Minimal production growth and strong demand in 2013 should see a tighter market balance and a lasting improvement in prices.
The recent upward price trend is taking place against a backdrop of one of the largest ever increases in production volume in 2012, evidence of a genuine strengthening of underlying demand. Emerging markets are also presenting increasingly attractive opportunities and suppliers are generally optimistic about 2013. The situation in Chile remains delicate, however, with further industry consolidation looking likely as producers try to adapt to the new regulations while fighting rising costs and the continuing threat of disease.
Prices have been moving strongly upwards at the beginning of 2013, continuing the dramatic recovery that took place in late 2012 from the low levels reached during the previous year. Significantly reduced production growth of only 2-3% is estimated for 2013, and this is expected to see prices hold at close to current levels for the time being before falling back slightly after Easter and in the second half of the year, when most of the Chilean production will come to market. Overall, forecasters anticipate a substantial year-on-year increase in prices compared with 2012. The outlook for Japanese prices remains uncertain, but the gap between the US and Europe has now closed to the point where Chilean producers should be approaching the break-even point.
Norway led the estimated 22% growth in world farmed salmon production in 2012, producing an additional 178 000 tonnes (WFE, Kontali) on the back of good early-year water temperatures to take the total to 1.18 million tonnes. Export volumes were also up, with Norway exporting 965 100 tonnes (product weight) of fresh and frozen salmon in 2012, a 19.3% year-on-year increase compared with the previous year’s figure. Depressed prices meant the increase in export value was only 1.8%, however, to NOK 28.9 billion. Concentrated marketing efforts and temptingly low prices resulted in a 17.3% increase in the volume of exports to the EU, but value was down 1% overall. The year also saw a significant rise in exports to central and eastern Europe. Russia, with around 134 000 tonnes imported from Norway, has almost overtaken France as the top destination for Norwegian salmon.
The situation for Norwegian producers began to improve steadily towards the end of the year and the positive trend has shown no sign of abating in the first two months of 2013. In fact, Norwegian salmon exporters set new records for total export values in January (NOK 2.7 billion) and February (NOK 2.5 billion). These figures represent respective increases of 43% and 20% compared with the same months in 2012, while the 76 600 tonnes exported in January is also a new record for volume. The February export price of NOK 37.61/kg for fresh whole salmon is the highest since May 2011.
Norwegian producers are expected to cut back on production in 2013 mainly as a result of lower water temperatures and biomass restrictions. The outlook for Norwegian salmon remains positive in the long run, however, as the high demand should not be overly dampened by the higher prices, while competition from cheaper Chilean product still remains limited in European markets. Rising production costs are a concern but will only threaten profit margins if demand weakens significantly.
Trout exports also growing
The value of Norwegian trout exports increased to NOK 1.7 billion (USD 304.8 million) in 2012 because of strong growth in volume, which totaled 56 000 tonnes, a 43% jump from 2011.
With an export growth of 60% in volume to Russia, Russia is fast increasing its relative share of Norwegian trout exports. In total, 55% of Norwegian trout exports went to this market in 2012. Other big trout markets were Japan and Belarus.
2012 was a difficult year for the salmon and trout industry in Chile, mainly resulting from the significant drop in international prices. At the end of 2011 the average FOB price was USD 8 410/tonne while this year average Atlantic salmon prices were USD 6 230/tonne, a 26.2% drop in comparison with 2011.
Total salmon and trout exports for 2012 comprising frozen, fresh, canned, smoked and salted products went up to 488 500 tonnes, at a total value of USD 2.9 billion, a 25.5% increase and a 4.4% drop respectively. Japan was the main destination throughout the year for Chilean salmon and trout, importing around 195 000 tonnes for a total value of USD 1.1 billion. The USA followed with 105 000 tonnes worth USD 807 million.
