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THAROS Ltd

Update Krill Industry Overview

South Antarctic Krill Derivative Suppliers Feed Applications

Working Material

V_March 2012



Index 1. EXECUTIVE SUMMARY ..................................................................................................................................... 3 2. KRILL AS A FEED INGREDIENT SOURCE FOR THE AQUACULTURE AND FOOD INDUSTRY – CAPTURE AND PRICING CONDITIONS. ................................................................................................................ 6 2.1. RESOURCE CONDITION AND FISHING TRENDS .................................................................................................................. 6 2.2. KRILL FISHING NOTIFICATIONS 2011/2012 – HOW REAL IS IT ¿? ............................................................................ 8 2.3. CCAMLR TAC & TRIGGER LEVEL – POLITICAL CONSIDERATIONS ........................................................................... 10 2.4. PRICING – PRICE PREDICTION MODEL (2012 ~ 2014) ............................................................................................. 11

3. AT-‐SEA OPERATION -‐ RISKS FOR THE BUYER (SUPPLY EFFECT) ................................................... 13 3.1. FISHING QUOTAS .................................................................................................................................................................. 14

4. KRILL END-‐PRODUCTS AS FEED INGREDIENTS (SELLING ARGUMENTS) .................................... 16 4.1. KRILL MEAL AS PROTEIN ENHANCER, PALATANT AND ESSENCIAL AMINOACID SUPPLY ..................................... 18 4.2. KRILL MEAL AND OSMOREGULATION .............................................................................................................................. 24 4.3. KRILL MEAL AS A SOURCE OF MINERALS ......................................................................................................................... 24 4.4. KRILL MEAL AS A SOURCE OF LIPIDS ................................................................................................................................. 26 a) Fatty Acids ............................................................................................................................................................................. 26 b) Phospholipids: PhosphatidylCholine (PC) ................................................................................................................ 26 c) Cholesterol ............................................................................................................................................................................. 26

4.5. CHITIN/CHITOSAN AS IMMUNOSTIMULANT ................................................................................................................... 27 4.6. KRILL MEAL AS A SOURCE OF NATURAL PIGMENTS (CAROTENOIDS) ......................................................................... 28 4.7. LIQUID KRILL OIL -‐ QUALITY ASPECTS AND KEY SELLING ARGUMENTS .................................................................. 30

5. THE MARKET – TARGET MARKETS .......................................................................................................... 35 6. THE DEMAND -‐ TONNAGE ............................................................................................................................ 37



1. Executive Summary

Krill, a term originally applied to “fish fry”, is now taken to refer to euphausiids a group comprising over 80 species most of which are planktonic. They are widespread around all oceans of the world though the Southern Atlantic Ocean is the most important in terms of biomass and commercial interest with its species Euphausia superba, commonly referred as the Antarctic Krill.

Annual average catch has stabilized around 130 000 tons per season for the last six years, showing ups and downs but never close to the 620 000 tons trigger precautionary catch level set by CCAMLR for area 48.

Recently there has been a decisive resurgence on interest in fishing Krill, with the

entry of new operators, either working with their own country-of-origin flags or through flags (countries) of convenience. The latter may force to a new growth curve in fishing effort, nonetheless this practice is fading away as a common fishing procedure.

As a reference, in the 2007/20081 season, South Antarctic Krill fishing

notifications (application to capture krill) add 754 000 tons. Tharos’ estimate was close to 200 000 tons for a final volume of 125 000 tons2. Comparatively, notifications and real capture data for season 2010/20113 was 401 000 and 179 100, respectively4.

By 2008, Tharos assumed that the growth pace was strong enough to put annual capture data close to 1.4 Million tons. Tharos estimated that South Antarctic krill capture was going to surpass 1 Million tons by mid 2010s, leveling off around the season 2013/2014.

1 December 1st 2007 ~ November 30th 2008. 2 Eight vessels from six member countries targeted krill in 2007/08 in accordance with conservation measures in force. 3 December 1st 2010 ~November 30th 2011. Notifications for krill fishing in 2011/12 were received from seven Members and 15 vessels with a notified total predicted catch of 401 000 tons (SC-CAMLR-XXX). The Commission noted that the notification from Ukraine in respect of the vessel Maxim Starostin was received by the Secretariat after the deadline specified in Conservation Measure (CM) 21-03 and was not available for review by WG-EMM.

4 In 2009/10, six Members harvested 211 974 tons of krill from Subareas 48.1 (153 262 tons), 48.2 (49 999 tons) and 48.3 (8 712 tons) (SC-CAMLR-XXX). In 2010/11 (to 24 September 2011), six Members harvested 179 131 tons of krill from Subareas 48.1 (9 158 tons), 48.2 (116 552 tons) and 48.3 (53 421 tons) (SC-CAMLR-XXX).



Would that estimate had become real, krill meal and oil (feed grade) supply would have moved from approximately 30 400 and 730 tons (season 2007/2008) up to 150 000 and 35 000 tons for the season 2011/2012, respectively. On the contrary, krill meal and oil (triglycerides-based) production for seasons 2007/2008 and 2011/2012 was approximately 13 500 and 35 tons, 12 000 and 20 tons, respectively. Meal tonnage includes meal used for feed as well as for phospholipids-enriched krill oil extraction applications.

For the season 2011/2012, six members applied for Krill fishing5. Notified

intentions6 add 391 000 for 15 vessels. After notifications were received by CCAMLR’s Secretariat, several changes occurred:

1. Chile withdrew its second vessel (only F/T “Betanzos” went fishing). 2. Polish vessel F/T “Dalmor II” was replaced by another vessel. 3. There was a late notification by Ukraine (including the former Russian flagged

trawler F/T “Maxim Starostin which was licensed to Russia in previous years); the notification was for 30,000 tons.

The season 2011/2012 will bring approx. 100 ~ 120 000 tons of Krill catch

within 8 to 9 vessels7. Among these trawlers, Poland quit the fishery (2012). Japanese operation has been downsized and put on hold by 2013.

Between the 1980s and 1990s, the three most common South Antarctic Krill end products were feed-grade dried meals and whole raw frozen, plus food-grade peeled Krill meat, which, within the 1990s, their average annual production was approximately 6 000, 58 000 and 2 500 tons, respectively. Within the 2000s, there has been a shift in the type of targeted end-products, in line with a higher demand of aqua-feed proteins, feed-bait grade whole raw frozen and the “wellness” industry claiming for nutraceutical end-products such as Omega 3. The “wellness” route has also firmed demand of whole raw frozen and Krill meal demand each used to extract pharma-grade Krill oil.

New market target has placed a grater effort on nutraceutical-grade and pharma-grade krill oils, extracted from whole frozen krill and feed (aox-free)-grade krill meals, a trend that we expect will be sustained for at least the coming three to five seasons.

5 Chile, China, Japan, Korea, Norway, and Poland 6 Subareas 48.1, 48.2, 48.3 and 48.4 7 Chile (1), China (2 ~ 3), Korea (1 ~ 2), Norway (2, and one of them replacing F/T “Saga Sea”), Japan (1)



As catch and processing efficiencies have seen important changes, so does the catch method, recently focused on the controversial vacuum pump system.

Regarding Krill meal prices, within the 1980s and part of the 1990s, ex-Japanese prices range from US$450 up to US$750 per ton FOB South American port (SA), few qualities reaching US$875 per ton, while Japanese prices were twice as high, or even more. Late 1990s and early 2000s, former USA and Ukrainian operations had their Krill meals match, sometimes even surpass, Japanese-quality meals, in the range of US$1 350 to US$1 550 per ton FOB South American port. In the past seasons (2005/2006 onwards) average meal prices have move upwards, above US$1 500 per ton FOB SA and higher, with some lots reaching prices as high as US$2 250 per ton (FOB SA).

Tharos’ price predictive model (based on Q1/Q2’12 vegetable and animal raw

materials prices) places Krill meal opening price in the vicinity of US$1 760 per ton FOB SA sustaining this as starting price, although lower to current prevailing prices (Q1 2012). In terms of tonnage, Tharos demand matrix shows tonnage above 80 000 tons/year on meals.

