Fisheries Committee on Nov. 17th, 2011

[David Lane]

I can be brief. The beauty of closed containment is that the water is recirculated, so only 1% needs to be made up again. This is usually from a well-water supply. It's an amount that is not a huge amount of water in the scale of economic activity and agriculture.

To put it in perspective, if you took the amount of water needed to have the same production on land as in the ocean, it would be about the same amount of water use as one pulp mill.

[The Vice-Chair, NDP, Fin Donnelly]

Thank you.

Ms. Doré Lefebvre.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Thank you, Mr. Chairman.

I also want to thank our two witnesses, Mr. Lane and Dr. Wright, for coming here today. Your presence before our committee is greatly appreciated.

I would like to address my first question to Dr. Wright, of the SOS Marine Conservation Foundation.

The financial study you did about recirculating aquaculture systems and the feasibility study done by the Department of Fisheries and Oceans led to somewhat different results. Some are even quite different. Can you comment on that?

[Dr. Andrew Wright]

I'm happy to comment on that.

We've been through two processes. The first was our initial work in 2009-10. We did the design work and then sized the equipment and got quotes from the supplying industry. We have now raised the money to build the farm. We now have firm quotes because we have construction drawings. We're about to go. We very much know the true cost of what we want to build.

The process that DFO went through was a different process. It was a collective process of advised inputs from the industry and many of those numbers, to my belief—and I was part of that process—were not supported by quoted numbers.

I'm not surprised that there's a difference. The proof is in the pudding, so to speak: go build one and add up the numbers. That's exactly what we're doing.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Thank you very much.

As we can read on page 29 of the department's feasibility study, experts in the field presume that the fish produced in these recirculating aquaculture systems will be worth more because these systems are considered biologically safer.

In your study, you say that the fish produced with these technologies will be worth 25% more, and you say maybe more in a footnote. Yet, in the department's study there is no mention of such a premium.

As organic products usually cost more, is it justified to say that the fish produced with these technologies has more value?

[Dr. Andrew Wright]

My answer to that question is that the higher price is very justified. We have good evidence to support that.

I would encourage you to call Kelly Roebuck from Living Oceans as a witness. She has studied this extensively over the last two years. We have qualified input from Per Heggelund, the CEO of AquaSeed, who already sells close-contained fish in the marketplace. He gets the premium that we aspire to get.

So the answer to that is an unqualified yes: we believe that is supportable in the marketplace.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Thank you very much.

Your study is about smaller facilities, with a capacity of approximately 1,000 metric tonnes, but you also include early harvesting of fish at 3.5, 4 and 4.5 kg, for an additional 500-750 MT harvest each year in order to maximize the amount of time the farm is running at peak biomass. DFO's study however does not include early harvesting.

Can you comment on this, and explain what would be the biological and environmental impacts of early harvesting?

[Dr. Andrew Wright]

I can speak to that directly. The current production method the industry uses is a batch process, whereby all your fish go into the ocean and two years later they all come out. With closed containment, if you are going to maximize your return on your capital, you have the luxury of being able to use and build your equipment so that when all the fish reach maximum size after two years--or in our case, one year, because they grow faster in warm water--then the equipment is running at maximum utility just at that point. But for most of the year, it's not running at maximum utility.

So to boost your return on your investment, when you stock the tanks with the little fry you deliberately overstock, so that when you hit the three-kilogram mark your tanks are full. Your equipment is running at maximum now for a much longer period of time, but because the tanks are full you have to take out a large percentage of the fish to allow the remaining fish to grow to full five-kilogram fish. This, then, allows your equipment to produce two harvests: three-kilogram fish and five-kilogram fish.

If you're really clever, you grade that to harvest three-, four- and five-kilogram fish, maximizing the utility out of the equipment. This is actually being demonstrated at the Freshwater Institute, which I believe you as a committee will be visiting shortly, where they have just harvested their first cohort of five-kilogram fish grown in closed containment, disease-free, vaccine-free, and chemical therapeutant-free fish, in a biosecure facility. Because the water quality is so much higher than the ocean quality, the flesh was firmer, and the condition factor of the fish showing good husbandry was superior to ocean-grown fish, too.

That's sort of a broad answer to your question, I think.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Thank you very much,

Do I have any time left?

[The Vice-Chair, NDP, Fin Donnelly]

You have about 30 seconds for the question.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

DFO's analysis assumes that an investor will have to borrow two thirds of the cost of the investment at a rate of 7%. Are depreciation costs and interest expenses included in your analysis?

[Dr. Andrew Wright]

For the work we're currently doing, we have been supported by federal, provincial, Canadian philanthropic, and private philanthropic endeavours, so I personally have not looked at that in any depth. We have no borrowing costs at all for our first endeavour. Indeed, the land was donated to us by the 'Namgis nation, which comes back to David's earlier point that the land in rural areas is substantively cheaper than the costs that were calculated in DFO.