Atlantic salmon was the most exported species during the year with 232 700 tonnes exported at a total of almost USD 1.5 billion. In terms of quantity, a substantial year-on-year increase of 37.9% was recorded, while the corresponding increase in terms of value was 16.2%. Silver salmon was the second most exported species at 118 100 tonnes (a 4.9% increase) valued at USD 554 million, a decline of 14.1%. In the case of rainbow trout, exports for the year went up to 141 100 tonnes, a 7.9% increase in comparison with 2011. However, in terms of value, a 16.2% decrease was registered, a consequence of the low international prices.
Frozen salmon and trout were the main products exported in 2012, followed by fresh and chilled products. The cumulative exports for frozen salmon and trout in 2012 were 335 100 tonnes, an increase of 18.8% in comparison with 2011. The total value was almost USD 1.9 billion, a decline of 7.3%. Fresh and chilled salmon and trout, in contrast, increased even more in volume, and also in value, compared with 2011, with exports of 140 400 tonnes (+54.8%) valued at USD 863 million (+16.3%).
From an industry point of view, 2013 is seen as being challenging for the sector because of new regulations that will see costs rise in the area of new funding needs. However, local supply is likely to decrease in the short term given the adjustments made by the industry during 2012 in production levels, and experts and several companies agree that this will allow prices to recover.
UK salmon production stagnated in 2012 and is expected to decline in 2013. Stocks in Scottish farms have been badly hit by the spread of amoebic gill disease blamed on warmer sea temperatures, and last year around 13 600 tonnes of dead fish were disposed of from farms off the coast of Scotland, according to the Scottish Environmental Protection Agency (SEPA). However, the UK saw good growth in salmon exports in 2012, with total volume increasing by 12.7% compared with 2011, to 97 600 tonnes (excluding smoked). Total value of these exports remained more or less stable year-on-year at USD 575 million as a result of the lower prices. A drop in exports to the USA was compensated for by a boost in exports to most minor markets, while domestic consumption also increased. Of particular note is an upsurge in exports to the Asia, especially China, which have increased twelve-fold in three years and are still rising.
Production of farmed salmon in the Faroe Islands hit a record high in 2012. The total amount produced in 2012 was 62 800 tonnes in gutted weight compared with 49 600 tonnes in 2011. This represents an increase of more than 20%.
In the first three quarters of 2012, the total volume of salmon exports reached 41 400 tonnes, a 29% increase over the same period in 2011. The increase in value was only 4%, however, up to a total of DKK 1.28 billion.
The main market for Faroese salmon is the USA, taking an approximately 19% share of the total value. The UK (14%) and Germany (12%) are the next two largest markets. Exports to the USA and the UK are almost entirely whole fresh salmon, while Germany imports primarily frozen portions.
In 2012, 12 440 tonnes (WRE) of salmon was produced from Irish licensed sites, worth EUR 75.7 million (HOG). Six companies operate more than 30 sites between them, ranging in capacity from 500 to 5 000 tonnes production. Production occurs along the length of the west coast.
82% of all Irish salmon production is grown to certified organic standards. Most of the harvest is sold as ‘Head-On-Gutted’, with further processing into fillets, steaks and other value-added products as demand requires. Up to 20% of sales by volume are on the home market, while exports are mainly to EU countries such as France, UK, Germany, Belgium and Italy, as well as to Switzerland and the US.
The main issue facing the Irish industry currently is capacity. Production has been adversely affected by occurrence of amoebic gill disease in stocks but increasing production site capacity is the most urgent issue, with a growing organic salmon market that current Irish production volumes come nowhere near supplying adequately. The state agency BIM is seeking a licence for an offshore production unit to be tendered out to the most suitable operator. If granted, the licence would allow for a 100% increase in current production over three years and would also pave the way for other offshore site applications
Greatly increased production volumes in 2012 were absorbed by the market even as prices rose, although the full consumer reaction to rising prices may not be seen until later in 2013. The processing industry is particularly vulnerable to raw material price increases as higher prices can be passed on to retailers only with difficulty and with a significant time lag.
