About 77 percent of fish production is used for human consumption, which hit a record per capita 17 kilograms in 2009. Most of the remainder goes towards agricultural uses. Fish now accounts for about 16 percent of total global protein consumption, as growing incomes in regions such as Africa and South America make it a more viable dietary alternative.

At the same time, Chinese consumption of marine proteins has exploded by 400 percent during the past decade and consumption in Vietnam and the Philippines has grown similarly.

These trends have made fishing a major global industry, with literally thousands of fishers generating an estimated $250 billion in total annual revenue.

Fishing is so important that international disputes over prized fishing territories are becoming routine occurrences. Notably, China and Japan are at loggerheads over the Diaoyu Islands, a small chain of islands northeast of Taiwan in the East China Sea, pushing cross-strait relations to a new low. Japan controls the islands; just last week, the nation claims to have purchased the islands from what it describes as a private owner.

The provocative claim prompted the Chinese to send several warships into the waters surrounding the island and sparked violent street protests in China. The conflict could even drag in the US, which is bound by a treaty with Japan to come to its defense in these matters.

To be sure, it’s a territorial dispute that’s whipping up nationalism on both sides. In addition to claiming to have purchased the islands, Japan also believes they are part of its own chain of islands. However, the main issue at play is fishing rights. While the islands are completely uninhabited, it is estimated that several hundred tons of fish are caught in their waters every year. Fishing vessels are tellingly included in the Chinese fleet dispatched to the area.

With fishing rights important enough for two Asian dragons to risk war, the fishing industry is a worth a look for investors, particularly as overfishing reduces stocks and pushes fish prices higher. Here, we examine two interesting fishery companies that are attempting to address the issue of sustainable fishing.

Marine Conservation that Pays

China Fishery (Singapore: B0Z) is one of the largest commercial fishers in the world, growing its revenues by almost 40 percent over the past decade.

The company uses a unique fishing method. Rather than targeting popular species such as a tuna and herring, it focuses on less-utilized species such as anchovy, pollock and mackerel for both agricultural uses and human consumption. This sustainable strategy not only reduces the company’s competition for prime fishing waters, it also helps to maintain global fish stocks.

The company harvests in Peruvian waters and off the coast of China, as well as near the southern end of the Russian border. It’s also becoming increasingly active off the western coast of Africa.

About 54 percent of China Fishery’s revenues come from China, but it is establishing a growing presence in Africa. Last year, just over 20 percent of revenues were sourced from West Africa where per capita fish consumption is growing along with average incomes. Massive infrastructure development across the continent, including a rapid electrification of more rural areas, has also made the transport and storage of fresh fish much more practical.

Shares of China Fishery have recently sold off sharply following a recent downgrade of its bonds by Moody’s. China Fishery’s deals to source fish from Russian waters are currently under review by the Russian government and if the results aren’t favorable, it would be a serious blow to the company’s revenues. Shares are also depressed given the continuing Diaoyu Islands dispute.

However, with its shares trading at around SGD0.80, there’s significant upside potential even if the Russians come down against the company.

An attractive value at current prices despite its challenges, China Fishery is a buy up to SGD1.10.

A Marine Innovator

Despite occupying the opposite side of the Diaoyu conflict, Japan-based Maruha Nichiro Holdings (Tokyo: 1334) is a much less volatile play on the global fishing industry, because it doesn’t operate in that specific geographic area and isn’t currently involved in any regulatory disputes.

Fishing primarily in Japanese territorial waters and off the coasts of North America and Australia, the company has uninterrupted access to its fisheries.

Despite a 7.8 percent decline in its first-quarter 2012 revenues as a result of weakness in its wholesale operations, Maruha Nichiro is expected to grow full-year revenue by more than 20 percent to JPY100 billion. Cost efficiencies realized through a consolidation of its Chinese and South Asian operations are expected to be a major contributor to that gain, as well as a new venture selling proteins for the manufacture of pet food in Australia.

Maruha Nichiro is much more diversified than most of its peers. Through its subsidiaries, it processes much of its catch itself rather than selling the bulk of its harvest to other processors. As a result, it isn’t exposed to nearly the same level of wholesale price variability that plagues most of its competitors. And while the majority of the company’s sales are sourced in Asia, they’re much more diversified throughout the region to include China, Thailand, Japan and Malaysia.

The company also is a major seller of processed seafood products throughout Europe and is both a major processor and fisher off Alaska, as the company works to globally diversify both its revenue and fishing areas.

Another interesting aspect of Maruha Nichiro is its heavy involvement in research and development through partnerships with prestigious Japanese universities. Over the years, these efforts have resulted in more efficient and flavorful canning processes and the development of a growing array of uses for fish oils.

What’s more, the company is working to develop whale-farming techniques to reduce the demand for wild catch. That would not only create a new market for the company, but a reduction in Japan’s whaling fleet would greatly improve the country’s global image.

Maruha Nichiro Holdings is a buy for more conservative investors up to JPY150.