Norway adapts quickly as Russian ban prompts global salmon market shuffle.

In the wake of the Russian ban on imports of seafood from certain Western countries, exporters and importers alike have scrambled to secure new trading partners to minimize disruption to supply chains and the resulting loss of revenue.  In the market for farmed Atlantic salmon, Norway has had to find new markets for more than 100 000 tonnes of fish, while Chile has sought to take full advantage of the gap left in the vast Russian market by the exit of its main competitor.

Prices

The full effect of the Russian ban on Norwegian salmon price levels is difficult to identify precisely, as there have been a range of other factors influencing price trends over the last couple of months. Prices did indeed drop directly prior and following the ban, particularly for the larger sizes that the Russian market tends to favor, but some commentators point to the seasonal increase in harvesting volumes at the end of the summer as the primary factor behind the drop. The price fall was, in any case, short-lived and the NASDAQ salmon index showed prices for fresh whole Atlantics stabilizing around NOK 32 per kg in late August 2014. In fact, the average price of Norwegian exports in September 2014 were higher than the same month last year.

For Chilean salmon on the US market, recent prices have been slightly down compared with last year’s, despite the diversion of a proportion of Chilean supply to the Russian market. Brazilian importers, however, are reporting having to pay higher prices as a consequence of the willingness of their Russian counterparts to pay over the odds. Meanwhile, Chilean Coho prices on the Japanese market are much improved so far this year, boosted by low production volumes.

In the market for wild salmon, the ban has seen Russian pink salmon catches absorbed to a greater extent by the domestic market, and the lack of an alternative source of raw material is creating problems for Chinese processors who must now pay more for US fish.

Norway

Despite a relatively small increase in biomass at the beginning of the year compared with 2014, good water temperatures this year have allowed for faster growth and Norwegian export volumes are up significantly this year. The Norwegian Seafood Council (NSC) put the figure for the first three quarters at 725 000 tonnes, 9% higher than compared with the same period last year, for a total value of NOK 31.9 billion, representing a 17% increase.

In September, the Russian ban and continuing tensions in Ukraine saw a decrease of 56% in export value to Eastern Europe compared with September 2013. However, the effectiveness of the Norwegian strategy to redirect supply volumes is reflected in September value increases of 15%, 19% and 10% to the EU, the USA and Asia respectively, combined with a 4% rise in the average export price compared with the same month in 2013. In the EU, it is mainly demand from Polish smokehouses that is pushing up prices and revenues, but the substantially weaker Norwegian Krone this year is also a significant factor.

The USA is a prime example of where Norwegian exporters have been able to take full advantage of Chile’s Russian distraction, ramping up exports of fresh whole Atlantics but at the same time focusing on the value-added fillets that the US market prefers. These products, particularly frozen fillets, are currently in high demand in the USA, with Norway able to make sales at considerably higher prices than last year. If the current trajectory continues, 2014 could be a record year for Norwegian exporters in the USA.

On the negative side, sea lice levels continue to concern the industry in Norway, adding to production costs and resulting in forced harvesting when regulatory limits are breached. An additional recent setback is the ban imposed by Chinese authorities at the beginning of September, banning all imports of whole Norwegian salmon due to concerns over infectious salmon anemia (ISA).  

Trout

Despite taking a substantial and inevitable hit in August following the Russian ban, dropping by 30% in volume and 28% in value, the Norwegian trout industry appears to have coped remarkably well with the overnight disappearance of by far their most important market. After a 20% increase in the trout MAB was approved in August, NSC figures for September put total export value 4% higher compared with September 2013, to NOK 207 billion. It is the Eastern European markets of Belarus (now the number one market for Norwegian trout), Poland and Ukraine that are absorbing the surplus volumes, and it is likely that at least a proportion of this fish is making its way into Russia.   

Chile

According to the report of Fisheries and Aquaculture of the Undersecretary of Fisheries and Aquaculture, in the first half of 2014, harvests of Atlantic salmon were up by 12% compared with the same period last year. Coho harvests, on the other hand, were down 31.1%, while trout harvests were down 18.1%.  In terms of trade, salmonids exports (excluding fishoil and meal) during the first six months of the year were down slightly by volume (-4.2%) but demonstrated a 37% increase in value in comparison with the same period in 2013.                 

IFOP reports that Atlantic salmon was the most exported species throughout the first six months of the year, with a 21.5% increase registered, while a significant raise of 52% is noted in the exported value. However, by the end of September, a downward trend was observed in prices of Atlantic salmon in the US market, due to an adequate supply from Chile for the current demand. Coho salmon was the second species in importance, though exports were down 21% in the first half of 2014 compared with 2013.

Chilean salmon farmers estimate that they could triple their exports to the Russian Federation due to the seafood import ban. It is estimated that Chilean exports to the Russian Federation could grow from 2 500-3 000 tonnes a month to 7 000-8 000 tonnes. However, instead of the fresh salmon that Norway was supplying the Russian Federation, Chilean exports would be dominated by frozen salmon. 

