The start of 2019 was largely business as usual for the farmed salmon sector, with high and stable prices prevailing. Previous forecasts for a softening of prices later in the year have now been revised after a severe algal bloom in Northern Norway in May and shrinking biomasses in Chile.

Production

Atlantic salmon

Global harvests of farmed Atlantic salmon are expected to grow by around 4–5 percent in 2019. Norway, the world’s leading producer, started the year strongly while the Scottish sector is recovering volumes following a steep decline last year. However, higher production forecasts for 2019 made earlier in the year now seem too optimistic given the dual impact of the loss of approximately 8 million fish due to a severe algal bloom in Norway and reports of new fish health issues at farms in Chile. The more recent figure is comparable to growth rates observed in 2017 and 2018, continuing a relatively steady growth trend that is bringing some stability to the market.

Production in Norway was up year-on-year after the first quarter of 2019 and accelerated significantly in May as the arrival of the algal bloom in the north of the country prompted mass harvesting by farmers looking to save marketable fish. Although blooms have occurred before in Norway, this was reportedly the worst the country has seen in decades. The phenomenon, which can cause fish mortality through asphyxiation, occurs only when conditions are optimal but can be triggered by warming water temperatures. Total lost production, in terms of lost biomass converted to average harvested weight, amounted to some 40 000 tonnes with financial losses estimated at around NOK 2.2 billion (USD 225 million). In response, the Norwegian government will allow affected salmon farmers to apply for a fiveyear exemption from the capacity limitations connected to their salmon licenses.

In Chile, the farmed salmon industry continues to grow as market conditions have improved. The current business environment is encouraging foreign investment as well as mergers and acquisitions. Helped by a new regulatory regime, 2018 was marked by increases in exports, better profitability and improved biological metrics. According to the National Fisheries and Aquaculture Service of Chile (SERNAPESCA), total fish mortality was reduced by 5.6 percent in 2018 compared to 2017, while mortality due to infectious causes fell by 14.3 percent. Chilean companies are also exploring additional opportunities for exporting salmon eggs to other salmon producing nations, such as the Russian Federation, looking to improve their genetic stock.

Salmon aquaculture in the Russian Federation continues to grow and the largest firm recently reported assets that include 49 salmon and trout farming sites in the Barents Sea, the White Seas and in Karelia, for a total production capacity of around 50 000 tonnes of salmonids per year.

Elsewhere, Scottish Atlantic salmon farmers, represented by the Scottish Salmon Producers Organization (SSPO) have expressed their collective concerns that the United Kingdom government is not adequately prepared for the possibility of a no-deal Brexit. Potential complications that would need to be planned for include additional certifications and tariff barriers, new procedures and transport holdups.

Other farmed salmonids

In the first quarter of 2019, Chilean harvests of rainbow trout (Oncorhynchus mykiss) reached 27 300 tonnes, which translates into an increase of 34.7 percent compared with the same period last year, accounting for 7.3 percent of total Chilean salmonid harvests. Coho salmon output totalled 33 000 tonnes for the review period (+7.5 percent). Coho salmon accounts for 13.7 percent of Chilean salmonid harvests.

In Norway, significantly higher biomasses at trout farms were reported early in 2019, indicating good supply growth potential, but it is not yet clear if the algal bloom has had any significant impact. In Peru, rainbow trout aquaculture continues to grow. Peruvian production is now around 43 000 tonnes per year and the sector supports an increasing number of livelihoods in the Andean regions. However, analysts agree there are still important challenges to consolidate the farmed trout industry in Peru. One important objective is to increase the domestic production of high-quality trout eggs, which would reduce dependence on imports from other countries.

Wild salmon

In 2018, plentiful wild salmon harvests in the Russian Federation contrasted with Alaskan catches that came in well below forecast. Early indications in 2019 suggest that US wild salmon production will be significantly higher this year, boosted by a particularly good pink salmon harvest. In the Kamchatka Peninsula fishery in the Russian Far East, production will likely drop relative to last year due to lower returns of pink salmon in odd-numbered years, but harvests are expected to be good compared with 2017.

Markets

After some years of relative stability and good profitability supported by high price levels and solid demand, salmon marketers are now looking to build on their success by targeting more challenging markets and segments. After struggling for many years due to political tensions, Norway is now rapidly expanding its market share in China, as the Chinese authorities continue to grant market access to an increasing number of Norwegian salmon companies as diplomatic relations continue to improve. Trade has been boosted further by a procurement deal agreed between the Norwegian Seafood Council (NSC) and Chinese e-commerce giant Alibaba Group for the importation of refrigerated salmon directly from Norway.

Norwegian exporters are also setting their sights on the large and growing Brazilian market, which as of now is completely monopolized by Chilean suppliers due to strong trade links and logistical convenience. Demand for fresh salmon is strong in Brazil, driven increasingly by the growing popularity of sushi amongst Brazil’s urban consumers in its big cities such as Rio de Janeiro and, in particular, São Paulo. The newly ratified free trade agreement between the European Union (Member Organization) and Mercosur, the South American trade bloc, is expected to benefit Norwegian exporters looking to target Brazil. Although Norway is not part of the EU28, generally it is able to negotiate trade agreements which mirror the terms secured by the EU28.

