GLOBEFISH - Information and Analysis on World Fish Trade

Widespread disruption in the salmon sector

09/09/2020

The global salmon sector has felt the impact of COVID-19 all along the supply chain, with production, processing, logistics and markets all suffering to varying degrees. However, some observers are pointing to the lower prices and shift in focus to retail as an important opportunity that will benefit the sector in the long-term.

Production

Atlantic salmon

After an estimated 7 percent increase in global farmed Atlantic salmon production in 2019, the latest forecasts for 2020 suggest that growth will slow to around 2 to 4 percent. However, the ongoing COVID-19 pandemic has introduced a large amount of uncertainty and led to some significant changes at farm level. Poor market conditions and logistical challenges have seen many producers delay harvesting as long as possible, which means that supply in the first half of 2020 has been tighter than expected. This translates into a higher proportion of large fish in the pens and increased pressure on farmers to harvest in the second half of the year as more fish approach maximum harvest weight.

In Europe, Norwegian farmers have been monitoring water temperatures closely as they are correlated with sea lice levels, which have been one of major restrictions on growth prior to the pandemic. The algal bloom mortalities in 2019 have also reduced the number of fish available for harvest relative to expectations. Thus, supply growth in Norway has slowed significantly this year. Scottish salmon production growth was expected to be flat in 2020 after an increase of around 20 percent in 2019.

Harvest volumes are highly seasonal in Europe, with the middle two quarters accounting for the bulk of production. The switch to more conservative planning amidst the peak of the COVID-19 pandemic has translated into significantly tighter supply going into the second quarter. However, fish remaining in the pens will likely lead to supply spikes in the second half of the year.

In Chile, quarantines, curfews and other COVID-19 restrictions have led to lower volumes of salmonids reaching processing plants. This was not strongly reflected in the figures for the first quarter of the year but the decline was clearly observed in the second quarter. During January to March 2020, largely prior to the impact of COVID-19 in the region, cumulative harvests of Atlantic salmon accounted for 192 000 tonnes, up 5.9 percent compared to the same period in 2019. This species represented 47.7 percent of total aquaculture harvests in Chile. The Chilean Undersecretariat for Fisheries and Aquaculture (SUBPESCA) has required that salmon farming companies update contingency plans for fish mortalities and reinforce sanitary measures to protect workers. Due to logistical issues, stocking has been postponed and there has been reduced movement of employees to harvest centres and processing plants.

Other salmonids

In the first quarter of 2020, Chilean rainbow trout harvests reached 32 500 tonnes (up 19.3 percent compared to the same period in 2019) while coho production reached 47 300 tonnes (up 11.7 percent). In Norway, farmed trout biomasses have continued their upward trend in 2020 but the key markets for exported trout have been heavily impacted by COVID-19. The response of farmers has been similar to the case of salmon, meaning tighter production in the first half of the year but mounting pressure to harvest as we move into the second half of the year.

Wild salmon

The main wild salmon season in the Northern Pacific started in June, with initial indications pointing to lower harvests in Alaska and the Kamchatka Peninsula fishery. Market weakness due to COVID-19, and restrictions on movements affecting seasonal labour in processing plants and aboard fishing vessels, are contributing to the reduction in supply.

Markets

Although China, the Republic of Korea and some other large salmon markets began loosening lockdown restrictions in the second quarter of 2020, the overall market situation remains tense. Foodservice sales, accounting for about 30 percent of the total salmon market, remain heavily subdued, and the tourism industry is still a very long way from recovery. In some countries, such as Brazil and the United States of America, the peak of COVID-19 has yet to be reached and the situation is changing rapidly. Even in countries where the number of cases has now dropped to relatively small levels, the very real threat of a second wave means authorities remain vigilant and ready to re-introduce restrictions if necessary.

In addition, the pandemic has brought about fundamental shifts in consumer attitudes that may well be permanent. Any distribution channel that can accommodate the needs of consumers that are conscious of the need to remain socially distant are now accounting for a steadily growing share of the market. This includes traditional retail but also extends to home delivery and e-commerce. The fresh segment, which is of key importance to the salmon sector, is suffering due to soaring logistical costs and a general preference for frozen and prepared foods amidst a general atmosphere of uncertainty.

In Europe, restaurants, bars and cafes remain in varying states of partial or complete lockdown, particularly in the Western and Southern part of the continent. Eastern Europe has largely escaped the worst of the pandemic, but it accounts for a relatively small proportion of the European salmon market. Poland is a major importer but the majority of this volume is raw material that is processed and re-exported, primarily to the German market. The move from foodservice to home consumption has generally been faster than expected in Europe, meaning suppliers have been able to redirect production to the new source of demand without significant financial damage. There has been something of a setback in Germany recently, however, as a publicly aired documentary critical of salmon farming appears to have negatively affected demand and imports have fallen.

