Traveling Wilburys

Almost midnight, listening to "Traveling Wilbury's."

 Love Dylan, Harrison, Petty , Orbison, etc.

A great quote from the song by Dylan, Twitter and the Monkey Man, "And the walls came down, all the way to hell, never saw them when they were standing, never saw them when they fell, ......if you don't try it now, then it goes down to the wire."

I know sound like I am an old fart.

But I also love Taylor Swift, Katy Perry, Train, Fun, etc.

Two things I have learned to fear. 

Not death, seen it with one I loved and it holds no sway or fear over me.

Not time. That passes and stops for no one.

But being irrelevant, and being lonely, OK, those two things still scare me.

So, luckily, I am sure as hell not irrelevant. GBT is my vision. 

My team is making it happen and without them I ma nothing but it was and is my vision.

Read below. 

This is what GBT is designed to beat.

I may just be lonely. 

I know no one is going to say, "poor David", but maybe my good friend John Aquilino is right. 

Maybe I just need a girlfriend. 

Maybe I am just tired.

God knows, I have the money and time. Maybe I am just bored. 

But we have cracked the code to the world's food production issues,.

In a huge way. 

The GBT system has the only real potential to make a difference to the world's food needs. 

Read the following. My good friend and partner Peter Young wrote most of this. 

It is worth studying. The earth is in trouble. The walls are coming down. We will never understand why they stand, we will never see them when they fall. 

I have managed to upset myself, very rare. 

Going to pour an adult beverage and hope others get it.

Here at GBT’s offices we continue to be asked some pretty broad and difficult questions; difficult in the sense that it’s not our place to even appear to criticize others working in aquaculture.

The dire prospects facing fisheries around the globe coupled with the ever-increasing demand for seafood is the backdrop that drives GBT.  It’s the very core of our company. It explains the urgency and importance of our confidence in the potential of GBT’s technology to prove to be a truly successful solution not only within the United States but internationally as well.   

Recently, Peter Young of Projects International and a key partner with GBT developed a detailed analysis of the macro trends in the coming decades that will impact global fisheries and food production.

I think Peter's analysis and presentation of the state of the world's fisheries and GBT's potential is one of the best I have read.

I will be interested in your reaction and thoughts. 

The future of Sea Food: a Market Overview

Macroeconomic trends indicate that demand for seafood products generally, and shrimp specifically, will continue to grow much faster than overall supply from aquaculture and wild fisheries.  According to the OECD/FAO’s “2013 10-Year Food Supply Outlook” (June 26, 2013), seafood demand and prices will continue to rise faster than other commodities for at least the next decade.  

(http://www.undercurrentnews.com/2013/06/20/oecd-expects-fish-demand-prices-to-rise-more-than-most-commodities/) 

The same OECD/FAO report states: "A combination of chronic disease in Southeast Asian shrimp farms and low wild shrimp catches continue to put upward pressure on shrimp prices." (http://www.thefishsite.com/reports/?id=2253)  Add population growth and economic development in major seafood-consuming markets as macroeconomic forces from the demand side pushing prices.

The OECD/FAO's most recent 10-Year Food Supply Outlook (2014) begins its report on the seafood sector by summarizing the "market situation”:

“The fish and seafood sector has been recently characterized by rather high and volatile prices. With 2002-04 average price set to 100, the aggregate FAO Fish Price Index climbed steeply to a record high of 164 in December 2013. This growth reflects inadequate supply that pushes prices upward for selected farmed species, e.g., salmon and shrimps/prawn that are two of the world's major traded species…”

 (http://www.oecd.org/site/oecdfaoagriculturaloutlook/publication.htm p.191).

