The market for farmed Atlantic salmon is still dominated by the impact on supply caused by the lower 2009 production in Chile. Norway is unable to gear up production rapidly enough to compensate for the Chilean shortfall, resulting in higher prices this year. In recent months however, the market has become more unsettled as rapid growth in the salmon biomass in Norway is pushing many producers there against the maximum limits set by their production licences. As a result increasing supplies are now coming to market and prices are falling. The market on the other hand has been good for salmon with demand in most countries quite strong. Demand is also expected to increase in November and December in anticipation of the Christmas season with somewhat higher prices than at present. The long-term outlook for salmon remains positive.

Production falling in 2009 but back up next year

As has been clear for some time, the supply problem in Chile is causing shortages in world markets with higher prices as a result. Norway and Scotland as well as the other farmed salmon producers are trying to increase production to compensate for the Chilean shortfall but overall supply in 2009 and 2010 will still be less than last year. Norway remains the principal producer worldwide and Scotland is scaling up production to become the second largest producer ahead of Chile.

However, Chilean producers are planning for a return to world markets and can be expected to regain its previous position in a few years, probably 2012 or 2013 at the earliest. New bio-security regulations in Chile and the development of vaccines for the Chilean ISA strain will ensure that Chilean production will slowly rise from 2011 onwards, but in order to obtain long-term growth, many companies will also need fresh capital. In fact, Chilean industry spokesmen estimate that about USD 1 billion is needed to compensate for more than 300 000 tonnes of Atlantic salmon biomass lost to the ISA virus.

Overall, production this year will fall somewhat, explaining the high prices obtained throughout the year by producers. Next year should be different as production in Norway and Scotland will continue to grow. It is also possible that Chilean production will show the first signs of a turnaround late next year as the first generation of fish that are vaccinated with the new ISA vaccines available will come to market in late 2010 and early 2011.

Prices should remain at firmly high levels, especially as demand is likely to stay good, and particularly as most economies will show growth in 2010 compared with the difficult situation in 2008 and 2009.

Supply

Chile:

Chile’s current production problems have drastically reduced its exports of Atlantic salmon in 2009. Inventory continues to play a role as some frozen salmon from the 2008 harvest is still being processed by Chilean companies for exports of value-added products. This year many producers are also redirecting their exports towards the fish fresh markets, especially in the US and neighbouring countries in South America. One of the reasons is that fresh exports are paid for much faster than frozen exports to Japan and Europe, in this way also helping the companies’ cash balances.

One relief for Chilean producers is that prices are higher this year. Average salmon export prices are up 25% and trout prices up 35% per kilo. As a result, whereas total export volumes of salmon and trout fell 27%, values are down only 7.5% thanks to the higher unit prices.

Norway:

Norway’s export statistics for the first 8 months (January - August) show 11 % growth in export volumes to 498 000 tonnes (round weight equivalent) and a 32% increase in value (in NOK) to NOK 14.7 billion. There is good growth in all major markets; the EU, even Spain which has been badly hit by recession, is up, as are Russia and Japan. US imports from Norway in particular rose dramatically so far in 2009, up 257%.

Overall, Norwegian producers and exporters are having a good year even though many of the larger companies have been hit by losses on their Chilean operations.

Trade and markets

USA imports growing in 2009 and 2010

Salmon imports by the US grew in the first six months of 2009 compared with last year and are almost back at 2007 levels in volume. At the same time, fresh fillets were down compared with previous years. The reason for this is the supply problems encountered by Chile, the main fillet supplier to the US market. Other suppliers such as Norway and the UK have increased their fillet exports to the US by several hundred percent but this is not enough to compensate for the Chilean shortfall.

The US food service sector has been hit badly by the recession and even though there are clear signs of economic recovery, restaurant sales are still weak.

Japanese import volumes sharply down in 2009 but only for Pacific salmon

The Japanese market continues to surprise. Overall import volumes of salmon fell both in 2007 and 2008. Japanese consumers are slowly changing their diets with less fish consumed than before. This is in part caused by a stagnating and aging population that is reducing its overall protein intake, not only of fish but of most meat products as well. Although this is no consolation for world fish suppliers, the effect is lower imports of most food products, including fish.

Japanese imports of salmon for the first six months of 2009 showed flat volumes for fresh Atlantics, mostly sourced from Norway.  Pacific salmon imports were sharply down, especially from Chile. This is surprising as Pacific salmon is not affected by the disease problems in Chile. The more likely reason is that Japanese consumers are becoming increasingly price conscious in a situation of sharp economic downturn and demand is down.

The EU salmon market remains surprisingly strong

 It is often said that salmon sells well in difficult economic times. This seems to be true also in the EU during the current economic downturn. Probably the reason is that salmon, despite the significant rise in prices, remains a competitive and attractive seafood product, and given its high penetration in both the food service and retail channels, especially at the medium-level price segments, sales are hurt less than those of other species that are targeting more price-sensitive consumers.

In fact, the segment in which complaints can be heard is largely the food processing sector, which depends on salmon for its raw material needs, such as the salmon smokehouses. This includes both traditional processors located in Western Europe aiming for the high-quality segments, and Central and Eastern European smokehouses producing the high volume portion packs, especially in Poland and the Baltic states. Both categories are subjected to pressure by retailers on one hand demanding lower prices and margins, and higher raw material costs on the other hand.

Strong growth in France

Salmon import volumes increased by an impressive 16 % from 2008 in the first six months of 2009. Compared with 2007 imports, this year’s salmon imports are almost 25% higher in volume. This is a strong increase, showing the broad appeal of salmon in the French market. The import categories that are growing are fresh whole salmon and fresh and frozen fillets. Smoked salmon imports are also increasing although most of the French consumption of smoked salmon is still based on supplies from domestic smokehouses.

Germany’s imports bounce back

Germany is often characterized as a price sensitive market; this remains true, particularly in times of economic turmoil. However, salmon imports continue to grow and in the first six months volumes not only increased from a difficult 2008, they even exceeded 2007 levels. It remains to be seen if the rest of the year will bear this out but with the recent election now over, the added political stability should foster economic growth in 2010 and increased consumer spending.

Outlook fairly positive

The outlook for salmon markets is fairly positive. Demand is firm in most markets and producers have good reason to be content, except, for Chile where the industry is suffering from the ISA problems related to farmed Atlantic production. However, there are many positive signs from Chile, not the least the new regulations for salmon farming, the development of an ISA vaccine and recapitalization of the industry. This should lead to the emergence of a stronger and more sustainable salmon industry in Chile than before, although the full recovery will not be felt in world markets until 2011 and 2012 at the earliest.