Although 2019 was marked by severe salmon price volatility, full year figures confirm another solid 12 months for the sector. This year, however, the wide-ranging impacts of the unprecedented COVID-19 pandemic are set to take a heavy toll on market participants all along the supply chain.

Production

Atlantic salmon

Total global production of farmed Atlantic salmon is estimated to have increased by some 7 percent in 2019, to around 2.6 million tonnes. This marks the third consecutive year of strong supply growth, following an increase of around 5 percent in 2018. The three major contributors to this expansion were Norway, Chile and Scotland. Norway registered a year-on-year increase of 6.5 percent, while the Chilean annual total was some 10 percent more than in 2018. Scotland, meanwhile, rebounded from a poor year in 2018 with 20 percent growth. Canada was the only large producer of Atlantic salmon which saw a drop in harvest volumes by around 2 percent.

In Norway, the supply effects of algal bloom mortalities earlier in the year were not felt until 2020, resulting in steep price declines in the second quarter. The Norwegian authorities also recently updated the traffic light system to “green” for 9 out of the 13 production zones, meaning that farmers in those regions will now be able to increase capacity by 6 percent. The major factor inhibiting growth in the remaining zones is high levels of sea lice, which are also pushing up production costs. This is one of the main causes of tightening margins in Norway despite the high prices that have persisted for some years now.

Meanwhile, the Chilean salmon sector continues to face difficulties. In the last quarter of 2019, the industry faced an array of challenges associated with social unrest which included delays in the distribution chain, blockades and more logistical challenges. Despite these obstacles, 697 400 tonnes of Atlantic salmon were harvested during 2019, 53 percent of total Chilean aquaculture harvests and 73.2 percent of salmonids.

In 2020, the COVID-19 outbreak is affecting both domestic production and foreign trade. Salmon companies are implementing health and safety protocols to help combat the spread of COVID-19, following the recommendations of the authorities.

Other farmed salmonids

Supply of Norwegian trout continued its upward trajectory, with reported standing biomasses in December 2019 some 14 percent higher than December 2018. Total production is estimated to have increased by around 24 percent for the year. In Chile, production of coho salmon totalled 176 400 tonnes in 2019 (+28.4 percent). Coho salmon accounted for 13.4 percent of total aquaculture production and 18.5 percent of salmonid harvests. For rainbow trout, the cumulative harvest as of December 2019 was 79 500 tonnes, 10.3 percent higher than in 2018. Trout represented 6 percent of national aquaculture harvests and 8.3 percent of salmonid output.

Wild salmon

In 2019, the major wild salmon seasons in Alaska and the Kamchatka peninsula in the Russian Federation ended with a combined harvest around 13 percent lower than in 2018 and 4 percent below 2017. This was largely due to reduced pink salmon catches. In 2020, the Alaskan sector, heavily dependent on a seasonal influx of workers from outside the state, is having to consider the economic impact of much reduced activity this year due to COVID-19 restrictions.

Markets

The global salmon market last year was characterized by steady growth in volume terms and a marginal decline in value terms as prices dipped steeply in mid-2019. Of the three largest markets, the United States of America led the European Union and Japan in revenue growth but this was partially explained by a strong US dollar. Salmon continues to consolidate its spot as the top seafood choice amongst US consumers, having overtaken tuna in 2013. Generally speaking, global demand for Atlantic salmon, coho and trout, and the wild salmon species remained solid in 2019 across both traditional and emerging markets. China, a fast developing market with enormous potential, continues to be an important target for salmon exporters.

Trade

Supply growth, a weakening Norwegian krone, and good demand were the main factors behind strong growth in Norwegian salmon export revenues in 2019. According to the Norwegian Seafood Council (NSC), salmon exports for the year totalled 1.1 million tonnes worth NOK 72.5 billion (USD 8.24 billion). This represents an increase in volume of 6 percent and an increase in value of 7 percent compared with 2018. Norway’s access to the lucrative Chinese market has been steadily improving and the industry is optimistic about a future free trade agreement. Norwegian exports to Asia as a whole (excluding Japan) increased 20 percent in value and 18 percent in volume in 2019. Exports to the European Union, which account for some 70 percent of Norway’s salmon export revenue, were up 3 percent in value and 4 percent in volume.

In Chile, the Undersecretariat for Fisheries and Aquaculture (SUBPESCA) reported a delay in publishing the annual total exports statistics for 2019, but exports are expected to be on par with 2018. The Atlantic salmon fillet market in the United States of America, the coho market in Japan and the fresh whole Atlantic market in Brazil all showed stable growth in 2019.