The same report forecasts price trends as follows:

“Fishery prices are currently at very high levels, and little moderation is expected as long as production costs, in particular for feed and energy, remain high. The main drivers affecting world fish prices for capture, aquaculture, and traded products will be income and population growth, limited growth of captured fisheries production, sustained demand for fish, increasing meat prices, and high feed, energy and crude oil. All these factors will contribute to fish prices continuing to rally over the medium term [i.e., through 2023].(p. 192)”

It concludes with "world fish prices in real terms [are] expected to remain high" through the next 10 years. Felix Dent, FAO's Fish Industry Officer, goes further in his recent “(2014) Global Outlook for Shrimp Markets and Demand,” concluding bluntly that "[shrimp] prices projected to increase strongly."  (http://www.fenacam.com.br/pdf/fenacam2014/carcinicultura/3-uma-visao-global-da-producao,-demanda-e-comercializacao-do-camarao-_-felix-dent.pdf)

It should be noted that OECD/FAO tends to be very conservative. They assume that wild catch will increase marginally (rather than continue to decline, as we expect), and that aquaculture, despite its current unresolved problems with controlling disease, will be able to rapidly expand to plug the demand gap to add at least 26 million MT/year within the next 5 years. This is inconceivable given the current problems with farmed shrimp and salmon, the principal farmed seafood commodities.  

The macroeconomic forces are profound. Seafood is humanity’s most important food source after cereals. It accounts for 20% of consumed protein globally; yet it is the primary source of animal protein (as much as 60%) in the world’s fastest growing regions (Asia, Africa, and Latin America). Moreover, omnivorous fish convert feed into protein much more efficiently than cattle, pork, sheep, or poultry (which already consume >40% of global grain production); consequently, seafood must supply an increasing percentage of global protein requirements.

Global per capita seafood consumption reached historic levels in 2013 (>19 kg), exceeding 160 million metric tons in total consumption. OECD/FAO forecasts seafood demand at more than 186 million MT by 2020, while other experts 

believe 80 million additional metric tons (for a total of 240 million MT) is required by 2020 to meet rising demand due to population and income growth in markets that rely most heavily on seafood for their protein.

Shrimp is the largest single seafood commodity in value terms, accounting for approximately 15% of the total value of internationally traded fishery products 2012 (3 million metric tons of farm-raised and 3.4 million metric tons wild-caught shrimp), and more than 30% of total seafood sales in the US. Litopenaeus vannamei or “white leg shrimp” is by far the most popular shrimp worldwide, accounting for more than 80% of farm-raised production.

It is not possible to increase supply from wild fisheries and traditional aquaculture cannot meet projected demand for seafood generally, and shrimp specifically, so upward pressure on global prices will continue for the foreseeable future, most likely at a rate greater than predicted by OECD/FAO.

Overall seafood production from wild fisheries peaked in the mid-1990s at approximately 90 million metric tons and has steadily declined since to less than 80 million metric tons in 2012 due to overfishing. More than 85% of global marine stocks are fully exploited or overexploited and depleted.

Large fish stocks (tuna, cod, et al., are less than 10% of what they were only 50 years ago). Based on current trends, consumable marine species will be entirely extinct in less than 35 years if overfishing continues unabated.

Following the more rapid exploitation of large fish stocks, wild catch shrimp volume leveled off in the later part of the last decade and has begun to decline. Judging by the smaller sizes of wild shrimp on the market (with the largest, U10 size, increasingly unavailable, shrimp fisherman are harvesting smaller shrimp to make up volume, which in turn accelerates the depletion of stock.

Aquaculture production grew dramatically in the last 40 years to meet demand and compensate for declining wild fishery production. In every decade since 1970, aquaculture has consistently grown 200-300% faster than any agricultural product, including cereals, vegetables, fruit, meat, milk, and eggs. But farmed production has tapered and growth slowed dramatically with the impact of diseases affecting so many farms.

We're reasonably certain that traditional aquaculture cannot compensate for declining wild fishery production, much less meet increased global demand. Its growth has stalled; it cannot sustain current production levels, much less produce an additional 80 metric tons of forecasted incremental demand by 2020.

