Topic: CaseStudy

Order Description
The Cod Entrepreneurial Case

Did this entrepreneurial activity come from inside or outside the industry?
What makes the cod farming opportunity:
a. Attractive
Achievable
Durable
d. Value creating
What is the source of the financial resources?
Which entry strategy is Mr. Dahl using?
What is Mr. Dahl’s stated objective?
Relative to wild cod, Mr. Dahl is planning what type of competitive advantage from Chapter 5: Low Cost, Differentiation or Focus?

OCTOBER 27, 2008

High-Tech Fish Farms Angle to Make Hard-to-Rear Cod the Next Salmon

By JOHN W. MILLER

BODØ, Norway — A millionaire dot-com executive turned fishing entrepreneur is pursuing the holy grail of industrial aquaculture — the Atlantic cod. Harald Dahl, founder of Norway’S CODFARMERSASA, wants to infuse ancient Viking fishing grounds with high-tech equipment and modern management techniques, returning the Atlantic cod to the commercial prominence it once held.

Watch how Norwegian fish farmers are leading a movement to revive the Atlantic cod — the fish that launched Viking expeditions and perhaps the discovery of America. WSJ’s John Miller reports. (Oct. 26)

His dream comes as aquaculture, more craft than science until recently, appears ready to come into its own. This year, for the first time, humans will eat more farmed fish than wild fish, according to a report being prepared by the United Nations Food and Agriculture Organization. Big-name investors, including J.P. Morgan Chase and Morgan Stanley & Co., are backing Mr. Dahl’s vision of high-tech cod farms.

The 42-year-old grew up on the Lofoten Islands off the northern coast of Norway and remembers a time when “cod fishing boats crowded harbors so you could walk across them.” Today, he and a handful of entrepreneurs are betting they can conquer aquaculture’s twin Achilles’ heels: catastrophic outbreaks of disease and the heavy reliance on salmon, for decades the only mass-produced salt water fish offering.

A dozen Norwegian companies, including Marine Farms ASA and Salmar ASA, are pouring hundreds of millions of dollars into exotic equipment and new technologies to raise cod and other salt water species, long avoided because they are so much harder to breed and feed than the omnivorous salmon.

Norway Turns to Farmed Cod

Norwegian companies are investing hundreds of millions of dollars in codfish farms to plug an economic hole left by the collapse of wild cod stocks.

The biggest prize is the Atlantic cod, a fish that gave Cape Cod its name and triggered fishing wars between nations. Today, the Atlantic cod is a $1 billion annual market, after a long, steep decline in catches. Over-fishing has slashed the annual Atlantic catch to 137,000 tons last year, from 1.8 million tons in 1968, according to the International Council for the Exploration of the Sea, a fishery research institute based in Denmark.

Norway is the epicenter of aquaculture’s transformation into big business. With 1,000 miles of coastline and deep, protected inlets or fjords, it offers an ideal laboratory for farming salt water fish. This year it overtook China as the world’s biggest exporter of seafood by revenue, even though China produces around two-thirds of the world’s farmed fish. Fish farms account for 47% of Norway’s seafood exports, up from 30% a decade ago.

The biggest producer of farmed cod so far, accounting for 25% of sales worldwide, is Mr. Dahl’s Codfarmers. He started production in 2005 and hopes to sell 30,000 tons of farmed cod annually by 2012, not far off Norway’s total 35,000 ton wild catch today.

The company is backed by $100 million raised from investors including J.P. Morgan Chase, Morgan Stanley, and the Hearst family. Executives worry the banking crisis could hurt future financing rounds, “but there’s nothing to do except cut some costs and hope this sorts itself out,” says CEO Oystein Steiro.

Mr. Dahl aims to make cod a mainstay in grocers’ fish counters. “Salmon used to be the party fish. Now it’s become an everyday fish. We want to make cod the party fish.”

His grand ambition has strong economics behind it. Farmers can charge about 20% more for farmed fish than for cod caught in the wild, because it is fresher. Wild cod has to spend several days in the belly of a boat returning from the middle of the Atlantic before it hits shore. Farmed cod doesn’t have to make that trip, making it fresher. Farmed salmon, by contrast, sells at a steep discount to wild salmon.

But cod are difficult creatures. Previous efforts to farm the fish, in Norway in the 1990s and Canada and Scotland earlier in this decade, ran aground due to fickle breeding conditions, a restrictive diet and a stubborn drive to escape nets.

Industrial fish farming faces plenty of skeptics. A female cod, roughly the size of large household cat, lays two million eggs at a time. But in nature only one or two of this vast brood survive. To make steady production viable, a cod farm has to improve that ratio by a factor of thousands, says Daniel Pauly, a fish scientist at the University of British Columbia.

Farmed fish “pollute, they’re always prone to disease and they can escape and harm wild fish populations,” says Lisa Langard, fish farming analyst at World Wildlife Fund’s Oslo office.

Mr. Dahl thinks he can address such qualms with technology and Norway’s deep fjords. At a Codfarmers hatchery in Bodø, Thor Magne Jonassen supervises three green fiberglass tanks filled each with 400 cod. The fish will spawn in shifts, once every two months. Dim tank lights that mimic winter will control breeding and produce healthier, fatter fish.

“We’re learning from other people’s mistakes,” says Mr. Jonassen. He predicts his 1,200 fish will generate five to 10 million cod a year. After the fish reach 3.5 ounces in weight, they are transferred to net cages in fjords 1,000 feet deep. The depth helps to recycle the fish water and prevent waste from accumulating. Divers keep the nets repaired to thwart escapees.

On filleting day, a plastic pipe the width of a basketball whisks a cod from the holding pen every two seconds and onto a conveyor belt. Workers cut off heads for fish meal and livers for oil, drugs, cosmetics and food, before packing the cod in ice for delivery to supermarkets in Europe. Soon, Mr. Dahl hopes, they will be whisked to the U.S.