In 2020, access to the Russian market has improved as temporary import restrictions previously imposed by the Russian Federal Service for Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor) on four Chilean salmon plants have been lifted and guarantees of compliance with Russian requirements have been obtained. All salmon shipments to China, however, have been suspended until the health situation is considered under control. The Chinese market has been increasing in importance for Chilean exporters and now ranks fifth with a share of approximately 5 percent of total exports during 2019.

Shipments previously destined for China are now being redirected to other markets, such as Brazil, the United States of America and Southeast Asia. Aquaculture companies’ strategies to deal with the changing market environment are varied, and include freezing the bigger fish and delaying stocking.

According to the National Oceanic and Atmospheric Administration (NOAA), salmon imports in the United States of America in 2019 totalled 426 500 tonnes valued at USD 4.3 billion. These figures reflect increases of 5.82 percent in terms of volume and 3.76 percent by value compared with 2018. Chile’s share of the US market continued to increase year-on-year in 2019, while Canada’s share followed a declining trend.

Prices

In 2019, farmed salmon prices exhibited some extreme swings, even for a market where price volatility is commonplace. During last year’s third quarter, high volumes of Norwegian salmon hit the market, pushing export prices for fresh fish on the Nasdaq salmon index (NQSALMON) down to NOK 39 (USD 4.33) per kg, some 40 percent compared with the beginning of the year. However, tightening supply and strong seasonal demand sent prices soaring to near-record heights towards the end of the year.

Chilean prices were relatively more stable, but average fresh fillet export prices to the US market over the course of the year were marginally lower compared with 2018 at USD 10 per kg. In 2020, despite somewhat lower supply growth projections, global salmon prices are falling as demand weakens due to the profound market impact of the COVID-19 outbreak.

Outlook

In 2020, the market situation has been completely transformed by the COVID-19 pandemic. Social distancing measures, business closures and travel restrictions all have direct implications for the salmon sector. Salmon companies as a whole are expected to see a major drop in earnings, as most businesses are now operating at reduced capacity. The restaurant industry, which typically absorbs substantial quantities of salmon, has been effectively shut down in the most important markets.

Analysts are estimating a global salmon demand drop of at least 15 percent. At the same time, the quarantine measures imposed around the world have significantly affected retail salmon sales. House-bound consumers prefer frozen and processed options over perishable fresh seafood items. As a result, retail sales in these categories spiked when restrictions were first introduced, but tapered off as soon as households had stocked up. Online distributors are also reporting increased sales in many countries as interest in alternative distribution channels increases.

Meanwhile, logistics have become significantly more challenging, adding to market woes. Hauliers must contend with closed or restricted road borders and health inspection delays. The large-scale cancellation of flights has directly affected trade in some high-end products which are transported by air, such as fresh Norwegian and Chilean salmon destined for the United States of America and China. In 2020, there has been little relief, with the COVID-19 outbreak affecting both domestic production and foreign trade. Chilean authorities have designated the salmon industry an essential service, despite some protests meaning that trucks supplying the remaining air freight routes to the

United States of America and China are still running. The economic effects of the ongoing COVID-19 crisis are expected to be severe and uncertainty is widespread. Although some important markets, such as China, have begun relaxing some restrictions, substantially reduced economic activity is foreseen for at least several more months. Despite strong demand for farmed salmon at the beginning of 2020, the COVID-19 situation is generating uncertainty and volatility. In particular, it will take some time before foodservice demand returns to pre-pandemic levels. Some analysts have cautioned that projections for China may be overly optimistic given that salmon, while popular in Japanese style restaurants, is still not an everyday item in Chinese food baskets.

According to figures from Kontali, total output growth for farmed Atlantics is expected to drop to 2 percent in 2020. The forecast for Norway and Chile is down 2 percent and 5 percent respectively, with Norway in particular grappling with high production costs. Although tightening supply will support prices to an extent, the persisting lower demand will likely push prices close to the breakeven level. If this happens, salmon aquaculture companies can be expected to take a significant earnings hit and  export revenues will fall. At the end April 2020, forward prices at Fish Pool were hovering at around NOK 50 (USD 4.77) per kg. For the wild salmon sector, COVID-19 restrictions may have significant implications for the upcoming season, although Alaskan authorities have not yet stated plans to close any of the summer fisheries.