The basic problem with traditional shrimp farming is that animals raised in confined, open-air, densely populated ponds are exposed to multiple pathogens from their own feces plus airborne viruses and bacteria. White Spot disease wiped out shrimp farm stocks several years ago and now the latest disease, Early Mortality Syndrome (EMS), has spread from Southeast Asia to China, India, and Latin America, reducing output from some of the largest shrimp exporting countries (e.g., Thailand) by 50% or more.

The traditional practice of using more antibiotics, vaccines, growth hormones, chemical preservatives, and genetically modified post-larvae feedstock to stave off, out-grow, or mitigate the effects of disease is not only ineffective, but raises serious health concerns for human consumption.

Moreover, traditional open-air shrimp farms discharge toxic effluent that devastates local marine and coastal environments. In addition, it requires too much acreage to achieve the production scale required to satisfy rising global demand for protein. Major importing countries like Japan and the US have already begun to scrutinize the chemical additives employed by the major South East Asian producers.

In summary, the global supply of seafood generally and shrimp specifically from wild fisheries and traditional aquaculture cannot meet rising global demand for the foreseeable future. Upward price trends will continue long term, just as the OECD/FAO concluded in its Agricultural Outlook 2013-2022 and again in its current 2014-23 report.

Due to the aforementioned supply/demand scenario, global shrimp prices rose 40% in 2013 and 11% in 2014. Prices continued to rise in 2014 as wild fishery production continues to decline and EMS and a new parasite originating in SE Asia reduces farm production in major exporting countries.

Shrimp, like most food commodities, is priced and sold globally. Prices vary depending on size and species. The Litopenaeus vannamei or “white leg shrimp” that the project will produce is by far the world’s most popular shrimp, accounting for more than 80% of farm-raised production. Like all shrimp species, vannamei wholesale pricing is based on size “U10” refers to 10 units/pound or 45 grams; U15 grade are 30 grams; U20 grade are 22.5 grams; etc.

As mentioned above, shrimp is the world’s most popular seafood, accounting for more than 15% of all international seafood trade by value and more than 30% of all seafood sales in the US. U10 grade jumbo vannamei that the Project will produce is the most desired and expensive shrimp on the global market. It has been intermittently unavailable on the market over the past year because it is only sourced from wild fisheries which are now overexploited and depleted. When available, published wholesale prices have hovered around $15 per pound processed (i.e., head-off, deveined, and frozen) in 2014, although there are ample reports of much higher prices offered, especially from buyers in China, Japan, and Korea.

Despite steadily rising prices due to limited supply and increased demand, especially from Asia, our financial projections conservatively rely on a baseline wholesale price starting at 92% of 2014 prices with a 2% increase each year.

 Demand Now and in the years ( decades ) ahead

Many "demand" questions are largely answered above.

For specific data on importing countries and other data, see FAO's recent overview report prepared by their Fishery Industry Officer, Felix Dent titled “Global Outlook for Shrimp Markets and Demand.”

(http://www.fenacam.com.br/pdf/fenacam2014/carcinicultura/3-uma-visao-global-da-producao,-demanda-e-comercializacao-do-camarao-_-felix-dent.pdf.) 

In terms of markets, North America, Asia (Japan being the second largest importer after the US, which consumes >2 billion pounds of shrimp per year), and Europe are the world's major seafood/shrimp markets. China is coming on very strong as an importer because it can no longer satisfy its domestic market from it's own aquaculture production or wild catch suppliers.

FAO/Dent's Status and Trends of Global Fisheries and Aquaculture, although a couple years old, is also useful for historical data. 

(http://www.globefish.org/upl/various/Seafex/Dubai%20presentation%20Supply%20and%20Markets.pdf.) 

One may find useful a similar, slightly earlier report from FAO/Woods Hole Oceanographic Institution, “Global Trends in Seafood Demand, Supply, Trade and Prices.” The data from this report is 5 years old (before the spike in prices and latest disease problems with aquaculture), but is still relevant to some market questions.  

