6. Fishing for Maguro

The worldwide bluefin tuna fishery is directed almost exclusively toward the insatiable Japanese sashimi market. Whether they are caught in the North Atlantic, the Mediterranean, or Australia, the large tuna are destined for the Tsukiji Fish Market in Tokyo, where a daily auction takes place, often for prices in excess of $100,000 per fish. Although scientists have been trying for years, tuna cannot be farmed in the traditional fashion (fish grown from eggs). But they can be ranched, where juvenile tuna are trapped in nets and towed to pens where they are fattened until they are large enough to be killed for the sashimi market. These tuna ranches can be found off almost every country on the Mediterranean, and in Australia, Costa Rica, Malaysia, Japan, Mexico, and Panama as well.

In his 1995 book Giant Bluefin, Douglas Whynott summarized the early history of commercial tuna fishing as the fish morphed from large, undesirable “horse mackerel” into the most valuable fish in the world:

Since 1958 in Cape Cod Bay a small seiner called the Silver Mink, captained by Manny Phillips, had been netting 500 to 600 tons of school bluefin per season... He was giving fish away. He was selling school bluefin for five cents a pound to a cannery in Maine... Another fisherman, Frank Cyganowski, in his first year as a seiner captain, making his first set off Martha’s Vineyard, hauled in sixteen tons of sixty-pound bluefin. The fish were sold to Cape Cod Tuna, the cannery in Eastport, Maine, for five cents a pound, and so Frank Cyganowski’s first set was worth $1,600...

From 1962 to 1970, a fleet of two dozen Canadian seiners made yearly catches of from 6,000 to 10,000 metric tons of tuna... In 1956 Japanese longline trawlers began to fish in the Atlantic Ocean, first in equatorial waters, later expanding into tropical and temperate waters in both hemispheres. Japanese longliners typically set lines fifty miles long with two thousand hooks per line. By the peak year of 1965, a fleet of several hundred boats was setting 100 million hooks. At first they targeted yellowfin and albacore tuna, and the catches were landed at ports in the Atlantic, but in the 1970s, with increased demand for tuna, target species changed to northern and southern bluefin and to bigeye tuna, which inhabit colder waters.¹

In his 2001 discussion of tuna conservation, Carl Safina wrote, “Because the prices surrounding them run so high, bluefins are depleted everywhere they swim.”² When the Japanese learned that giant tuna could be caught off eastern Canada and New England, the bluefin market exploded. Prior to the arrival of the Japanese purse seiner Kuroshio Maru 37 in 1971, the large, red-meat bluefin tuna were worth only a few pennies a pound—if you could find a buyer. When fishermen brought fish to Kuroshio Maru 37, they received 10 cents a pound, but they didn’t know that Frank Cyganowski was receiving another 21 cents a pound, thus becoming the first Japanese/New England middleman. The next year, Nichoro Gyogyo K.K. sent Kuroshio Maru 32, another purse seiner with a large cargo capacity, prepared to pay the fishermen $1 a pound. Fish that had brought $40 two years earlier were now worth $1,000. Soon the price of a single “giant” shot up to tens of thousands of dollars. When Atlantic coast fishermen found that they could earn a year’s pay in an afternoon, the uncontrolled slaughter of what Barbara Block called “the cocaine of the sea” began.

