The next seafood frontier: The ocean

Fish forever

One startup's solution to a global seafood crisis: Farm-raise fish - but out on the open seas.

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Fishing Crisis 90%: Amount large fish stock has been reduced since 1959 2049: Year by which the oceans will be fish-free - unless fish farms fill the gap

(Fortune Small Business) -- At age 17, Brian O'Hanlon dropped out of college and went on an angling adventure.

He drove a pickup from Long Island to the Alabama coast, where he rode a boat 50 miles offshore and caught 10 red snapper. He put the fish in a 2,000-liter fiberglass tank that he'd jerry-rigged with oxygen and water-filtering systems, towed them back to New York in a U-Haul and dropped them into a 3,000-gallon tank installed in his parents' basement. (Luckily for O'Hanlon, his family was equally fish-obsessed.)

He made the round trip twice more, ending up with 30 snapper - enough to start some serious breeding. At 18, O'Hanlon founded Snapperfarm, farming 10-pound fish that grew naturally in a third of the time it took to breed a similar-size salmon. Over six years, O'Hanlon grew sales to $500,000 a year.

Now the 29-year-old entrepreneur is trying the same model on a global scale. Starting this June, his latest company, Open Blue Sea Farms, aims to fly 30,000 live baby cobia every month from Miami to Panama City in the cargo hold of a Boeing 757. After being placed in tanks near the famous canal, the fish will travel by boat to their new home, a floating wire mesh globe as tall as a six-story building that will be moored to the Atlantic Ocean floor, 220 feet below.

If O'Hanlon succeeds in selling fish bred in this unique structure, dubbed the AquaPod, he could revolutionize an industry in crisis. Fish stocks are being rapidly depleted the world over. Consumer demand seems bottomless, and industrial fishing fleets have become too efficient for their own good. Ocean stocks of large fish - such as tuna, cod and halibut - have declined by 90% in the past 50 years, according to a recent study published in the science journal Nature.

Scientists warn that the oceans could be completely fishless in less than 40 years - a catastrophe for all life within them.

More than half the fish eaten today are raised in man-made ponds or controlled pens in shallow coastal areas. Trouble is, coastal breeding isn't great for the environment or the fish. Disease spreads easily. Pollutants such as mercury and PCBs - runoff from industrial areas - build up in the fish. Bays and estuaries used for farming fish get choked with organic material and antibiotics. And there simply isn't enough accessible shallow real estate along the world's coasts to meet demand.

Keeping fish in farms farther out in the ocean is a better option, but the technical challenges are immense. Foul weather, stray ships and fish escaping the cages are just a few of the problems.

"It is hard, and I don't want to be here, but I don't see any alternative," says Randy Cates, founder of Hukilau Foods, whose 10-year-old moi fish farm in the ocean off the coast of Oahu in Hawaii is considered the oldest and most successful deep-sea venture so far (investors include AOL founder Steve Case).

"There's no room along the coasts, and the wild-caught sector is flatlining," he says. "Demand for seafood is only going up, and we're the only sector that can grow."

Fish farmed in the open ocean tend to be far healthier than fish raised close to shore. Because deepwater currents are stronger and more frequent, they're better suited to washing away poop and pollutants.

"You're not overloading a contained body of water," says Richard Langan, director of the University of New Hampshire's Open Ocean Aquaculture Project in Durham, N.H. O'Hanlon puts it this way: "Our fish never see the same water twice."

Though ocean-farmed fish account for just 1.5% of the U.S. seafood supply, according to the National Oceanic and Atmospheric Administration (NOAA), the niche is quickly gaining cachet. "It's got that cool factor," says chef Bryan Caswell, who serves ocean-farmed fish at Houston's Reef Restaurant, named the nation's best seafood restaurant by Bon Apptit magazine in 2008.

Call it the organic, free-range chicken of the sea. When the Obamas visited Hawaii last fall, their private chef served Kona Kampachi, a delicate whitefish farmed half a mile off the coast of Hawaii by Kona Blue, another Open Blue competitor.

O'Hanlon brings dogged research, smart partnerships and a lifelong obsession with fish to this budding industry. The third generation of his family to enter the seafood business, he says he can't imagine pursuing any other career. His grandmother helped him tend his first saltwater tank when he was six, while his grandfather worked at New York City's historic Fulton Fish Market. "I'd rather be out at the farm in rough seas swimming with sharks than sitting behind a desk," O'Hanlon says.