(https://www.whoi.edu/fileserver.do?id=87944&pt=2&p=59151)

(Separately, Dent also mentions opportunities for producing valuable chitin made from shrimp exoskeletons as a profitable by-product --something GBT's system is especially suited for exploiting because it filters and collects the exoskeletons from every monthly molt in addition to the final shell during processing. Chitin is widely used in industrial, pharmaceutical, and bio-medical applications -- and is only derived from shrimp shells that are collected from shrimp processing facilities. Demand for chitin is increasing, especially as its bio-medical and pharmaceutical uses expand (from burns to cancer treatment), so supply is limited by the same factors that limit overall shrimp production.

In traditional shrimp farming and wild catch, only the last shell collected at processing is preserved for chitin production. The shell from a shrimp's monthly molt of the shrimp falls to the bottom of the pond or seafloor and decomposes.

In GBT's closed/recirculating system, every exoskeleton of the shrimp produced during its lifetime is filtered and collected.

We estimate that revenue from chitin produced from our farms could nearly equal the revenue from shrimp sales, and would be even more profitable (with most production costs already absorbed by the farm). With the concept of having the strategically placed global production bases for shrimp, these operations would also become the world's leading supplier of high-value added chitin to the medical and pharmaceutical industries.

Chitin production and sale has never been included in our financial projections.)

Supply

Regarding supply, data is only collected on a country basis. The global seafood market is large, but highly fragmented.

Aquaculture is much like agriculture, composed of many independent farms with limited output.

Like any agriculture product, farmed seafood is a global commodity. The same is true for wild catch suppliers.

Seafood buyers and traders are accustomed to consolidating purchases from many small suppliers and distributing worldwide, as they would with any agriculture product. If GBT builds out a combined 100-million pound per year production capacity at only 3 sites, it would likely become the largest single supplier in the world; yet it would still produce only a fraction of current global shrimp consumption and would not come close to filling the gap between declining supply and rising demand.

There are no dominant players on the demand or supply side of the market.

Seafood, and especially shrimp, is truly a global commodity that is sourced and distributed on a global basis. Price's are global, with Urner Barry publishing the most prominent price index (the equivalent of Platts for oil, etc.).

On the supply side, the shrimp aquaculture market is broken into five sectors: feed, hatcheries, farm production, processing, and distribution. The feed sector is global and highly fragmented, with many reputable and non-reputable suppliers. GBT has relationships with several major North American feed suppliers that customize their supply to GBT's recipes (which vary depending on the life-cycle of the animals).

The hatchery sector can be divided into nuclear or genetic hatcheries that produce brood stock, and secondary hatcheries that buy brood stock from a nuclear hatchery to produce their own post-larvae baby shrimp. This sector is by far the most consolidated, having become dominated in the last 10 years by the Thai agri-conglomerate, the Charoen Pokphand ("CP") Group. Many of the world's secondary hatcheries buy their brood stock from CP.

CP is also a large feed supplier in Asia and major aquaculture producers, so they're vertically integrated; but they are not close to dominant in either the feed or farm production sectors. Moreover, CP is experiencing problems with disease infecting their hatcheries which is limiting their output of brood stock and post larvae baby shrimp to supply third-party farmers (unknown to FAO or other industry experts). This shortage of brood stock from CP will have a profound affect on overall shrimp supply in the next couple years that hasn't yet made it into sector forecasts.

GBT maintains its own genetic/nuclear hatchery (certified pathogen-free by USG authorities). It breeds it's own proprietary brood stock and post-larvae baby shrimp. This is not only necessary to maintain complete bio-security from conception to harvest, but also to ensure 100% independence.

The farm production sector is highly fragmented, composed mainly of individual farmers. Some farmers are large enough to have their own processing facilities, but most do not. Typically, processing (decapitation, de-veining, freezing, and packaging) is done by a third-party processor that consolidates product from both farm suppliers and wild catch suppliers. The processing sector is also highly fragmented, with most processors independently owned.