Chile is also looking to new markets after successfully establishing itself in the Russian Federation and China in recent years. The European market, primarily supplied by Norway and the United Kingdom, has always been challenging for Chilean exporters, but coho salmon producers are now reportedly planning to test demand for the unique quality of the second most farmed salmonid in Chile. Coho salmon are a medium-fatty salmon with a deep red flesh and a relatively mild taste. The Chilean sector is steadily becoming less dependent on Japan, with Europe joining the United States of America, Brazil and China as increasingly important secondary markets.

Salmon demand in the EU28 remains strong despite high prices and weaker performance in certain segments. In France, the largest salmon market, smoked salmon sales have fallen some 30 percent in recent years and negative consumer perception of salmon farming continues to inhibit growth. Food service demand in France is strengthening, opening up market opportunities for portions, fillets and ready-to-cook products. In the United Kingdom, salmon continues to propel sales growth in the chilled seafood segment at retail, while increasing demand for organic salmon is evidenced by strong earnings growth reported at organic salmon farms in Ireland.

In the United States of America, the ever-growing market for fresh fillets from Chile remains the most important segment. In the third major salmon market, Japan, market growth continues to be driven by sales of farmed Chilean coho salmon. Gains made by Norwegian exporters promoting farmed Atlantic salmon in Japan pushed up imports of the species in recent years, but this trend appears to have flattened out.

Trade

Exports

In the first quarter of 2019, higher prices year-on-year pushed Norwegian salmon exports up by 7 percent in value terms compared with the same period in 2018 on the back of a 1 percent increase in volume, according to figures published by the NSC. Total export volume for the quarter reached 247 000 tonnes, worth NOK 16.7 billion (USD 1.71 billion). A strengthening of the Norwegian krone versus the euro after a dip in late 2018, diverted some volume away from core EU28 markets in the first quarter. The 5 percent increase in export sales in the EU28 was significantly lower than the 20 percent increase observed for US-destined exports. Exports to France were particularly affected, with a year-on-year drop of 9 percent in krone terms in the first trimester. Norwegian exports to China have been increasing rapidly as market access restrictions loosen.

Chilean salmon exports increased by some 10 percent in US dollar terms in the first quarter of the year relative to the same period in 2018, for a total of USD 1.4 billion exported. The vast majority of these gains are accounted for by 16 and 21 percent increases in export sales in the US and Japanese markets respectively.

Exports to China also rose significantly, up by 28 percent over the review period. Chile is particularly focused on increasing fresh salmon exports to China, flying shipments directly by air. Norway exported 11 100 tonnes of trout worth NOK 775 million (USD 79.5 million) during the first quarter of 2019. Export volumes increased by 13 percent and export value increased by NOK 137 million (USD 14.1 million) or 22 percent compared with the first quarter of 2018. Chilean trout exports fell by 8 percent to around USD 116 million over the same period.

Imports

The value of US imports of salmon increased by 6 percent in the first three months of 2019, up to just over USD 1.07 billion. Chile has been increasing its share of the US market and supplied 48 percent of that value. Imports into the Japanese market rose by 9.5 percent in JPY terms over the same period, with 70 percent supplied by Chile. Meanwhile, EU28 imports of salmon rose by around 2.5 percent to just over EUR 3 billion.

Prices

Trade prices for salmon in Europe were generally slightly higher in the first quarter of 2019 relative to the same period in 2018. Average euro prices for fresh whole Atlantic salmon imported into the EU28 were around 3 percent up for the period. The spike in harvests caused by the algal bloom in Norway then drove prices down below 2018 levels in the second quarter. Fresh fillet prices in the US market were also slightly higher than 2018 levels in the first quarter, at around USD 10.30 per kg FOB Chile, and the same trend continued into the second quarter.

Outlook

Biomass reductions at Norwegian farms following the algal bloom will result in tighter than expected supply in the second half of the year. There are also reports of worsening biological performance at Chilean farms. Sea lice levels are at five-year highs and average harvested fish weights are dropping. Lower smolt releases compared to last year will also contribute to a reduction in Chilean harvests in the medium term.

Salmon forward prices at Fish Pool are now steady at NOK 57.96 (USD 6.96) per kg for the last half of 2019, which would represent a small increase compared with 2018. A slight dip in August and September is still expected, however, due to seasonal increases in harvests at European farms. In the longerterm, competition between exporters is likely to increase as producing countries seek to ensure they are able to secure a meaningful market share in any large market with significant future potential. On the production side, land-based farms continue to attract investment as a possible solution to supply growth limitations, but the economic viability of these projects is still somewhat uncertain and stakeholders have urged caution.