If you don't have a Newfie accent and walk into any of the bars on George Street in downtown St. John's, it's a safe bet a bartender will dare you to kiss a codfish. If you pucker up and throw back a shot of Screech, you will qualify as an honorary Newfoundlander. It's a small but telling example of how, despite the decline and fall of the Atlantic cod, the fish that sustained Newfoundland for centuries still has its hooks in the province–its culture, its lingo and its popular imagination.
Perhaps that's part of the reason aquaculture–an industry that promised to revive the cod's economic importance–was so widely embraced in Newfoundland. After the wild fishery faded in 1992, the tiny coastal towns and coves that depended on cod became even tinier–they have lost upward of 10% of their populations. Former fishermen who stayed in rural Newfoundland instead of migrating to larger centres like St. John's or Corner Brook found employment prospects bleak, and the many fish processors dotting the province were forced to run at significantly less than capacity. Amid the hard times, fish farming has come to hold an especially strong allure. “Aquaculture is the very best opportunity for some rural communities and regions to derive livelihoods from the sea far into the future,” says Mike Rose, executive director of the Newfoundland Aquaculture Industry Association (NAIA) and Newfoundland's leading aquaculture advocate. As in New Brunswick, salmon aquaculture is now established in Newfoundland–2003 revenue came in at $6.7 million. Yet the farming of cod held out the promise of rejuvenating the province's most important and traditional industry in a way that, unlike the wild fishery, might have proven sustainable.
Too bad Newfoundland's cod aquaculture experiment has ended up in the tank. The industry's failure is a tale of poor execution, difficult economic realities and bad luck that is all too familiar to those living on the Rock.
Eight years after the provincial government began to encourage cod aquaculture, there is almost nothing to show for its efforts. Take a drive along the winding coastal route linking communities in the province's southwest corner, and you won't see a single commercial cod pen. This is not exactly the aquaculture-fuelled “cod comeback” the trade journal Fish Farming International forecast as late as two years ago. In a province where fishermen in the 1980s routinely caught more than 200,000 tonnes of cod a year, cod aquaculture's peak production of 227 tonnes (in 2002) amounted to barely a drop in the bucket. Today, no for-profit cod farms operate in Newfoundland.
More than a decade has passed since John Crosbie, then federal fisheries minister, called for a two-year moratorium on cod fishing on the Grand Banks, off the island's east coast. Later in 1992, as an unwelcome early Christmas gift, Crosbie slashed the allowable catch around the rest of Newfoundland. For the province's fishermen and fish processors, promises of unemployment benefits and retraining provided little comfort. As the federal government's temporary moratorium set in, at least 30,000 Newfoundlanders lost their jobs. So in 1997, when John Efford, minister of fisheries and aquaculture, floated the idea of becoming a pioneer in cod aquaculture, residents listened. And who could question the crux of his argument? “The people of rural Newfoundland and Labrador have built up a set of skills that are ideal for codfish aquaculture,” declared Efford, now federal minister of natural resources. “We know the techniques, the locations and the markets.”
Cod aquaculture also made some economic sense–it still does. Newfoundland scientists have proven that wild cod, if regularly fed, can double in size in 60 days in an ocean cage. The late Joe Brown, a longtime scientist at Memorial University's Ocean Sciences Centre, called cod “couch potatoes,” because they are so efficient at converting feed into flesh: every kilogram of feed a cod consumes adds an equal mass to its frame.
For a time, it seemed as if cod aquaculture would be a real boon for the 18 operators who started up in the late 1990s. Not only did the fish weigh more than the wild catch, but they could also be harvested out of season and fetch a better price. For example, in 2000, while wild cod was averaging 85¢ per pound, cod farmers could get $1.50 per pound. In 2002, after five years of growth, cod farm revenue in Newfoundland reached $900,000.
Then the bottom fell out. In one year, 2003, production plummeted 87%, along with the price (averaging just 45¢ per pound)–prompting a further drop in production in 2004. Many of the 45 operators who held provincial aquaculture licences gave up.
What happened? The fledgling industry had run into an inventory problem. To stay afloat, a fish farm needs young fish–a commodity that, after federal cuts to the wild catch, only a hatchery could provide. As luck would have it, there is a state-of-the-art, locally designed private hatchery in Bay Roberts, 84 kilometres north of St. John's. It was planned by a St. John's-based company called Northern Cod Ventures Ltd. to produce up to 10 million cod fry a year. But the hatchery, originally scheduled to open in 2002, now sits empty. Construction is 80% complete. Another three or four more months of building–at a cost of $1 million–and it would be suitable for breeding fish. But Northern Cod Ventures isn't particularly interested in spending that kind of cash.
