World markets for Atlantic salmon are firm with tight supplies and high prices. Lack of Atlantic salmon from Chile is diverting large quantities of Norwegian salmon to the US market and as a consequence prices have risen also in Europe. Contrary to earlier expectations, prices have not dropped during the summer months as demand in all salmon markets remains surprisingly strong.

Demand is strong despite tight supply and higher prices

The main factor influencing world salmon markets is the persistent lack of supply of Atlantic salmon from Chile. As reported in previous issues, this is caused by a particular strain of the ISA virus attacking  Atlantic salmon (but not Pacific salmon or trout) and until a vaccine has been developed producers will not restock, and supplies from Chile therefore remain limited. In the mean time, Norway in particular but also other producers such as the UK, Ireland, the Faeroe Islands, the US and Canada will continue to benefit from tight market conditions and high prices.

Although the farmed salmon sector usually weathers economic downturns quite well, it is obvious that in the present situation with weaker consumer demand in all markets, the unexpectedly tight supply situation has given a boost to producers in all countries, except Chile. This highlights the need for further market development in existing and new markets to be ready for the added production coming to market when Chile is back in force.

EU market growing

Demand for salmon in the EU market is relatively good, underpinned by strong supermarket sales, although margins are under pressure in all segments. Fresh sales volumes in particular are strong as are smoked salmon sales.

According to Norway’s 6 monthly export figures, the EU imported a total of 266 000 tonnes (round weight equivalent) of salmon from Norway, up 6 % in volume from last year and 26 % in value. All major markets, except Italy, showed growth, while Denmark remained stable.

France, the largest single market, showed 11% growth in the first quarter of 2009, continuing a positive trend now lasting decades. Norway was the leading supplier, followed by the UK. It is interesting to note that the growth is driven by positive developments for both the fresh whole and the fresh and frozen fillet segments.  Smoked salmon imports are also growing, especially from Poland, which now supplies 68% of smoked imports. This is a normal development given the increasing outsourcing of processing to countries with lower labour costs. Likewise, the market share of China in frozen fillet imports has grown to 25% although Chile still dominates this segment with 48%.
According to Norway’s 6 monthly export figures, France imported a total of 60 000 tonnes (round weight equivalent) of salmon from Norway, up 7 % in volume from last year and 27 % in value.

Germany’s salmon imports bounced back in the first quarter of 2009 after a weak 2008, topping 2007 imports as well. As in France, it is the fresh segment that is showing the strongest growth, in addition to smoked salmon imports. However, much of the smoked salmon is from German-owned companies based in Poland, which have outsourced their processing facilities.

US salmon imports up again

The US market reported higher salmon imports in the first quarter (January-March) of 2009, marginally up 3% from 2008. Values were up 5 % in the same period.

For the first five months however, the increase was less pronounced. During the January-May 2009 period import values were up 2% and volumes up 1%. Chile remains the main supplier although its exports fell back, especially of fillets, by about 32 %. However, as Chile is now channelling as much as it can of its salmon to the US and South American fresh market, Chile’s frozen exports to other market have dropped by much more. Norway’s fillet exports to the US on the other hand increased tremendously, up almost 500 % in the first 5 months according to NMFS statistics. In other words, Chile’s market share in the fresh fillet market dropped from
89 to 70 %, and Norway’s rose from 4 to 18%.

According to Norway’s 6 monthly export figures, the US imported a total of almost 16 000 tonnes (round weight equivalent) of salmon from Norway, up 200% from last year and 276 % in value.

Japans salmon imports are falling

Imports by Japan in the first quarter were drastically down from last year by a significant 16%. The drop was concentrated in frozen salmon whereas fresh import volumes were stable from 2008 (and 2007). The main supplier to Japan is Chile whose exports fell 20% during the quarter. Chile however exports both trout, and Pacific and Atlantic salmon to Japan and the supply problems are only related to Atlantics. Norway’s salmon exports were only slightly up, showing a predilection for the US and European markets.

According to Norway’s 6 monthly export figures, Japan imported a total of almost 14 000 tonnes (round weight equivalent) of salmon from Norway, up 8 % in volume from last year and 29% in value.

South America a growing market for fresh salmon

One of the most interesting aspects of salmon marketing over the last few years has been the rapid market growth in Chile’s own neighbourhood extending from Argentina to Mexico. In fact, Chile’s exports of salmon to South America continued to rise in the first quarter of 2009, reaching 12% of Chile’s total salmonid export volumes, up from 7 % in 2007 and 9% in 2008. It is the Brazilian fresh market in particular that has been strong. This is caused by urbanisation and the presence of large retailers in all metropolitan areas looking for steady supplies of large volumes of fresh fish.

Production down in 2009 but by how much ?

With future Atlantic salmon production in Chile linked to the successful development of a vaccine for the particular strain of the ISA virus present in Chilean waters, one can only hypothesise about the size of Chile’s production of Atlantic salmon over the next years. Some companies will undoubtedly increase production of Coho salmon and trout in the meantime but the overall supply of Atlantics will undoubtedly fall in 2009, despite some growth in Norway and the other producing countries. However, production volumes are linked to the availability of farming licences and the allowed biomass for each license, so even with all producers producing at full capacity there is simply no space for any significant increase from present producers, unless new licenses are granted. So, whatever the outcome, Atlantic salmon supply should be in tight supply well into 2010 and probably also beyond, with firm prices in world markets. However, when Chile returns to the market with its normal volumes of supply, prices are bound to suffer drastically unless new markets are developed in the meantime.

There is growing resistance, however, in the food service sector to the rising prices. Indeed, it has been the fairly stable prices and reliable supplies over the years that have been behind the inroads of salmon in catering channels in all major markets and made salmon a regular feature in most mass market restaurants. With growing salmon prices however, salmon is facing competition from other species, in particular fillets, mainly from tilapia and catfish, as processors and restaurateurs are looking for fair value fish products with popular appeal.

Trade – Chile’s problem, Norway’s advantage

Norwegian salmon exports for the first six months of 2009 rose 7% in volume to 367 000 tonnes (round weight equivalents) and value by a massive 28.7 % to NOK 10.7 billion (EUR 1.2 billion).
Salmon export volumes rose in all markets (except Italy), including surprisingly enough Spain and Japan where consumer demand is sharply declining. In particular, strong export growth was registered by the US with a 215 % rise in volumes and 276 % in values as the shortfall from Chile was quickly filled by Norwegian exporters.

The rest of the year looks positive for Norwegian producers. Stock market evaluations have increased significantly after the lows reached late last year, although the largest companies continue to suffer losses on their Chilean activities.

Chile’s salmon exports rose significantly in 2008 as harvesting was brought forward due to disease problems. This continued in the first quarter of 2009 with export volumes equal to 2008. Values were also higher, thanks to better prices. However, bringing harvesting forward reduces yields as each harvested fish is much smaller than planned for and there are fewer kilos available to cover the fixed costs. As a result, most Chilean companies are suffering large losses with forced rescheduling of their banking debts. And with lower volumes ready for harvesting in 2009 and 2010, heavy job losses have taken place in both farm management, processing and sales.

Chilean export problems therefore will remain an issue in 2009 and 2010. Coho and trout exports will most likely increase as producers are shifting out of Atlantics but the overall supply from Chile will drop over the next few years.

Outlook  - Little change expected

For the rest of the year, the supply situation is not expected to improve, rather the contrary. Chile’s production for the last quarter will be much reduced and Atlantic salmon prices are expected to remain high in world markets at least until next year.