Norway
According to a recent Nordea market report, total Norwegian production of Atlantic salmon is forecast to fall by some 5 per cent in 2016, to approximately 1.18 million tonnes. A major factor behind the drop is the difficulties of the industry in controlling sea lice at farms, for which standard treatments are becoming less effective. Although the number of lice per fish is lower than it was previously, the cost of keeping these numbers down is higher and the Norwegian government is restricting licensing of new farms based on strict sea lice limits.
The recent events in Chile and the expected negative growth in Norway has inevitably seen prices jump to exceptionally high levels in early 2016, following the end-of-year spike due to already tightening supply in the latter half of 2015. As of week 9 of 2016, the NASDAQ salmon index was at NOK 61 per kg for fresh whole Atlantics, around NOK 24 higher compared with the same week of 2015. These near-record prices are being maintained by a now very limited supply of fish and strong demand in the EU and the USA, with the EU forced to pay more to compete with the USA’s recent currency advantage.
This price hike has seen the value of Norwegian salmon exports in the first two months of 2016 rise by 17 per cent year-on-year to NOK 8.4 billion (144 860 tonnes of fish, -2 per cent in quantity), which follows an already strong year of export performance in 2015. The EU market continues to absorb large volumes of salmon despite spiking prices, buying a total of 110 000 tonnes of fish worth NOK 6.2 billion in the first two months of the year, representing a 2 per cent drop in volume and a 19 per cent increase in value.
The Norwegian krone has weakened versus the euro over the last two years, allowing exporters to more easily pass on higher prices to buyers, although in the USA this effect has been even more prominent. A strong US dollar has driven the value of Norwegian salmon exports to the USA up by 25 per cent to NOK 473 million in the first two months of 2016, and volume up by 6 per cent to 5 920 tonnes. Other markets in the Middle East as well as in East and Southeast Asia are also showing strong demand growth, with Eastern Europe the only region suffering a drop in imports.
Three critical factors, including biomass levels being lower than they were during the last two years at Norwegian farms, currency trends continuing to favour Norwegian exporters and Chilean supply taking a heavy hit, mean that the industry can expect the current price level to be more than temporary. This forecast is reflected in an average forward price at FishPool of NOK 57 per kg for the remainder of the first two quarters of 2016. Although producer bottom lines will certainly benefit, despite increasing biological costs, exporters and processors will be wary of the risks of increased volatility and margin squeezes due to resistance further down the supply chain.
Trout
In contrast to the sharply reduced salmon supply, farmed Norwegian trout is much more plentiful, and export volumes have more than doubled year-on-year in January and February 2016. For February, the NSC reported exports of 6 081 tonnes worth NOK 288 million, with prices for fresh whole picking up despite the volume increase. Poland, the USA, Belarus and Japan have all shown exceptional growth over the last three years or so, and the trout industry is also optimistic about demand prospects on Western European markets on the back of large marketing investments.
Chile
The drop in salmon prices by almost USD 2.20 per kg was the main trend in Chilean exports in 2015. According to figures from the Central Bank, salmon and trout shipments totaled USD 3 507 million in 2015, 20 per cent less than in 2014. This total export value for Chile is the lowest level since 2012, when it totaled USD 2 874 million.
A central factor that influenced the drop in salmon prices was the sharp depreciation of some currencies in major export markets, such as Russia and Brazil, the increase in Canadian production and the shift in exports from Norway to the USA due to the Russian import ban. All of these factors caused an oversupply in the US market and as a result, a significant negative impact on prices for the Chilean industry. With overall significantly less revenue, increases in volume terms failed to compensate.
The big news for 2016 is the algal bloom crisis in southern Chile, which has killed up to an estimated 20 per cent of the country’s farmed salmon. On 18 March 2016, the Chilean government reported that the phenomenon had begun to recede along with fish deaths.
It is estimated that salmon farmers have had production losses of around 100 000 tonnes, worth USD 800 000 million. The abnormally warm weather and lack of rain were identified as the contributing factors that led to the algal bloom. As mentioned above, the decline in supply of Chilean salmon has led to a global increase in prices, which Reuters reports is reflected in a price increase of 25 per cent to USD 10 per kg in early March in Miami.
