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Financial Myths: Still Waters Run Deep, Part II

Fish consumption is expanding at a dramatic rate...
Michael McTague, Ph.D., Executive Vice President, Able Global Partners in New York, serves clients in a variety of industries that seek capital for expansion, acquisition, consolidation or re-financing.
Michael McTague, Ph.D., Executive Vice President, Able Global Partners in New York, serves clients in a variety of industries that seek capital for expansion, acquisition, consolidation or re-financing.

Photo by Ryan Castillo

Last month, we looked at how this myth connects with quiet, even secret developments in the business world. Changes in oil production have not caught the attention of voters. Investors, of course, see trends emerging. President Trump’s nomination of Rex Tillerson as Secretary of State has pushed oil to center court. That drama has not played out yet.

Last month’s entry focused on oil. The still waters of the North Pole, which is yet to be developed, Sakhalin Island and Norway yield tremendous wealth and require great technical skill. However, nations that depend on their natural resources to produce wealth frequently falter. Libya, for example, expects too much from its black gold. Russia and Nigeria must sustain large populations. To be successful, they need additional sources of wealth. Norway has amassed great wealth, but its oil supply will not last forever. Many Middle Eastern countries look great statistically from the revenue they generate, but income distribution proves troubling.

There Are Two Types of Fisherman – Those Who Fish for Sport and Those Who Fish for Fish.

Since we are looking at the wealth derived from still waters, fish deserves scrutiny. According to http://worldknowing.com, China prevails as the world’s largest fish producer, turning out five times more fish than Peru or India. Russia, a natural-resource dependent economy, ranks in the top ten. Japan, which ranks low in natural resources, also places in the top tier of fish producers. Inside the US, Alaska reigns as the state fish production leader.

This group of big fish producers can be easily split into two groups. China and India need fish to feed their massive populations. As a result, fish from deep or shallow water or fish farms are equally edible. The bacterial content of pisces from rivers near heavy population centers pose health concerns. Fish from the US, Canada and Western Europe benefit from large coastlines that support commercial fishing and consumer preferences for tasty delicacies – crabs, lobsters, shrimp. The availability of beef, chicken and other products in the wealthier countries pushes fish down on the list of preferred entrees, but increases the desire for better tasting, more expensive fare.

Ra Boe via Wikimedia Commons

Clearly, seafood remains a staple with a huge market. In fact, fish consumption is expanding at a faster pace than beef, pork and poultry. Not surprisingly, fish farms have been growing to meet the demand. According to Bloomberg News, fish farming actually surpasses open sea fish production. Cargill Inc. (Private), one of the world’s largest grain and meat suppliers, acquired a Norwegian salmon-feed business, EWOS Holding AS, for $1.5 billion. Mitsubishi (MSBHY) has also made a large fish producer acquisition. Fish production is changing as rapidly as Internet and communication services. By comparison, the small family farm is largely gone from the United States, as agriculture demands size and mechanization. Similarly, fish production, while linked to still waters in the minds of consumers, is shifting toward shallow waters inside fish farms as demand rises faster than older techniques can produce the delicacies in demand.

One country has succeeded in making fish from still waters its major economic revenue generator on the world market. In previous entries, the Myth Buster identified Iceland as a rapidly growing tourist haven. It also stands out as a nation that depends on fish for its export economy. Since it ranks near the top in standard of living, its still waters generate considerable benefit, affirming the significance of the myth. According to Forbes, the island nation’s economy generates 40% of its merchandise export earnings from fishing, which yields more than 12% of GDP, and employs 5.00% of the work force.

It is hard to believe that the country ranks sixth in per capita GDP worldwide, according to IMF’s 2015 outlook. Statistics watchers may be annoyed that Luxembourg, Switzerland and Norway edge out the United States. Iceland falls immediately after the United States on the list. Small countries certainly avoid the problems of large ones! Even so, this small Arctic country has figured out how to use natural resources wisely.

Take Our Fish? This Means War!

This myth is holding up well. If you are thinking that Iceland is just a small country with a small economy, keep in mind that Iceland went to war – yes, war – with England over fishing rights in their waters. The dispute never rose to the level of a shooting war – it was settled diplomatically – but the conventional wisdom is that Iceland won.

Countries have gone to war for lesser reasons. England did battle over Argentina’s seizure of the Falkland Islands, known for its sheep. This makes Iceland’s victory even more significant. Smart investors, please consider this: McDonald’s (MCD) does not offer a Quarter Pounder of mutton and Taco Bell (YUM) does not offer a lamb wrap with sheep dip. Sheep farmers of the Falkland Islands are not watching mutton demand skyrocket.

This myth is doing quite well as an indicator of wealth. Most fish production leaders are doing very well. They include Marine Harvest (MHG), Norway Royal Salmon (NRSM.OL), High Liner Foods (HLT: Toronto) and StarKist Seafood (Private).

Oil deep below the ocean’s surface and tasty seafood scurrying around the ocean bottom are highly prized and offer great business opportunities. Next month, the Myth Buster will look at more intriguing issues that relate to creating wealth and managing effectively.

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Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.

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