The following correction was printed in the Observer's For the record column, Sunday May 21 2006

The article below includes a claim by an employee of Johnson Sustainable Seafarms that the company stopped supplying fish to the Loch Fyne restaurant chain because 'they destroyed our fish'. The Johnson management does not challenge the accuracy of the quote, but has asked to be dissociated from it, saying the contract ended for purely commercial reasons.

Nine fish are moving around the vats like buses in a garage:heavy, purposeful; you wouldn't want to get in their way. A great green-grey face surfaces to inspect me with its liquid topaz eyes: beneath the cod's lower lip there trembles the characteristic flava-sava beardlet. The flash from my camera fills their cosy gloom with light and the reaction is fury - a tirade of angry tails and water droplets. 'Ooh - they don't like that ,' says Lesley McEvoy, looking reproachfully at me.

McEvoy and these cod, some as long as my arm, are old friends - she has lived with them for five years. She respects them. 'They're docile but they're highly intelligent. They really watch you and they know what's going on. Unlike salmon, which just swim around aimlessly, like sheep.' These fish were caught off the northern coast of Shetland in 2001 and taken to the islands' fisheries college. There McEvoy headed a research team looking into a radical new idea to replace the jobs being lost as the salmon-farming industry collapsed - breeding and ranching cod.

Now two-and-a-half-million children of Lesley's cod are swimming in pens in the sea lochs of Shetland. And later this month the first of them will appear on the shelves of Tesco and another yet-to-be-named supermarket as 'organic, farmed cod', supplied by Lesley's employers, Johnson Seafarms. While farmed cod has been seen in Britain over the last couple of years - Marks & Spencer and Waitrose have experimented with a non-organic fish and Johnson's cod has been occasionally available in a few restaurants since 2004 - this is something else, something historic: the beginning of the mass availability of organically and sustainably farmed ocean fish, on the high street at a competitive price.

Unlike farmed salmon, it's a fish that tastes as good, at least, as its wild equivalent - and it will reach the shops fresher than most wild cod, which may spend 10 days in ice on a trawler. Johnson's 'No catch...just cod' label will decorate a variety of products, including 'the world's best fish finger': the price of their cod fillets should be in shouting distance of that of wild cod (currently about £5-£6 a kilo in Billingsgate, or around £10 a kilo at a supermarket). A serving of fresh, organic cod fillet for £3? If this all sounds too good to be true, there are veteran watchers of the long, tawdry history of fish farming who would agree with you.

Karol Rzepkowski and Laurent Vigui?the men behind Johnson Seafarms are proud not to be fish farmers - their CVs run through the music industry, property, restaurants and professional diving. If their scheme works out, the implications will be enormous. Johnson alone hopes to be supplying close to 10 per cent of the British demand for cod by 2012 from its Shetland farms. Production is just beginning in Canada. The Norwegian aquaculture company Nutreco has said that production could reach 700,000 tonnes in 12 years - at the moment the entire Atlantic cod catch is only 800,000 tonnes. Other cold-water fish like halibut are already in limited production, and there's potential for more - hake, haddock and so on.

This is about more than getting cod back into fish-and-chip shops. Marine science has already held the funeral for wild Atlantic cod - for hundreds of years Western Europe's most important source of non-animal protein. Commercial cod fishing was banned on the Canadian side of the Atlantic 14 years ago, but stocks show no signs of recovering. Cod numbers in the North Sea are at half the level needed just to keep the species going. The British cod habit, falling fast but still 300,000 tonnes a year, is supplied largely by undersized, immature and often illegally caught fish from Iceland and the Arctic. (A Guardian investigation in February showed that a major supplier of Findus and Birds Eye in UK was buying Russian cod caught outside the quota levels set to try and preserve the species.)

Clearly international agreements and quotas don't work - they failed to preserve the North Sea fisheries and they are failing other important species like Alaskan pollock, whiting and bluefin tuna. Farming may be the only chance of a reprieve for wild cod from its long-pronounced death sentence. Huge, mature cod like those in Lesley's vats at Broonie's Taing on Shetland are dinosaurs. Few trawlermen ever see the likes of them.