The snapper hatchery O'Hanlon built in his parents' basement helped him reel in one of the world's foremost aquaculture authorities, Daniel Benetti of the University of Miami. Benetti checked out the operation in 1995, and the pair have been collaborating ever since. Now an Open Blue adviser, Benetti breeds two-inch, two-gram baby cobia for the company's Panama operation. Cobia's advantages: It grows fast in captivity, and it's versatile - it can be served raw, grilled, baked or broiled.

Open Blue began as a small experiment in deep-ocean fishing off the coast of Puerto Rico, where O'Hanlon and nine employees worked for six years. That's where he first deployed the AquaPod, which was designed by Ocean Farm Technologies, a Searsport, Maine startup backed by the same venture firm that funds Open Blue. The AquaPod is a geodesic dome made of triangular nets stitched together, and its vinyl-coated thin wire mesh turned out to be ideal for raising tiny fish.

O'Hanlon improved his system by inches. He installed underwater video cameras to reduce the need for divers to monitor the fish, and automated the riskier aspects of feeding and harvesting. His fish survival rate from stocking to harvest climbed from 60% in 2003 to 90% in 2008. He also put a special purse net around the cage to catch escapees, who typically hang around on the outskirts for a few days, expecting food.

Then came the company's first hurricane. "It was a nail-biter," O'Hanlon recalls. "We built the farm to withstand the worst storms, but I couldn't sleep that night. The next morning boats had sunk everywhere, and 50-foot trees were floating offshore. We dove in, and the fish were in perfect condition. Our next storm was a breeze."

Puerto Rico was the school of hard knocks that the company needed. "Aquaculture is about managing failure," says David Tze, a partner at the New York City venture firm Aquacopia and an Open Blue board member and investor. "Escapes, disease outbreaks, slow growth rates: These are all issues Brian now knows how to handle."

Unfortunately, Open Blue couldn't grow any further in U.S. territorial waters, which extend up to 200 miles offshore. (Open Blue's Puerto Rico operation was two miles out). The experimental farm required regulatory approval from no fewer than 20 U.S. agencies, and the government imposed a strict limit: Open Blue could produce no more than 50 tons of cobia per year, which it did in 2008, netting $500,000.

O'Hanlon struggled with red tape for six years before giving up and moving to Panama, where he faces far fewer regulations. He describes his forced departure as "a disservice to America" because the U.S. already imports more than 80% of its seafood and runs an annual seafood trade deficit of $9 billion, second only to oil.

The official government response: "Our role is to enable aquaculture in a safe way, under the toughest environmental regulations on earth," says Michael Rubino, head of NOAA's aquaculture program. "Making room for new things is not going to happen overnight."

O'Hanlon isn't holding his breath. He spent early 2009 hiring staffers in Panama City (he aims to employ 30 by the end of year one, 100 by the end of year five) and courting investors. O'Hanlon has a compelling pitch: "When we put a fish in the water, it's worth $2," he says. "When we take it out, it's worth $50." Open Blue's business plan calls for 2009 revenues of $4 million, which are expected to grow to $20 million in 2013.

In Panama, Open Blue has a permit to farm 10,000 tons of fish a year. The 3.5-square-mile farm will be surrounded by a three-kilometer buffer zone and identified on nautical charts to deter wayward boaters. O'Hanlon plans to start with two AquaPods and work his way up to eight. And he's still obsessively tweaking the system. A special blower will spread a mixture of plant-based food pellets across the surface of the pods, rather than pumping food pellets underwater through tubes, as he did in Puerto Rico. O'Hanlon expects these refinements to push his fish survival levels to 95%.

Industry watchers, and even O'Hanlon's rivals, say the fish-mad college dropout is prepared for every eventuality. "No one is more passionate about this than Brian," says Hukilau Foods founder Cates.

"I think he's succeeded already," adds Paula Sylvia, director of offshore aquaculture for the Hubbs-SeaWorld Research Institute, in San Diego. "He has an outstanding species with established markets, and a faster ROI for potential investors. Let's hope he brings it back to the U.S."