impact of aquaculture was real and of concern, industry best practices had
greatly reduced the use of antibiotics, and had driven down the percentage of fish meal and oil needed
in feed. “The reality is that salmon are very sensitive to their environment, so flourishing salmon is
actually an indication of good sea conditions,” remarked Solberg. Some at Marine Harvest believed the
Norwegian standards would have been better if developed in collaboration with the industry. The head
of Marine Harvest’s communications department, Jørgen Christiansen, blamed much of the
“overregulation” of aquaculture to the lack of authoritative bodies that could reassure the public. The
Marine Stewardship Council (MSC)4 had set a high bar for sustainability that allowed retailers to
reassure their customers about wild catch fish. MH was working with the World Wildlife Fund to
develop corresponding standards for aquaculture.
Salmon Aquaculture
About 2% of seafood production was salmonids, which included several salmon species (such as
Atlantic and Pacific varieties) as well as trout (including Brown and Seawater varieties). About twothirds of the world’s salmonids supply was farmed and one-third caught wild. At 1.35 million tons
head off, gutted (HOG, standard industry measure), Atlantic salmon was the most commonly
produced and consumed of the salmonids. The wild Atlantic salmon fishery had collapsed due to
overfishing and all commercially available Atlantic salmon was farmed.
The popularity of salmon had increased in recent years due to its associated health benefits. Salmon,
and other large carnivorous, oily fish, contained high levels of Omega-3 oils, which were believed to
reduce human risk of cardiovascular disease, and mitigate inflammatory diseases, impaired brain
development, depression and insulin resistance. Salmon also contained high levels of vitamins A and
D, phosphorus, magnesium, selenium, and iodine. In addition, compared to other sources of protein,
salmon was an extremely feed- and resource-efficient protein. Salmon yielded 65 kg of edible protein
4 The Marine Stewardship Council is a certification and ecolabelling program for sustainable seafood.
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Marine Harvest: Leading Salmon Aquaculture
for each 100 kg of feed (compared to 20 kg for chicken and 12 kg for pork) and consumed no fresh
water (compared to 14,000 liters for 1 kg of beef). See Exhibit 3.
Raising Farmed Salmon
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Marine Harvest’s farming division, run by Solberg, included R&D, smolt5 production and the
management of Marine Harvest’s fish farms. A salmon’s growing cycle was 36 months. Breeder salmon
were developed through the science of husbandry to produce offspring that grew quickly, resisted
disease, and were attractive to consumers. Eggs and sperm were mixed together to produce fertilized
eggs that were distributed to freshwater farms—small buildings next to the coast—where they were
placed in small tanks to hatch. Salmon were well suited to farming because hatchlings were quite large
at birth and thus better suited to artificial feeding.
As the fish grew they were moved to increasingly larger tanks, eventually moving outside into
above-ground tanks. Salmon were a cold-blooded animal, so they grew faster in warmer water and
with more sunlight. Various tanks were kept at different temperatures to even out production rates.
Electric lighting (for inside tanks) and black plastic covers (for outside tanks) created artificial seasons.
As they grew, fish were transferred from one tank to another through pipes. During one of the transfers
the fish were inoculated, a process that until recently had been done by hand but was now automated.
While the number of fish produced in aquaculture had grown significantly, the quantity of antibiotics
used had shrunk dramatically, close to zero, due to increased efficacy of vaccines and better husbandry
management.
After about eight to 15 months in freshwater tanks, the fish (now about 100 grams each) were
transferred to large seawater nets (cages), each holding around 50,000 fish, where they would grow
over the next eighteen months to about 5 kg to 6 kg each. The stocking density of the fish in the sea
cages was 3%, meaning that 97% of the space in the seawater nets was open water, allowing the fish
room to swim. Deciding when the fish were ready to be moved from land to sea was quite important:
too early and many fish would die, too late and efficiency was reduced. The fish themselves “signaled”
when they were ready. The water in the circular land tanks was kept in motion. Young fish positioned
themselves against the current, as they would naturally do in a river so as not to be swept out to sea.
At some point the salmon in the tank would begin to swim with the current in the tanks; this was a
strong indication that they were ready for the sea. Transferring fish to the sea was done via two
dedicated leased tankers.
Seawater farms consisted of six to 12 large nets a few hundred meters from shore, plus a storage
and monitoring building that in some cases was at the nearest land point or on an adjacent barge.