In respect to Krill oil, this past seasons’ feed-grade (TG-enriched) Krill oil price is

found in the vicinity of US$7,5 per kg up to US$30 per kg, or higher, depending on quality, processing condition and final use. Comparatively, pharma-grade oil prices can be found in the vicinity of US$120 up to US$135 per kg FOB. There are lower prices but most of them coming either from blended products that is not pure krill oil or lower quality krill oil specifications.

Tharos’ pricing model is in the range of US$5 up to US$18 per kg FOB (TG- enriched) being primary ones European and North American markets. Price variation depends on TG quality specs, if the oil comes from at sea-operations, as a by-product from other krill processes, among other factors. Also, if it is going to be used on feed application only or as blend raw material for human-grade krill oils.

If the use of Krill as a food or feed ingredient for the aquaculture industry was the 1980s and 1990s motivation, Krill outstanding medical properties and it’s immense potential in the lucrative nutraceutical market becomes the 2000s driver.



2. Krill as a Feed Ingredient Source for the Aquaculture and Food Industry – Capture and Pricing Conditions.

2.1. Resource Condition and Fishing Trends

Krill, a term originally applied to “fish fry”, is now taken to refer to euphausiids, a group comprising over 80 species most of which are planktonic. They are widespread around all oceans of the world. Nonetheless, commercial harvesting and economic importance are the two criteria which, when applied to euphausiids, reduces the area of interest to a few geographical regions, among them the Southern Ocean, in the Atlantic sector. Main species is Euphausia superba, commonly referred as the Antarctic Krill.

Exploratory fishing for Krill commenced in the early 1960s. From the first commercial fishing activities in the early 1970s, Krill catches rose steadily from 19 700 tons in 1973/1974 to a peak of 528 000 tons in 1981/1982. Catches then declined sharply until 1983/1984. The next mayor fishing impact was triggered by the 1991 breakup of the Soviet Union.

Annual catch has stabilized at an average of 130 000 tons for the last 10 years.

Very recently there has been resurgence on interest in fishing Krill, with the entry

of new operators coming from China and Norway, the latter shifting from the use of their own country-of-origin flag and through flags (countries) of convenience, mostly to the former policy. Antarctic Krill fishery will then soon face a new growth curve, at a faster pace compared the last three-decades’ slow move from low-unit catch not-efficient operations to high-catch efficient high-yield operations.

By 2007/20088 season, South Antarctic Krill fishing notifications (application to

capture krill) add 754 000 tons (Table 1). Tharos’ estimate was close to 200 000 tons for a final volume of 125 000 tons9. Comparatively, notifications and real capture data for season 2010/201110 was 401 000 and 179 100, respectively11. 8 December 1st 2007 ~ November 30th 2008. 9 Eight vessels from six member countries targeted krill in 2007/08 in accordance with conservation measures in force. 10 December 1st 2010 ~November 30th 2011. Notifications for krill fishing in 2011/12 were received from seven Members and 15 vessels with a notified total predicted catch of 401 000 tons (SC-CAMLR-XXX). The Commission noted that the notification from Ukraine in respect of the vessel Maxim Starostin was received by the Secretariat after the deadline specified in Conservation Measure (CM) 21-03 and was not available for review by WG-EMM.

11 In 2009/10, six Members harvested 211 974 tons of krill from Subareas 48.1 (153 262 tons), 48.2 (49 999 tons) and



Table 1: 2007/2008 season, Krill Capture Notifications

Notifying Country (@ Face value) CCAMLR data

Number of Operators (est.)

Notified Tons 2007/2008

Share (%)

Norway 3 200 000 26,5 Cook Island 7 175 000 23,2

Russia 3 135 000 17,9 Vanuatu 4 80 000 10,6 Ukraine 2 65 000 8,6 Korea 3 48 000 6,4 Japan 1 30 000 4,0 Poland 1 20 000 2,7 Chile 1 1 000 0,1 Total 25 754 000 100,0

Source Tharos based on CCAMLR

By 2008, Tharos assumed that the growth pace was strong enough to put annual capture data close to 1.4 Million tons. Tharos estimated that South Antarctic krill capture was going to surpass 1 Million tons by mid 2010s, leveling off around the season 2013/2014.

Would that estimate had become real, krill meal and oil supply would have moved

from approximately 30 400 and 730 tons (season 2007/2008) up to 150 000 and 35 000 tons for the season 2011/2012, respectively.

On the contrary, krill meal and oil (triglycerides-enriched) production for seasons

2007/2008 and 2011/2012 was approximately 13 500 and 35 tons, 12 000 and 20 tons, respectively. Meal tonnage data includes meal used for feed application as well as for phospholipids-enriched krill oil extraction.

For the season 2011/2012, six members applied for Krill fishing12. Notified

intentions13 add 391 000 for 15 vessels. After notifications were received by CCAMLR’s Secretariat, several changes occurred:

48.3 (8 712 tons) (SC-CAMLR-XXX). In 2010/11 (to 24 September 2011), six Members harvested 179 131 tons of krill from Subareas 48.1 (9 158 tons), 48.2 (116 552 tons) and 48.3 (53 421 tons) (SC-CAMLR-XXX).

12 Chile, China, Japan, Korea, Norway, and Poland 13 Subareas 48.1, 48.2, 48.3 and 48.4



1. Chile withdrew its second vessel (only F/T “Betanzos” went fishing). 2. Polish vessel F/T “Dalmor II” was replaced by another vessel although the

latter did not reach krill fishing grounds within 2012. 3. There was a late notification by Ukraine (including the former Russian flagged

trawler F/T “Maxim Starostin which was licensed to Russia in previous years); the notification was for 30,000 tons.

2.2. Krill Fishing Notifications 2011/2012 – How Real Is It ¿?



Season 2011/2012 will bring approx. 100 ~ 120 000 tons of Krill catch within 8

vessels14. Among these trawlers, Poland quit the fishery (2012). Japanese operation has been downsized and will be put on hold by 2013.

Between the 1980s and 1990s, the three most common South Antarctic Krill end products were feed-grade dried meals and whole raw frozen, plus food-grade peeled Krill meat, which, within the 1990s, their average annual production was approximately 6 000, 58 000 and 2 500 tons, respectively, for a total annual estimate amount of 135 500 tons of raw Krill capture.

Within the 2000s, there has been a shift in the type of targeted end-products, in line with a higher demand of aqua-feed proteins, feed-bait grade whole raw frozen and the “wellness” industry claiming for nutraceutical end-products such as Omega 3. The “wellness” route has also increased whole raw frozen Krill demand used to extract pharma-grade Krill oil.

Simultaneously, the 2000s witnessed a change in the type fishing methods and on-board processing yields, change that has had a profound effect on resulting volumes; within the last 3 seasons, feed-grade dried meal and whole raw frozen Krill have seen annual average production volumes of 12 000 and 65 000 tons, respectively, for a total capture estimate of 130 000 tons of raw Krill.

Although there is underserved demand for marine proteins and fats, it is not feasible for dried Krill meal and liquid Krill oil to undertake the lead as a high-volume and price-affordable aqua-feed ingredient, among other factors, subject to fishing & environmental restrictions, low annual capture volumes, price and trade-off products.

Current CCAMLR’s TAC level is 5 610 000 tons per year on sector 48 and 3 085 000 tons on sector 58. There is also a precautionary limit of 620 000 ton limit in area 48 (the so-called “trigger level”) and in area 58.4.2 the precautionary limit adds 452 000. Once this limit is achieved, CCAMLR might close the krill fishery until a procedure for the division of the overall catch limit into smaller management units (Table 2).

