GLOBEFISH - Information and Analysis on World Fish Trade

Chile leads growth as Norway and Scotland grapple with fish health issues

10/04/2019

The Chilean farmed salmon sector led global supply growth in 2018, surpassing levels achieved prior to the mass algal bloom mortalities experienced in 2016 while maintaining its profitability. A relatively lower rate of production growth in Europe, particularly in Scotland, helped to support continued high global prices in the first nine months of 2018. 

Production

Atlantic salmon

Total global production of farmed Atlantic salmon is estimated to have reached 2.5 million tonnes in 2018, a 5–6 percent increase of 130 000 tonnes over 2017. Norwegian production grew by some 5 percent, while Scottish harvests were sharply reduced, -20 percent, as a result of severe biological challenges at farm level. Chile saw an increase of 14 percent in 2018, continuing a steady recovery since the algal bloom of 2016.

For the last two years, Norwegian production has been growing at a relatively slow rate, due to regulatory constraints and sea lice difficulties. Towards the second half of 2018, high seawater temperatures saw 8 percent of all Norwegian farms report sea lice levels above the regulatory limit, and this pushed down harvest weights toward the end of the year. A recent report from the research institute Nofima showed a 5 percent increase in average costs at Norwegian farms, driven specifically by operating costs including those related to smolt raising and disease management.

In Scotland, a variety of disease and environmental factors such as plankton blooms saw total farmed Atlantic salmon production in 2018 reduced to 150 800 tonnes. This is the lowest since 2009, with some farms experiencing mortality rates of more than 50 percent. A government report released in November recognized the economic value of the Scottish salmon farming industry but also emphasised the need to introduce more effective regulatory standards to address fish health issues and to better manage the sector’s environmental impact. 

The Chilean salmon farming sector achieved very positive results in 2018. Costs have fallen and biological conditions at farms have reportedly improved, reflected in higher harvested weights that have surpassed even those seen in Norway. Consolidation of the sector continues, with two USD 800+ million acquisitions in 2018. Chile’s new and still evolving regulatory framework, which comprises a variety of measures including output caps and incentives for lower antibiotic use, has brought some successes but is also facing some criticism. A number of Chilean aquaculture companies have started legal proceedings against the government, claiming that their businesses have been unfairly penalized by the new regulations. 

While demand for farmed salmon in old and new markets shows no signs of abating, the traditional methods and regions of salmon farming are limited in their potential rate of future growth due to geographic, technological and regulatory constraints. This is driving efforts to develop new approaches to farming, mainly focused on closed containment technologies, sited both on land and at sea. At the same time, new aquaculture operations are being set up in a variety of geographically dispersed countries, including Iceland, the Russian Federation and China.

Other farmed salmonid

Full year figures for Chilean farmed coho salmon harvests are not yet available, but estimates for the first half of 2018 put total production about 25 percent higher than during the same period in 2017. In Norway, production of farmed trout for 2018 is expected to be some 15 percent higher than the previous year, while standing biomasses as of December 2018 were 16 percent higher than December 2017. This reflects the strong recovery in output that the sector has achieved after 18 months of extremely tight supply that sent prices soaring.

Wild salmon

Global wild salmon catches in 2018 increased by around 10 percent, primarily as a result of record pink salmon catches off the Kamchatka Peninsula in the Russian Far East which exceeded 500 000 tonnes. Sockeye and chum catches in the Russian Federation reached 44 000 tonnes and 82 000 tonnes, respectively. In Alaska, wild salmon catches were well below forecast, with estimated pink, sockeye and chum catches of 74 000, 123 000, 65 000 tonnes, respectively.

Markets

Demand for salmon continues to grow strongly in markets across the world despite the elevated prices, clearly demonstrating its unique, near universal appeal as a seafood option. Highly technologically developed aquaculture and production that is balanced between both hemispheres ensures fullyear availability. The size, known health benefits and versatility of the fish itself cements its competitive advantage versus alternative species, including other commodity aquaculture products such as tilapia and pangasius. According to a recent study by Rabobank, growth in demand for salmon has significantly outpaced demand for terrestrial meats such as poultry, pork or beef, with an average yearly increase of 4.5 percent from 2007 to 2017.

While the United States of America, Japan and core EU28 markets continue to represent some of the most important markets for salmon producers, the majority of demand growth is coming from emerging economies and also from more peripheral developed markets. In the EU28 for example, France and Germany have seen little increase in salmon consumption in recent years, while consumption in countries such as Italy has risen sharply over the same timeframe. Even in relatively saturated markets like France, the largest EU28 market, demand was still strong enough to absorb consistent volumes even as prices rose.