Distribution is also fragmented, but the players are larger. Typically, they buy directly from the processor. There are wholesale distributors like the Japanese trading companies (all of whom trade seafood) and big North American grocery distributors such as Sysco, McLane's, Eastern Fish Co. (supplying the US East Coast, now owned by Japanese trading company Marubeni), Trident Seafood (Seattle, which also harvests and processes wild catch).

There are also many major customers that are capable of bypassing the wholesale distributor by buying direct and consolidating on their own, such at Walmart, Carrefour, TESCO, Darden Foods, et al. GBT has relationships with most of the world's largest wholesale distributors and large end users that buy direct.

No customer, however, not even Walmart or Darden (which buys 600 million pounds of shrimp/year for its former casual dining chain Red Lobster, and now the Olive Garden and other restaurants), is big enough to influence prices.

In summary, no player in any sector of the shrimp market (and seafood generally) is big enough to warrant market share statistics or are in a position to dominate any sector of the market, except possibly CP vis-à-vis the nuclear/genetic hatchery sector (which doesn't impact GBT because we have our own nuclear/genetic hatchery and proprietary brood stock).

Regarding GBT's direct competitors, traditionally farmed shrimp only grows from about 12-25 grams.

If profit margins justify it, GBT can grow shrimp up to 65 grams.

All of our financial projections are based on harvesting the largest, colossal size sold as a commodity product, i.e., the U10 (10 units/pound, tail-on only).

The only competition at this size is wild catch.

With overfishing, U10-U12 wild catch is frequently unavailable on the market (e.g., in 2014 the USG made the shrimping season in the Gulf of Mexico the shortest in history due to diminishing wild stock). GBT harvests continuously, however, so it can supply U10’s, U12’s, U15’s and smaller sizes on demand to the market continuously year-round.

In reality, however, GBT would never harvest 100% U10 (although it will still produce the same poundage of U10 as forecasted in the projections).

By using blended harvesting methods, it can stock its ponds more densely to start and progressively harvest smaller sizes as they grow to maintain maximum/optimum density in the ponds. So we will be selling smaller size shrimp, in which case, we will compete with both farmed and wild catch.

We have found, however, that customers will pay a premium for GBT's higher quality product. According to Japanese master sushi chefs, major buyers in North America and Japan, GBT's shrimp is far superior even to wild catch, and there's nothing remotely equivalent from traditional shrimp farmers.

Eastern Fish Co., one of the largest US importers and distributors of seafood, recently asked GBT if it could create and trademark an entirely new brand for GBT's shrimp because its quality it so superior (and it could resell to its customers at a higher price). Similarly, based on suggestions from Japan's largest sushi restaurant chain, GBT-Japan is creating a new brand for our shrimp to differentiate is the way wagyu beef is from regular beef.

Finally, traditional shrimp farms harvest only twice a year, so buyers are hit with only two times/year to buy product and must bear the cost of carrying year-round inventory. GBT's farms are harvesting continually, so buyers have a continuous reliable supply without the need to carry inventory for six months at a time. This is gives GBT another valuable marketing advantage over traditional shrimp farms.

Revenue Drivers

Regarding "revenue drivers", price and volume issues are discussed above. Prices/sales are FOB the processing facility where typically buyers pick up. In general, buyers prefer long-term off take agreements to guarantee supply. Under such agreements, prices are typically tied to a variable index such as Urner Barry. They are not getting a discount, but rather locking in supply. GBT has so far eschewed long-term off take agreements, however, because its product commands premium pricing, and with global demand outstripping supply. There's no reason to lock ourselves into specific buyers at only the Urner Barry commodity price index when large customers in Japan and North America are already offering premium pricing for GBT's product.

Where GBT can be effective?

Shrimp farming, including GBT's indoor bio-secure system, is best done in the equatorial zone.