14 Chile (1), China (2 ~ 3), Korea (1 ~ 2), Norway (2, one of them replacing F/T “Saga Sea”), Japan (1)



2.3. CCAMLR TAC & Trigger Level – Political Considerations

If the growth of fishing permits is an indication on how healthy a fishery is, certainly the South Antarctic Krill fishery is one of them. Since the 90s, the allowance (TAC15) to capture Krill, granted by CCAMLR, has not seen other route than growth. Alongside this trend, CCAMLR has put more effort defining new conservation areas and increasing MPA’s16. Table 2 – CCAMLR TAC Fishing Season Dec.1st – November 30th Area & Subarea Max Catch Limit (tons) 48 – 48.1 (measure 51.01/2010) n/a – 48.2 (measure 51.01/2010) n/a – 48.3 (measure 51.01/2010) n/a – 48.4 (measure 51.01/2010) n/a Total Area 48 Critical Limit 620 000 tons (all area 48, all sub-areas)

5 610 000

58 – 58.4.1 (measure 51-02/2008) 440 000 – 58.4.2 (measure 51-03/2008) 2 645 000 Total Area 58 TAC area 58.4.1 (total 440 000 tons) NO limit restriction. Catch subdivisions area 58.4.1

• West 115°E 277 000 tons • East 115° E 163 000 tons

TAC area 58.4.2 (total 2 645 000 tons) YES limit restriction. Catch subdivisions area 58.4.2

• West 55°E 1 448 000 tons • East 55° E 1 080 000 tons

Critical Limit for area 58.4.2 (only area 58.4.2 total 452.000)

• West 55°E 260 000 • East 55°E 192 000

3 085 000

Source: THAROS adapted from CCAMLR

15 Total Allowable Catch 16 Marine Protected Area



The “trigger level” was adopted to prevent local depletion of Krill, in the event of

a rapid expansion of the fishery. CCAMLR might implement the FAO code of conduct for responsible fisheries, in which case, fishing restrictions will be stronger, on an actual scenario where approximately 40% of the annual Krill catch is fully utilized and approx. 67% of captured volume targets low-end aqua-feed grade products, away from higher-value added products.

In the non-achievable and fully hypothetical scenario that the entire 8,7 Million

TAC quota (areas 48 & 58) is processed as dried meal and oil only, using current average processing yields, it means approximately 1 450 000 tons of meal and 40 000 tons of feed-grade Krill oil supply per season. Comparatively, annual pelagic (brown & white) fishmeal and fish oil production is close to 5 500 000 and 840 000 tons, respectively.

Unless CCAMLR changes its regulatory policy, or it finds new data about a greater biomass, or it succumbs to the actual pressure applied by fishing corporations through governmental agencies, production volume caps 100 ~ 140 000 tons per year of dried meal and 1 750 ~ 3 300 feed-grade and high-quality Krill oil, plus whole frozen and food-grade meats. Krill oil is considered as a final product on this calculation and not coming as a re-processed product either from whole (frozen) raw krill or dried meal.

Pricing is another factor precludes Krill meal to become an affordable and competitive feed ingredient. Krill oil is a sort of new product, so there is not yet a well-known established price trend from where convenient price matrix can be built.

2.4. Pricing – Price Prediction Model (2012 ~ 2014)

Regarding prices, Krill meals, within the 1980s and part of the 1990s, ex-Japanese

prices range from US$450 up to US$750 per ton FOB South American port (SA), few qualities reaching US$875 per ton, while Japanese prices were twice as high, or even more. Late 1990s and early 2000s, USA and Ukrainian Krill meals were able to match, sometimes even surpass, Japanese quality meals in the range of US$1 350 to US$1 550 per ton FOB South American port. In the past seasons (2005/2006 onwards) average meal prices have move upwards, above US$1 500 per ton FOB SA and higher, with some lots reaching prices as high as US$2 250 per ton (FOB SA).



Tharos’ price predictive model (based on Q1/Q2’12 vegetable and animal raw

materials prices) puts krill meal opening price around US$1 760 per ton FOB SA sustaining this as starting price, although lower to current prevailing prices (Q1 2012).

In respect to Krill oil, this past seasons’ feed-grade (TG-enriched) Krill oil price is

found in the vicinity of US$7,5 per kg up to US$30 per kg, or higher, depending on quality, processing condition and final use. Comparatively, pharma-grade oil prices can be found in the vicinity of US$120 up to US$145 per kg FOB. There are lower prices but most of them coming either from blended products that is not pure krill oil or lower quality krill oil specifications.

Tharos’ pricing model is in the range of US$5 up to US$18 per kg FOB (TG- enriched) being the European and North American markets primary ones. Price variation depends on TG quality specs, if the oil comes from at sea-operations or as a by-product from other krill processes, among other factors.

We expect an increase on supply forcing prices to diminish, in line with a higher production base, overall demand-stagnation, vegetable protein supplementation and processing complexities. The extent of price decrease will also vary on how successful Krill meal inclusion becomes on special feed diets.



3. At-Sea Operation - Risks for the Buyer (Supply Effect)

At-sea operations’ main threats are political, regulatory and environmental. Antarctic harvesting is governed by the Commission for the Conservation of the Antarctic Marine Living Resources (CCAMLR). Even though Krill fishery is highly regulated, new regulations will be enforced that will make the at-sea operations more costly and operationally complex.

In the krill industry, the key factor is being a “sustainable supplier”, a proven factor

within aqua feed manufacturers. Past failures from USA, Chilean, Russian, Uruguayan and other fishing companies have added a profound sense of instability among consumers [feed manufacturers and lately the pharma industry] on how sustainable their supply is. This has been quite damaging for Krill meals. Feed mills prefer to switch their feed formulations [away from krill meals] rather than facing supply shortages. [Some have already switch their feed formulations to cheaper crustacean meals]

On the fishing side, real capture numbers are very different when compared with notifications. This situation has various explanations, such as but not limited to;

1. Miss-information is a known practice. 2. The way in which the allocation data is calculated should be changed.

Today it is based on what each notify party says to be its capture intention in terms of a percent of the total capture per final product. It should be changed to a matrix of what each notified party has as processing infrastructure, the real past-recent capture allocation data and processing realities.

3. The rush to get “historical” presence on this fishery, no matter if this is theoretical or real. CCAMLR’s SMU (Small Management Units) and MPA (Marine Protected Areas) will mean, sooner than later, a closure of more than one (as it already occurred) fishing regions within CCAMLR waters. If a TAC is allocated on a historical-data, whatever is done or “said-to-do” might count on a soon-to-come stricter fishery regulation



3.1. Fishing Quotas

There is enough data sustaining that krill in general and Antarctic Krill in particular (Euphausia superba) will become a marine resource under a significant fishing pressure and commercial competition. If Chilean, Peruvian and North European marine resources historical harvest is considered a trustful data, we should expect Antarctic TAC’s to be enforced [and re-enforced] in the years to come and SMU (Small Management Units) become CCAMLR’s way of management of the krill fishery.

If there is a fishery closure, “catching history” will prevail as a decision element of

who will stay in these grounds. Accordingly, incumbents do not only profit from their commercial involvement, but also its presence is a signal that any potential future fishery closure or stricter regulation will necessarily consider “historical” data.

Depending on which information source is used, South Antarctic biomass

estimate goes up to 500Million tons, although estimate ranges from lowest 50Million tons up to 750Million tons.

Regarding prevailing South Antarctic Krill Total Allowable Catch (TAC) levels

please see previous Table 1 & 2.

Precautionary limits (the so-called “trigger level”) for areas 48 and 58, once achieved, CCAMLR can close entirely the Krill fishery. The “trigger level” was adopted to prevent local depletion of Krill, in the event of a rapid expansion of the fishery.

The historical TAC trend is enlightening and conflicting. From one side

CCAMLR’s precautionary approach limits capture but there has been a substantial TAC increase over the years, valid for areas 48 and 58 (Table 3). Largest change has been on area 48, with an actual TAC of 3 470 000 tons from previous 4 000 000 tons, and before that 1 500 000 tons. On sector 58 (specifically 58.4.2) TAC was increased from 450 000 per year to its actual 2 645 000.



