The Missing Middle of Blue Foods

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Introduction

Transformational Investing in Food Systems (TIFS) works to seed and scale regenerative innovations by unlocking access to integrated capital and growing the field of systemic investing. Effective food systems provide food security and nutrition for all, maintain dignified livelihoods for food producers and workers, and contribute to a stable climate and healthy ecosystems. Current food systems fall far short of these goals. The good news is that regenerative entrepreneurs and financial innovators around the world are creating solutions to the world’s greatest challenges—biodiversity loss, climate crisis, malnutrition, to name a few. 

In order to be able to scale regenerative solutions, access to an ecosystem of services, including finance, business assistance, peer networks, market development, and connection to consumers is required. The need for supportive policies, regulations, and markets is also essential. This is at the heart of why TIFS aims to remove systemic barriers to accessing capital for regenerative and agroecological innovators who can create pattern-breaking change and build a market for the future of food that is regenerative, equitable, and climate-resilient by design.

One of the important roles that TIFS plays in removing systemic barriers to accessing capital is convening conversations about “Missing Middle Investments” to learn how we might close the gap between the investment needs of regenerative businesses and the investment requirements of interested private and public investors. There is a tremendous amount of capital in the global financial system looking for investable opportunities. TIFS connects investors to the regenerative, restorative and resilient businesses that are key to addressing the polycrisis of climate change, biodiversity loss and economic equity especially across global food systems. 

Beginning in 2022 at COP 15 in Montreal and running through 2023 and 2024, TIFS held multiple investor dialogues focused on the Missing Middle of Food systems investing in North America and the EU. And, in the first half of 2024 we convened a series of conversations about the “Missing Middle of Blue Foods” to gain a better understanding of the financing needs of and investment gaps in the global Blue Economy.

What is the “Missing Middle of Blue Foods” 

Food derived from aquatic animals, plants or algae that are caught or cultivated in freshwater and marine environments (also called blue foods) and the waters in which they grow have an essential role to play in the shift towards healthy, equitable and sustainable food systems. According to The Blue Food Assessment, about 2,500 species or species groups of fish, invertebrates, algae and aquatic plants are caught or cultivated for food, two thirds of blue food consumed by people is produced by small-scale fisheries and aquaculture, 800 million people depend on blue food systems for their livelihoods, three billion people get vital nutrients and 20% of their animal protein from blue food, and half the blue food workforces are women. In addition, these same and additional products are used for animal food, fiber, and biological packaging and other products. 

From a national governance perspective in the USA, the future of blue food is critically important. United States government departments and agencies are working on this from numerous angles, including the creation of a National Strategy for a Sustainable Ocean Economy and the interagency National Aquaculture Development Plan. 

Increased attention from the private sector to the opportunities in blue foods and the development of an encouraging policy and regulatory environment by national policy makers and regulatory agencies is attracting new investments by private investors who see opportunities for financial returns paired with positive social and ecological impact. This is also the case in other countries and regions across the world.

But, aquatic systems are complex and the threats to a thriving blue economy are real. Species invasion, over-enrichment of water bodies with nutrients, ocean warming, and sea level rise are big threats to blue food production in the US. Globally, more than 90% of global aquatic food production faces substantial risk from environmental change. Generally, there is a lack of understanding of how environmental stressors are connected, and how they can negatively impact the production and safety of blue foods.

Around the world, blue food supports the livelihoods and diets of billions of people. It also generates vast economic benefits, including about $424 billion in value globally. But the benefits of blue food systems are vastly unequal across and within nations. Pursuing profits and exports often come at the expense of nutrition and livelihood benefits.

How does an investor – who is likely not an expert in aquatic ecology and related socio-cultural systems – navigate this complexity? That question is at the heart of the thought- and action-leadership conversations TIFS convenes. Across our dialogues, we are seeing important patterns:

  • Promising businesses exist. Investors like AquaSpark have proven that investments in companies such as Protix can create positive social and environmental impact, while being profitable. 
  • But they face obstacles. Companies may take 10+ years to scale and require heavy up-front investments. Traditional financing models are not a good fit for many blue foods.
  • Market maturity is important. Findings from a new compendium, Financing for Regenerative Agriculture, written by TIFS and Pollination in partnership with the Rockefeller Foundation demonstrate that market maturity is important. The market for sustainable and equitable blue foods is in its early stages of development, which requires the use of transition initiatives to develop localized evidence bases and commercial models with the potential for scale. This informs the types of financing mechanisms and sources of capital needed. 
  • Investors are seeking systemic approaches. More and more investors are paying attention to the unintended consequences of their investing and the combination of discovering and mitigating both unassigned risk AND unintended consequences is powerful. 

Taking a systemic investing approach provides the framework for investors and companies to identify meaningful pathways for progress.

Missing Middle of Blue Foods Dialogues

This year TIFS co-organized three convenings to discuss the challenges and opportunities of deeper investment in the blue economy. We found that each conversation had unique synergies but built off of the previous and culminated in illuminating takeaways. Our intention is to find the common threads to forge a blueprint for the build-out of a vibrant, sustainable, blue foods industry. 

Read on for key takeaways from each of these convenings. 

Aspen Ideas: Climate 

From March 11-13, 2024 at the third Aspen Ideas: Climate gathering in Miami, Florida, more than 150 speakers gathered with global expertise spanning policymaking, science, business, technology, art, education, food, media, and more, to elevate and amplify climate solutions. TIFS Managing Director, David Bennell along with Michael Conathan, Senior Fellow, The Ocean Foundation, Danielle Blacklock, Director, Office of Aquaculture, NOAA, and Jennifer Bushman, Founder, Fed By Blue, moderated and presented “Developing a Sustainable Aquaculture Industry in the United States: Addressing the Missing Middle” a two hour conversation with participants from a wide range of academic, social, and financial organizations.