In the North American salmon market, retail remains generally very active although the US retail sector saw a slowdown in demand for salmon due to the COVID-19 pandemic, particularly for fresh fillets as well as in the whole fresh fish segment. Despite this reduction in demand and significant logistical obstacles related to air freight, fresh Chilean salmon continued to enter the market, together with some fish from Canada and Europe. Generally speaking, there remains a significant amount of uncertainty regarding consumer behaviour along with the shifting marketing landscape, and suppliers are feeling these effects. Lockdown measures, political instability, spiking unemployment and a health situation that is far from being under control are all contributing to a challenging market environment in the United States of America.

Trade

According to the Norwegian Seafood Council (NSC), Norway’s Atlantic salmon export revenue increased in the first quarter of 2020 as higher export prices year-on-year pushed the total up by 11 percent to NOK 18.5 (USD 2.16) billion on a 2 percent increase in volume to 252 000 tonnes. Poland, the United States of America and France led early year sales. However, this upward trend was sharply reversed towards the end of the quarter as the impact of the COVID-19 pandemic hit global markets. Exports out of European producer countries declined steeply from March onwards.

The demand effects have been compounded by the restrictions affecting flights, which are used to transport fresh salmon to distant markets. In China, which was the first major market to reopen in the second quarter, European exporters were faced with a further setback when traces of COVID-19 were found on a chopping board used to prepare imported salmon at a market in Beijing. This in turn led to a temporary halt on imports from Europe.

The top markets for Chilean salmon (the United States of America, Japan, Russian Federation, Brazil and China) have been impacted by the pandemic with varying degrees of severity, which has been reflected in export figures. There have been a number of logistical challenges especially for air transportation routes. This is particularly important for US routes, as almost half of the shipments of fresh salmon to the United States of America were previously carried on commercial passenger flights.

Atlantic salmon was the top exported species out of Chile in Q1 2020 with 130 328 tonnes exported worth USD 975 million, only 0.8 percent more in volume but -5.8 percent in value compared with the same period of 2019. Exports of coho during the same period fell 19.2 percent by volume and 38.8 by value, to 51 759 tonnes valued at USD 279 million. Profitability for sales to the Japanese market, the main buyer of coho, was already being impacted by high carryover volumes of larger fish prior to pandemic.

Salmon imports in the United States of America during the first quarter of 2020 totalled 108 247 tonnes valued at USD 1.1 billion. These figures represent increases of 2.4 percent in terms of volume  and 3.45 percent in terms of value compared with the same period of last year. Chile’s shipments increased 13.8 percent in volume and 8.6 in value while supply from Canada declined.

Chile’s exports of rainbow trout in Q1 2020 totalled 13 043 tonnes worth USD 114 million, up 0.5 percent in volume but down 1.9 percent in terms of value. In Norway, good growth in trout harvests translated into a 43 percent increase in export volume and a 26 percent increase in value in the first quarter to 15 600 tonnes worth NOK 201 million (USD 113 million).

Prices

Prices for farmed salmon in Europe have been volatile so far in 2020 but harvest delays and surging retail demand have largely prevented a severe price drop. As of week 29, the NASDAQ salmon index for Norwegian salmon was at NOK 48.07 (USD 5.59) per kg, compared with NOK 55.71 (USD 6.48) per kg in the same week last year. However, the impact of COVID-19 is driving some unusual dynamics. Firstly, the closure of foodservice is dragging down the prices of larger fish favoured by the restaurant trade, which otherwise command a significant premium. There have also been some major swings for Chilean export prices as COVID-19 wreaks havoc on two of its largest markets, the United States of America and Brazil. In week 24, fresh fillet prices (FOB Miami) dropped as low as USD 3.35 per lb, levels that have not been seen in almost 5 years, but subsequently recovered somewhat.

Outlook

The development of the global salmon market in the second half of 2020 is difficult to predict given the number of unknowns facing the industry. With the notable exception of the United States of America and Brazil, most of the major salmon markets are staging a gradual recovery. The spike in supply volumes of 5 to 10 percent in the second half of the year from delayed harvests will likely keep prices down, even if the positive demand trend continues. Export revenues for the year are also set to take a significant hit. FishPool forward prices for Q3 and Q4 2020 are stable at NOK 48.45 (USD 5.63) per kg and NOK 52.60 (USD 6.12) per kg respectively, which is well below figures for the same period in 2019. The financial challenges associated with the difficult market environment will see smaller businesses along the supply chain, particularly processors, acquired by larger entities if they are to survive. In the longer-term, however, there are potentially some positives to be taken from the upheaval of 2020. Lower prices, good volumes, and a boost to retail could create new sources of demand as well as act as a catalyst for product and distribution innovation. 

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