As biomasses in Norwegian farms pushed regulatory limits in late summer, markets have had to absorb relatively larger volumes of farmed salmon with the prevailing exceptionally high prices falling somewhat as a result. The global supply situation remains extremely tight, however, with reduced production forecasts for both Chile and Norway, and in the longer term the new price plateau is set to stay.

Supply

Norway

According to figures from Seafood Norway Production Forum released in August, farmed Atlantic salmon production in Norway fell by 45 000 tonnes, or 9 percent in the first seven months of 2016, with an overall drop of 5 percent forecast for the year. This situation has seen export prices for fresh whole Atlantics, as measured by the NASDAQ salmon index, supported above NKr50 per kg since the beginning of the year, reaching multiple peaks above NKr75 per kg in mid-year. Seasonal post-summer harvests caused a spike in Norwegian supply volumes, which is the result of trying to keep biomasses below regulatory limits after summer growth in the pens. This peak in supplies pushed down prices to NKr52 per kg in mid-September, but this is still some NKr10 above the same period in 2015, reflecting the significantly larger gap between supply and demand this year.
In line with the reduction in production volumes, Norwegian exports were also down in the first six months of 2016, to 458 000 tonnes, or 6.8 percent lower than the same period last year. High prices more than offset lower volumes, however, and total value exported was up 29 percent for the same period, to NKr27.9 billion (EUR3.3 billion). These revenues have translated into bumper profits for many Norwegian aquaculture companies, although price volatility and high raw material costs have squeezed the margins of supply chain intermediaries. Exporters, however, have been protected to an extent from passing on high costs to buyers by the weakening Norwegian krone over the last few years, now down by approximately 11 percent since the beginning of 2014.
The major markets for Norwegian salmon have remained largely the same for a number of years, with Poland the number one destination. About 70 percent of Polish exports are processed and re-exported, underlining the importance of the Polish processing industry, particularly as a supplier of smoked salmon to Germany. Norwegian exports to emerging markets in Southeast Asia continue to grow, as does the proportion of total production directed to the US market, which is supplied with a combination of fresh whole Atlantics and an increasing quantity of fillets that compete directly with Chilean product.
As per the typical seasonal pattern, salmon prices can be expected to rise again going into the last quarter of the year as supply tightens and end-of-year demand begins to put upward pressure on prices. In fact, forward prices at FishPool put the weighted average price for fresh whole Atlantics above NKr60 per kg from November until mid-2017 at least.
Norwegian authorities have introduced a new flexible Maximum Allowed Biomass rule, which Nordea analysts predict will cause a 3¬–5 percent increase in Norwegian production next year. However, continuing low supply from other sources and strong, growing demand in markets across the world will likely prevent any significant reduction in the current price level.

Norwegian Trout

The extent and speed of the recovery of the Norwegian farmed trout industry following the introduction of the Russian Federation trade embargo is a seafood trade story that deserves more attention. Export revenues in the first six months of 2016 were more than double those recorded in the same period last year, at NKr1.83 billion (US$217.4 million). This is 58 percent higher even than the same period in 2014, prior to the introduction of the embargo. Volumes were up 80 percent for the same period with booming demand from a wide range of markets in Eastern Europe, Asia and the USA, allowing for the absorption of higher volumes at higher prices.
These figures reflect the success of the industry's marketing efforts and investment into developing new markets such as Japan, Belarus, the USA, Poland, Thailand and Ukraine, following the departure of what was by far the top destination for farmed Norwegian trout.

Chile

The Chilean salmon industry, which was significantly affected by an algae bloom during the first half of 2016, is now trying to control production through new regulations. These regulations are still being challenged from some quarters, but the current rules limit production growth to 3 percent per year in an attempt to lessen the impacts of worldwide fluctuating prices and unstable production.
According to some estimates, this 3 percent limit should lead to a 25 percent reduction in salmon production for 2016 to stabilize at around 650 000 tonnes. This volume is far below Chile's record production year in 2014, when production totaled nearly 955 200 tonnes. However, this reduction estimate is not agreed on by all. One expert in the sector claims that with the new regulations, Chile could produce at most 400 000 tonnes. Other analysts note that though production will not reach 650 000 tonnes, they predict that until 2018 supply will be more limited at around 500 000 tonnes.
Adding on to the controversial forecasts is the fact that stakeholders have not agreed on the extent of the regulations. Marine Harvest Chile announced on 26 July that their partnership with SalmonChile, a union of Chilean salmon producers and suppliers, will end as a result of their disagreeing on the stringency of regulations. Marine Harvest CEO noted that they have been asking for stricter regulations in the Chilean salmon farming industry for some time and can "only conclude that we do not agree on the way forward for the Chilean industry. Therefore, it makes sense that we end our participation as a partner. Similarly, I am disappointed in the way SalmonChile handled the crisis after the algae bloom earlier this year".
This partnership is responsible for nearly 70 percent of the production of salmonids in Chile, so its dissolution could have a notable effect on production. The company says it will continue to work to achieve more rigorous regulations. "We want to remain contributing to the salmon industry. We are willing to maintain a broad collaboration with other actors, because I'm sure there are other companies that also recognize the need for more stringent, effective and predictable regulations" he said.
Impacts from the algae bloom in March continue. Although some areas in Chile were not affected, they still suffered a significant drop in sales due to general consumer distrust. Authorities have installed control devices to ensure that products have proper certification and do not jeopardize public health, though continued promotion of certified salmon's safety is needed.