No wonder. Following a worldwide decline in the selling price of farmed salmon, one partner in the venture, Bay Roberts-based Northern AquaVentures, dissolved in September . The other, Northern Aquaculture Corp., a subsidiary of Newfoundland entrepreneur Brian Dobbin's Newfound Developers Group of Cos., made headlines last year when another of his holdings, North Atlantic Sea Farms Corp.–at the time Newfoundland's largest salmon aquaculture operator–was placed in receivership.
Sea Farms had been relying on credit financing provided by Shur-Gain, the company that sold it feed. Typically in cases of credit financing, the aquaculture operator pays back the loan (with interest) in instalments timed to correspond to the dates when the farmed fish should reach market. In Sea Farms' case, Shur-Gain, a division of Maple Leaf Foods, said Dobbin's company owed almost $3 million. Dobbin (who did not return telephone requests for comment) had anticipated expanding the financing arrangement to open-ocean grow-out sites for the cod from the Bay Roberts hatchery.
The problem Sea Farms faced is common in Canadian aquaculture. With any fish farm, feed for the growing stock can account for 80% of expenses. That makes for an especially expensive proposition, when you consider that until last year most operators in Newfoundland relied on their feed providers to also act as their bankers. Limited to a choice between just three major feed companies operating in Atlantic Canada, aquaculturists say they face interest rates of more than 25%. The NAIA's Rose says taking a feed company's offer of financing is often the only choice. “The [Canadian] banks have no interest in participating at any level,” he adds.
Cod farming's economic viability was the focus of a recent study prepared for the NAIA by Thomas Clift of Memorial University's business school. The June 2005 report pegged the cost of operating a 1,500-tonne cod farm in Newfoundland at $6.75 million to $10 million. At that size, Clift estimates, a 12.3% return on investment is possible when the first fish, grown from young fry to ready-for-plate, are harvested in Year 3. Waiting three years for a return doesn't typically entice Canadian investors or banks. As well, though some scientists, including Brown, have stated that cod seem “heartier” than salmon, aquaculture remains a high-risk business, where weather or disease can wipe out an entire investment. Making the industry even less attractive to lenders is the fact that when aquaculture companies default, the value of their assets has typically been weak.
This isn't a particularly advantageous time for Canadian seafood, either. The high dollar doesn't help (most Canadian seafood is destined for U.S. markets), especially when combined with recent poor financial results in salmon farming operations. “It's almost like you have to demonstrate again that the traditional aquaculture industry is OK before you move on,” explains Trevor Taylor, the minister in charge of Newfoundland's fisheries prior to a recent cabinet shuffle. The industry must still show “on paper in black and white” that profit is attainable–and, Taylor says, it hasn't managed that yet.
No government bailout looks immediately forthcoming, though Taylor acknowledges that Canadian banks rarely provide financing for any type of farmed seafood. (The banks that are involved in financing some of Newfoundland's more traditional seafood industries are based in Iceland and Norway.) Recognizing that financing was a barrier to aquaculture, however, Taylor presented an alternative to feed-provider financing in November 2004, just a month after Dobbin's Sea Farms went into receivership. The government loan-guarantee program, which is modelled after an arrangement in place in New Brunswick for more than 20 years, still requires a bank to participate. So far only one fish company, Corner Brook's Barry Group Inc., which is among Canada's largest fish exporters, has garnered bank approval, even with the province agreeing to guarantee 80% of any debt owed after the company has been fully liquidated. (Remarkably, the Barry Group's new financial arrangement with the province applies to the same salmon farms that Dobbin's defunct North Atlantic Sea Farms formerly owned: the Barry Group tentatively purchased Sea Farms last August, pending court approval.)
Everyone involved in enhancing cod aquaculture in Newfoundland, Taylor included, acknowledges that for the industry to grow to profitability, it will need a local hatchery. Taylor, however, isn't convinced cod is an industry worth salvaging. “Is this really a commercially viable opportunity? Right now that has not really been demonstrated,” he says bluntly. A former cod fisherman himself, Taylor was as excited as his constituents when he first heard the plans for a hatchery in Bay Roberts. “Things unfolded differently than anyone would have expected back then,” he says.