Our project is a project in which we're doing open transparency so that we can really nail down the true costs of getting down to business in this manner. When we're done, we'll be able to say that you need $6 million, $7 million, $10 million, or $15 million. We'll have an accurate number for which the true depreciation costs can then be calculated with some level of certainty, rather than guessing at what the initial number is. Because if you put $22 million in and depreciate it, you end up in a non-feasible position, but if you put in $12 million and depreciate it, you do.... Well, both of those were estimates based on work. As our projects are going forward, we will try to nail economic security down. That's the purpose of our project.

[The Vice-Chair, NDP, Fin Donnelly]

Thank you.

I turn it over to Mr. Kamp.

[Randy Kamp, Conservative, Pitt Meadows—Maple Ridge—Mission, BC]

Thank you, Mr. Chair.

Thank you, gentlemen, for appearing. I appreciate the good information, and of course we certainly wish you well on the 'Namgis project. We're looking forward to real information and not just estimates. We'll stay tuned for that.

I think both of you were involved in the aquaculture innovation workshop held a month or so ago.

Were you, Andrew?

[Dr. Andrew Wright]

Yes, I was a presenter. I was presenting my greenhouse gas analysis and David was an attendee.

Is that correct, David?

[David Lane]

That is correct.

[Randy Kamp, Conservative, Pitt Meadows—Maple Ridge—Mission, BC]

I know that there was a lot of focus on recirculating systems and their potential. Was it your sense that there was a widespread optimism or a sense of positivity that this would be something that would replace the current open-net pens that we have? I recall reading an article written about the workshop in the Campbell River newspaper, and you seemed quite positive about the Atlantic Sapphire results so far--and I hope they are positive.

The article referred to a conversation with Mr. Holm, the CEO of Atlantic Sapphire, who was a presenter. He said that the recirculation system he was developing there is a niche product. A small-scale facility such as his, he said, can't compete directly with the main farmed-salmon market.

This is where I'm having a little bit of trouble with your analysis. You're saying that it's organic so you're going to extract a premium on the sale of the item of perhaps 25%. Whether that's accurate or not, I don't know, but let's say it is. You would extract that because it is a niche product, but if it becomes the way everyone does it everywhere, for example, if that were possible, then would you get that premium? Also, in the transition of going from where we are to this, how do we stay competitive with the rest of the world that's likely going to continue farming in open-net pens?

[Dr. Andrew Wright]

There are two questions there.

The first point is this. I also read that article in the Campbell River newspaper and walked away quite annoyed, because I felt that it was a very biased synopsis of the meeting. At that meeting, we had several projects from around the world present their designs for closed containment, the economic analysis behind their systems, and the performance they expected.

There was indeed a wide range. In China, the cost to produce the closed-containment system was unbelievably low, and they didn't care too much about the energy costs on those systems. Atlantic Sapphire, which, as I said, was built for less than $10 million, which was the break point.... A net pen costs you about $8 million for the same level of production, so let's be clear here, and the operating costs would be similar.

So Thue Holm, the CEO at Atlantic Sapphire, is at a point where he can compete, but he is also very astute. Although he uses the word “niche”, as you have identified, he's demanding and getting a premium in the marketplace because of that.

Now, I agree if the entire industry moves towards that, then you commoditize that.

One of the other facts that's failing to be monetized here is this one. Because we capture the waste stream, which is both liquid nutrient and solid waste, alongside each of these farms there is the potential to directly inject that into high-end vegetable production and to boost the bottom line. Today, our open-net pens are throwing away a huge amount of revenue by dumping that valuable waste stream into the ocean, and the amount of opportunity there was captured in our original work.

Our CEOs today are rewarded by maniacally focusing on a single product and optimizing for the production of that product. It's done on the back of cheap energy, essentially. Going forward into the future, the waste streams of one industrial activity have to become the feedstock of the next industrial activity. The nutrient flow off the back of these farms is phenomenal.

Today we spray water all over the fields with chemical fertilizer injected into it, but the fertilizer in these farms is already there. We can grow tomatoes and peppers, for instance, straight on the back of these farms. Again, it expands rural economies. Again, it expands economic diversification and, again, secures a broader infrastructure in our rural communities.

Your questions are very valid. Your concerns are very valid. But I think the very purpose of the project that we're doing is to spearhead the solutions around escaping those conundrums.

[Randy Kamp, Conservative, Pitt Meadows—Maple Ridge—Mission, BC]

I appreciate that, and I think there is a ways to go on how we use these waste products and so on. In your analysis, though, how did you treat the waste products? Was it as something that would reduce operating costs on the income side or...?

Fire away.

[Dr. Andrew Wright]

If you look to our original work, you will see that we provided both analyses: with and without a revenue stream from those products.

The first phase of our project analysis does not account for a revenue stream from those waste products. We are counting on a premium in the marketplace, and that premium has been qualified directly with suppliers. Today if you go to Safeway, you will pay $20 a kilo for your salmon, which was purchased from the farm at $6 a kilo, if they're lucky. The middle ground is eaten up with multiple distributors.