UK
As the Norwegian krone weakened 28 per cent and 7 per cent against the US dollar and the euro respectively in 2015, the British pound weakened by 8 per cent and strengthened by 10 per cent for the same currencies. Particularly in times of high prices, these currency developments put British exporters at a distinct disadvantage in competing with the Norwegian industry in the US and EU markets after the Russian embargo. Affected also by biological challenges, the Scottish farmed salmon industry underperformed in 2015 compared with its Norwegian counterpart, but in 2016 is hoping to avail from further improvements in the price situation, stabilizing exchange rates and expected higher domestic production to boost revenues.
In the UK domestic market, market research firm Nielsen reports a 4.5 per cent increase in smoked salmon sales in 2015 and a 12 per cent increase in volume, to GBP 264 million and 11 837 tonnes respectively. This segment is expanding in both size and product range, and is increasingly controlled by discount retailers.
Markets
The USA will remain the most hotly contested market in the salmon sector in 2016, with the EU already dominated by Norway, the Russian embargo still in force and the Brazilian market beset by economic problems including high inflation and depressed consumer confidence. With the current shortage situation and the accompanying price level, the continuing strength of the US dollar will be an important factor in maintaining demand. Meanwhile, it remains to be seen to what extent import growth in emerging markets in South Africa, the Middle East and East Asia will be slowed by the prices that must now be paid to secure product.
France
Indications on the French market are for growing consumer confidence and strong underlying demand, despite the high prices and the long-term impact of negative publicity relating to Norwegian farmed salmon in 2013. In volume terms, France imported some 3 per cent more salmon products in 2015 compared with the previous year. The increase in imports of fresh whole Atlantics and fresh fillets from Norway after a period of significant decline suggests that the image of salmon has improved amongst French consumers, but the relative strength of the euro versus the krone was also likely an important factor.
Germany
German imports of fresh salmon levelled off in 2015 after strong growth the previous year, while the smoked salmon segment returned to positive growth. The German fresh salmon segment has seen strong growth recently on the back of a concerted effort by the industry to develop convenience products that are easy to prepare and sold increasingly through large discount retail chains. As with all other markets this year, however, German buyers will have to come to terms with fewer fish and higher prices.
Japan
The algal bloom that has seen massive mortalities in Chilean farms has affected all species, including farmed coho, the vast majority of which is sold in frozen form to the Japanese market. According to SalmonEx, the reduction in coho supply will be 24 per cent, or around 37 000 tonnes. Although there was a strong recovery in import volumes in 2015, to around 200 000 tonnes, reports from the country point to poor domestic harvests and low inventories that will likely see importers turn to wild sockeye from Russian and Alaska to cover shortfalls.
USA
The USA imported 345 000 tonnes of salmon during 2015 worth USD 2 714 million. Compared with 2014, these figures represent an increase of 9 per cent and a decrease of 7 per cent, respectively.
Chile was the main salmon supplier during this period, exporting a bit over 133 000 tonnes, which demonstrated a 1 per cent increase compared with the 132 487 tonnes shipped the previous year. In value terms, a decrease of 18 per cent was registered (USD 1 155 millions). Canada was the second top supplier, exporting 91 000 tonnes to the USA, worth USD 595 million. Norway showed a significant increase in its share of the fresh segment to the USA.
After approving genetically engineering salmon as safe to eat in late 2015, the US Food and Drug Administration banned the import of such products in January 2016 until final guidance is issued regarding labelling requirements.
For US exports, there was an increase of 23 per cent in volume terms and 12 per cent in value terms in 2015 over 2014.
Outlook
The total financial loss for the Chilean salmon sector resulting from the algal bloom is estimated to be somewhere between USD 500 million and 1 billion. For an industry already struggling with debt and cash flow problems due to high costs and market challenges, this is expected to force through mergers and restructuring or disappearance of smaller players, although share prices for many large Chilean companies have been driven upwards recently by positive price expectation.
For other producers, and particularly Norwegian producers, who are now well established in almost all major markets, the net 6.8 per cent decrease in global salmon supply and the sharp upturn in prices will be a huge boost to revenues and margins. However, this same price trend, together with the rising costs of treating diseases in pen farming, is increasing the attractiveness of land-based ventures that could take advantage of the supply gap.