Table 3: Historical CCAMLR TAC levels 48.1

(000t) 48.2 (000t)

48.3 (000t)

48.4 (000t)

Total 48 (4)

58.4.1 (000t)

58.4.2 (000t)

Total 58

1999/2000(1) 1 500 775 450 1 225 2000/2001(2) 1 008 1 104 1 056 832 4 000 440 450 890 2001/2002(3) 1 008 1 104 1 056 832 4 000 440 450 890 2003/2004(3) 1 008 1 104 1 056 832 4 000 440 450 890 2004/2005(3) 1 008 1 104 1 056 832 4 000 440 450 890 2005/2006(3) 1 008 1 104 1 056 832 4 000 440 450 890 2006/2007(3) 1 008 1 104 1 056 832 4 000 440 450 890 2007/2008(3) onwards 3 470 440 2 645 3 085 (5) 2011/2012 (3) 5 610 3 085 (5)

(1) July 1st – June 30th (2) July 1st – June 30th (3) December 1st – November 30th (4) Precautionary catch limit 620 000 (5) Precautionary catch limit 452 000

This trend indicates CCAMLR’s confidence that this TAC increase do not negatively affect the web-food chain and is in accordance to fisheries interests.

It also shows that there are strong political movements within the CCAMLR community. It should be expected a greater krill fishing effort within the coming seasons.



4. Krill End-Products as Feed Ingredients (Selling Arguments)

The Aquaculture Feed product line consists primarily of dried Krill meal and Krill

oil. There is also recent development on krill concentrates and 40~50% moisture content-hydrolyzates targeting the feed-grade aqua business. The volume the latter offers to the market is still limited compared to known dried meal option and we do not expect this value proposal will be significant in the coming years. Price is also a factor when choosing between meals and concentrates.

The Antarctic Krill is a tasteful and healthy food, with high protein content and omega-3 fatty acids that have several cardiovascular benefits. Krill is also a rich source of natural pigments, vitamins and other components highly valued in human food, animal/fish feed and nutraceutical companies.

Between the 1980s and 1990s, the three most common South Antarctic Krill end products were food-grade canned and frozen meats, whole (raw) frozen and feed-grade dried meals, which, within the 1990s, the average annual production was approximately 2 500, 58 000 and 6 000 tons, respectively, for a total annual capture estimate of 118 000 tons of raw Krill.

Within the 2000s, there has been a shift in the type of targeted end-products, in line with a higher aqua-business protein demand, Asian countries established feed-bait grade whole frozen and the “wellness” industry demanding more nutraceutical end-products (e.g. Omega 3’s). The “wellness” path has increased whole frozen Krill demand intra-competition, a product that can either be used for pharma-grade Krill oils as well as a feed-bait grade end product, among other products.

It should be emphasized that Krill oil’s growing demand is a rather new phenomenon. Just recently this product has captured the world interest on its superb phospholipids content linked to EPA & DHA and natural antioxidant content.

Other South Antarctic Krill end products are enzymes, soluble proteins and dried hydrolyzates; nonetheless, their target production volume does not put them, yet, in the same line as whole frozen, meats and meals.



Simultaneously, the 2000s witnessed a change in the type fishing methods, new operators and on-board processing yields, change that has had profound effect on resulting volumes; within the last 5 seasons, feed-grade dried meal, whole (raw) frozen and food-grade (frozen and canned) meats have seen annual average production volumes of 9 500 tons, 55 000 tons and 800 tons, respectively, for a total capture estimate of 125 000 tons per season.

Currently, there is an underserved demand for marine proteins within the aquaculture industry, where dried Krill meal and in a less extent liquid Krill oil play an important role. There is also a large potential demand for human grade and nutraceutical/industrial Krill goods.

Nonetheless the strength of these factors, we do not see feasible that dried Krill meal and liquid Krill oils lead neither totally replace conventional vegetable and other (brown or white) fish meal proteins, as a sustainable and affordable feed ingredient. We see them as complementary (in some cases expensive) ingredients.

Additionally, Krill meal is (and should be) mostly processed at sea from whole raw Krill on board factory vessels operating in South Atlantic fishing grounds. The freshness of the raw material is thus assured by the immediate processing of a raw material caught in very low temperature waters of pristine purity. Krill meal is therefore almost free of chemical and biological pollutants that affect dried meals produced on shore from farmed 9and even captured) crustaceans. There are hardly any Dioxins, Cadmium, PCB’s and heavy metals, coincident with no human-made pollutants in the area.

If the use of Krill as a feed ingredient for the aquaculture industry was the motivation that re-created the interest for Krill capture in the 1990’s, other reasons have appeared lately. Krill has outstanding properties that are highly beneficial to human health entering the immense and lucrative nutraceutical, food and cosmetology market. These properties can be secured directly from on board processing and/or on-board processing of intermediate products for later on-shore re-processing, and/or from whole frozen Krill for later fat (oil) extraction. In all this cases, diminishing raw krill availability for Krill meal processing. This tradeoff will preclude dried Krill meal and feed-grade oil to become safe and sustainable fishmeal and oil substitute for feed applications.



Krill meal is more than a rich source of essential aminoacids and polyunsaturated

fatty acids. It is also a source of nitrogenous substances of powerful attractant features, natural pigments, micronutrients, and growth enhancers, all of which provide Krill meal with a high biological value and high palatability, making it the natural complement for less palatability and cost-effective feed formulations.

Krill meal has good protein content (average 63% depending on how the

processing is performed), a strong palatability effect, natural beta-carotene (in the form of Astaxanthin ranging from less 100ppm up to 250ppm and higher, subject to resource and processing conditions), an excellent lipid profile (from 7% up 23% or higher depending on the processing layout), good mineral profile and high levels of Omega-3 fatty acids, among other features.

South Antarctic Krill meal main features are: a. Palatability and Essential Aminoacids. b. Osmoregulation. c. Minerals. d. Phospholipids and Polyunsaturated fatty Acids. e. Chitin and Chitosan. f. Natural pigments (in the form of Astaxanthin).

4.1. Krill Meal as Protein Enhancer, Palatant and Essencial Aminoacid Supply

Both fish and crustaceans live immerse in an aquatic environment, where their chemoreceptive system receives permanent stimulation by soluble compounds. These substances are usually of low molecular weight, non-volatile and most of them contain nitrogen (aminoacids, nucleotides, etc.). These components stimulate animal’s chemoreception (taste and smell), and its behavior (feeding behavior and feed intake).

Krill is natural bait for many species of fish and crustaceans; for example, it is one

of the main food sources of wild salmon. Not all Krill meals are of the same quality; no matter they have been manufactured on the same area and following similar processing concepts. The market sees various qualities depending primarily on (1) how stable the meals is (storage and quality effect), (2) protein quality (FCR), (3) fat quantity and quality (PL’s, EPA, DHA and DPA), and (4) pigment content (pigmentation and oxidation prevention properties), among other factors.



Depending on the on-board processing technology, it allows Krill meals to

preserve or not all the properties of raw Krill. Krill meals are being used in aquaculture feeds of salmon, shrimp, sea bream and

yellow tail to provide higher palatability of commercial feeds, mask antibiotic taste, and provide better acceptability to less palatatant (and cost effective) diets. Depending on the on-board drying technology, end users may or may not get the best quality meal, subject how gentle the treatment of the raw material has been.

The palatability feature in Krill meal has been found to rest in the presence of certain aminoacids that stimulate the smell and taste, and in the existence of glycogenic aminoacids that are appetite stimulants. Furthermore, Krill meal also contains substances of low molecular weight that are reported to have similar effects as palatants, such as TMAO (Trimethyl Amine Oxide).

Based on Tharos’ research that was presented at the 2008 Bangkok VICTAM show, palatability is such a strong driver on high-quality proteins demand, that Krill meal aminoacid-palatability effect becomes a relevant selling aspect.

Allahpichay and Shimizu (1984) Proved that the feeding behavior of several

species (sea bream, Japanese eels, black sea breams and yellow tail) is stimulated when Antarctic Krill meal is added to the feed17.

The work done by Shimizu18 through the use of electrophysiological tests, prove

that Krill Meal extracts stimulate smell response of sea bream. It was also found that the non-protein portion of the meal contains smell and taste stimulants, and specific aminoacids where identified which are probably responsible of this effect.

