Norway’s salmon producers are turning to radical farming techniques in the face of multiple threats to their industry.
From futuristic egg-shaped enclosures that bob in the water to supertanker-like structures submerged in the ocean, the Norwegian government is trying to counter increasing challenges in the form of sea lice, fish escapes and the shortage of suitable coastline for aquaculture.
One of the big problems for salmon farmers in Norway, the world’s largest salmon producers, has been the rise of sea lice. A naturally occurring parasite that attaches itself to fish, the problem is not new, but it has become more serious as the lice have become more resistant to chemicals used to treat them.
Norwegian salmon producers have increasingly turned from chemical treatments to mechanical means, such as washing salmon with fresh water or water heated to about 30C and treating the salmon with a soft brush, which has led to a rise in mortality rates. They have also been harvesting the fish before they are fully grown, which has meant that the country’s production volumes fell about 5 per cent in 2016.
Prices of salmon surged to record levels of near NKr80 a kilogramme last year after Norway’s production problems swiftly followed a supply shortage in the number two producer Chile, whose salmon farms were hit by a toxic algae bloom earlier in the year.
The marine egg concept, a closed unit to protect the fish backed by the leading salmon producer Marine Harvest, and SalMar’s supertanker, which will keep fish in the ocean at depths where sea lice cannot survive, have won licences from Norway’s fisheries ministry for further development.
“There are about 50 companies which have asked for development licences,” Per Sandberg, the country’s fisheries minister, told the North Sea Atlantic Forum fish conference in Bergen, Norway, last week.
The promise of the projects being offered commercial farming licences after passing various criteria, has spurred the applications among leading salmon producers, which have struggled to increase supplies in the face of the Norwegian government’s output licence cap.
Oslo has linked new production licences with the salmon producers’ ability to deal with the sea lice issue, meaning that few licences have been issued over the past few years. “There has been no supply growth for the last five years,” says Henning Lund, analyst at Pareto Securities in Oslo, who adds that future increases will also be limited.
The rate of maximum number of sea lice allowed on salmon is an average of 0.5 lice a fish, and from later this year regulations will restrict additional production licences to only farming regions that control the sea lice infestation. Even those will cap the production growth to an annual 3 per cent output increase.
Despite the decline in volumes sold, the higher prices have boosted profits at the salmon producers. Marine Harvest reported record operational earnings before interest and tax for the fourth quarter at €259m, while net profits more than doubled from the year before to €211m. As with its other peers, the company’s share price has mirrored the salmon price, rising about 30 per cent in 2016.
“It’s fantastic to make money, but long term we need to continue to grow volume wise,” Alf-Helge Aarskog, Marine Harvest’s chief executive said at the NASF conference. While spot prices have come down from last year’s record, they are still at a relatively high level around NKr60 per kg.
While global supply growth is expected to slow dramatically from the double-digit numbers seen a few years ago, the question is how higher prices will affect demand.
An executive at French fish group Aquimer told the NASF audience that in France, consumer demand for salmon had fallen sharply due to the higher prices.
Kolbjorn Giskeodegard, analyst at Nordea, says that due to the time lag in retail prices reflecting the wholesale market, salmon prices in many European supermarkets would be rising sharply in 2017. He says it is too early to put a number on the demand impact, but adds, “if you move the price by 20 to 50 per cent, there must be a negative reaction”.
Kontali, a leading fish consultancy, expects zero consumption growth for the salmon market in 2017.
Given that the ability to increase supplies is closely tied to the sea lice issue, Norway’s salmon producers are desperate to find a solution. But many are resigned to the possibility that it will take time.
When asked by Pareto Securities about the time it would take for sea lice to cease to be an issue limiting supply growth in Norway, the majority of chief executives at salmon companies last year had answered within three years. However, this year, they believe this to be six years or more.
Until then, the Norwegian government is expected to retain a tight grip on regulation. The country’s salmon producers acknowledge that strict regulation has been beneficial for the industry so far. “There’s no way around it. When you’re dealing with biology, you need strict regulation,” says Mr Aarskog.
However, he warns against regulation for the sake of regulation. “It’s important that smart regulations are applied, not to respond to bureaucratic needs, but to improve practices,” he says.