By 1990, Japan was consuming 800,000 tons (1,600,000,000 pounds) of tuna per year, of which 74% (690,000 tons) was caught by the Japanese tuna fleet, and the remainder by foreign fishers. As of 2001, wrote Carroll, Anderson, and Martínez-Garmendia, “More than 45 countries now compete to supply bluefin tuna to Japan. From 1994 to 1997, the main sources of fresh bluefin tuna exports to Japan were Canada, the U.S., and the Mediterranean region. In 1997, Japanese bluefin tuna imports of fresh U.S. product accounted for about 15% of all imports. However, the U.S. share was greater during the summer months, when it comprised more than 25% of total Japanese imports.”³ The enormous Japanese sushi and sashimi markets are supplied by what is essentially a consortium of tuna fishermen from around the world, all eager to cash in. Large Atlantic wild bluefins are caught off New England, Maritime Canada, New Jersey, and North Carolina, and their (smaller) Pacific counterparts are fished off California, Japan, and Hawaii. The southern bluefins (SBT) can be caught off Australia and New Zealand, and nationals from any and every country participate in the international bluefin sweepstakes. With everybody and his uncle chasing after the remaining bluefins, it is not particularly surprising that these big fish have become scarce. But because greed and gluttony always trump caution and care, a system of creating more giant tuna was developed that appeared at first to solve the problem of scarcity. But the tuna farmers proved to be just as venal and careless as the open-water fishermen, and they managed to overfish the very fishery they had created. Now the tuna ranches are running out of fish too.

The Japanese will tell you that bluefin tuna are plentiful throughout the world’s oceans and that their fisheries (and their purchases) are hardly making a dent in the populations—which are on the rise anyway. ICCAT publishes report after report about catch statistics, management, and fishing gear, but it appears to be little more than a lobbying organization for tuna fishermen and has no way of reducing fishing pressure. But ask conservation organizations such as Greenpeace or WWF, and you will hear that the bluefin tuna is in very serious trouble. No population of animal, no matter how widespread and fecund, can withstand such massive inroads into its numbers. And the practice of tuna ranching, which removes large numbers of potential breeders from the population, will surely have unexpected consequences.

It was always assumed—at least by fishermen—that as a particular fish species grew scarce, they would simply find another place to fish for it. Or if a particular species declined, they would find another species. As Myers and Worm put it in a follow-up to their 2003 report, “Although fishing pressure on large marine predators, such as sharks, tuna, billfish, large groundfish, etc., is high, it has long been assumed that these species are largely extinction-proof. The main reasons for this idea were the seemingly inexhaustible abundance of marine life, the remoteness of many marine habitats, and the extreme high fecundity of marine fish populations.”⁴ This rosy attitude has proven to be disastrously flawed. If you remove most of the fish of a given species from the ocean, there may not be enough left to regenerate the species. Gone are the days when cod fishermen on the Grand Banks—once the world’s richest neighborhood for Gadus morhua—could lower a basket on a rope and bring it up filled with wriggling cod. The cod fisheries of New England and Maritime Canada can no longer sustain any level of commercial fishing.

Once known as horse mackerel and used mostly for bait or pet food, bluefin tuna has been elevated to the very pinnacle of menu desirability, eaten in various countries and cooked (or not) in various ways. Always the most fashionable and expensive item on the Japanese menu, maguro is the red, fatty belly meat of the bluefin tuna, always served raw. You can order it in expensive Japanese restaurants in New York, Los Angeles, Paris, London, Rome—and at practically every restaurant that isn’t a noodle shop or a McDonald’s in Tokyo. Outside of Japan, bluefin tuna is also served grilled, as carpaccio (raw, thin-sliced), or even as tuna filet mignon. But even if the fish was caught off Cape Cod and served in Boston, it is identified as maguro because of the pervasive Japanese influence. Fish is healthy food. Something about omega-3 fatty acids is supposed to make you live longer or reduce your cholesterol. On the other hand, for many people, red meat has become a potentially unhealthy alternative. Therefore, Japanese restaurants, where the overwhelming emphasis is on fish, are more popular than ever. (A few Japanese restaurants specialize in beef, but interestingly, “Kobe beef” from specially fed and massaged cows resembles red-meat tuna.) Thirty years ago, the idea of eating raw fish was repulsive to most Westerners, but nowadays they gobble it up in restaurants in New York, London, and Paris. Japanese cuisine has revolutionized how Westerners think about fish, and Japanese fishermen have revolutionized how the world thinks about tuna.

