A severe algal bloom in Chile, combined with biological challenges in Norway, have seen global production of farmed Atlantic salmon drop by some 7 percent in 2016, while Chilean harvests of farmed Pacific have also been negatively affected. With wild salmon harvests in Alaska down, and demand strong and growing, global salmon prices have soared to new heights. Even a return to supply growth over the next two years is unlikely to be sufficient to bring prices back down to 2015 levels.

Wild salmon catches

Alaskan wild salmon harvests fell significantly in 2016, to 270 570 tonnes from 462 250 tonnes in 2015.  This drop in total volumes was driven entirely by a large reduction in pink salmon catches, which dropped from 295 420 tonnes in 2015 to only 72 680 tonnes in 2016. This figure is also well below the last even year in 2014, in which Alaskan pink salmon harvest volumes reached 149 270 tonnes (this is a more appropriate comparison as the pink salmon populations returning in odd and even years are generally distinct from one another). In line with the general market trend, reduced supply has seen wild salmon prices increase for all species. However, globally the Alaskan shortfall has been offset somewhat by Russian Federation wild catches this year, which were the fourth highest they have been in the last 15 years to total 437 000 tonnes. Pink salmon catches accounted for 264 700 tonnes of the Russian Federation total.

Norway

Starting in late 2015, a variety of developments have together created an almost perfect set of market conditions from the perspective of the farmed Atlantic salmon sector in Norway. Firstly, the algal bloom and the subsequent mass mortalities in Chile exasperated an already tight supply situation. Meanwhile, on the demand side, major US retailers turned to Norwegian product to counter consumer fears about antibiotic use at Chilean farms, while French demand has recovered after a long lull following negative media coverage. Lastly, the krone has remained weak against the euro and the US dollar. The net result has been soaring prices, record export revenues and healthy profit margins for Norwegian aquaculture companies.

According to figures published by the Norwegian Seafood Council (NSC), total salmon exports in the first nine months of 2016 were worth NKr44 billion (US$5.2 billion), 30 percent higher than the same period in 2015. By October 2016, the total year-to-date export value had surpassed that of the full year of 2015, despite a substantial drop in volumes. These figures are the result of an average export price some 44 percent higher than the same period in 2015, supported by buyers scrambling to secure the limited volumes available. The major EU markets of Poland and France again took the largest shares of Norwegian exports, but there was also significant growth in the USA, with a preference for fresh fillets. Major growth was also reported in East and Southeast Asian markets, particularly the Republic of Korea and Viet Nam.

The extreme price levels seen in the first half of 2016 for Norwegian farmed Atlantics softened somewhat in the last quarter of the year as late-summer harvest volumes restored some degree of balance to the market. Biomasses at Norwegian farms in the last quarter were almost at 2014 levels as improved water temperatures boosted growth in the pens. However, in an integrated global market, it is the total available supply which determines prices, and the 17 percent drop in production in the second largest supplying country, Chile, will continue to keep prices high for Norwegian farmers and exporters for at least the first half of 2017.

Trout

The farmed trout industry in Norway saw even more impressive gains in export revenue in 2016 than the salmon sector, almost doubling its total export value in the first nine months of 2016. However, it should be noted that the impact of the loss of the Russian Federation market in 2014 hit trout producers relatively harder than salmon producers and these growth figures partly reflect a recovery.

Nevertheless, boosted by booming demand in Belarus and Japan, among other growing markets, trout prices have risen in line with those of salmon. Indeed, the NSC reported that prices for fresh whole trout actually surpassed those of fresh whole salmon in the last quarter of 2016. In contrast to salmon, trout biomasses are still well below levels seen in the last two years and there is little prospect of a price decline in the current supply-demand balance.

Chile

A report requested by the government to a scientific committee about the Chilean algal bloom and released in November 2016 proposes several recommendations for the industry in order to mitigate the effects of a future algal bloom. These recommendations include more monitoring stations and an aerial surveillance of the country in order to better anticipate such an event occurring again as well as improved public-private coordination. Experts predict that the phenomenon occurring in January–April 2016 produced large losses for the industry has a high probability of repeating itself again in 2017 or 2018.  Thus, there is currently strong collaborative work taking place between all actors in the sector to mitigate future impacts.

The Chilean government is also looking to improve stability by introducing limits on capacity growth, for a maximum of 3% per year at any single farm, conditional on sanitary requirements being met. The specifics of these regulations are still a matter of contention amongst industry stakeholders, but the overarching aim is to prevent a repeat of the violent swings in production and price that have characterized the Chilean industry in recent years.

During the first nine months of the year, Chilean harvests of salmon and trout combined recorded a 15.4 percent drop compared with the same period in 2015. Atlantic salmon was the main resource, with a harvest level of 376 000 tonnes during the period (-13.7 percent). In terms of rainbow trout, 53 500 tonnes were produced, a 31.6 percent reduction compared with the first nine months of 2015, with this drop mostly a result of the shift towards farming Atlantic salmon.

Also during the review period, an estimated 511 million roe were produced, of which 61 percent will come from Atlantic salmon, 24  percent from Pacific salmon and 14  percent from rainbow trout. This overall production figure is 11 percent higher than the same period in 2015.