UK

Scottish farmed salmon production is expected to rise 3.5 percent this year, to 177 900 tonnes. Exports out of the UK bounced back this year after a drop in production in 2015, with an increasing proportion headed for France where it has a positive image amongst consumers. The severe depreciation of the British currency following the referendum vote is also beneficial for exporters, making Scottish salmon cheaper for foreign buyers. This may help to reverse the ongoing decline in exports to the USA where competing Canadian producers have been increasing their share of the market. However, due to new regulations introduced by the National Oceanic and Atmospheric Administration (NOAA), Scottish producers must work to reduce the number of seals killed in culls to zero by 2022.
In contrast to exporters, the weakening of the British pound is not good news for importers. The UK imports almost as much salmon as it exports, primarily from the Faroe Islands and Norwegian salmon through Sweden, although domestically produced fish now looks relatively more appealing to buyers. The effects have yet to be reflected in reported import volumes, however, and volumes were up in the first half of 2016 even as prices rose.

Markets

As salmon prices continue to soar, it is worth noting that the full impact of the current supply shortfall is in fact being mitigated by economic declines and weaker demand in what were previously the largest emerging markets for salmon. The economic struggles of Brazil, and the associated high inflation and unemployment, has certainly negatively impacted demand for salmon over the last two years, although a combination of reduced Chilean production and the influx of large numbers of tourists for the olympics temporarily pushed prices and total import value up this year.
In the Russian Federation, meanwhile, imports of salmon have declined dramatically since the introduction of the trade ban in 2014, as even suppliers not covered by the ban have seen demand wane in the face of economic recession and spiking inflation. China, although not experiencing economic difficulties to the same extent, has also seen economic growth slow somewhat and imports of increasingly expensive farmed Atlantics have fallen this year. Given that the scope for increased global production is limited, the return to previous rates of demand growth in these three countries in the future can be expected to exert considerably more upward pressure on what are already considered extremely high prices.

France

Even as average import prices of fresh whole Atlantics approach €7 per kg, French demand for salmon remains largely unabated. Increasing import volumes even as the availability of fish is reduced, French buyers are looking for product wherever they can find it, supplementing Norwegian and Scottish fish with imports from Chile and China.
The image of farmed salmon, particularly of Norwegian origin, appears to be improving amongst consumers, helped by the increasing quantity of Aquaculture Stewardship Council (ASC) certified farmed salmon appearing on French supermarket shelves.

Germany

As in France, German demand for salmon is still firm despite the current price level, although the growth of what was a previously rapidly expanding fresh salmon segment has slowed. Interest in the traditionally popular smoked salmon product remains strong, with the market supplied by Polish processors. Salmon consumption overall is on the rise, driven by discount retailers, and continuing product innovation focusing on convenience, more modern branding and increasing use of modified atmosphere packaging. Market research recently conducted by the Fisch-Informationszentrum e. V (FIZ) shows salmon as the most consumed seafood product in Germany for the second consecutive year.

USA

The USA imported 181 000 tonnes of salmon during the first half of 2016 worth US$1 525 million, demonstrating year-on-year growth of 5.2 percent in volume and 7.6 percent in value. Chile continues to be the USA's main salmon supplier, after exporting 69 600 tonnes during January–June 2016, which was an increase of 7.7 percent compared with the same time period last year. In value terms, an increase of 5.4 percent was registered. Canada remains the second largest supplier to the USA, exporting 49 400 tonnes worth US$363.5 million during the reporting period. For US exports of salmon, there was an increase of 11 percent in volume and 1.8 percent in value.

Japan

Even with a significantly weaker yen in early 2016, Japan has increased its imports of salmon so far this year, particularly for frozen farmed coho from Chile and wild sockeye salmon from the Russian Federation and Alaska, USA. An 8 percent increase in farmed coho volumes from Chile has been recorded in Japanese trade statistics in spite of the loss of some 3.5 million coho in the algal bloom earlier this year and in contrast to the 18 percent drop in export volumes destined for Japan as reported by Chile. It is likely that the difference is accounted for by inventory holdings imported in the first quarter of 2016 as coho supply has tightened since the second quarter and volumes in the second half of the year will be substantially lower, potentially driving up supplies from their currently relatively low levels.

The report analyses the market situation over the period January-October 2016