Where one might have expected commercial pens teaming with cod by now, there is a research facility. In Pool's Cove, Nfld., the Ocean Sciences Centre has 75,000 cod in the water. Entering the final year of a five-year, $12.4-million study, funded mainly by the Canadian Foundation for Innovation, the Atlantic Innovation Fund, and branches of the provincial and federal government, scientists are now focusing on improving cage construction. The centre's research was featured at the world's largest aquaculture trade show, Aqua Nor, held in Norway last August. Companies from Chile, South Africa and Europe showed an interest in cod aquaculture. Meanwhile, the provincial government is waiting for the release of a strategic plan it commissioned, expected by the end this year. The fisheries minister may well have considered the development of cod aquaculture “a focus in 2005”–as the ministry's annual report suggested–but that progress has been on paper, not in fish.
It is not as if cod aquaculture doesn't work–elsewhere. While cod farming lies fallow in Newfoundland, Cooke Aquaculture has cod cages in the Bay of Fundy. The first batch of New Brunswick-raised cod will be a featured entree at select high-end restaurants in the northeastern states and possibly Canada this December. Cooke, the largest aquaculture company on Canada's Atlantic coast, converted one of its 67 salmon farms to cod in 2003–a change that's an ongoing science experiment. “There are some modifications to be made, but a lot is transferable,” explains Frank Powell, the company's manager of alternate species. Cooke will add close to 100,000 fry to its New Brunswick farm this year. With its supplier, GreatBay Aquaculture of Portsmouth, N.H., charging it about $1 a fry, the company has started to raise cod, instead of salmon, at its nursery in Mink Cove, N.S. The first test class of 150,000 young cod swimming in salt water, instead of the fresh water used for salmon, required a $300,000 initial investment. Newfoundlanders take note: Cooke has three aquaculture licences in Newfoundland, currently inactive, that it says it would consider using for cod in the future.
And Canada isn't the only country to have entrepreneurs express interest in cod farming. Scotland is home to the world's first commercial organic cod farm, Johnson Seafarms. With the help of managing director Karol Rzepkowski, a man the BBC once called a “marketing whiz kid,” the family-owned business raised more than £21 million ($48 million) last March through a management buyout. In Johnson's case, investors received a tax break (the initial investment is 20% tax free, and if the stock is held for three years, capital gains are tax free) under the United Kingdom's Enterprise Investment Scheme. The Shetland-based operation plans to triple output over the next five years.
But the clear front-runner in cod aquaculture is Norway. Next year, Norway expects to release its first bumper crop–40,000 tonnes of cod. And that's just the beginning. The industry's largest operator, Nutreco-owned Cod Culture Norway, anticipates the country's cod farms will be stocked with 50 million cod juveniles in 2008, translating into 225,000 tonnes when mature in 2010, or more than the current wild cod quota. Cod could rival salmon as Norway's top aquaculture export by 2015–which is quite a feat, considering that Norway is the world's largest producer of farmed salmon.
Seeing that success is painful for Newfoundlanders: early on, they considered themselves to be ahead of Norway. There was only one small test farm in Oygarden, Norway, working with cod in 1995. Most of the big Norwegian hatcheries were built after 2001, the same year the Bay Roberts hatchery received final environmental approval from the province. Many can't resist the conclusion that Newfoundland had an opportunity to be a world leader, only to see it slip away.
Luck played a part, too. Back in 1995, aquaculturalist Jonathan Moir and his team built the world's first large-scale modern commercial cod hatchery near Placentia, on the Avalon peninsula's east coast. With the help of investors like Craig Dobbin, Moir's hatchery grew to house more than 20,000 fish by early 1996. “We had cracked the technical problems that everyone basically said couldn't be cracked,” says Moir.
Then, on the morning of May 21, 1997, Moir watched as fire engulfed the hatchery building, killing all the fish inside. In an instant, cod aquaculture in Newfoundland was back to Square 1. “Basically, the forward motion that we had created stopped in its tracks,” explains Moir. “It's been a huge impact.”
Later, Moir played a key role in designing the Bay Roberts hatchery. Earlier this year, Northern Cod Ventures tried to sell it, he says; the only interested party, a company with a substantial aquaculture operation in Chile, backed out this summer. Moir, named by his peers as Newfoundland's aquaculturist of the year in 2003, is understandably discouraged. “We have been ready to go since 1996,” he says. “The reality is on two or three occasions there has been investment, and then it just disappeared.”