According to figures from the Seafood Norway Production Forum released in August, farmed Atlantic salmon production in Norway fell by 45 000 tonnes, or 9 percent in the first seven months of 2016, with an overall drop of 5 percent forecast for the year. This situation has seen export prices for fresh whole Atlantics, as measured by the NASDAQ salmon index, above NOK50 per kg since the beginning of the year, and reaching multiple peaks above NOK75 per kg in mid-year. Seasonal post-summer harvests caused a spike in Norwegian supply volumes, which is the result of trying to keep biomasses below regulatory limits after summer growth in the pens. This peak in supplies pushed down prices to NOK52 per kg in mid-September, but this is still some NOK10 above the same period in 2015, reflecting the significantly larger gap between supply and demand this year.
In line with the reduction in production volumes, Norwegian exports were also down in the first six months of 2016, to 458 000 tonnes, or 6.8 percent lower than the same period last year. High prices more than offset lower volumes, however, and total value exported was up 29 percent for the same period, to NOK27.9 billion (EUR3.3 billion). These revenues have translated into bumper profits for many Norwegian aquaculture companies, although price volatility and high raw material costs have squeezed the margins of supply chain intermediaries. Exporters, however, have been protected to an extent from passing on high costs to buyers by the weakening Norwegian krone over the last few years, now down by approximately 11 percent since the beginning of 2014.
Poland still the biggest market for Norwegian salmon
The major markets for Norwegian salmon have remained largely the same for a number of years, with Poland the number one destination. About 70 percent of Polish exports are processed and re-exported, underlining the importance of the Polish processing industry, particularly as a supplier of smoked salmon to Germany. Norwegian exports to emerging markets in Southeast Asia continue to grow, as does the proportion of total production directed to the US market, which is supplied with a combination of fresh whole Atlantics and an increasing quantity of fillets that compete directly with Chilean product.
As per the typical seasonal pattern, salmon prices can be expected to rise again going into the last quarter of the year as supply tightens and end-of-year demand begins to put upward pressure on prices. In fact, forward prices at FishPool put the weighted average price for fresh whole Atlantics above NOK60 per kg from November until mid-2017 at least. Norwegian authorities have introduced a new flexible Maximum Allowed Biomass rule, which Nordea analysts predict will cause a 3-5 percent increase in Norwegian production next year. However, continuing low supply from other sources and strong, growing demand in markets across the world will likely prevent any significant reduction in the current price level.
Regulations limiting growth in Chile aim at greater stability
The Chilean salmon industry, which was significantly affected by an algae bloom during the first half of 2016, is now trying to control production through new regulations. These regulations are still being challenged from some quarters, but the current rules limit production growth to 3 percent per year in an attempt to lessen the impacts of worldwide fluctuating prices and unstable production.
According to some estimates, this 3 percent limit should lead to a 25 percent reduction in salmon production for 2016 to stabilize at around 650 000 tonnes. This volume is far below Chile's record production year in 2014, when production totaled nearly 955 200 tonnes. However, this reduction estimate is not agreed on by all. One expert in the sector claims that with the new regulations, Chile could produce at most 400 000 tonnes. Other analysts note that though production will not reach 650 000 tonnes, they predict that until 2018 supply will be more limited at around 500 000 tonnes.
Weaker pound helps UK exporters
Scottish farmed salmon production is expected to rise 3.5 percent in 2016, to 177 900 tonnes. Exports out of the UK bounced back this year after a drop in production in 2015, with an increasing proportion headed for France where it has a positive image amongst consumers. The severe depreciation of the British currency following the referendum vote is also beneficial for exporters, making Scottish salmon cheaper for foreign buyers. This may help to reverse the ongoing decline in exports to the USA where competing Canadian producers have been increasing their share of the market. However, due to new regulations introduced by the National Oceanic and Atmospheric Administration (NOAA), Scottish producers must work to reduce the number of seals killed in culls to zero by 2022.
The weaker British pound is, however, not good news for importers. The UK imports almost as much salmon as it exports, primarily from the Faroe Islands and from Norway through Sweden, although domestically produced fish now looks relatively more appealing to buyers. The effects have yet to be reflected in reported import volumes, however, and volumes were up in the first half of 2016 even as prices rose.
Slower growth on some markets cuts demand
As salmon prices continue to soar, it is worth noting that the full impact of the current supply shortfall is in fact being mitigated by economic declines and weaker demand in what were previously the largest emerging markets for salmon. The economic struggles of Brazil, and the associated high inflation and unemployment, has certainly negatively impacted demand for salmon over the last two years, although a combination of reduced Chilean production and the influx of large numbers of tourists for the Olympics temporarily pushed prices and total import value up this year.
In the Russian Federation, meanwhile, imports of salmon have declined dramatically since the introduction of the trade ban in 2014, as even suppliers not covered by the ban have seen demand wane in the face of economic recession and spiking inflation. China, although not experiencing economic difficulties to the same extent, has also seen economic growth slow somewhat and imports of increasingly expensive farmed Atlantics have fallen this year. Given that the scope for increased global production is limited, the return to previous rates of demand growth in these three countries in the future can be expected to exert considerably more upward pressure on what are already considered extremely high prices.
Even as average import prices of fresh whole Atlantics approach €7 per kg, French demand for salmon remains largely unabated. Increasing import volumes even as the availability of fish is reduced, French buyers are looking for product wherever they can find it, supplementing Norwegian and Scottish fish with imports from Chile and China.
The image of farmed salmon, particularly of Norwegian origin, appears to be improving amongst consumers, helped by the increasing quantity of Aquaculture Stewardship Council (ASC) certified farmed salmon appearing on French supermarket shelves.
Salmon remains popular in Germany for the second year running
As in France, German demand for salmon is still firm despite the current price level, although the growth of what was a previously rapidly expanding fresh salmon segment has slowed. Interest in the traditionally popular smoked salmon product remains strong, with the market supplied by Polish processors. Salmon consumption overall is on the rise, driven by discount retailers, and continuing product innovation focusing on convenience, more modern branding and increasing use of modified atmosphere packaging. Market research recently conducted by the Fisch-Informationszentrum e. V (FIZ) shows salmon as the most consumed seafood product in Germany for the second consecutive year.
FAO GLOBEFISH. The report analyses the market situation over the period January-October 2016