Tell environmentalists or marine biologists that fish farming could help save a species, and most will laugh in your face. 'Look at salmon!' they'll say - and salmon is indeed one of the industrial food business's most shameful tales.

As most consumers now know, the charming cottage industry that provided alternative income for Scottish crofters, fattening a few salmon in pens in picturesque sealochs, disappeared long ago. By the 1990s salmon were kept packed in vast cages, fed processed proteins by machine, with supplementary antibiotics, colourings and pesticides tipped in when necessary. They were the battery chickens of the sea.

Anyone who had ever walked or sailed past a salmon farm in Scotland knew the reality - you could see the fish arcing out of the water, desperate to escape the dense packs below. Salmon are ocean rovers, migrating thousands of miles until they return to find their way back up the rivers of their birth in an extraordinary feat of navigation. In the pens, unable to do what nature designed them to, they are doubly imprisoned. It's like caging cheetahs. If it's possible to be cruel to a fish, this is how to do it.

And the environmental fallout was terrible. Divers reported a desert on the sea-bed below, all life extinguished by the waste. Sea birds and seals were treated as pests by the farmers - they became entangled in nets and were often shot. Other fish stocks like blue whiting sand-eels went into savage decline, as they were trawled up to provide fish meal for the salmon. It takes three tonnes of wild fish, it's said, to produce one tonne of farmed. Birds like terns, puffins and kittiwakes that lived on the sand eels suffered in their turn.

But the saddest effect was not spotted until it was too late . The farmed salmon destroyed wild salmon. Diseases unknown before emerged in the packed cages. When fish escaped, as they often did, they infected their wild cousins with diseases and sealice. And the escapees - some of them many generations away from their wild ancestors and thus highly genetically modified - bred with the wild fish. This did crucial damage, it's believed, to the salmon's instinctive ability to survive in the wild.

In the end the greed of the fish farmers did more to limit the industry than anything else: a price war mounted by Norwegian producers pushed the market price of salmon to less than that of chicken by 2001, putting many producers out of business. Consumers meanwhile were waking up to the news that farmed salmon wasn't necessarily the healthy, exotic meal they'd been told. Communities like Shetland, by no means the worst offenders, were hard hit as the business died - thus the old Shetland family firm of Johnson's started looking for new ideas.

'The whole point of this project is not to be like salmon farming. That was our model, if you like. ' Charming and excitable, Karol Rzepkowski is a Scottish Pole with a hippyish backround in diving and Caribbean resort development. He was brought in as a manager by the Johnson family in 2001 to try and save their collapsing salmon-farm business.

In the golden days of salmon, Johnson's was so profitable that, according to legend, founder Gibby Johnson one Christmas gave every employee a new car. But that time had long gone: in 2001, the farm-gate price of salmon had dropped as low as £1 a kilo. But Karol Rzepkowski saw a glimmer in cod farming - then just starting up experimentally, mainly in Norway - and led two rounds of investment-raising and, eventually, a management buy-out last year to get the project up and running. Karol is now managing director with 50 staff at Johnson Seafarms - set to rise to over 100 . They include Lesley McEvoy and the entire aquaculture research team from Shetland's North Atlantic Fisheries College.

As we drive across the wind-blasted Shetland landscape to the company's headquarters on a beautiful fjord at Vidlin, it's hard to keep pace with Karol's passionate cod-talk - partsales patter, part sermon from a true believer. Cod farming is good where salmon farming is bad - according to Karol's theology - because of the essential difference between the fish. Salmon roam alone over vast areas, cod graze slowly in herds. What was alien and stressful for salmon is close to normal for cod. And the Johnson's cod are being kept at half the density than salmon commonly are.

