“If you like anchovies on your pizza you’d better be careful,” says Mark Livingston, investment director of Fidelity Worldwide Investment.
You would not expect the head of a global asset fund managing £138 billion (US$218.18 billion) of pensions and investments to care about the cost of pizza toppings, but the global nature of the food chain means severe storms off the coast of Peru have led to a dramatic jump in the price of the oily fish — which will in turn lead to a spike in Scottish farmed fish, Chinese pigs and even Omega 3 tablets in health-food shops.
“That’s the nature of today’s food business — everything’s connected,” Livingston says. “If you can catch some anchovies, you’ll make some serious money.”
Three years ago, Fidelity spotted the growing importance of the “forgotten fish” and invested in Copeinca, a Norwegian company that owns a fleet of 30 Peruvian anchovy boats and five processing plants.
Just a few years ago, anchovies were lumped together with other unloved fish under the unappetizing label “industrial fish.”
“It covers all the stuff we don’t consume directly,” says Gorjan Nikolik, associate director of animal protein at Rabobank in Utrecht, the Netherlands’ fourth city.
These fish are caught in massive quantities, dried, minced and ground down into fish meal [a brown powder made mostly from fish bones and fish offal] and fish oil.
Nikolik says the price of fish oil has increased from US$1,500 a tonne at the beginning of the year to US$2,000 per tonne this month; fish meal has jumped from US$1,300 a tonne to a record US$1,700.
The price is rising because of the growth in farmed fish (mostly salmon and prawns) that feed on them, and the substitution of fish meal as animal feed because corn has become too expensive: The corn price has hit a record high as a result of the severe drought in the US.
Fish oil has soared even further because a new consumer has emerged: humans.
“Direct consumption in the form of Omega 3 pills has increased to 14 percent [of the global fish oil production] from 2 percent to 3 percent five years ago,” Nikolik says.
Peruvian anchovy fishermen — and their investors — are the biggest beneficiary of the fish-oil spike because, Livingston says, “the Peruvian anchovy is the best fish in the world to produce fish oil, as they have the most calories.”
In any ordinary year, the soaring price of fish oil and meal should force up salmon prices, Nikolik says, but this is no ordinary year. This year, salmon have been hungry.
“In 2012, the water temperature has been a couple of degrees warmer in the north Atlantic than normal,” Nikolik says. “This has had a big affect on the appetite of salmon, which has led to a record growth rate.”
Global salmon production is already up 30 percent in the first half of the year.
“This has led to a dramatic price drop of 35 to 40 percent,” he says.
The price collapse has translated into cheaper prices and promotions in supermarkets across the world.
“The prices are so low that new people are trying salmon — and if they get hooked, producers will have new customers. It’s like a year-long special promotion,” he says.
Nikolik says prices have been so depressed that even hard-pressed consumers have taken to eating more of a once exclusively upmarket fish.
“We’ve seen growth in Portugal, Greece, Spain — places where you would expect recession to have reduced demand,” he says.
While salmon is leaping, its more down-to-earth cousin, mackerel, is plunging. A diplomatic dispute between Iceland and the Faroe Islands against the EU, Ireland and Norway has led to severe overfishing of north Atlantic mackerel stocks.
Irish Minister of Agriculture Simon Coveney has accused Iceland of making a “financial killing” from fishing mackerel in defiance of an EU-agreed quota.
Iceland says that rising sea temperatures have led to a “dramatic change” in mackerel’s migration route into its territorial waters.
The International Council for the Exploration of the Sea, which advises governments on fish quotas, has counseled landing not more than 630,000 tonnes of mackerel. Iceland says the EU and Norway have allocated themselves 90 percent of that catch.
“That leaves 10 percent to Iceland, the Faroes and Russia — that’s not a fair share,” says Fridrik Arngrimsson, head of the Federation of Icelandic Fishing Vessel Owners. “They have claimed that it is their fish, but it is also our fish.”
Back on dry land, drought in the US has wiped out 45 percent of the corn and 35 percent of the soya bean crop in the worst harvest since 1988. As well as leading to the soaring price of those commodities [corn is up 64 percent since June,] it has also caused a spike in all other cereals and animal feeds, including wheat, hay and fish meal.
Many cattle farmers are no longer able to afford to feed their cows and the US herd has shrunk to its smallest since 1973. Cattle prices have risen by 8.5 percent to US$1.35 for 0.45kg.
Fast-food chain Wendy’s has already said it would be forced to raise the price of burgers. The real losers will be the world’s poorest.
“It doesn’t matter where prices are rising, it is always the poorest people that suffer most, because food makes up a much bigger part of their outgoings,” Livingston says.
He says that if prices keep going up, it will become a food crisis that could match the severity of the 2008 food riots that helped spark the Arab spring.
While most dread the repeat of such a crisis, some of the multimillionaires that control the global food market are anticipating the opportunity to make vast profits.
The head of Glencore’s food-trading business last week said the food crisis would be “good” for business.
Chris Mahoney, the trader’s director of agricultural products, who owns about £500 million of Glencore shares, said: “The environment is a good one. High prices, lots of volatility, a lot of dislocation, tightness, a lot of arbitrage [the purchase and sale of an asset in order to profit from price differences in different markets] opportunities. We will be able to provide the world with solutions ... and that should also be good for Glencore.”
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