Ogle and Beaugz (1991)19 work shows that P. vannamei has a strong preference for

feed that includes Krill. The study included the use of 16 ingredients usually incorporated in commercial feed for brood stock. Of all these ingredients, Krill was only outperformed by artemia.

17 Supplemental effect of the whole body Krill meal and non-muscle Krill meal of Euphausia superba in fish diet Allahpichay and Shimizu (1984) Bull. Jpn. Sci Fish. 50:815-820 18 Feeding stimulation in sea bream, Pagrus major, fed diets supplemented with Antarctic Krill meals Shimizu, et al (1990) Aquaculture 87:43-53 19 Food Preference of P. vannamei. Ogle and Beaugz (1991). Gulf Research Reports 8:291-294



Feed protein is essential for all living organisms, but animal proteins are the most

important protein sources for shrimp and fish feeds due to the aminoacid profile. Fish and shrimp, like other species, respond best to protein sources of high biological value or, in other words, those proteins with a good aminoacid balance, primarily essential aminoacids. The best sources of proteins, as far as biological value is concerned, are animal proteins such as fishmeal, squid meal, shrimp head meal, oyster meal and mussel meal, as well as Krill meal.

Among vegetable proteins for fish and shrimp feeds, soy has been reported to be the most promising source in terms of volume and quality. Soya is typically used in one of three different forms: Soy extracted ex-bran (48~49% protein), extracted soy with bran (42~44% protein) or full-fat soy (35~38% protein). Because soy is deficient in one essential aminoacid (methionine), it is not still used at high levels (would mean 10 to 20% inclusion rate) in shrimp diets. If we were to compensate the methionine deficit with synthetic aminoacid, it would quickly dissolve in the pond water due to its solubility. Soya also tends to destabilize pellet agglutination making pellets less durable in the water. Nonetheless, fish do not require a high percentage of methionine; and up to 30% soy or more is used in fish feed (tilapia and trout).

Comparatively, fishmeal quality also varies with processing; it is important to

recognize differences in sources when including it in animal feeds. If the meal is made with fresh fish and steam-dried, the result will be a good-quality fishmeal with a high nutritional value. If the raw material is fresh but dried under a different drying temperature, large quantities of aminoacids (mainly lysine) and vitamins will be lost due to excessive heat.

Histamine generation is also an important factor to consider in fishmeal

processing. Some of current on-board Krill processing technologies address this issue but not entirely. There are still operations that, no matter running good drying devices, other sections of the processing layout do not allow the highest end quality products; e.g. low protein and low pigment content, unstable meals, etc.

If waste fish (offal’s from filleting and/or caning plants) are steam-dried

processed, a low-protein (48–52%) good-quality fishmeal will be obtained.



On shrimps (Table 4), South American feeds use to grow/finish formulation

containing 25% crude protein. About 60 to 65% of this protein comes from fish meanwhile the remaining 35 to 40% comes from either soybean meal or full fat soy. If good quality fishmeal is in short supply, waste fish and cannery (tuna/sardine) waste meals are used. In this market, high-quality Krill meals have a good market positioning.

From this point up to the growth/fattening diet, shrimps are fed (25% crude

protein) until harvest at 12 to 16 g body weight. Of the total protein in this diet, about 60% comes from fishmeal while the remaining comes from vegetable sources. In addition to fishmeal, this diet also contains soy, wheat, rice hulls and molasses.

On polyculture tilapia:shrimp, tilapia diet contains 22% crude protein and is fed in

extruded form. The ingredients used in this formula are the same or similar to those used in shrimp feeds: fishmeal dried at moderate temperatures, soybean meal (44% crude protein), wheat, wheat bran, rice bran and molasses.

Table 4: Nutrients Required by Shrimp During Different Life Stages (semi-intensive hatchery)

Source: GUILLERMO WEIR (Courtesy of Alltech Inc.). Engormix 2007 Feeding trials with salmon, cod and halibut given feeds based on three Krill

species and 40~60 per cent of the total protein in the feed, results were good without challenging growth, feed conversion or quality. For higher inclusion levels growth may be comparable with fishmeal, but the feed conversion ratio has a tendency to increase, which means that the fish must eat more feed to achieve the same growth. The reason for this is still not clear, but there are strong indications that fish get a mild form of diarrhea, due to the high levels of chitin in Krill meal.



Although Krill and amphipods contain essential fatty acids EPA (20:5n-3) and

DHA (22:6n-3), they are, with few exceptions, primarily protein sources (aminoacids sources) (Table 5). A shortage of marine fat on aquaculture-grown fish is a major concern. Calanus finmarchicus is a relevant resource. The biomass of Calanus in the ocean outside Norway is conservatively estimated to constitute several hundred million tons.

Depending on the time of year, this plankton contains large quantities of fat. This fat is, however, in the form of wax esters, and not triglycerides as in fish oils. Since these may be toxic in large quantities, they are not suitable for human consumption. If fish can convert wax esters to “healthy” fat, the use of Calanus in fish feed could make a significant contribution of marine fatty acids for human consumption. These issues were the subject of a project in which fish oil was replaced with wax from Calanus finmarchicus in feed for salmon, cod and halibut. Salmon utilize wax esters as well as fat from fish oil.

Simultaneously, on Friday 7th of September 2007, David L. Knudsen of Skretting

Corporation presented his PhD thesis with findings that lead to new and cost-effective raw materials for fish feed. These advances will bring benefits in sustainability and costs.

Knudsen, International Product Manager Raw Materials in Business Group Skretting Salmon Feed, found the exact chemical answer to the question of why soy meal reduces the intestinal function of salmon. Researchers have been looking into the process for the past 15 years. On his September 7th 2007 presentation, the thesis Soybean-induced enteritis in Atlantic salmon earned David L. Knudsen his PhD.

Knowing the chemical details of the relationship between soy and salmon opens

new opportunities to develop better and more cost-effective soy products for fish feed. Higher inclusion rates of vegetable raw materials in fish feed is a necessary step for continued and sustainable growth of the aquaculture industry.

In contrast to the limited availability of marine proteins and lipids, soy supplies

are plentiful. Knudsen’s new findings may therefore also contribute to reducing pressure on prices of feed raw materials, put a cup on the ever-increasing fee-ingredient price hicks and limit over-fishing.



Another challenge with Krill as a feedstuff is its high fluoride content, which in

certain species may be as high as 6 g/kg dry weight. EU’s upper limit of 150 mg fluoride/kg feedstuff prevents the aquaculture sector from using these meals as a protein source in fish feed. It is, however, known that fish in seawater does not absorb most of the fluoride from Krill meal in the feed, and very low concentrations are deposited in the fillet. It therefore remains to assess the implications of elevated dietary fluoride for the health of the fish.

Results from such trials will improve the scientific basis for establishing more

appropriate limits, making it possible to use Krill meal safely as a safe feed resource. Certain Krill meals also contain concentrations of selected undesirable metals

above the upper limit stipulated in several feed legislations. Despite higher concentrations, feeding trials indicate that replacing fishmeal with Krill meal in fish feed indeed reduces the levels of these metals in cod and salmon fillets.

Table 5: Essential Aminoacids Profile

Aminoacid Average (% Of Sample)

Aspartic Acid 9.5 Threoinine 3.9

Serine 3.2 Glutamic Acid 12.6

Proline 5.2 Glycine 5.8 Alanine 5.8 Cysteine 1.2 Valine 5.7

Methionine 2.5 Isoleucine 5.4 Leucine 7.3 Tyrosine 2.7

Phenylalanine 4.9 Histidine 1.4

Lysine 4.6 Arginine 4.6



4.2. Krill Meal and Osmoregulation

One of the most frequent uses of Krill meal is in special diets, when salmonids are transferred from fresh to seawater. This is due to the osmoregulating properties of Krill meal. Krill meal is rich in trimethylamine oxide (TMAO), which is a known osmoregulator (Table 6).