In Asia, the enormous potential of China as a seafood consumer market means it is increasingly a priority target for salmon exporters and marketers all over the world. The tastes and preferences of Chinese consumers in terms of product forms, packaging and branding are becoming more important areas of focus for the salmon industry, although recent funding cuts to the Norwegian Seafood Council (NSC) may negatively impact these efforts in the medium term. Other markets in East and Southeast Asia are also growing fast, but they will continue to trail far behind China in terms of total market size.

Trade

According to the Norwegian Seafood Council (NSC), Norway exported 759 000 tonnes of salmon worth NOK 49.4 billion (USD 6.15 billion) in the first nine months of 2018. This was a 4 percent increase in value compared with the same period in 2017, despite a small decrease in average price. The EU28 market, led by France and Poland, is once again increasing its share of Norwegian supply after previously losing some ground to demand from the United States of America and Asia. This is partially the result of a Norwegian krone that is at decade lows against the euro. It is also because of the success that competing suppliers such as Chile, the United Kingdom and Canada have achieved in the United States of America and in Asian markets including China, thus somewhat replacing the Norwegian product there.

Norway’s exports of farmed trout increased by some 22 percent in the first three quarters of 2018, according to the NSC, up to a cumulative total of 31 500 tonnes worth NOK 2.1 billion. Following the introduction of the Russian Federation import ban, the Norwegian trout sector has made great inroads in developing a range of geographically diverse markets and its top three export destinations are now Belarus, the United States of America and Japan.

In Chile, good harvests and high prices in 2018 are expected to have translated into record sales. The Chilean Salmon Industry Association (SalmonChile) estimated more than 850 000 tonnes of salmonids were shipped, worth USD 5 billion, figures that represent a historic peak. In the first nine months of the year, according to IndexSalmon, cumulative Atlantic salmon, coho and rainbow trout exports amounted to 439 100 tonnes, up 22.7 percent compared to the same period of 2017. In value terms, exports grew 9 percent to USD 3 661 million, while average prices fell by 11.2 percent to USD 8.34 per kg.

This export performance is due to successful positioning of Chilean salmon in the US and Asian markets, the result of the combined efforts of the industry as a whole. The United States of America remains Chile’s most important market with 29 percent of the volume share and 37 percent in value. According to the National Oceanic and Atmospheric Administration (NOAA), 299 000 tonnes of salmonids were imported by the United States of America in the first nine months of 2018, worth USD 3 billion, and Chilean-origin salmon accounted for some 45 percent of the total value of US salmon imports.

The United States of America is followed by Japan with 18 percent and 16.8 percent (primarily coho salmon) of Chilean export volume and value respectively, and Brazil with 14.5 percent and 11.8 percent. Chile is also expanding its market share in both China and the Russian Federation, both of which are markets following strong upward growth trajectories in recent years.

In the United Kingdom, although the continued weakness of British pound is theoretically positive for exporters, the sharp drop in production created a decline in exports in both volume (-18 percent) and value (-14 percent) terms. US-destined exports, in particular, were down by 32 percent in value terms as relatively more product was directed to the French market. The Scottish industry is still waiting for ongoing Brexit negotiations to be resolved. The Scottish Salmon Producers Organization (SSPO) has added its voice to those rejecting the option of a “no deal” Brexit, suggesting that this outcome would result in GBP 2 billion in lost annual sales.

Prices

Export prices for Norwegian farmed Atlantic salmon reached a peak of NOK 80 per kg on week 19 of 2018, reaching near-record levels. This was a temporary spike and prices moderated quickly as increased harvest volumes brought some relief throughout the summer. The average price for fresh whole Atlantic salmon exported from Norway over the first nine months of the year was NOK 61.82 (USD 7.69) per kg, a similar level to both 2016 and 2017.

For fresh fillets exported from Chile to the US market, the second quarter spike saw prices reach USD 13.93 per kg, but by mid-summer they had fallen back to around USD 11.24 per kg. These levels are now generally accepted by the sector as the new price plateau, and Nordea bank analysts recently suggested that further upward movement could only be prevented with annual supply growth of some 6–7 percent.

Outlook

The Chilean sector is expected to significantly moderate its rate of expansion in 2019, with a projected growth rate of 3 percent. Although Norwegian output is expected to increase by some 6 percent this year, the net result is an estimated 4 percent increase in total global production of farmed Atlantic salmon to around 2.6 million tonnes. Given the current trajectory of demand growth, this is likely to be insufficient to prevent further price increases and a range of NOK 62–64 (USD 7.44–7.68) per kg is expected for the 2019 average price for fresh whole Atlantic salmon.

Diseases and environmental events such as algal blooms remain ever-present threats, particularly in times of increasing climatic volatility, and the resulting supply shocks could send prices to extreme heights. On the market side, numerous economic uncertainties may potentially impact salmon consumption in 2019, but the impressive rate of demand growth globally represents something of a buffer that should prevent prices from dropping too far, particularly when compared with the current limits on supply expansion.

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