toward Profitable Sustainability in the Aquaculture Sector
How a family-owned Turkish aquaculture company left a mark of sustainability in an agribusiness sub-sector
The aquaculture sector plays a significant role in the global food supply, providing relatively cheap and accessible protein sources through cultivating and farming (shell)fish and aquatic plants. With a rapidly growing global population, the essentiality of aquaculture will only continue to rise. As of 2020, total aquaculture and fisheries production was at 214 million tons, with nearly 60 million people directly employed in the primary sector and over 600 million depending in part on the industry. But is it possible to use and manage aquaculture resources sustainably while growing?
Kılıç Deniz, Türkiye’s leading aquaculture player, seems to have done just that. They’re a family-owned enterprise based in Bodrum, a coastal city in southwestern Türkiye, and have a strong track record of 30 years—with significant growth since then.
“They started off with about 30 to 40 tons of production annually, but they’ve grown to nearly 70,000 tons of production today,” says Tugçe Kockaya-Beker, Senior Investment Officer in FMO's Agribusiness, Food, & Water department. “Now, they’re a fully integrated aquaculture producer for various species of fish, mostly in marine farms: sea bass, sea bream, royal sea bass, various types of trout, and even salmon trout because of their recent investment in the Black Sea.” Kılıç has a well-diversified customer base in both domestic and international markets, with Europe as the main offtake market. What makes Kılıç unique from other aquaculture players is its oversight into its entire value chain, thanks to their fully integrated business model.
They own all facilities within the production process: they have their own fish feed with fully-traceable ingredients and they produce their own formulas. Kılıç even owns its own hatcheries, fully controlling the egg selection and growing process. But owning all the facilities provides even more benefits, as Jessenia Angulo, Senior Environmental & Social Officer from FMO explains. “With full control and oversight, Kılıç is basically able to reduce any potential external risks related to contamination, biosecurity, or lack of input. They can monitor internal labs for pest and sickness control, use different processing plants to reduce cross-contamination risks.”
From the get-go, it seems clear that Kiliç Deniz is an impact-focused and financially stable aquaculture company. Which begs the question: what sort of additionality could a DFI like FMO provide?
The financial additionality is cut-and-dry, as Tugçe explains. “The aquaculture sector isn’t mainstream within agribusiness. It’s a risky operation, throughout the entire value chain, so commercial investors aren’t as likely to invest. Even if they do invest in stable companies like Kılıç, it’s not for the long run. FMO provides long-term financing, which Kılıç needs for capital expenditure investments as they expand their business and longer term working capital requirements for growing fish from hatcheries to harvest.”
But where things start to get interesting is when Jessenia dives into the non-financial additionality. “Türkiye has strong baseline requirements for establishing aquaculture farms, and Kılıç was already going out of its way to minimize resource and input waste, tracking where every penny goes. The due diligence process at FMO uses compliance with all laws and minimum risk as a baseline, which Kılıç already did.”
BUT THERE WAS JUST ONE THING
Kılıç had no idea just how ahead of the curve they were.
At the time, Kılıç was fully compliant with national laws. Certain operations had been certified by GLOBALG.A.P and ASC for sustainable agriculture production, they had an ISO 9001 for quality management, and they met food safety certifications to export to Europe and the U.S. When Jessenia started working with Kılıç, she quickly realized that they were leaps ahead of other companies in the industry—based on her previous experience at the Dutch Ministry of Foreign Affairs, advising aquaculture companies in the Global South. While Kılıç had made a name for itself in terms of quality and customer service, they were missing out on positioning themselves as sustainable pioneer in the aquaculture sector. There was a clear opportunity for Kılıç to focus its efforts on carbon efficiency—which is where FMO could lend its expertise.
When FMO began its partnership with Kılıç in 2019, an Environmental & Social Action Plan (ESAP) was drafted, as is standard for all customers that FMO works with. Jessenia: “We wanted to understand if there wasn’t an indirect biodiversity impact through their aquaculture work, so we requested a technical cumulative biodiversity assessment. We also set requirements for having an integrated E&S management system. All of this was done to verify the sourcing, safety, and traceability of their operations and supply chain, to ensure there was no deforestation and fish ingredients were coming from sustainable fisheries.” Kılıç passed with flying colors: FMO was able to ascertain that the supply chains had extremely low exposure to risk. But the ESAP also focused on something Kılıç had not dedicated much time to yet: decarbonizing their footprint.
greenhouse gases reduction while production increased 12%
The first estimation came in above FMO's reporting requirement of 60,000 metric tons. However, it hadn’t been independently verified, which was needed to compare Kılıç with its aquaculture peers and deeply understanding how to improve. Following an independent assessment, Kılıç took the consultants’ recommendations to heart, and set to work tirelessly to further reduce their greenhouse gases over the next year—which they did, by 14% while production increased 12%. Kılıç’s footprint per kilo of fish now averaged at 2.22kg of CO2/kg of fish (and after energy offsets, 1.69kg of CO2/kg).
Life cycle assessments conducted by Mediterranean Research Centres for the same species reported Global Warming Potential on a 1kg of edible protein (sea bream and sea bass) basis ranges from 10.04 to 10.34 kg CO2-eq for kilo of fish. Kılıç essentially now had one of the most carbon-friendly animal protein produced worldwide.