Theodore Bestor, Professor of Japanese Studies at Harvard (and author of Tsukiji: The Fishmarket at the Center of the World), points out that sushi has become a global phenomenon: “Japanese culture and the place of tuna within its demanding culinary tradition is constantly shaped and reshaped by the flow of cultural images that now travel around the globe in all directions simultaneously, bumping into each other in airports, fishing ports, bistros, and bodegas everywhere. In the newly rewired circuitry of global cultural and economic affairs, Japan is the core, and the Atlantic seaboard, the Adriatic, and the Australian coast are all distant peripheries.”⁵ Japanese food is in vogue in urban Asia, and demand for sashimi and sushi products is on the rise. This has created opportunities for selling sashimi-grade tuna, particularly in cities such as Shanghai, Guandong, Beijing, Hong Kong, Taipei, Singapore, Kuala Lumpur, Bangkok, and Ho Chi Minh City. Many holiday resorts in the Asian Far East have also added sashimi tuna to their buffet lunch and dinner menus. Fresh tuna loins treated with carbon monoxide (to promote color retention) that are used for sashimi and sushi products are exported to Hong Kong and Taiwan regularly. Supermarkets in Singapore and Malaysia have introduced fresh tuna loins in the seafood section. Fresh sashimi is also an item offered in many upmarket hotels and restaurants in the Asian Far East. China, housing the largest population in the world, is potentially a big market for sashimi as well as canned tuna. Nowadays, Chinese tuna fleets operating in the Pacific Ocean are selling part of their catches on the mainland. In 2005, the leading Japanese conglomerate Nissho Iwai launched a promotional campaign for sashimi tuna in China.

The rising global popularity of sashimi will surely be the downfall of the bluefin tuna. The all-out onslaught on the species, whether wild-caught or raised in pens, will end badly for everybody, including fishermen, fish dealers, restaurateurs, and consumers. It goes without saying that it will end badly for the tuna. If tuna become scarce—and how could they not?—the price will go up, which will encourage intensified fishing effort, which will, of course, reduce the populations even more. This is the lesson so painfully learned with codfish. As the fish became scarcer, the cod fishermen whose lives and livelihoods depended on this fish tried to increase their catches. After all, they had to make payments on the boat, pay off the mortgage, send their kids to school, feed their families—and besides, this was the only job they knew. Western Atlantic codfish stocks declined to the point where the U.S. and Canadian governments were forced to close down the fishery permanently, which put the cod fishermen out of business whether or not they agreed with the scientists.

The cod fishermen of Norway, however, are becoming codfish farmers, and on an increasingly larger scale. According to Paul Greenberg’s 2006 article, “In 2002, the Ministry of Fisheries established the Tromso cod breeding facility, at a cost of $18 million. The Tromso-based seafood export council has started a ‘Cod TV’ cable channel, and a network of government agencies, farmers, and researchers has come together as ‘Sats pa Torsk!’ (‘Go for cod!’).”⁶ Norwegian cod scientists figured out how to keep juvenile cod from eating their penmates, how to slow their sexual maturation, how to change their diet from uncultivatable zooplankton to cultivatable rotifers, and how to make industrial production economically feasible. They just haven’t done it yet. Fishermen of New England and Maritime Canada no longer seek cod in their waters, because there aren’t enough to support a fishery (and the governments have shut down the fisheries anyway). But the Norwegians are banking on their ability to breed cod in sufficient quantities to establish cod as viable food fishes once again. The future of the Atlantic cod—and of the Norwegians who would eat lutefisk (cod cured in lye)—swims now in pens, not in the open ocean.