High salt content of the environment represents a strong physiological challenge

for fish and crustaceans. They need to keep their homodynamic and a proper physiological status. This is particularly important in salmonids farmed in captivity, which are transported from fresh to seawater in a very short span. Low molecular weight and quaternaries ammonia compounds such as trimethylamine (TMAO) are known osmoregulators20.

Table 6: Comparative levels of Trimethylamine Oxide

4.3. Krill Meal as a source of minerals

Krill meal has a low content of ash making it ideal for fresh water feeds. It has a low content of phosphorus compared to other marine based meals such as shrimp and brown fishmeal. Its calcium/phosphorus ratio is in the vicinity of 1,5:1 favoring absorption of both minerals, significantly lower than fish or crustacean meals (3:1 or 4:1)

Krill meal is a rich source of bio-available minerals (Table 7).

20 Non-protein Nitrogen Compounds in Fish and Shell fish De G. Finne (Review) Advances in Sea Food Biochemistry (1992). G. Flick pg 393

TMAO (MgN/100 sample)

Krill Meal 190

Fish Meal <10

Crustacean Meal 20 - 50



Minerals are nutrients that perform essential biological functions; enzymatic

cofactors, regulators of the immune system, etc. The degree of bioavailability of minerals has a significant effect on the physiological and immunological fitness of animals. Organic minerals are more bio-available than inorganic ones. The first is chelated with aminoacids, peptides or proteins avoiding antagonism in their active transport.

Of all minerals present in Krill meal some deserve special mention. For example

Copper, which in Krill meal is concentrated at a rate ten times higher than in fishmeal. Is found chelated with residues of lysine aminoacid and has an important role in the formation of collagen and in the integrity of fin and skin. Selenium, which is more concentrated in Krill meal than in fishmeal, is an important player in the cellular antioxidant systems (glutathione system).

Table 7: Comparative Levels of Minerals

Minerals Krill Meal Fish Meal Cupper (ppm) 101 11 Zinc (ppm) 72 111 Selenium (ppm) 12 1 Calcium 1.74% 4.40% Phosphorous 1.25% 2.60%

Barrows and Lellis Review21 show that one of the most common failures in farmed fish is the low quality of fins. Barrows and his associates have been the first to demonstrate the relevance of feed quality in skin integrity. They have shown that minerals in Krill meal have a positive effect in the prevention of fin erosion of Trout. They suggest that the cause of this effect lies in the copper content in Krill meal, since this copper is essential in the performance of enzymes specialized in the cross linking of collagen. Distinctively, mineral pre-mixes are normally supplemented to feed where copper is added in the form of copper sulfate. Copper in Krill meal is highly bio-available.

21 The effect of dietary modification on fin quality of Erwin strain rainbow trout. Barrows and Lellis Review for U.S. fish and Wildlife Service, Bozeman fish Technology Center



4.4. Krill meal as a source of lipids

a) Fatty Acids

Krill meal has a lipid content, in average, over 13%, characterized by its marine fatty acid profile rich in n-3’s, where EPA and DHA are over 20% of the total fatty acids.

b) Phospholipids: PhosphatidylCholine (PC)

Krill meal has a high content of phospholipids, which are as abundant as its triglycerides content. Over 25% of Krill meal phospholipids are in the form of choline esters, specifically as phosphatidylcholine. Choline has to be supplied to most aquafeeds mainly in the esterified form that is better absorbed.

c) Cholesterol

Krill meal is a rich source of cholesterol (3 ~ 8% of the fat). Cholesterol is an essential ingredient in the diets of crustaceans.

Table 8: Lipids in Krill Meal Lipid Average

(% Of Lipids) PhosphatidylCholine 22 – 28

Phospholipids 35 – 45 Triglycerides 30 – 40 Cholesterol 3 - 8

Watanabe, T et al work (1991)22 reported the effect of frozen Krill improving the

quality of sea bream eggs. For frozen Krill, polar and non-polar lipids were compared to vitamin E and traditional diets for brood stocks. The results clearly showed the positive effect of Krill and its components. It is argued that the components of Krill that improve the quality of red sea bream eggs are the phosphatidylcholine and asthaxantin since both behave as scavengers of free radicals.

22 Effect of polar and nonpolar lipids from Krill on quality of eggs of red Seabream Pagrus major Watanabe, T et al (1991) Nippon Suisan Gakkaishi 57695-698



A 1996 work funded by the European Community23 on sea bass brood stock,

were fed with three different diets, one of which contained Krill meal. Krill meal fed groups showed consistently better growth performance and larger number of spawning batches. The egg quality of the group that received Krill meal as an ingredient was better than the traditional diet (fish meal).

4.5. Chitin/Chitosan as immunostimulant

Chitin is natural component of several crustaceans an insect carapace. It is an energy source for several species that can degrade through special enzymes24.

Disease control, prophylaxis and eradication are based on the use of vaccines and

chemotherapeutical substances. But there are a number of pathologies that have no known cure. There is, for example, the case of Piscirickettsiosis in Chilean salmon and the disease that massively attacks shrimp industry around the world, against which there is not known specific prevention or cure.

One of the prophylactic alternatives available is the use of agents that stimulate the immunological system of the animal. Among these agents one is the polysaccharide complex such as chitosan’s. Chitosan is a derivative of chitin, which is found in Krill meal. Chitosan has been found to be an immunostimulant in salmon and trout when administered either orally (in the feed) or injected. Krill meal is a source of chitin. Krill meal is now being tested as a stimulant of the immune system for several species.

Siwicki, Anderson and Rumsey report a significant increase in the specific

immune system of salmon and trout. It shows a protection against furunculosis when chitosan is used in the diet25. Same authors, on a different study, show that fish mortality due to Aeromona salmonicida can be reduced by 50% when using injected chitosan or when it is applied in a bath by immersion26.

23 Effect of Broodstock diet of European Sea Bass (M Bruce Institute of Aquaculture, University of Stirling, UK). EEC Proyect (1996) 24 Chitin and Chitosan sources, chemistry, biochemistry physical properties and applications G Skjak – Brack and Paul Sanford, T Anthonsen (1988) pp 243-253, pp 269-279, pp 299-309. 25 Dietary intake of immunostimulant by rainbow trout affects non-specific immunity and protection against furunculosis Siwicki AK, Anderson DP and Rumsey GL (1994) Veterinary immunology and immunopathology. 41:125- 139 26 Duration of protection against Aeromona salmonicida in brook trout immunostimulated with glucan or chitosan by injection or immersion. Anderson DP and Siwicki A.K (1994) Progressive Fish-culturist, 56 (4)258-261.



The addition of Krill meal in experimental diets has significantly increased the

growth rate of shrimp P. vannamei. Krill meal was added in the same proportion as fishmeal was subtracted from the diet

4.6. Krill meal as a source of natural pigments (carotenoids)

Krill meal is an excellent source of natural carotenoids. Over 95% of pigments present in Krill meal are in the form of asthaxantin, which

is the only type of pigment that fixes onto the flesh of salmon when Krill meal is used in the diet and the flesh color is the same that it is found in wild salmon (Hue). Pigments in Krill meal are esterified giving to them more stability.

Asthaxantin is not only a pigment, but also acts as a photo protector and

antioxidant. Furthermore, it has been proved that asthaxantin has an effect in higher growth rates and immunomodulation of both fish and shrimp. Finally, asthaxantin has been shown to positively influence survival rates in shrimp

Some References about Krill meal’s pigment content:

• Nutrition & Disease Shrimp: Role of Vitamins and asthaxantin Kurmaly (1996) Roche Aquaculture Center Proceedings of Feed Ingredients Asia 1995 (Review)

• Pigmentation of cultured yellowtail with Krill oil Fujita et al. (1983). Bulletin of Japanese Soc. of Sci Fisheries 49: 1595-1600. Based on the popular Japanese belief that Krill meal is a good pigment source for

yellow tail, researchers studied the effect of Krill oil (1 000 ppm) in the pigmentation of yellow tail. In these species, the typical flesh color (green-blue with a yellow line on the side) is given by different pigments (tunaxantin). The study proved that yellow tail transforms the asthaxantin in Krill into tunaxantine.