In addition, ideal sites for GBT's facilities are on a coastline with access to relatively clean (little or no heavy metals) seawater, at least 4 meters above sea level/historical flood plane, and access to infrastructure (roads, port, power, water).

Finally, it is essential that the host government is cooperative and supportive (and doesn't regard the project as an ATM machine for government officials). It is also highly preferable that the country has sufficient land to accommodate multiple sites in order to form a major production base. In evaluating sites around the world in the equatorial zone, relatively few meet the ideal criteria. Most lack sufficient infrastructure and fail the political risk test.

There are several key criteria for an ideal GBT site. There is an element of political risk in some of the areas GBT is studying and taxes on foreign dividends can be relatively high. Still these factors can be outweighed by other advantages.  Overall, GBT seeks a cooperative and supportive government and a local partner who can manage local relations.

Many sites suffer from political risk and/or lack of infrastructure.

Ideal sites are close to coasts already licensed for shrimp farming, with clean water and steady ambient temperatures, and that will never be used for open-air farms.  The perfect site will have sufficient infrastructure along their coasts; reasonable to inexpensive electricity (the second highest component of operating costs); and be geographically positioned to serve as a major production base for any of the world's major shrimp/seafood markets (Europe and East Asia, USA, and China. 

We avoid any area where political risks and local corruption negate the advantages.  (We've rejected offers from many countries because of political risk/corruption issues.)

GBT is already committed to a project in southern Myanmar, but are waiting for sufficient infrastructure promised by the government in 2016.

In our long-term plans (over the next 3-5 years) we plan a major shrimp production base in Taiwan after the first project on the southwestern most Japanese island (70 miles from Taipei) is producing.  Mainland Japan will serve as a production base for cold-water fin fish. 

Many Middle Eastern countries offer sites and conditions that are very workable; and, for both shrimp and fin fish, have enormous production potential.

The simple truth is with the right government and partner in, say, the Middle East, that country could be one of the region’s largest food producers -- all 100% organic and sustainable – and play a key role in taking enormous stress off our oceans within a few short years.

With a supportive government and a good local partner there is essentially no limit to the growth opportunities.

Technology

GBT has the only commercial scale, closed/recirculating, bio-secure system in the world. It is the culmination of 14 years of R&D and $80 million in investment, including two prototype facilities.

All current non-GBT R&D enclosed/recirculating aquaculture systems, mostly in university labs, are focused on "raceway" systems that are too expensive, have too many moving parts, and are simply impossible to expand to commercial-size production because the raceway system is too unstable. Several small US companies have tried to commercialize this technology and failed (Blue Oasis, Marvesta, et al.). These raceway systems lack too many mechanical and biological elements inherent in the GBT system to succeed on a commercial scale.

With regard to finfish, an Israeli company, AquaMAOF,  markets a recirculating aquaculture system.  Their target species are tilapia, sturgeon, and barrmundi, considered "trash fish" in the industry for their low value (price and nutrition) and ability to feed on waste. The company, however, has shown more interest in selling its production systems and expensive equipment than in actual protein production -- and it makes no attempt to produce shrimp or any other high-value species.

The technological barriers to competing with GBT are very high. There are many components of the GBT system, from our own genetic hatchery and proprietary brood stock through our intensive industrialized and micro-managed production methods that are very difficult to duplicate.

Moreover, traditional aquaculture is low-tech and real estate intensive, not capital intensive -- the complete opposite of GBT's system. The majority of current aquaculture players, like traditional farmers, are highly reluctant to switch to an entirely new, capital-intensive paradigm.

If GBT's system is to be duplicated, it will be done by new players. GBT believes it has at least a 10-year head start on any technological competitor.

Keep in mind that GBT started with shrimp because it's the world's most popular and ubiquitous seafood. However, the GBT system also works with fin fish, where it can achieve even greater densities and economical feed conversion ratios producing high-value (price and nutrition) species.