Borrowing from organic animal husbandry, Karol and the fish health technicians work on the notion that a happy cod is a good and profitable one. So, with RSPCA approval, they have devised 'toys' for the cod in their pens - plastic tunnels for them to swim and hide in, ropes for them to chew on. 'The fish can chill out!' says Karol. The company manual has strict instructions on reducing stress for the fish, on handling them for as short a time as possible, and so on. 'Time out of water must never exceed 14 seconds...' it pronounces.

'Let's be brutal,' says Karol, 'we're growing these fish to eat them. So we have an absolute duty to give them as good a life as possible.'

Karol ticks off the differences between old-style cod farming and this enterprise. The nets that enclose the fish aren't painted with anti-fouling, a serious pollutant - instead they are rotated and cleaned. There's no need to treat for sea lice - the cod don't have them. Worms - the reason the Scots historically never ate cod, 'a dirty fish', best left for the English - don't appear in the cod's flesh, because the fish aren't feeding off the bottom. Double nets are used, keeping the seals away from the fish and thus preventing them being tempted to try and break them. So there are no break-outs and no harm done to the seals ; a new finer mesh on top of the circular pens stops sea-birds getting fouled in it. All these measures have kept mortality rates among the cod at about two per cent - in salmon farming at least one in 20 fi h dies in the pens, even if the stock stays healthy. 'Frankly,' says Karol, 'all these ideas were obvious. But the salmon farmers were so up against it, economically, that they could not do anything that might increase the overheads.'

Most important of all for the environmentalists is the fact that the cod are all first or second generation, offspring of the Shetland cod caught by Lesley McEvoy's team. If they escape they will be mixing with a population identical to them, evolved to deal with the same conditions. One of the promises Johnson has made is that they will resist attempting to breed super-cod that will fatten fast and market best.

Because cod digest their food more slowly - hence their great bovine pot bellies - their excreta contains less active polluting material and the damage to the environment around the pens is less. And there's no tipping of antibiotics or pesticides into the pens - the rules of organic certification wouldn't permit it. Johnson's divers say sea-bed life is returning to the scars left by the salmon farms.

'Toys for fish! Some of what we're doing is making the aquaculture industry roar with laughter, I'm sure,' says Laurent Vigui? He is chairman of Johnson Seafarms, a record company executive and property developer who was the brain behind raising £30 million in the City to back the venture. ' We're feeding the cod the most expensive fish meal ever. But, at the end of the day, we're trying to turn an industry round.'

That fish meal is key to the whole enterprise. Historically, fish farming aimed chiefly to pump the cheapest protein and fats into the fish as fast as they could take it. But this feed is low on fish oil and close to natural - well, close enough to gain the crucial organic certification from the Organic Food Federation (though not yet from the Soil Association). It is made from the off cuts of commercially caught wild fish, mainly herring and mackerel, the debris that factory-trawlers produce. This is mixed with a legume to ape the seaweed that cod graze on.

The feed pellets look like mouse droppings in the big hand of Robert Williamson - a former Shetland trawlerman, now Johnson's production manager: I ask him if he'd be happy to eat them, and he does, straight from his palm. So I try some too: they taste quite good, nutty and fishy and oily, like mackerel on lentils, perhaps.

The pellets contains 12 per cent fish oil whereas salmon feed can have up to 36 per cent, which will fatten in half the time they take in the wild. Although cod are capable of doubling their weight every year, these will mature at something closer to the speed of their wild cousins, taking three years until they reach marketable weight. In a sense, the low-oil diet has been forced on Johnson. One of the chief complaints about the original farmed cod that appeared in supermarkets a couple of years ago was its grey colour and mushy texture. Lowering the oil seems to have solved this problem - and it's also required for organic certification.

Some significant people are giving a qualified thumbs-up to Karol Rzepkowski and Laurent Vigui? the Scottish Environmental Protection Agency, bird-protection charities, and of course the Shetland Islands Council, which has put over £1 million on subsidy into the project, in the hope of restoring the jobs lost in the collapse of salmon farming. The RSPCA's John Avizienius, an aquaculture expert, told me he was impressed by the Johnson approach and willingness to address 'fish welfare' in a new way. 'But at the moment that's all potential - we haven't yet seen the fruits of the labour.' Others are watching more nervously.