Tharos’ proposed min Krill meal quality specifications profile are on Table 9.



Table 9: Krill Meal Quality Specifications - Proposed Quality Specifications

AQUA GRADE KRILL MEAL (Tharos Ltd on-board supervision)

(DRIED AND POWDERED FRESH WHOLE KRILL) PRODUCT COMPOSITION RANGE (*)

PROXIMATE Protein, % min. 58 58 – 65

Fat, % max. 18 12 – 18

Moisture, % max. 10 7 – 10

Crude Fiber, % max. 6 2 – 6

Ash, % max. 13 5 – 13

MINERALS, VITAMINS,

METALS & OTHERS Salt (as sodium chloride), %

max. 3 1 – 3

(season average) Calcium, % max. 3 2.5 – 3 Potassium, % max. 0.4 Phosphorous, % max. 1.4 1.2 - 1.6 Fluorine, ppm max. 2000 1100 – 2000

PROTEIN QUALITY Digestibility, % max. 92 75 – 92

TVN, mgN/100g max. 20 5 – 20 Histamine, ppm max. 20 0 – 20

OIL QUALITY IN MEAL Saturated Fat, % max. (of

krill oil) 30

Omega 3's (poly unsat), % min.

28 Monounsaturated, % min. 30

MICROBIOLOGICAL &

OTHERS QUALITY Salmonella, CFU/g None

Listeria, CFU/g None

Shigella None Aspergillus None E.coli, MPN/g max. None

Coliforms, CFU/g max. < 10 Clostridium, CFU/g max. < 10 Enterobacterial, CFU/g < 10 Dioxins, ng-WHO-TEQ/Kg

max. 0.33 0.1 – 0.33

STABILITY AND

REACTIVITY Krill Meal is considered an IMO product since its fat (lipids)

content is stabilized with liquid antioxidant that is applied on-board on the processing line. Alternatively its own carotenoids (Astaxanthine) act as a natural antioxidant protecting its stabilit y .

TRANSPORT INFORMA TION

Non-dangerous product for transportation. IMO allowanc e

ECOLOGICAL INFORMATION Product is environment friendly. Packaging is recyclable. Please eliminate in appropriate landfill site

INFLAMMATION AND

EXPLOSION Krill Meal is considered as a non flammable prod uct neither caused by electrical or electrostatic spark



Key marketing aspects:

o Protein 58% min (range 58-66%) o Fat 18% max (12~26%) o Pigment (depending on Class) from 100ppm min upwards o Moisture 10% max (6~10%) o Ash 13% max (5~18%) o Salt (sodium chloride) 3% max (1~3%) o TVN mgN/100g 20 max (range 5~24%) o Histamine ppm 20 max (0~23ppm) o Oil quality in meal - Saturated fat (% max of krill oil) 30 o Oil quality in meal - Omega 3 (poly unsaturated) 28 % min o Oil quality in meal - Monounsaturated 30% min

Regarding Krill meal fat content, it is important to stop on this matter. THAROS’ recommendation is <= 18% fat level on any kind of krill meal quality produced on board targeting feed applications. We are recommending 18% max fat content based on what the market normally prefers and considers as a high-quality krill meal.

Depending on the chosen processing layout, resource condition and equipment

provider, and fat level can be as high as 26%. This level makes operational matters more difficult as well as a fresh sales perspective towards long-term high-payee customers.

4.7. Liquid Krill Oil - Quality Aspects and Key Selling Arguments

Krill oil, as a known and available feed & pharma ingredient, is a rather new

component, at least compared with well known pelagic fish oils. No matter how well documented this material is, its on-board and on-shore processing has gained attention in the past years as it (1) supplies natural antioxidant for pharma preparations, (2) a good source of good-quality fatty acids, (3) Omega 3’s are linked to phospholipids. Far from the well documented Krill meal and whole frozen (raw) Krill, Krill oil has gather attention more on its pharma and nutraceutical properties rather as a feed ingredient.



Krill oil has characteristics that are very desirable in cosmetics and nutraceuticals,

not only for these purposes, but also as a pigment source for animal feed and the pet food industry. As a beauty-ingredient, Krill oil is absorbed deeply into the skin, resulting in a smooth satin appearance; it does not lay on top of it looking sticky. It has a deep penetrating and quick absorption quality.

Natural Krill oil is excellent for moisture control and superb emolliency. It meets

today’s needs for simple, natural ingredients that work. Krill oil has a high content of non-saponifiables. Starting from early twenties, our skin starts to lose elasticity. It literally cracks

with progressive loss of elastin fiber. Research shows that non-saponifiables applied to skin increase elastin dermal state.

Krill oil is a source of natural carotenoids (pigments); over 95% of pigments

present in Krill oil are in the form of asthaxanthin. Its pigments are on ester form resulting in high stable oil. When Krill oil is applied onto the skin, it gets a very nice tanning appearance.

Asthaxanthin is not only a pigment, but also works as a photo protector and

antioxidant, like beta-carotene. It’s high carotene (Asthaxanthin) content and natural tocopherols make this oil a powerful natural antioxidant. Scientific reports support the evidence of ant carcinogenic effect of carotenoids.

Triglycerides-enriched Krill oil has low content of unsaturated fatty acids,

situation very uncommon in marine oils. This feature makes the oil very stable in terms of oxidation. Its fatty acid profile is similar to natural lipids with high saturated and monounsaturated fatty acids content usually used in the cosmetic industry.

It’s safety and oxidative stability is well established. Human Allergenic Trials have

shown that Krill oil can be considered a hypoallergenic product. Several studies have shown that cultured fish and shrimp (salmon, red sea bream,

yellow tail, rainbow trout, shrimp, ornamental fish, etc.) can be effectively pigmented by inclusion of Antarctic Krill or its oil in the diets. This is an excellent alternative for chemical pigments, some of them suspected to probably have health risks.



Asthaxanthin also have metabolic functions in many organisms. Watanabe (1991)

reported the effect of frozen Krill to improve the quality of sea bream eggs. Frozen Krill’s polar and non-polar lipids were compared to vitamin E and traditional diets for brood stock. The results clearly show the positive effect of Krill and its components.

It is argued that Krill components that improve red sea bream eggs are the

phosphatidylCholine and asthaxantin since both behave as scavengers of free radicals. Krill oil offers several benefits to the Cosmetic, Nutraceutical and animal feed and

pet food industry:

ü Anti-oxidant properties. ü Anti-aging properties. ü Anti-carcinogenic properties. ü Provides natural pigmentation. ü Oxidative Stability. ü Pigment Stability. ü High Cholesterol content. ü High non-saponifiables content. ü Deep penetrating and quick absorption qualities in the skin

Based on these particulars, THAROS does not see Krill oil becoming primarily a

feed-ingredient, rather a natural high-quality food & pharma component. Krill oil can be either manufactured on-board factory trawlers as a by-product of the dry Krill meal-processing layout (mostly triglycerides form) or from whole frozen Krill or dried Krill meal processed on-shore through solvent extraction.

THAROS 2009 IP has put on the market a novel solvent-free extraction process

that will change the way krill oil is marketed in terms of quality and price.

THAROS proposes the following quality specifications profile for on-board TG-enriched krill oil (Tables 10 and 11). Table 10 shows the quality that might work for feed purposes and/or as a re-processing target by nutra companies while Table 11 shows a typical feed-grade krill oil.



