Salmon - November 2010

Norway’s benefiting from tight supply

Norway’s export statistics for salmon in the first six months of 2010 show record exports at NOK 13.9 billion (+ 31 per cent) and a more modest growth in volumes (16 per cent) to 426 000 tonnes (round weight equivalents). Most markets show growing import volumes of Norwegian salmon as the lack of Chilean product keeps supply limited with rising prices as a result. Most of Norway’s export markets show volume growth, including the EU (+ eight per cent) which takes a total of 67 per cent of Norway’s exports.

The US market in particular has been strong for Norway’s exporters with a 80 per cent volume growth during the first six months. Russia has also shown remarkable increases this year; + 38 per cent, as have most other Central and Eastern European markets. A few destinations saw a decline in import volumes even though the value of their imports was still up, given the higher prices in 2010 compared with 2009. These include the UK, Italy and Japan. Of note are the continuing positive trends in importing countries with strong reprocessing and export industries such as China, Viet Nam and Thailand.

Markets generally strong despite consumer worries about economy

The EU, the largest salmon market in the world is still showing increasing consumption. France in particular is demanding more salmon than ever with new volume growth registered in the first quarter of 2010. German imports were also up in the first quarter.

Japan was traditionally the world’s largest salmon import market but has been overtaken by both the EU and the US. Fish consumption in general is stagnant and salmon is no exception, although 2010 imports during the first quarter were slightly up from last year.

Chilean harvests of salmon and trout fell by 67 per cent in the first quarter of 2010, totaling 65 638 tonnes. The reduction in harvests was registered in all species, although Atlantic salmon showed the most significant drop, -77 per cent (73 256 tonnes below than in the same period in 2009). In the period reviewed, Rainbow trout was the main species harvested, with 31 632 tonnes (-40 per cent than in 2009). Output of Coho salmon also fell by 75 per cent, totaling 12 307 tonnes between January and March 2010.

The fall in overall supply of salmonids reflects the impact of ISA virus, not only on existing fish, but in the halt in stocking because of sanitary control measures and the restructuring of the productive legal framework, which resulted in the new Fisheries and Aquaculture Law. The sanitary situation seems to be under control, and at the beginning of June 2010, there were no production centers with ISA virus outbreaks. The stabilization of the disease has allowed companies to resume stocking. According to representatives of the Chilean Salmon Association (SalmonChile), in the first quarter of 2010 there was an increase of 200 000 fish put into the sea over the same period in 2009. Although this is a positive sign, it also indicates that a “booming” recovery should not be expected.

While it is forecast that production bottoms out in 2010, expectations are that this marks a change in the trend and that a recovery will be seen in 2011, with outputs reaching a 70 per cent level compared with the situation prior to the ISA virus outbreak by 2012.

During 2009 the salmon sector renegotiated its debts (with liabilities of about USD 1 500 million) with the financial systems, which allowed the industry to regain confidence. The positive outlook for salmon production has already caught the attention of investors. This is a positive sign when considering that estimations are that the industry will need about USD 600 million of working capital to regain production levels that approximate those prior to the outbreak of the ISA virus.

Industry operators estimate that the needs for financing, considering working and investment capital, could reach USD 1 000 million. Many players foresee that the Chilean salmon industry will go through a consolidation process, with several mergers and acquisitions, and the entrance of new players, seizing the opportunities given by the lower equity of firms. Another significant issue is that the reorganization of production under the new legal framework will require companies to coordinate actions, given that now the production and rest cycles will be organized by zones, with several firms producing in the same zone.

Exports of salmon and trout fell significantly in the first quarter of 2010. Total sales to foreign markets totaled 89 802 tonnes worth USD 573 million, a 34.5 per cent fall in terms of volume and 24 per cent drop in terms of value compared with the same period in 2009.

However, the behaviour among different markets was uneven in the period reviewed. Sales to the Japanese market in terms of volume fell by 27 per cent, while exports to the US dropped 60 per cent and to the EU were 72 per cent lower. Sales to these markets were also lower in terms of value, but the reduction was of a smaller extent, given that average unit value of exports grew by 17 per cent. In contrast, it is worth noting the performance of sales to Latin American countries.

Although purchases from these countries fell by 15 per cent, value of exports grew by 17 per cent, reflecting a 41 per cent increase in unit value. Brazil accounted for 74 per cent of total exports to Latin American countries in terms of value, and is the leading country receiving Chilean exports of salmon and trout to Latin America. Atlantic salmon accounts for 84 per cent of Brazilian imports. Chile has lost its leading position in the US in the Atlantic salmon fresh fillets segment, and currently Norway is the top supplier to the US market.

The lack of supply from Chile has pushed up prices. By mid-June a downward trend was registered, although the price was still considerably higher than at the beginning of 2010 or the same period in 2009. On the contrary, Chile remains ahead in the Japanese market, owing to an increase in trout imports. The lack of supply has changed the trade patterns in the main markets. Norway has diverted production from other markets to the US to seize the gap offered by the drop in Chilean supplies. Marine Harvest has also opened a processing plant in Japan to provide this market (where Chile had also the leading place) with salmon fillets, repeating an experience that became successful in the US market.

While 2010 will be a bottom year in Chilean salmon production, it is expected that to mark the beginning of the recovery of the industry, with a new direction. The salmon sector will change its methods of operation and the constellation of firms is sure to change. However, another matter of concern is arising in international markets.

The drop in supplies helped prices remain high despite the international crisis. But the appreciation of salmon has raised the concern about a potential weakening of salmon consumption, given that consumers might turn to cheaper products, especially in a negative economic environment. That is the case in Spain, where some operators have stated that consumers are shifting from salmon to pangasius as a result of increasing prices. In this context, the recovery of the Chilean industry would be a positive sign for the global salmon sector.