'Intensive production will always cause problems: for every innovation there's a good chance that nature will turn back round and smack us back in the face.' Such is the verdict of Vic Thomas, for many years a campaigner on fish farming in Shetland from his cottage in Sandwick, just across the water from the site where Johnson Seafarms has its cod hatchery. This has not always made him popular in the islands: in the late Nineties he was opposing every planning application made by the salmon-farming industry, forcing delays while environmental impacts were examined and the communities given a say in the siting of the pens that disfigure the sea lochs.

'Most people here thought that things were not right during the Klondike period of salmon farming in the mid-Nineties. And then, as the price collapsed, corners were cut, standards dropped and some awful things were being done. I'm glad the intensive salmon-farming has stopped - but that's chiefly because organic salmon is now the only way to make a profit.' So will Vic be questioning Johnson's planning applications? 'Well, I have to live here - and this community is very involved with aquaculture. So, frankly, I'm taking time out to see what happens. There does seem to be better practice in this cod industry: I'm watching.'

Thomas is of course right: in the end industries can't get away from doing what the money tells them. At the moment that's plainly 'Go organic!' - though it's clear that some of the good ideas that Johnson boasts of are actually born from the demands of outside agencies - the Organic Food Federation, with its 18-page list of stipulations on standards, the toughened-up governmental planning and licensing bodies (Johnson has an employee whose sole job is dealing with the 15 or so different agencies and watchdog groups that take an interest).

Other critics go further than Vic Thomas. Bruce Sandison is a veteran whistleblower on the aquaculture industry and chair of the Salmon Farm Protest Group. He doesn't like the sound of cod farming, organic or not. 'We're just repeating the same mistakes with cod that we made with salmon. Should one not research these things properly before we go commercial with them? There's terrible risks - we're only just beginning to understand fully what mass salmon farming has done to the environment and to the wild stock.' Sandison would like to see a public inquiry. 'It's madness to proceed in this way. And it's a myth to say that we're going to see fish stocks rise by farming in the sea. All the experience says that aquaculture damages other resources. Don't be fooled - this is all about greed. Again.'

This may be severe, but there are clearly holes that can be picked in Karol and Laurent's evangelical sell of the project. The first is: how organic can a fish raised in a polluted sea truly be? And the North Sea is heavy on dioxins and PCBs. The Johnson cod are not chemical-free - they're vaccinated against a common cod disease, vibriosis, which also affects farmed sea bass. In North America, Johnson's has been conducting a high-profile publicity campaign under the slogan, 'Ever seen a green fish?' They started at the Sundance Festival, where Pierce Brosnan smacked his lips over the cod, and a lunch in Hollywood (Demi Moore came and so did Gwyneth Paltrow's mother).

Johnson's US publicity has claimed the fish are raised 'without any use of antibiotics'. This is wrong, as Karol admits, when I take him up on it. Antibiotics can and will be used if there is an outbreak of disease - the RSPCA would insist on it . 'Restricted' use of antibiotics is possible without losing organic status, according to the agreement with the Organic Food Federation. This means a maximum of twice in three years, says Karol: the drugs just won't be used prophylactically, tipped by the sack into the sea lochs, as in the bad days of salmon farming.

But disease may be more of a problem than Johnson likes to make out. Last year a brand new virus was identified in farmed cod in Norway - a hideous infection called Francisella that grows nodules all over the cod's organs. 'Bloody knots' appear on the eyes and skin. 40 per cent of the cod infected in the Norwegian farms of Marine Harvest, one of the world's biggest producers, died, and no vaccine is currently available. What's most disturbing is that the disease is common in other farmed fish in the tropics - like tilapia. It is not a wildfish disease - it's a disease of fishfarming - exactly the sort of danger that the environmentalists fear. Johnson says the disease only occurs in the warmer water of the Norwegian fjords, and that they are monitoring the situation.