The increase in global demand for salmon can be attributed to a combination of attractive prices, product development, extensive marketing campaigns and a global shift towards healthy yet sustainable seafood choices such as salmon sushi. Another encouraging trend is the continuing development of increasingly important markets in Russia, Poland, China and Brazil, which collectively imported almost 500 000 tonnes of salmon products in 2012, more than Japan and the US combined. Russia in particular has seen spectacular growth in salmon imports, while Poland’s smokehouses have become a major supplier of products for western Europe and domestic consumption is also on the rise.
Of the traditional markets in Europe, Japan and the US, it is Europe that is currently looking the most promising for producers, with a better price situation supported by strong and growing demand in core markets such as France and the UK, and better possibilities for expansion.
France imported 7.7% more salmon in 2012 compared with 2011, a total of 169 900 tonnes. This increase was driven almost entirely by higher imports of fresh whole salmon, although imports of fresh fillets and smoked went up also. In contrast, imports of frozen product declined. Lower prices in the first half of the year meant a year-on-year drop in total import value of 12% to USD 1 billion, but improved demand towards the end of the year saw a corresponding rise in prices. According to the Norwegian Seafood Council, salmon is close to overtaking tuna as the most popular seafood in France in terms of household consumption. Norway remains the major supplier, accounting for 61% of import volume in 2012.
In 2012, Germany registered a 2.6% year-on-year decline in the volume of salmon imports, down to 118 100 tonnes. Imports of fresh salmon, almost entirely from Norway, were down 15.9%. Lower prices overall resulted in a large drop in total value of some 24%. However, these figures are likely to be somewhat misleading, as household consumption figures point to a strong response from German consumers to the cheaper product on offer, particularly for smoked. Poland dominates this high-value segment, mainly processing and re-exporting Norwegian salmon, and Polish-origin imports represent 24.9% of total volume and around 38% of total value.
Year-on-year growth of 7.3% in Japanese whole salmon imports in 2012 saw total volume (excluding fillets) rise to 178 200 tonnes. The major component of this increase was frozen salmon from Chile, as producers pushed up volumes once again, but Norway appears to have strengthened its position in the Japanese market for fresh Atlantic salmon and Norwegian-origin imports of fresh salmon were up by 34% to 26 400 tonnes. Meanwhile the return of Chilean supply led to a drop in competing frozen Pacific imports from the USA and Russia. A similar performance in 2013 will be difficult for Japan’s Chilean suppliers, however, in the face of further increases in Chilean production later in 2013 and the recent strengthening of the Chilean peso versus the yen. Japanese whole salmon imports in January 2013 were 3.4% down year-on-year in quantity terms, and 37.8% down by value.
In 2012, the USA imported 280 800 tonnes of salmon products, which represented a rise of 16.9% compared with 2011; the total value of imports during 2012 rose slightly by 2.1%, to USD 2 billion.
The bulk of the USA’s salmon imports in 2012 came from Chile, with 98 100 tonnes imported at a total value of USD 800 million. Canada was in second place with 94 900 tonnes worth USD 570 million, followed by China and Norway with 33 000 tonnes (USD 213 million) and 16 000 tonnes (USD 155 million) respectively.
The main exporter of fresh and chilled salmon to the US was Canada, exporting 90 900 tonnes of its total salmon exports in fresh and chilled form at a total value of USD 515 million. Chile followed with 73 900 tonnes worth USD 564 million.
For US exports, a 24% increase in quantity was noted, but the value dropped by 11.4% in comparison with 2011 when international prices were relatively higher.
In January 2013, US imports of salmon were up 21.2% year-on-year in terms of volume, to 26 500 tonnes. The increase in value was 18.5%, to USD 189 million.
The cutback in Norway’s production should bring some balance back to the market in 2013, and prices are expected to remain relatively high on the back of strong demand in most major markets. Some weakening of prices is likely in the second half of the year when the bulk of the Chilean supply will reach markets, while at the same time a reduction in marketing effort and delayed consumer response to higher raw material costs could dampen demand somewhat later in 2013. Chilean producers, with the US and Japan as their primary export destinations, are in a more challenging position, and will need to be ready to seek new markets in the long run for their still booming production.
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