Amid growing fish oil shortages, algal oil has become a cost-competitive alternative source of omega-3s.
This winter’s heavy snowfall in the eastern U.S. and drought in the West is a harbinger of things to come: the cost of fish oil — a critical input for salmon farmers — is going to go up.
The winter weather pattern means El Niño could return as early as fall, according to the National Weather Service. That’s just in time to disrupt the fishing season off the coast of Peru and trigger the 2027 and 2028 fish oil shortage that Rabobank — which maintains an extensive global research team dedicated to food and agribusiness — predicted in a report last September.
Of course, El Niño and the warnings of fish oil shortages that come with its cyclical return are nothing new to the salmon industry. But this time feels different, according to Rabobank and other industry think tanks. For a brief moment during the last El Niño, algal oil — one of those futuristic, alternative foodstuffs long dismissed as too expensive for practical applications — was actually cheaper than fish oil. And now that it looks set to happen again, the Center for Feed Innovation predicts global algal oil production will nearly double by 2030.
Boom, Bust, and Back Again
Grant Vandenberg, a professor of agricultural and food sciences who studies commercial fish farming at Laval University in Quebec, began working with algal oil about 15 years ago. At the time the aquaculture industry was dealing with mercury contamination from the wild-caught fish used to feed farmed fish, which led academics such as Vandenberg to investigate whether algae could eliminate the source of contamination. Algal oil had, by that point, already been through at least one boom-and-bust hype cycle where it rose to prominence on speculation that it could serve as a gasoline alternative, only to see the industry collapse when the price of oil fell.
Like the biofuel angle, the contamination angle never really panned out — Vandenberg said improved screening of wild-caught fish largely solved the fish feed contamination problem. But along the way, research into the use of algal oil in fish diets identified another potential benefit: Like fish oil, it’s rich in omega-3 fatty acids and capable of providing essential EPA and DHA. That could make it particularly valuable to fish farmers, and salmon farmers in particular.
Salmon don’t require a perfect diet around the clock. But they are carnivores that eat other fish in the wild, and if you want your farmed filets to offer the same health benefits as wild-caught salmon, , Vandenberg says you have to ensure the fish get an adequate amount of EPA/DHA during key windows — especially toward the end of the production cycle before the fish is harvested.
That critical EPA/DHA traditionally comes from fish oil; farmed fish consume nearly two-thirds of the world’s fish oil, according to IFFO, the trade association for the industry.
“If the producers wait for the oceans to be empty, they will have no other choice. The market correction will happen.”
For some years now, the farmed salmon industry has managed rising fish oil prices by shortening the window in which full doses of fish oil are fed. But while other farmed species like shrimp continue to use ever-smaller amounts of wild-caught fish in their feed formulations, the salmon industry saw inclusion rates decline just 1% in 2023, according to IFFO. Novel Sharma, a Rabobank research analyst focused on the seafood industry, believesf salmon producers are approaching a biological floor where further reductions in omega-3 could impact the health or growth of the fish, and result in less nutritious end-products for consumers.
But salmon production — and the commercial farming of other large, carnivorous fish species — is still growing rapidly in the face of rising consumer demand for more expensive seafood. The global supply of fish oil, on the other hand, is not. Wild fisheries around the world are largely believed to be tapped out. And that, Sharma said, has put the salmon industry and fish oil production on a collision course.
Other experts agree. According to a recent report by The Center for Feed Innovation, annual global demand for fish oil already exceeds supply by 20,000 metric tons, and the gap is expected to widen to 100,000 metric tons by 2030.
“The aquaculture industry is the fastest growing livestock industry in the world, and it is completely dependent on the extraction of marine ingredients,” Oisin Nolan, the center’s director of public relations, said. “So if it is going to continue growing, it will need new ingredients. If the producers wait for the oceans to be empty, they will have no other choice. The market correction will happen.”
A Financial Storm
Algae — grown in massive industrial vats less subject to the vicissitudes of nature — has been proposed as a sustainable solution to aquaculture’s growth problem before. But with a low-end price two to three times as high as the typical price of fish oil, and premium oils going for as much as $15,000 per ton, algal oil was historically dismissed as a laughably expensive ingredient for fish feed. It made sense in certain high-value products such as human supplements and pet foods, where it serves as a source of omega-3 fatty acids for consumers who don’t eat meat or animal products. For aquaculture, though, it seemed as though the price of algal oil was simply too high.