Most serious, perhaps, are Bruce Sandison's fears about the commercial pressures. Vigui?nd Rzepkowski are new boys in a cold-blooded business - how will they cope when the going gets tough? How will those admirable high standards bear up when the other producers start undercutting; what then for those fish toys, the animal-friendly nets and the world's most expensive fish meal? What will happen when the Norwegians set out to undercut and wipe out their competitors in Scotland, as they did with salmon?

Laurent Vigui?sn't scared. 'My city backers are not tender-hearted. We're not some woolly-jumpered, pipe-smoking, bearded Shetland fellows. We're not na? - the figures make real sense. We dominate the market - that allows us to set the standard. Frankly, we'd welcome some competition - we'd like someone to price against.

'There are problems coming into a market at the premium end - but I'm proud of the fact that we've spent a fortune on R and D, we've created a brand and we've set the quality benchmark. It can work - look at Green & Black's chocolate - they created a high-end brand that sold like hot cakes and continues to do so, despite the competition.'

In a canny move, Johnson Seafarms have taken control of the supply in the UK of cod hatchlings. This is complex: you must grow not only the delicate cod larvae but also the microscopic plankton they feed from and even the ocean algae the plankton eat. All of it organic. This procedure is far more difficult than the backyard enterprise of raising salmon fry, and it would take competitiors five years to catch up. Under Lesley McEvoy's eye, Johnson are now building the world's biggest cod hatchery at Baillie's Taing. This leaves them in the enviable position of being able to dictate terms to any newcomer to the business.

And it is clear that they will act to protect the brand. Last summer they stopped supplying the Loch Fyne restaurants chain because, according to Karol, they were abusing the cod. 'They destroyed our fish! In the middle of the summer they were serving it with a sausage cassoulet!' Rzepkowski goes further even than Vigui?s he surveys the far horizons opening for them. He sees in what they have achieved the beginnings of a revolution. 'We're in a position to dictate to the retailers. They can't force down our prices, they can't make us erode our standards. It's a bit of payback for the honest producer. It's good for the consumer. This could be a way to change the food industry.

'And you know,' he grins, 'this is about our future. The ocean systems have crashed - because of our greed. This could be one way of finding if they have a restart button.' Misty-eyed this may be, but in the 20 years since we discovered our fish were disappearing, no one yet has come up with an idea that works.

Wild v farmed: can the experts taste the difference?

The tasters

Mitch Tonks, owner of FishWorks; John Moyle, chef, the Fish Shop restaurant, London EC1; and OFM's Nicole Jackson did a blind tasting...

Wild: pan-fried

John: This has a great flavour and texture. Colourwise, it's not as bright white as the other piece of fish. Mitch: The flesh comes away cleanly from the skin: this is a very good piece of cod. Nicole: Very tasty, but I would be hard pushed to tell the difference between the two.

Organic and farmed: panfried

John: This has a slightly bleached colour to it. There is more surface moisture, but not as much flavour. Mitch: This is definitely farmed. You can tell by the way the fish flakes. This is different in the mouth to the other piece. It's firmer, but stringy. It has more moisture which makes it very juicy. The flavour is not bad at all. Nicole: This one is chewier and doesn't have quite as much flavour. It's nice and moist and the taste is good. If we weren't comparing the two so carefully, I'd have trouble telling the difference.

Wild: battered and fried

John: This has a good flavour and a very nice texture. It just melts in the mouth. Mitch: This has a clean, delicate flavour. A beautiful piece of fish. Nicole: This has a lot of flavour.

Organic and farmed: battered and fried

John: This is a little chewy. Not chewy like a bad steak, but it has a slightly different texture to the other piece of fish. There is absolutely nothing the matter with it, but the other piece of cod is nicer. Mitch: This is farmed I think but the flavour is by no means unpleasant. Nicole: The flavour is slightly bland compared to the other piece, but it is still a nice piece of fish.