One has only to pay a visit to the Tsukiji market to realize that the Japanese approach to marine life is somewhat different from that of most Westerners. As a seagirt island nation with little in the way of natural food resources, Japan is largely dependent on the sea to provide the major source of its protein, whether in the form of fish, shellfish, cephalopods, lobster, shrimp, jellyfish, sea cucumbers, seaweed, shark meat, or whale meat. After World War II, with the Japanese economy in tatters, General Douglas MacArthur arranged for the delivery of tankers that could be converted into factory ships so that the Japanese could hunt whales to feed their starving people. From that time onward, the Japanese slaughtered whales in numbers that defied both imagination and logic. Faced with international restrictions, they ignored them. As they paid lip service to the quotas at International Whaling Commission (IWC) meetings, they killed every kind of whale anyway and then lied about what they had done. In Matsuda’s history of the tuna fishery, he says, “The tuna industry is the symbol of Japanese fisheries,”⁷ and indeed it is, but perhaps not in the way he intended. As with the whales, the Japanese killed as many tuna as they could (and, in the case of southern bluefins, lied blatantly about the catch statistics). But because they maintain the market for large tunas, they encourage every other fishing nation to participate in this free-for-all. Their takeover of the IWC in 2006 changed the rules (and came close to abolishing the moratorium on commercial whaling that had been passed in 1983). In the same way, their tremendous influence in ICCAT virtually guarantees that bluefin tuna will continue to be caught in numbers that will fulfill the bottomless lust for sashimi and, as an unfortunate by-product, drive tuna closer and closer to extinction.

No elaborate cooking techniques, no fancy sauces, no exotic accompaniments. Just a piece of red, raw fish on a plate that commands prices higher than traditionally expensive items such as beluga caviar and white truffles. Caviar and truffles are rare and often require esoteric methods of collection (black-market sturgeon for caviar and rooting pigs for truffles). But as one can see at Tsukiji every day, bluefin tunas arrive by the hundreds. They may be becoming rare, but they are certainly not in short supply. Buyers sample the meat to find the best-quality toro, which can be sold for astronomical prices at Tokyo (or New York) restaurants. Bluefin tuna toro may be the modern-day equivalent of the Dutch “Tulipmania” of the 17th century, where buyers of particularly rare hybrids would mortgage their houses, sell the family jewels, or otherwise contrive to raise enough money to buy a single tulip bulb. When the bubble burst, many people went bankrupt as the perceived value of the bulbs plummeted to nothing. Will modern consumers ever come to realize that, however succulent, a piece of fish is just a piece of fish, and that the current tunamania may be driving the tuna out of existence?

Once upon a time, the North American passenger pigeon was the most numerous bird on Earth. In the Eastern U.S., they numbered in the billions, outnumbering all other species of North American birds combined. In 1800, early American naturalist Alexander Wilson witnessed a flock between Kentucky and Indiana that he estimated at a mile in width and 240 miles long. Wilson estimated that this flock contained 2.2 billion birds—and later he said that was an underestimate. Larger and more graceful than the common street pigeon, Ectopistes migratorius was a soft gray on its head and back and rufous-pink on the breast, fading to white on the underparts. The bill was black, the feet red, and the eyes orange. Their flocks darkened the skies and extended for miles. Their nesting sites covered hundreds of square miles of forest, with dozens of birds in each tree. As the forests were cleared and converted into farmland, the pigeons’ habitat began to disappear, but by far the major contributor to the decline was man. Many passenger pigeons were shot for food, but untold millions were shot for sport. In one competition, a participant had to kill 30,000 birds just to be considered for a prize. Thousands of hunters slaughtered millions of birds, which were sold and shipped out by railroad cars at a price of 15 to 25 cents a dozen.⁸ The last legitimate sighting of a wild passenger pigeon was in 1900 in Ohio. This bird was shot, and its remains are in the Ohio State Museum. A few individuals lingered on in captivity into the early years of the 20th century. By 1909, the Cincinnati Zoological Gardens had the three remaining birds, two males and a female. By 1910, only “Martha” was left, named after George Washington’s wife. Martha died in a cage at the Cincinnati Zoo on September 1, 1914.