ONE OF THE MOST CARBON-FRIENDLY ANIMAL PROTEIN PRODUCED WORLDWIDE
Meanwhile, parallel to the mitigation work, Kılıç was active on the climate adaptation front. A coalition coordinated by the University of Hamburg (with the collaboration of more than 12 European research institutes and universities including Wageningen University), funded by the EU, was carrying out a climate adaptation risk assessment of Mediterranean species which Kılıç was a part of. The final paper outlined various risks, hazards, and recommendations for adaptation for fisheries and aquaculture in the region, which FMO helped support Kılıç with. In fact, Kılıç was already able to match all current practices with the recommendations given in the report, allowing FMO to label its latest loan to Kiliç as 100% Green on climate adaptation—significant progress in just 4 years. “We’ve come a long way with Kılıç,” Tugçe affirms. “A lot has happened with both ESAPs. We’ve fully aligned on their risk management systems and capacity, we’ve ensured human rights trainings, completed external biodiversity studies, and we’re now focusing on integrating current certifications with their management system, to ensure the ESMS covers all operations, both in Türkiye and abroad.”
When it’s put like this, it sounds relatively straightforward, although it’s anything but: given the scale and global reach of Kılıç’s fish productions, aligning all E&S management and reporting was a massive undertaking. But it’s paid off. Kılıç’s strategy is profitable growth via continuous improvement and sustainable practices. But it’s not just a strategy on paper, it’s truly embedded into their DNA. Although Kılıç is leaps and bounds ahead of the industry, they’ve remained modest throughout their pivot towards sustainability aquaculture leaders. “Another area we’re focusing on now is stakeholder communication,” Jessenia says. “Kılıç has made significant process in decarbonizing, but up until recently, they didn’t publish an annual sustainability report—not because they weren’t putting in the effort, but because they wanted to 100% confirm that they weren’t making empty commitments that weren’t followed up on." It’s also a focus point of the new ESAP: applying and implementing stakeholder engagement and communications, based on performance standards.
It’s undeniable that Kılıç has put in significant effort to make its agri value chain more sustainable. What kind of benefits has it led to?
Firstly, it’s changed how Kılıç is perceived, not just in Türkiye, but across Europe and the global markets. It’s been an invaluable reputation boost, providing them with unfettered market access on unprecedented levels.
But it has also provided clear financial profits as well, as demonstrated by their financial statements. Tugçe: “Kılıç is a good example of an undeniable link between sustainable and profitable operations, bringing it all together and showing clear returns in their financials.”
For example, through genetic selection data and constant improvements on the fish feed formula, Kılıç can reduce the growth cycle of fish, grow more in a shorter period, and use less feed. The result: their costs are lower than average, while their feed conversion ratio is lower than market average.
At one point in the interview, Jessenia mentions that she’s “seen at least 200 aquaculture companies in the world up close, and that Kılıç is one of the best in the world.” So just how did Kılıç get to where they are today?
“They’re ambitious and visionary,” Jessenia says. “They’re like a sponge—they want to absorb as much as possible.” FMO and Kılıç have had a fruitful relationship from the beginning, and Kılıç has always been extremely open and receptive to partnering with external consultants, independent advisors, and other research bodies.
It’s instantly clear that they’re passionate and want to truly add sustainable value to their organization. Kılıç’s focus has been on improving performance standards, better understanding their carbon footprint, continually reinventing their sustainability efforts: the profitability came as a logical follow-up to that.
“They remain open to improving as they expand, instead of remaining satisfied with their new status quo,” Tugçe says. “They remain proactive and committed, which truly helps them stand out.”
It has also been a learning experience for FMO, marking the first sizable transaction in aquaculture after Yalelo, a Zambian tilapia farm. The loan was provided through the Building Prospects Fund, whereas Kılıç Deniz was financed through FMO’s own balance sheet and eventually scaled to attract commercial investors through a syndicate loan, exemplifying FMO’s updated 2030 Strategy. In other words, FMO is able to help de-risk the agribusiness sub-sector of aquaculture, and plans to invest in the sector (having recently closed an investment in Taprobane Seafoods, a Sri Lankan seafood exporter.)
Listening to the story of Kılıç Deniz, it seems fair to say that their success started with something more intangible than “simply” becoming certified, or starting to bring policies to international levels.
It’s something deeper, more fundamental than that: a spark of visionary passion, one that’s grown surely but steadily in the past three decades. It’s a commitment long in the making that has paid off in dividends. And if this is how much progress has been made in such a short amount of time, with Kılıç continually reinventing itself, one thing is clear: there is no such thing as a status quo for Kılıç Deniz.
Kılıç is a good example of an undeniable link between sustainable and profitable operations, bringing it all together and showing clear returns in their financials
How can other aquaculture industry develop the same level of robustness as Kılıç?
By following these steps, ensuring an integrated value chain, and providing a high-quality product, the rest will follow.
The aquaculture sector is rife with E&S risks and requires a serious commitment to truly up-end the sector. Commercial investors still see the sector as relatively risky, so sustainable and profitable growth requires buckling in for the ride, not just trying to capitalize on a quick business opportunity. If there’s a true commitment to becoming more sustainable and efficient, then the organization is on the right path.
This means sourcing unmatched expertise. Work with experts that have unparalleled insight into their field of expertise: hatcheries, juveniles, fish feed, etc. Only if the expertise cannot be found internally should you collaborate with externals. Continual learning is key.
It’s not uncommon for companies to pass off the knowledge gathering and implementation of recommendations to consultants. For true success, a top-down approach is required. The management should be involved as much as possible in: understanding and presenting E&S findings to lenders, diving into the product and its sustainable production, etc.