Following embargo, salmon becomes premium food in Russia

by Thomas Jensen

There is an increasing preference for fresh salmon in the UK, where discounters are increasing their share of the market.

The forecasted growth in farmed Atlantic production in Norway this year is marginally below last year at around 4%. However, so far, significantly higher volumes have been absorbed by the markets, leading to expectations for a tighter supply situation in the second half of 2015. In Chile, harvest volumes have shown a sharp decline compared with last year, but a weak economy in Brazil, volcano eruptions, customs strikes and a buyer backlash over higher antibiotic use have complicated operations and kept demand low. Meanwhile, the wild salmon markets are braced for what are expected to be abnormally large global harvests for multiple species, boosting supply further in what is already a buyer’s market.

For the majority of the first half of 2015, higher harvests have kept prices for farmed Norwegian Atlantics fluctuating at levels consistently somewhat below the same period last year, but an improvement is being seen as we enter the third quarter. In early June, fresh whole Atlantic prices were up year-on-year for the first time in 2015 and grew further to about NOK 42 per kg for 3-6 kg fresh. FishPool NOK forward prices were revised upwards as the outlook for the rest of the year improved. For Chilean salmon on US markets, however, the situation is significantly worse. SalmonEX puts Chilean fresh fillet prices for export to the USA at USD 3.6 per lb, the lowest level seen since early 2013. Chilean export prices for fresh whole Atlantics to Brazil and frozen coho to Japan have also been lower than last year, particularly in the case of Brazil.

Norway sees faster growth and increased production

The first half of 2015 was characterised in Norway by higher water temperatures and low fish mortality, translating into fast growth rates and increased production. Harvests were also dominated by larger fish, pushing down prices for that segment. In July, however, there are reversals taking place as the water temperature has been below average when compared with the last two years and farmers switch to a new generation of fish for harvesting. Consequently, harvest volumes, average harvest weights and standing biomass are all down and there should be less fish coming out of the water for the remainder of the year. On the market side, the general picture for Norway’s salmon exports is of higher volumes and revenues and slightly lower prices. For the first five months of 2015, the Norwegian Seafood Council (NSC) reported a 7% increase in total export volume to 408,000 tonnes and a 5% increase in total export value. The EU continues to absorb relatively more of the additional volumes with a total of about 309,000 tonnes for the first five months, approximately 16% more than last year. Prices have inevitably suffered from ramped up volumes, and the corresponding increase in revenue for the same period was just about 8% at NOK 13.3 billion.

Amongst the secondary markets for Norwegian salmon, growth in Asia and the USA is continuing in terms of volumes, but there has been a price fall to these destinations. Exports to the USA have been helped by a favourable exchange rate, and grew by some 36% in volume terms up to May inclusive, with prices for the fresh chilled segment down but frozen and fillets slightly up. In Asia, the volumes up, prices down description is accurate for almost all markets except for Japan, where marketing efforts and a stronger yen versus the krone has resulted in higher volumes and better prices for fresh whole and fillets. Margins for Norwegian salmon companies are being supported by continuing good price levels, although they are down somewhat in comparison with last year. On the cost side, there are positives in the form of a large reduction in pancreas disease cases this year, though reports from South America suggest El Niño could again affect anchoveta stocks and push high fishmeal prices even higher.

Production falls in Chile, but should recover

After a good year in 2014 a report on Fisheries and Aquaculture released by Subpesca, shows that salmon outputs in Chile recorded an overall drop during the first quarter of 2015. A considerable fall in the Atlantic salmon harvest was recorded at 112,600 tonnes, 28.6% less compared with the first quarter 2014. Coho salmon harvests reached 14,800 tonnes, 67% lower than the same period in 2014. Trout had the most significant fall during the first quarter of 2015 at 87.4%, with production totalling only 5,600 tonnes.

For all of 2015 however, forecasts predict that Atlantic salmon and coho numbers should remain similar to 2014, but a sharp fall in all indices of trout should be seen. Some experts estimate that Chilean salmonid harvests during 2015 could range between 800,000 and 840,000 tonnes, with Atlantic salmon providing up to 70% of the volume. Given this, any new developments will be governed by what happens in this product sector. Predictions for Atlantic salmon prices for the remainder of 2015 are mixed. The director of SalmonEx, Arturo Clément, stated in one interview that prices “…should rise at least for Atlantic salmon as production volumes are lower this year”. However, Carlos Palma, a salmon trader, told the same website (aqua.cl) that the Atlantic salmon crop could increase in Norway and slightly in Chile, which will “…increase the overall supply and, again, put pressure on prices.”