Managing the nets and the fish in them was no small task. Wave action and storms could damage the
nets and in severe cases allow fish to escape. The nets were held in place by large anchors on the seabed
connected to the nets by cables hundreds of meters long. The integrity of the anchors and cables was
monitored by a remote-controlled mini-submarine equipped with a camera. If the net was damaged,
or for any reason needed replacement, a new net could be installed under the old one which was then
removed. The total equipment for a standard seawater fish farm site included cages, moorings, nets,
cameras, a barge and boats, and typically cost between NOK25 million and NOK30 million.
Feed was administered automatically in the form of pellets. The pellets were sized to match the
mouths of the fish in order to make eating less demanding. Underwater cameras placed below and to
5 A smolt was a young salmon. In wild salmon the smolt stage was when the fish migrated to the sea for the first time. In farmed
salmon, once a fish reached the smolt stage they were moved to the sea nets from freshwater farms.
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Marine Harvest: Leading Salmon Aquaculture
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the side of the nets allowed feeding to be closely monitored in an effort to optimize feeding sessions
and reduce waste. Marine Harvest cooperated with feed suppliers by doing controlled experiments
with different feed formulas and sizes.
Water temperature between 4° and 14° Celsius in sheltered water (fjord or bay) were two
prerequisites to salmon farming. The farms had to be located close enough to land to avoid rough seas,
but in areas with reliable currents so that the water in the nets was constantly refreshed. Strong
currents, while good for removing fish feces, also made feeding unreliable as feed could be drawn out
of the nets. Ideal environmental conditions for salmon farming were found off the coasts of Norway,
Chile, Scotland, Ireland, the Faroe Islands, the east coasts of the U.S., the eastern and western coasts of
Canada, and Tasmania.
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Since temperature, sunlight and feed rate all affected growth rates, once the fish were in the sea
nets, their growth was largely out of the control of the farmer and in the hands of nature. The fish
would grow at a 3% rate per month at colder temperatures, but by as much as 20% a month in warmer
waters. Very cold temperatures could lead to massive mortality rates, and very warm temperatures
could breed disease. At the end of the growth cycle, it was possible to keep the fish for two to three
months after reaching the target harvest weight of 5 kg to 6 kg. The farms were left fallow for at least
two months after harvest to reduce the possibility of cross contamination.
About 18 months after dropping them off in the sea nets, the two dedicated tankers brought the
salmon back to a land-based warehouse for processing. At the small processing facilities, fish were
placed in chilled water (as an anesthetic) before being killed. Most fish were beheaded and gutted, then
packed in ice for delivery to local wholesalers, or in dry ice for air shipment. A small percentage was
filleted for local retailers. About 50,000 tons were shipped to Marine Harvest’s value-added plant in
Belgium. (See Exhibit 4 for an overview of the farmed Atlantic salmon lifecycle stages.)
Challenges
Disease was a constant threat in aquaculture. A single outbreak could kill a high proportion of all
the fish in a tank. Losses from disease averaged 10% to 15% of all production. From 2006 to 2009, such
an outbreak nearly destroyed the Chilean aquaculture industry. While diseased fish posed no health
hazard if consumed by humans, these fish were typically diverted into secondary uses such as meal,
oil or animal feed. By regulation, fish farms in Norway could not be located nearer than 2 km to each
other to lessen the chance of cross contamination. Still, currents and transient fish could carry disease
from one farm to another. The ships used to move the fish were washed inside and out with hydrogen
peroxide between each trip. The discharged water was treated with UV light and ozone. Disease was
such a big problem, both economically and from a public relations point of view, that competitors
shared best practices in combatting it.
Sea lice also presented a constant problem. These small creatures attached themselves to the salmon
and ate their skin. An adult-farmed salmon might have many lesions from lice. The lice were no threat
to human safety but increased the mortality and morbidity of the fish and made them unsightly. The
standard eradication process was chemical but in recent years, a second fish species that ate sea lice
was introduced into the tanks. Marine Harvest had developed its own patented breed of lice-eating
fish that were much more efficient than the standard breed. Up to 4% of the fish in any tank were
present to mitigate sea lice.
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Marine Harvest: Leading Salmon Aquaculture
Production Control
Since wild salmon spawned, molted and grew at roughly the same time of year, if all …
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