Conclusion

There is no real utility for the tuna fish other than its place on a sushi menu. Perhaps canned albacore is more a staple of Western diets, but even that is a stretch. The fish doesn’t cure cancer, it doesn’t generate BTUs, and it cannot be used in microchips. Bluefin and other types of tuna are delicious when served with brown rice, crunchy tempura flakes, and spicy sauce. As ridiculous as it sounds, it seems that this is enough to drive our society to over-exploit the tuna population, especially the Pacific bluefin. “Investing” in tuna is not meant to suggest that I condone overfishing. I also don’t recommend jumping on the next flight to Tokyo, buying a harpoon gun, and striking it rich. But the facts are the facts: Bluefin tuna are going extinct. As mentioned, the tuna ranchers of Port Lincoln, Australia benefit greatly from higher tuna prices. Because they are essentially setting the market on the fish, I see no evidence that would suggest a decrease in the amount of catch that is being pulled from the water each year. The demand is simply there. Large Japanese and Australian corporations have been preparing for an inevitable rise in the price of tuna.

As mentioned, Chevron Corporation is funding the Sea World Research Institute in its feasibility studies on tuna ranching in Mexico and is allowing one of its mid-ocean oil drilling platforms to be used as part of the facility. Mitsubishi International is reportedly deep-freezing Atlantic and Mediterranean bluefin tuna for several years so that it can sell its inventories in the future, when prices will be substantially higher. Japanese sources report that Mitsubishi controls nearly 40% of the tuna imports in Japan, which is the epicenter of the fish market.

For an outside investor, gaining exposure to the seafood market is difficult—which is true in any niche over-the-counter (OTC) market. Some of the big trades currently being made are in a type of tuna futures contract, or quota contract. These instruments were described briefly earlier, but essentially they work similar to a carbon credit. For example, XYZ Fishing Corporation may use only 70% of its allotted catch quota in a given year, whereas ABC Fishing Corporation projects that it will be 30% over its allotted catch quota. ABC Fishing would then purchase the excess quota from XYZ at some premium to where the underlying fish is priced in the market. In Australia, this is a booming business. As time progresses and it becomes more and more difficult to fish bluefin tuna, these quota contracts will be worth more than gold.

This book is meant for investors who are creative and want to seek opportunities off the beaten path. When ideas need to be stripped down to a few equity names, it always becomes difficult to convey the real story of why that opportunity exists. In the case of tuna, the real arbitrage exists in these tuna quota rights, or actually working with companies that breed and farm the bluefin. This is not an easy answer, but that is the fun of seeking out opportunity. There are equities in the market such as Clean Seas Tuna Ltd. (ASX: CSS), the Australian company founded by Hagen Stehr, and Shanghai Kaicung Marine International Co. Ltd. (SHA:600097). I do not have any view on these equities, and neither I nor the coauthors own these shares. I believe, however, that these equities do little justice to the opportunity at large. Over the next few years, possibly a more liquid futures contract will be released so that restaurant chains can hedge against soaring tuna prices. Until then, investors must get creative building some exposure to seafood prices.

Endnotes

¹ Whynott, D. 1995. Giant Bluefin. North Point Press.

² Safina, C., A. Rosenberg, R.A. Myers, T.J. Quinn, and J.S. Collie. 2005. U.S. ocean fish recovery: staying the course. Science 309: 707-708.

³ Carroll, M.T., J.L. Anderson, and J. Martínez-Garmendia. 2001. Pricing U.S. North Atlantic bluefin tuna and implications for management. Agribusiness 17(2): 243-254.

⁴ Myers, R.A. and B. Worm. 2003. Rapid worldwide depletion of predatory fish communities. Nature 423:280-283.

⁵ Bestor, T.C. 2000. How sushi went global. Foreign Policy 121:54-63.

⁶ Greenberg, P. 2006a. Green to the gills. New York Times Magazine June 18. www.nytimes.com/2006/06/18/magazine/18fish.html?pagewanted=7&_r=1.

⁷ Matsuda, Y. 1998. History of the Japanese tuna fisheries and a Japanese perspective on Atlantic bluefin tuna. Col. Vol. Sci. Pap. ICCAT 50(2):733-751.

⁸ Matthiessen, P. 1959. Wildlife in America. Viking.