The 2022-2023 El Niño changed all that, when ocean conditions forced the Peruvian government to outright cancel the anchovy fishing season. In some years those anchovies can produce as much as a third of the world’s fish oil; the closure caused fish oil prices to jump from roughly $2,000-$3,000 per metric ton to $7,000 per metric ton, according to Sharma.
That meant algal oil, which typically starts at roughly $6,000 per metric ton, was cheaper than fish oil.
The Climate Prediction Center has put the odds of another severe El Niño this fall at about 1 in 3, but Sharma said even a mild event will cause fish oil prices to rise again. And algae, or at least algal oil, may be on the road to becoming a key commodity for fish farmers who raise carnivorous species like salmon that require diets rich in omega-3.
“If aquaculture production keeps growing … you will need additional sources” of omega-3, Sharma said. “That is why I don’t view [fish oil alternatives] as just substitute ingredients. The more time passes, the more you can view them as essential ingredients.”
The Price Problem
If price and scarcity are the greatest nemeses of the fish oil industry, algal oil faces some of the same pressures.
The Center for Feed Innovation estimates that the entire industry produced just 20,000 metric tons of algal oil in 2025 — what Nolan described as a drop in the bucket compared to what’s needed if aquaculture continues to grow. There’s also, he added, little reason to believe that the price of algal oil will fall significantly any time soon.
And algal oil is not without its competitors. Canola oil can provide some omega-3 fatty acids, is more widely available than algal oil, and is much cheaper to produce. Canola is likely to win the North American omega-3 market based on price alone, Vandenberg said. But it may be harder for canola, which comes primarily from plants that are genetically modified, to gain acceptance in Europe.
Algae, too, could be modified genetically to produce more omega-3 at a lower cost. But Veramaris, one of the world’s largest producers of algal oil, has avoided going this route. “Our customers are telling us they value the naturalness of the product,” said Ian Carr, Veramaris‘ chief commercial officer.
Carr acknowledged they feared algal oil sales would drop off after 2023 when fish oil prices returned to normal, but that hasn’t been the case. The company, which began production in 2019 and has divisions dedicated to humans, pets, and farmed fish, now supplies about 5% of the world’s EPA/DHA-rich oils. Algal oil as a whole represents about 12% of that market.
“It’s no longer niche,” Carr said. “It’s growing and adding to the supply of those nutrients.”
Scaling Up
What remains to be seen, Sharma said, is whether the world’s largest aquaculture producers are willing to make the long-term financial commitments needed for algal oil to reach global scale.
The small size of the industry means it won’t take much to dramatically increase algal oil production — a handful of factories would suffice, according to Nolan. But building a new algal oil factory is no small feat. Each facility costs hundreds of millions of dollars and requires assurance that the venture will yield steady returns — not just sporadic profits when fish oil is in short supply.
There’s also the question of global trade policy and rising energy prices, Nolan said. Algal production can be an energy-intensive process, and the escalating price of electricity in the U.S. and around the world will increase production costs for algal oil producers.
Energy consumption—and the associated environmental impacts—can vary widely among algae producers, according to The Center for Feed Innovation. For Veramaris, it tends to be less of a concern — the company uses an algal strain that grows in the dark and feeds on sugar, which has allowed its oils to achieve some of the highest environmental certifications available to fish oil and its alternatives.
“I don’t view [fish oil alternatives] as just substitute ingredients. The more time passes, the more you can view them as essential ingredients.”
But the company is still carefully considering the question of whether to expand. Although Veramaris has signaled interest in building a second plant overseas — the company’s existing production facilities are located in Nebraska — Carr said they haven’t made any final decisions yet.
“It’s expensive, it’s very capital-intensive, so we have to be sure that the market is going to be there to take that expanded volume,” he said.
But while other innovative food categories have struggled in recent years, there are reasons to believe algal oil will succeed. Among factors driving the industry’s success is the fact that algal oil is not made by venture-backed startups looking to revolutionize the food chain. The largest producers are all subsidiaries of multinational food and pharmaceutical companies; Veramaris is itself owned by Evonik, a German chemicals company, and DSM, the multinational health and nutrition conglomerate. The ownership structure of the industry, Nolan said, means most algal oil producers can draw on parent-company capital and will not need outside investment to expand — if and when they choose to do so.
Of course, Vandenberg said it’s also possible that someone, someday, could invent a GMO salmon that produces its own omega-3 and render the entire conversation about algae and fish oil moot. But for the time being, he said, algal oil seems poised to become a staple of commercial fish farming.
