====== Atlantic Salmon ======
Atlantic Salmon is a species of fish that has become a globally traded [[commodity]], primarily through large-scale aquaculture, or fish farming. While wild Atlantic salmon still exist, the overwhelming majority you'll find in your supermarket or on a restaurant menu is farmed. From an investment perspective, "Atlantic Salmon" refers to the industry built around cultivating this fish. This industry is a fascinating case study in modern food production, blending agriculture, biology, and global logistics. It's dominated by a handful of large, publicly-traded companies, mainly from Norway and Chile, creating an industry structure that resembles an [[oligopoly]]. For investors, it offers a direct play on the growing global demand for healthy protein but comes with a unique and slippery set of risks tied to nature itself. Understanding this business isn't just about spreadsheets; it's about biology, geography, and consumer tastes.
===== The Salmon Farming Business Model =====
Think of salmon farming as a very long-cycle agricultural business, but in the ocean. The business model is built around controlling the entire life cycle of the fish, from egg to plate, a process that takes about three years.
==== From Freshwater to Seawater ====
The journey begins on land in freshwater hatcheries. Eggs are fertilized and hatched into fry. These tiny fish grow into a stage called "smolt," where a biological miracle happens: they become ready to transition from freshwater to saltwater. This smoltification process is critical. The smolts are then transported to massive circular cages, or net pens, anchored in sheltered coastal waters like the fjords of Norway or the archipelagos of southern Chile. They spend the next 1-2 years in these sea cages, growing to a harvest weight of 4-6 kg (9-13 lbs).
==== Key Drivers of Profitability ====
A salmon farmer's profitability hinges on a few key variables:
  * **The Spot Price:** The market price for fresh, whole salmon is the primary revenue driver. This price is notoriously volatile, fluctuating with global [[supply and demand]].
  * **Feed Costs:** This is the single largest operating expense, often accounting for over half the cost of raising a fish. Fish feed is itself a commodity, made from ingredients like fish meal, fish oil, and soy. The efficiency with which a salmon converts feed into body mass, known as the [[feed conversion ratio (FCR)]], is a crucial performance metric.
  * **Biological Performance:** This is the wild card. Survival rates, growth speed, and the health of the fish are paramount. A farmer's ability to manage disease and parasites can make or break their bottom line.
===== Why Value Investors Might Bite =====
At first glance, a business subject to disease and volatile prices might seem like a value investor's nightmare. But dig a little deeper, and you'll find some attractive qualities.
==== A Moat in the Ocean? ====
The legendary investor [[Warren Buffett]] loves businesses with a "moat"—a durable competitive advantage that protects them from competition. The salmon industry has a surprisingly wide [[moat]].
  * **Geographic and Regulatory Hurdles:** You can't just set up a salmon farm anywhere. They require specific water temperatures and sheltered coastlines, which are geographically scarce. Furthermore, environmental concerns have made governments in prime locations like Norway extremely reluctant to issue new farming licenses. This creates powerful [[barriers to entry]], protecting the profits of existing players.
  * **Economies of Scale:** Size matters. Large producers like [[Mowi ASA]], [[SalMar ASA]], and [[Lerøy Seafood Group]] benefit from massive economies of scale in feed purchasing, processing, and logistics, allowing them to produce fish at a lower cost than smaller competitors.
==== Riding the Protein Wave ====
Salmon farming is perfectly positioned to benefit from one of the most powerful secular trends of our time: the rising global demand for protein, particularly healthy protein. As the global middle class expands, consumers are shifting their diets towards higher-quality foods. Salmon, rich in Omega-3 fatty acids, is viewed as a premium, healthy choice, giving it pricing power over many other proteins.
===== The Risks Lurking Beneath the Surface =====
This is no "get rich quick" stock. The industry is fraught with risks that can decimate profits with little warning.
==== Biological Nightmares ====
The biggest threat comes from Mother Nature.
  * **Diseases and Parasites:** Outbreaks of viruses like [[Infectious Salmon Anaemia (ISA)]] can force farmers to cull entire pens of fish, leading to massive financial losses. The constant battle against parasites, most famously [[sea lice]], is a costly and persistent operational headache.
  * **Climate and Environment:** Warming ocean temperatures can stress the fish, slow growth, and encourage harmful algal blooms that can suffocate entire farms.
==== Commodity Swings ====
Even if the fish are healthy, market forces can sink returns. A sudden glut of supply from a competitor nation or a spike in feed costs can crush [[profit margins]]. An investor must be comfortable with the inherent cyclicality of a commodity business.
==== The ESG Angle ====
The industry faces growing scrutiny over its environmental and social impact. Concerns about waste polluting the seabed, farmed fish escaping and weakening wild stocks, and animal welfare are major topics for [[ESG]] (Environmental, Social, and Governance) focused investors. These concerns can lead to tighter, more expensive regulations and shifts in consumer preference.
===== The Capipedia Takeaway =====
Investing in Atlantic Salmon is a bet on a supply-constrained industry benefiting from a powerful, long-term demand trend for healthy food. The moat, created by geographic and regulatory barriers, is real and compelling.
However, this is not an investment for the faint of heart. The unpredictable biological risks and the volatility of commodity prices mean that company earnings can swing wildly from one year to the next. A successful investor in this space must analyze companies based on their operational excellence—specifically, their ability to maintain low production costs and manage biological risks effectively. Look for companies with strong balance sheets that can withstand the inevitable downturns in the price cycle. Valuing these companies using metrics like the [[price-to-earnings (P/E) ratio]] or [[enterprise value to EBITDA (EV/EBITDA)]] requires looking at the average over a full cycle, not just a single year's peak earnings. It's a classic cyclical industry: the best time to buy is often when things look bleakest, but it requires patience and a strong stomach.