Despite these estimations, the Chilean industry still has issues to face. Though sanitary concerns seem to be under control, the industry is continuing its process of consolidation, reflected by a series of acquisitions and fusions, especially among foreign investors.

UK

Minimum exposure to the Russian market has seen the Scottish salmon industry’s upward growth trajectory continue uninterrupted so far in 2014. The USA, France and China are now the top three markets for UK exporters, and all three have absorbed greater volumes at higher prices so far this year (data available up to July). UK suppliers have also been focusing on developing Asian markets, and are hoping to capitalize on the growing popularity of sushi in markets closer to home. 

The UK’s domestic market is also performing well, and retail sales are up so far this year. Canned pink salmon imports from the USA have risen significantly in the first seven months of 2014, although prices have fallen as Alaskan exporters seek to clear inventories left over from last year.

USA

Chile continues as the main salmon supplier to the USA with import volumes during the first half of 2014 increasing by 17% and value by 39% compared with the same period in 2013. Canada was the second most important supplier, though volumes dropped by 40%.

In the wild salmon market, catches in Alaska have exceeded forecasts, particularly for sockeye, which should eventually exert some pressure on prices. For pink salmon, suppliers are actively working to shift an oversupply from the record catches last year by increasing canned exports to the UK and frozen raw material to Chinese processors. For chum, the market is a difficult one for buyers, as catches dropped by 50% this year. 

Markets

Of the world’s major salmon markets, it is the USA that is currently looking more promising for suppliers. Despite the high price levels, the economic situation is generally better than in the EU and Japan, meaning that the average consumer has more to spend on premium proteins such as salmon. Recent growth in the USA has been impressive, and consumption levels are still well below saturation point, particularly for smoked product. The EU is also looking more positive as the economic recovery puts more money in consumer pockets. Meanwhile, demand continues to grow in emerging markets, and the spectacular increases in Chinese and Brazilian import volumes are deserving of particular attention.

The Russian Federation

The recent food embargo from some western countries in the Russian Federation, which was introduced in August 2014, has inevitably shifted suppliers, logistics and prices. Imports of Norwegian Atlantic salmon have been replaced by imports of Atlantic salmon from the Faroe Islands and Chile, although some Norwegian salmon was distributed to the Russian market through Belarus post-processing. In August 2014, exports of Norwegian salmon to the Russian Federation declined by 82% compared with July. With a more restricted supply, retail prices for salmon products domestically have been booming in the past two months. According to the X5 Retail Group, the prices for salmon and trout products from suppliers went up 10-15% in August, with a further 20% increase assumed for the September-October period. Popularity of salmon in the hotel, restaurant and catering sector, especially sushi, has declined due to the high prices.

Japan

Chilean exporters, the primary suppliers to the Japanese market, are benefiting from the improved price situation resulting from reduced Coho production volumes. Another significant trend is the shifting preferences of Japanese importers towards frozen fillets rather than the traditional headed and gutted Coho. Import volumes of frozen fillets almost doubled in the first seven months of the year compared with 2013, while prices followed a distinct upward trend, pointing to strong underlying demand.

France

French buyers’ aversion to Norwegian prices is clearly evident in 2014, with import volumes of fresh whole Norwegian Atlantics falling by some 22% in response to a 7% increase in price. The shortfall in supply is currently being made up primarily by cheaper UK salmon. Demand for frozen fillets appears to be growing in France also, although Chilean suppliers are facing stiff competition in this segment from China. 

Germany

Germany is another major market where importer preferences appear to be shifting. Germany traditionally imports large volumes of smoked Norwegian salmon via Polish smokehouses, but recent high prices are evidently beginning to have a dampening effect on demand. Likely related to this trend is the growth in fresh whole salmon imports into Germany in 2014, suggesting that smoking or other value addition is now increasingly taking place post-import. Similarly to France, there has been a revival of trade in cheap frozen fillets from China this year after a lull in 2013.

Outlook

Global salmon supply growth in 2014 is expected to be above the recent average at around 8%, but this should be seen as only temporary relief from the now prevailing norm of low supply, growing demand and high prices. For 2015 to 2017, industry growth forecasts range from 3 to 5% annually, a rate that will undoubtedly be outpaced by the increase in global demand for salmon, with continuing high prices the likely consequence. Regulatory limits in Norway and biological constraints in Chile mean it is difficult to see where future growth is going to come from, at least while terrestrial farming remains too expensive to be viable.

These limits on supply expansion mean that revenues cannot simply be reinvested in maximizing production. Instead, the salmon industry now has the opportunity to lead the rapidly growing global aquaculture sector in terms of sustainability, technological innovation and business development. In the latter respect, there is still considerable scope for further consolidation, particularly in Chile, and vertical integration of intermediaries in the supply chain.

In the shorter term, the full impact of the Russian ban is still obscured by a number of uncertainties. The increase in the Norwegian MAB may have reduced downward price pressure for the time being, but the additional harvest volumes will have to hit the markets eventually, likely in early 2015. Whether this will have a significant price effect is difficult to say, given the projected decrease in supply growth next year. For the remainder of 2014, the current lull in prices should soon be reversed by seasonal demand in the fourth quarter.