Bakkafrost (BAKKA)

Engineering Nature. Bakkafrost’s Vertical Advantage

Few businesses operate in an environment as unpredictable—and as potentially lucrative—as salmon farming. Bakkafrost, headquartered in the Faroe Islands, is one of the rare players that has managed to thrive by tightly controlling every stage of an unusually long and biologically sensitive value chain. From genetics and feed to processing and air freight, the company’s vertically integrated model is designed not just for efficiency, but for resilience. And it needs to be. In this industry, a single mistake—or a few degrees’ change in ocean temperature—can wipe out years of investment.

While larger players like Mowi benefit from scale and diversification, Bakkafrost has carved out a distinct position as the most profitable operator in the sector, with exceptional margins in its Faroese operations and industry-leading feed conversion ratios. Its location gives it access to superior natural conditions and locally sourced raw materials, while its long-term mindset—shaped by a family legacy and a deeply embedded management team—has led to decades of reinvestment in infrastructure, technology, and risk mitigation.

But the story doesn’t end in the Faroe Islands. In 2019, Bakkafrost made its boldest move yet: acquiring The Scottish Salmon Company, a struggling competitor operating in less favorable waters. The strategy? Leverage Faroese know-how to improve margins and productivity in Scotland. Almost five years later, the jury is still out. The market remains skeptical, the share price has gone nowhere, and investors continue to debate whether the bet will pay off—or drag on returns.

This analysis takes a deep look into the structural advantages Bakkafrost enjoys, as well as the unique challenges it faces as it tries to replicate its success in a more complex and biologically volatile environment. I explore the unit economics of salmon farming, the biological risks that make this industry so different from others, and the impact of climate change on long-term profitability. I also examine the company’s decision-making culture, capital allocation strategy, and the tradeoffs it must manage to pursue sustainable growth.

With global protein demand rising and aquaculture poised to play a central role in feeding a growing population, Bakkafrost is well positioned to benefit from long-term structural tailwinds. But execution will be everything—and not every variable is within the company’s control. In today’s post, I look at whether the recent underperformance presents an opportunity for patient investors—or whether risks now outweigh the upside.