Table 10: Krill Oil Quality Specifications - Proposed Specifications

PRODUCT COMPOSITION RANGE (*)

PROXIMATE AND OTHERS Lipids, % min. 99.5 99.5 - 99.9

Moisture, % max. 0.5 0.1 - 0.5

Vitamine E (tocopherols), ppm min

500 500 - 900

Cholesterol, % max. 2 1 - 2

Polyunsaturated, % min. 7 7 - 9 Monounsaturated , % max. 40 38 - 40

Saturated Fat, % max. 46 44 - 46 Acid Value (oleic acid), % max. 0.5

POLYUNSATURATED MONOUNSATURATED

20:5W3 (EPA) 3.8 16:1W7 13.222:6W3 (DHA) 1.4 18:1W9 + 18:1W7 24.5

18:3W3 0.7 20:1W9 2.4

18:2W6 1.5 TOTAL MONOUNSATURATED:

40.1

TOTAL POLYUNSATURATED: 7.4%

SATURATED 14:0 19.3 16:0 22.1 17:0 3.5 18:0 1.2

TOTAL SATURATED: 46.1%

Color

Odor Taste Particle Size

CLASS A, ppm as Astaxanthin at shipment

CLASS B, ppm as Astaxanthin at shipment

CLASS C, ppm as Astaxanthin at shipment

Pack Size

Packing Material

Coding Details

LONG TERM

STORAGE

OIL QUALITY

PHARMA GRADE KRILL OIL

(KRILL OIL AS DERIVATED- PRODUCT OF MEAL PROCESS)

FATTY ACIDS COMPOSITION (AS % OF FATTY ACIDS)

--Liquid

PHYSICAL SPECIFICATIONSRed to strong red (depending of pigment content)

Fresh, typical marine oil.

PIGMENTATION LEVELS

min. 1,000

min. 700

< 700

PACKAGING INFORMATION

170 kg. net weight

200 lt. Drums, internal Epoxy phenolic food grade cover. Customized based on customer specification.

Batch No, Date of prod.,Net weight & Shelf life

Store under cool and dark place is recommended.

Shelf life : minimum 2 years under above storage conditions.

(*): NOTE THAT THIS IS A NATURAL PRODUCT . ANALYSIS VARY DEPENDING ON FISHING AREA & PERIOD OF SEASON



Table 11: Krill Oil Specifications (Feed) - Proposed Specifications

Carotene Pigment (asthaxantin) (ppm) 700-1200 Moisture (%) Max. 0,5 Free Fatty Acid (% as oleic acid) Max. 0,5

% Cholesterol 2,0

Vitamin E (tocopherol), (ppm) 500-900

FATTY ACID PROFILE

Fatty Acid Average (%) 14:0 19,4 16:0 22,0 16:1n7 13,3 17:0 3,7 18:0 1,3 18:1n9 + 18:1n7 24,4 18:2n6 1,5 18:3n3 0,6 20:1n9 2,4 20:5n3 (EPA) 3,7 22:6n3 (DHA) 1,3 % Saturated 46,1 % Monounsaturated 40,0 % Polyunsaturated 7,0 % n3 5,5

STORAGE AND HANDLING: Protect sample from air exposure, sunlight and excessive heat. Storage in a cool and dark location is recommended.

Krill oils’ main target market niche relies on the nutraceutical and pharma

industry. In this category, there is well-documented data from Canadian Company Neptune Biotechnologies and Bioressources27 (NKO® brand) and Norwegian Aker Biomarine (Superba™ brand) in addition to Israeli-based Enzymotec. Besides them, there are other projects targeting the same end-use trying to get a share on the pharma/nutraceutical category rather on the feed industry market segment. A price difference of ten to 20 times higher for the latter makes it worth the investment hype recently seen on this industry segment.

27 www.neptunebiotech.com



Nonetheless all this corporations’ work, there are other projects in the pipeline that

will add volume to the feed-ingredient market segment as well as some extra raw material for the pharma/nutraceutical category.

5. The Market – Target Markets

Dried Krill meal market is currently supplied to the extent of nearly 12 ~ 13 000

metric tons per year, with a total value of about US$20 million per year. Krill Oils onboard produced (TG) and as a reprocessed end product from whole

frozen krill or dried meal reprocessed on shore (PL), are produced in the range of 7 ~ 10 and 425 ~ 475 tons28, respectively, per year, in the form of liquid oils. Annual value range is approximately US$200 000 and US$60 million, respectively.

Table 12 illustrates target markets, specifying potential customers, and estimated market size and market share for each product. (2012 ~ 2016)

Given the multiple uses of products from the nutraceutical/industrial line within

different industries, and the fact that Krill oil and Krill meals are scheduled to be most important end-products targets ex-raw krill (besides whole round frozen in terms of volume), the estimated market size for the rest of Krill’s potential products has not been included in this report as they were addressed on other THAROS’ report.

For food end products (i.e. frozen meats), potential direct customers are primary and secondary food processors, restaurants, supermarkets, the ready-to-serve industry and health supplement providers. For raw whole frozen it is the sport bait industry and oil extraction through solvents. 28 Estimated value for the 2011 season. Previous seasons have shown a very erratic production value versus initial estimates.



Table 12: Target Markets (volume in tons per year)

Food Aquaculture Feed Nutraceutical Industrial Pharma

Products (1) Frozen Krill meat (2) Krill protein concentrate (powder) (3) Krill hydrolyzed soluble

(1) Krill meal (2) Krill oil (3) Krill protein soluble

(1) Krill oil

Channel

(1) Primary and secondary food processors, Intermediaries, Restaurants, Supermarket chains (2) Non-government organizations, Private relief programs, Primary and secondary food processors (3) Non-government organizations, Private relief programs, Primary and secondary food processors

Feed mills and Feed manufacturers

(1) Cosmetics manufacturers, nutraceutical industry

Market size (1) 775 200 – 1 550 400 (1) 85 000-125 000 (2) 35 000

Market Value High Average Highest

Customers for most of Krill meals are, and will continue to be in the medium term, the aquaculture industry. This industry has been increasing production volumes of species such as salmon, trout, shrimp, yellow tail and sea bream at rates close to 7% per year for the past 10 years (ISA-disease years included), and will keep a growth rates close to 8% per year for the coming 4 to 6 years, at least29. Aquaculture is the primary source of demand for feed Krill products worldwide.

According to FAO reports, the contribution of aquaculture to global supplies of fish, crustaceans, mollusks and other aquatic animals, continue to grow, increasing from 4 percent of total production by weight in 1970 to 38 percent in 200930. Aquaculture continues to grow more rapidly than all other animal food-producing sectors. Worldwide, the sector has grown at an average rate close to 9% per year since 1970, compared with only 1,2% for captured-fisheries and 2,8% for terrestrial-farmed meat production over the same period of time. Production from aquaculture has greatly outpaced population growth, with per capita supply from aquaculture increasing from 0,7kg (1970) to above 7kg (2010), representing an average annual growth rate of 7,1%.

29 For main aqua-species such as salmon, trout and shrimp. On most East Asian aqua-species, such as tilapia, carp, and other similar species, growth rates are even higher, on a two-digit growth rate close to 12% per year, coincident with the 7-year growth plan scheduled for Vietnam, China and Thailand, among other South East Asian countries. 30 Both marine and inland where >80% of total marine-based production goes for human consumption.



World aquaculture (fish and crustaceans only, no considering aquatic plants) has

grown significantly during the past half-century. From a production of bellow 1 million tones in the early 1950s, production in 2010 was reported to have risen above 50 million tones. When aquatic plants are added, production volume raises to above 60 million tons. In terms value, by 2010 it was close to US$100 billion and US$105 billion, with or without aquatic pants, respectively.

Because high seas fish resource depletion is a reality, aquaculture species are becoming the next major food source. As Krill meal and Krill oil are unsurpassed fish feed additives, demand from underserved customers of these products is expected to be strong.

6. The Demand - Tonnage

THAROS’ Krill meal and oil estimated potential demand (aqua Purposes, 2012 ~ 2017)

depends on several and complex factors, although the trend shows a consistent and healthy growth.

For Krill meal, potential demand moves from 80~90 000 tons to 100 ~ 125 000 tons

for the period 2012 ~ 2017. On separate reports, Tharos explains price calculation matrix as well as Krill meal/oil

pricing strategies. Regarding Krill oil (TG-enriched oil), for the same period of time, the volume ranges

between 9 and 14 000 tons. Oil’s role is focused more on food/nutra applications rather than lower-priced feed applications.

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