UK

As the next largest European producer of farmed Atlantic salmon after Norway, the UK industry also benefited significantly from the extreme price levels reached in 2016 as UK production volumes rose while supply for its major competitors dropped.

The referendum vote to exit the EU and the subsequent drop in the value of the pound has served to push prices up further for both importers and exporters although this appears to have neither stimulated export volumes nor dampened UK importer demand. In fact, import volumes increased in the first nine months of the year while exports fell, with no noticeable reversal following the Brexit vote. At the retail level, consumer interest is still strong, with Nielsen reporting a 4 percent increase in retail sales value year-on-year.

Markets

In the current supply shortage situation and the exceptionally high price levels that all buyers must now grapple with, import volumes by different markets are determined by both the underlying demand and the diversity of supply options available to them. For instance, the Russian Federation and Brazil, two markets which were growing rapidly until relatively recently, are constrained by their dependence on a limited selection of suppliers, primarily Chile. When added to the weakening of underlying demand due to economic struggles, this has caused import volume declines in both countries. Meanwhile, the USA and China, and to a lesser extent the EU, have a range of suppliers to choose from, and have been able to secure a relatively greater share of the global production. 

France

Demand for salmon in France, Europe’s largest consumer market, has remained strong even in the face of ever climbing prices. Total import volume has been growing since 2014, with Norwegian product increasingly in favour once again with French buyers. However, smoked salmon is a popular product with French consumers, particularly during the holiday season, and the cost of raw material is creating major challenges for smokers. As supply chain intermediaries, the extent to which smoking processor profit margins are squeezed by spiking prices is dependent on whether high raw material costs can be passed onto retailers before having a major impact on cash flow. With consolidated suppliers on one side and consolidated retailers on the other, both of which have relatively greater market power to decide prices, this can be very difficult to do for smoking processors and other smaller processors, particularly when contracts have been signed at sales prices below the current spot level. Another implication of dependence on pre-determined contract prices throughout the supply chain is that consumers have not yet felt the full impact of the spiking spot prices, and it is thus likely that the dampening effect on demand has not yet been fully realized.

Germany

Germany is another market where smoked salmon is very popular, and reports from the industry indicate that smokers’ margins are being severely impacted by the current price level, similarly to their French counterparts. The expected drop in sales after these prices are passed onto consumers is a concern in the German market also, but this effect is expected only after seasonal demand has subsided.

In the first nine months of 2016, import volumes rose some 7 percent compared with the same period in 2015, and value was up by 19 percent, with the smoked, canned and frozen fillet segments leading growth. The German market has been showing an increasing preference for fresh salmon in recent years, sold largely through discount retailers, though fresh import volumes fell slightly in 2016.

USA

During the first three quarters of 2016, the USA imported 264 600 tonnes of salmon (+3.4 percent) worth US$2 333 million (+13 percent). Chile continued to be the USA’s main salmon supplier during this period, having exported almost 100 000 tonnes, demonstrating over 3 percent growth in volume and 12.1 percent in value to total US$985.2 million. Canada was the second largest supplier to the USA, exporting 76 000 tonnes worth US$579.3 million. In the wild salmon market, sockeye raw material prices remain stable, meaning a firm market on finished goods.

For US exports of salmon, there was a considerable decrease (-23.5  percent) in shipments, dropping 9.4  percent in value terms. Frozen sockeye salmon was the most exported product, followed by frozen pink salmon. However, the outlook the overall outlook for the Alaska wild salmon market in 2017 seems positive, with wholesale prices continuing to grow, especially for fresh product.

Japan

The large Japanese market for frozen farmed coho from Chile was helped in 2016 by a significant recovery of the yen after a long downward trend. However, due to the algal bloom and the resulting mass mortalities, available supply was limited and import volumes did not increase. The strengthening currency mitigated the price effect of tight supply for most of the year but the price trend turned upwards towards the end of the year. These increased prices were likely a result of inventories running low and slim domestic catches of chum salmon. In addition to chum, wild sockeye and farmed coho, Norwegian farmed Atlantics also remain popular amongst Japanese consumers, and volumes have stayed stable despite the high price levels.

Outlook

The consensus forecast for 2017 is for farmed Atlantic prices to remain at elevated levels for at least the first half of the year, as global supply is likely to remain tight even if further algal blooms do not occur. This is because the majority of the expected 4–5 percent rise in production is predicted to hit the markets only in the second half of the year, particularly towards the end of the third quarter with the late summer harvest. The fresh salmon market is vulnerable to such short-term fluctuations in supply, and the forward market suggests prices could drop to NKr60 per kg (US$7.08 per kg) over this period. This is only low when compared with the current extremes, however, as demand growth in markets around the world continues to outpace the growth of production capacity in the key producer countries.

Although discussions and negotiations between stakeholders in Chile as to the exact form of the revised regulatory framework are ongoing, it seems that much stricter limits on volume growth will be placed on farm license holders. This is more similar to the Norwegian approach, and is intended to address the extreme volatility that has affected the industry in recent years. With the prevailing supply shortage, it should also boost Chilean profitability in the long-term. For consumers and processors, however, the prospect of a new price norm at current levels is not so appealing.

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