Key Takeaways:

  • Environmental science is conclusive and positive that sustainable aquaculture is feasible, however the term “sustainable aquaculture”  is not yet adequately defined.
  • If the United States wants to be a leader in sustainable and just aquaculture it will take sustained investment from a range of capital providers. 
  • We need public and philanthropic investment to help de-risk early-stage investments and to create positive examples of sustainable aquaculture. Establishing positive precedents, as well as storytelling and narrative building will be critical to setting the stage for success.
  • Investors may put outsized emphasis on scale and tech, but if we want to feed the world sustainably and equitably, it should be worth a few basis points to invest in smaller players–the local leaders who actually work in the water and are part of the communities where sustainable aquaculture projects will be located.
  • Pension funds and other fiduciaries need data and information–translatable in financial terms–showing unsustainable seafood industry’s regulatory risk, market risk, and reputational risk. 
  • While there are overlapping issues and opportunities, there is no one-size-fits-all approach that will be successful for accelerating all types of aquaculture (seaweed, shellfish, in-water finfish, or recirculating aquaculture systems) in all regions of the U.S. 

The Missing Middle of Blue Foods Investing Dialogue, Part One

TIFS co-hosted a dialogue with Investable Oceans and Aqua Spark during World Oceans Week at The Explorers Club in New York City in early June 2024 to explore how we might support the growth of a new sustainable, commercial aquaculture industry. The conversation centered around a key question: Why is it so difficult for capital to flow to the regenerative, restorative and resilient businesses many investors claim are important?

Key takeaways:

  • A large segment of the world’s blue foods industry is operating at unsustainable levels and it is estimated that somewhere between $15.5 billion to $36.4 billion is lost annually due to illegal, unreported or unregulated (known as IUU) fishing. That means there’s a lot of unassigned investor risk packed into current major blue food companies.
  • The blue food stakeholder community needs to come together and better articulate what kind of industry it is trying to build. What outcomes does the community collectively want to achieve?
  • In the absence of clearly agreed upon outcomes, it is impossible to structure financial products that are fit for purpose. A majority of environmental and social impact is locked-in during the design phase of investment mechanisms. 
  • Clarity about target outcomes in combination with a systemic approach helps investors, companies, and asset managers identify unassigned risk and unintended consequences during the design phase of investment mechanisms.
  • Stakeholders identified a need for early stage as well as growth investment. They felt that blue foods companies have a different risk-return profile than many other industries. Blue foods industries should focus on building approaches that are scalable and replicable.
  • SDG 14 (Life Under Water) remains the most underfunded of all Sustainable Development Goals. Blue Foods need catalytic investments, including through blended and other innovative financing models.

The Missing Middle of Blue Foods Investing Dialogue, Part Two

On 12 June, TIFS hosted a second Missing Middle of Blue Foods Investing Dialogue, which was co-sponsored by Bristol Seafood & Coastal Enterprises, Inc. and held at the Portland Museum of Art, Portland, Maine.

Key Takeaways: 

  • Catalytic, patient and development capital are desperately needed to build a sustainable aquaculture industry in the US. Traditional  agriculture finance structures and loan programs often operate on annual cycles  and this won’t work for most aquaculture models where initial growth times are  longer on top of extended leasing and permitting processes. 
  • The current governance structure is excessively cumbersome, and permitting delays are a major obstacle to finance (e.g., leases can take 2-3 years to permit in Maine state waters). Working with communities and government, the emerging sustainable aquaculture industry may be able to promote a balanced approach between public incentives and adequate safeguards. 
  • Researchers are improving methodologies to assess the environmental and social performance across the diversity of blue foods. Certain forms of aquaculture (e.g., farmed finfish) have come under public scrutiny, because of pollution and other issues. Environmental science is conclusive and positive that sustainable aquaculture is feasible. As the sector develops concrete examples of sustainable aquaculture. With positive examples,  public perceptions can shift.

Next Steps

The three dialogues that have taken place in the first half of 2024 were an exploration of the themes that TIFS has mapped and explored in the context of financing regenerative and agroecological transitions. Although the contexts are different from terrestrial regenerative agriculture—blue foods involve diverse ecosystems, species, markets, social structures and approaches—we have found important patterns that warrant continued work to test solutions for appropriate financing of sustainable blue foods and blue economy businesses and initiatives.

TIFS will explore the following portfolio of activities aimed at narrowing the gap between the financing needs of community-based and sustainable blue foods businesses and the investment requirements of a broad spectrum of capital providers: 

  • Organizing additional dialogues with investors, companies, and communities to build a shared understanding of the positive outcomes of sustainable blue foods.
  • Adapting systemic investing frameworks for the blue foods industry to make the intended and unintended outcomes of investments in blue foods visible. 
  • Developing case studies of inspiring blue foods companies (similar to Beacons of Hope Report by the Global Alliance for the Future of Food) to demonstrate the business models and financial mechanisms that contribute to the positive outcomes of sustainable blue foods.
  • Organizing regional cohorts of values-aligned frontrunner investors, companies, and community members who are ready to take action and co-design appropriate financing mechanisms.

As an ecosystem builder, TIFS will do this work in partnership with those who are already taking action for blue foods sectors that contribute to just transitions, healthy ecosystems, and thriving communities. TIFS is poised to alchemize interest in the blue food system that produces healthy, low-carbon, domestically sourced, delicious protein from the water. We welcome your input, participation and partnership. Please reach out to Rex Raimond, TIFS Initiative Director, to begin a conversation at rraimond@tifsinitiative.org