We've secured direct-to-marketplace contracts. That margin, the difference between $20 to the consumer and $6 at the farm gate, is shared between the end supplier and.... Why would we want to pay a bunch of middlemen the bulk of our profit for our endeavours?

So the Sobeys stores of the world and the Whole Foods of the world are coming to the table with contracts that say that if we guarantee a thousand tonnes of production per annum, they'll take it off our hands at much higher prices, because they're still making more money than they would have when they bought commodity salmon.

That's our vehicle to get started. I agree with you that in the long term we have the potential to commoditize, but the fish quality is higher. This has been demonstrated, and you'll see this on your visit to Freshwater. It's a premium product that is measurably premium; it's not premium because it has been labelled something nice, but because consumers and chefs have tested it. It always comes back that the closed containment fish is optimally exercised, it is grown in clean water, and so on. I pay a premium for grass-fed organic steak, and it's a massive premium. I will do the same for the fish that I feed my family.

[The Vice-Chair, NDP, Fin Donnelly]

Thank you.

We'll go to Ms. Murray.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Thank you, Mr. Chair.

I want to thank our presenters for being here. It's good to see you again. It has been about eight months since I was on this committee. Many tides have flowed in those eight months. I'm sure there's information that has come forward to the committee of which I'm not aware, but I would like to focus on some of the details in your presentation just to understand it better.

Andy, you talked about net-pen aquaculture done on the back of cheap energy. I have a lot of appreciation for the way the aquaculture industry has been working with conservation groups to find sustainable ways of doing what they do, but I would say that it's also done on the back of externalizing waste and risk. When the waste from the net pens falls to the benthic layer, in British Columbia.... A lot of the industrial pollution in British Columbia—this end-of-pipe pollution—has a price attached to it; that's our regulatory mechanism. But I don't think there is such a price attached to the waste produced in the net-pen farms.

When you were doing your calculations of cost comparisons, did you do any calculation of the volume of waste produced? If it were to have a cost attached to it, as much of our industrial pollution has, what would that do to your cost comparisons?

[Dr. Andrew Wright]

I can answer that in part, Joyce, and it's nice to see you again.

The first part is that we absolutely calculated the volumes. For every tonne of fish that is produced, approximately a quarter of a tonne of solid wastes is produced. I can't give you a number off the top of my head, but a substantive level of nitrates and phosphates goes into the liquid waste stream. We have not costed those. You are correct: it is an end-of-pipe sewage issue. It's as simple as that.

What we have costed, on the land-based side, is what we could do with that waste to turn it into a value-added product. For every tonne of solid waste that is produced, you can produce about 500 to 1,000 kilowatt hours of energy. That is well documented for anaerobic decomposition.

We looked at energy with this as a source, and it would account for about 5% of the energy costs of the farm. It's quite modest, but nonetheless, you could burn it to heat a co-located greenhouse very comfortably.

Then, the liquid nitrate stream is very important, because it is very dense in nitrates. The opportunity to grow fruits and vegetables is there.

We costed it from the opportunity side. We did not put a price on the end-of-tailpipe, and it's a very valid point that you make. Again, if that were to occur, it would again make closed containment even more favourable.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

I put that out as a possibility in your discussions with the provincial government, because I think what you're trying to do is have a transparent costing of the two alternatives all in, and that externalizing of pollution for free is a disadvantage for you in the calculations. British Columbia, in my experience, has had an appetite to price pollution.

As an aside, when I was the environment minister, I was successful in increasing the price of the compounds that were being regulated and charged for by 48% over three years. Industry accepted that as a reasonable part of being a corporate citizen. They actually are paying for the cost of their pollution. To translate that into this industry, even on a theoretical basis, is very legitimate.

This is a bit of a detailed question. You were talking about your power savings. You showed the model in which you excluded the smolts, the feed, and the harvest-to-market for greenhouse gas emission calculations. Did you also exclude those parts of your value chain when you made your energy calculations, the 90% savings calculation?

[Dr. Andrew Wright]

I'm not sure as to the clarity of your question. Perhaps a little illumination on my end could help.

When we did the greenhouse gas emissions comparison, it was a fair apples-to-apples comparison. We interviewed the former farm manager at length, for every detail from the generators used on site to how the feed was delivered to open-net pens. We did a very detailed assessment of every energy-consumptive point, from when smolts or feed were delivered to the farm, and from when those fish were handed off to the production.... Beyond that boundary, we got no window into how much energy they used. We assumed it would be the same for both. It was just the difference between the net-pen production and the closed containment production that we were seeking to ascertain.

While I have the floor here, I would like to be clear that the level of methane off-gassing from the net pens is currently a very unknown parameter. I know that DFO is doing a life-cycle assessment. I would like that information to be accurately assessed by the experts on that subject, because fundamentally there isn't enough public domain knowledge about that process at the moment.