Greek fish farmer John Stephanis has a problem. Global demand for his sea bass and bream is strong. But his company Selonda Aquaculture SA is so strapped for cash that it cannot expand its farms. One solution, says Stephanis, is smaller fish.
By growing slimmer fish - to about 370 grams from the current average of 400 - Stephanis can grow more of them in each of his 50 farms. And by keeping prices unchanged, he can start paring his losses.
"We’ve managed to put our fish on shelves around the world," said Stephanis, a former advertising executive who founded Selonda in 1981. "Ours is a national industry".
Leaner fish is just one way in which Selonda, like other Greece aquaculture firms, is trying to resurrect itself from a fall in fortune that has mirrored that of the broader Greek economy. Once the "El Dorado" of the country’s industry - Greece farms about half the global output of sea bass and bream - aquaculture companies are now unravelling under the weight of cheap credit they piled on during two decades of booming growth in the 80s and 90s.
One of Greece’s four major firms filed for bankruptcy in September while others are in talks with Greek banks - themselves propped up by bailout funds provided by the European Union and International Monetary Fund - to restructure their debt. The U.N.’s Food and Agriculture Organization predicts that Greece will lose its position as the biggest producer of Mediterranean fish to Turkey, after a 7 percent fall in production expected this year.
The future of Greece’s aquaculture industry is important for the country as a whole, as it tries to claw back years of lost competitiveness. Six years of deep recession have shrunk the economy by a quarter and shut thousands of businesses and fish farming is seen as one of the few sectors that could help pull Greece out of the quagmire - if it sorts itself out first.
Fish, mainly sea bass and sea bream, was Greece’s second-biggest agricultural export last year, beating even its famed olive oil. The sector currently employs about 20,000 people, and is one of the few industries - alongside tourism - that has enjoyed strong demand, especially by international customers.
In a 2012 report, McKinsey & Company identified Greece’s aquaculture sector as the rising star of the economy, saying it could contribute to growth over the next five to 10 years - if companies managed to improve their business models.
"The sector is close to sinking," Ilias Baras, Selonda’s business development manager, said on a boat ride through the farm in Sofiko in the Peloponnese region, drawing parallels to Greece’s crisis.
"The only difference is that Greece was not allowed to collapse. If these businesses fail, this land has nothing to hope for," Baras said, as men in bright orange suits worked through heavy rain to keep up with orders pouring in from as far away as Australia.
The mood was not always this glum among Greece’s fish farmers, who set up their firms in the 80s when growing fish in cages was an alien concept to a nation with a long history of fishing and used to eating fresh-caught fish from the sea.
Sea bass, in particular, has long been popular and known as difficult to catch - the Greek expression "I caught a sea bass" is used to refer to great and unexpected success. Soon enough, round floating cages began popping up all over Greece’s vast coastline.
Thanks to generous private and European investment and easy access to credit, fish farms developed even in tiny islets, where there was not much other investment. The number of firms grew from 10 in 1986 to 370 in 2008, government data shows.
For many firms including Selonda, which exports more than 80 percent of its output, the only way was up. In 1996 it sent Greek managers to work a fish farm in Kuwait that was destroyed during the Gulf War, and later built facilities for tropical fish, all set with Greek nets and cages, in Singapore.
"The 90s was a remarkable decade," Stephanis said from his office at the foothills of the Athens Acropolis, decked with his collection of Greek antiquities, including a fishhook that inspired the company’s logo. "It was an El Dorado."
At its height, Selonda managed to convince the country’s stock market regulator to allow it to enter the stock exchange in 1994 - the first fish farming company worldwide to do so - a remarkable feat for a relative newcomer in a global industry led by companies in northern European countries such as Norway.
Today, Selonda’s 50 or so farms produce up to 20,000 tonnes of sea bass and bream a year, compared to just 20 tonnes when it began. It exports to countries including Spain, Italy, France and the United States.
For many years, fish farm companies borrowed easily, either to set up their businesses, upgrade facilities or expand. Banks gave out loans without asking many questions.
But prices fell sharply in 2000, revealing that the firms lacked proper hedging strategies and were unable to deal with a lengthy production cycle and sizeable operating capital for food, nets, cages and other running costs.
Each time prices jumped, farmers grew more fish. But by the time they reached the market two years later, the suppliers often faced a glut of products and prices fell, forcing many to sell at a loss.
By the early 2000s fish farms were still borrowing - but this time it was to plug holes in their balance sheets rather than invest. The result was that in 2008, when Greece slipped deeper into economic crisis and prices fell sharply again, Selonda, was selling fish at 3.90 euros per kilo though it cost about 4 to 4.5 euros to produce. Since 2008, prices have ranged between 4 and 5 euros, leaving little profit margin.
These days, even though demand continues to rise, the 10 biggest firms owe Greece’s squeezed banks over half a billion euros - more than their combined sales. Selonda alone owes 185 million euros and its equity was wiped out in the first half of this year. It reported sales of 133 million euros in 2012. The company trades at 10 euro cents a share, down from its peak in 1999 of 24 euros a share.
A magic solution
For Stephanis, the industry is too precious to let it fail, and a debt restructuring - with banks turning part of the debt into equity and extending maturities and lowering rates on the rest - is urgently needed. The companies have pledged shares as collateral for their bank loans and at Selonda, this collateral amounts to 21 percent of its share capital.
A senior Greek banker who declined to be named acknowledged that fish farming was overborrowed and that Greek banks were "not negative" to the idea of restructuring their loans.
But Greek banks themselves are in a tight spot. Hammered by the recession, the four major lenders had billions pumped into them to prop them up after a sovereign debt restructuring last year and rising bad loans.
In the meantime, fish farms are working hard to improve their businesses.
Selonda is exploring ways to shorten the farming process from the roughly 24 months it now takes to 18 months, as a way to get the fish to market more quickly, and part of that will come from growing the fish to smaller weights, Stephanis said.
Fish farming companies that have spent the last three decades competing against each other are also looking to consolidate among themselves to weather the storm.
Selonda agreed to merge with rival Dias, but put the deal on hold after Dias filed for bankruptcy protection in October, Stephanis said. It has also approached rival Nireus for a possible merger, an offer Nireus is weighing.
Once arch-rivals, fish farmers were now left with no choice but to join forces, Stephanis said. "We have to agree - it is imperative," he said.
At the farm in Sofiko, where truckloads of fish are ready for the packing factory and then markets around the world, questions remain about how an industry that could have been Greece’s pride has become a symbol of all that has gone awry.
While the similarities with Greece’s own downfall are easy to spot, a way out is harder to identify, Baras, the business development manager, said. "The truth is, a magic solution is still being sought". [Reuters]