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Salmon is Britons favourite fish

After a record-breaking year in 2014, Scottish salmon producers have not fared as well so far in 2015. Prices are down and last year’s main driver of export growth, the USA, has shifted towards other producers. Canada has especially ramped up supply of fresh whole Atlantics to the US market, the segment which UK producers have been targeting. The French market, however, continues to favour Scottish salmon and its share in UK salmon exports is increasing. On the demand side, salmon remains the number one fish consumed in the UK, with an increasing preference for fresh product emerging. Prices are down however, and discount retailers continue to increase their share of the UK market. The emergence of a lucrative Russian market for Faroe Islands producers has also seen imports from the Faroe Islands into the UK fall drastically this year and total import volumes for the first four months of
2015 were some 20% down compared with last year.

Industry struggles to address sustainability issues

As in many sectors, sustainability remains a prominent issue in the global salmon industry today. In the USA, consumer concerns over the high antibiotic use on Chilean farms has led some major retailers to turn to other supply sources, particularly Norway. This once again underlines the need to develop policies and marketing strategies to address the concerns of consumers in regards to sustainability and to minimize the gap between reality and perception. This is the aim of the Global Salmon Initiative (GSI), an initiative whose membership includes many of the world’s leading farming companies. GSI recently published its first sustainability report. Meanwhile, wild salmon processors in Alaska are in the midst of negotiations with the Marine Stewardship Council (MSC) with the aim of rejoining the certification program, reflecting the increasing demand for certified products, particularly in Europe.

Salmon is popular in part because of the variety of product forms and packaging in which it is available.

Chile, Faroe Islands benefit from Russian food embargo

Atlantic salmon remains one of the most demanded fresh fish in large retail chains in the Russian Federation. However, its high price has moved it into the category of premium fish species, whereas prior to the food import ban, the product was perceived as being affordable to a wide-range of consumers. In addition to the falling supply volumes, the market saw a substitution of fresh salmon from Norway by frozen salmon from non-sanctioned countries, leading to a deficit of Atlantic salmon for both processing companies and consumers in Russia. According to data from the Russian Customs Service, Russian imports of fresh Atlantic salmon totalled only 2,814 tonnes during the first quarter of 2015, compared with 19,470 tonnes during the first quarter of 2014. Replacing Norway, the Faroe Islands took the lead for Russian imports, providing the entire volume of fresh Atlantic salmon. In terms of frozen Atlantic salmon, Chile is currently the largest provider (supplying 89% in the first quarter), with the Faroe Islands through the Republic of Belarus supplying additional smaller volumes. In the first quarter of the previous year, Chile was only responsible for 44% of the supply of frozen Atlantic salmon into Russia. On 24 June, the President of Russia signed a decree for the prolongation of the food embargo for one more year after the decision by the EU commission to extend the sanctions until the end of January 2016. Thus, the first quarter 2015 trends for Atlantic salmon on the Russian market will continue.

Stable EU demand is critical for salmon prices

In Norway, colder temperatures, smaller fish and lower biomass all point to relatively tighter supplies for the remainder of 2015 and improved prices. As usual, prices will remain under pressure during the harvesting period at the end of the summer, but end-of-year demand will push them upwards in the fourth quarter. Looking further into the future, overall supply growth for Norwegian salmon is expected in 2016 at around 4-5%. With the Russian ban extended for another year, stable demand in the EU is a must if prices are to be maintained. According to the FishPool forward price consensus, NOK prices for 2016 will average out at approximately NOK 40 per kg. In Chile, approximately flat production is expected this year, followed by an estimated 6-8% drop in 2016. In addition, Chile must overcome weakening demand in three of its core markets, the USA, Japan and Brazil. China is a possible new target. On the cost side, savings on lower mortality rates in both Chile and Norway are likely to be wiped out by any further increase in fishmeal prices resulting from El Niño. 

FAO GLOBEFISH

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