Vince McDonagh

BY VINCE MCDONAGH

Profi ts under pressure

Salmon farmers in Norway are being squeezed by falling prices and higher costs, a new study fi nds

SALMON farming is not the licence to print money some cri� cs seem to think, recent data from Norway’s Directorate of Fisheries shows.

Although the industry generally remains in good fi nancial health, it is facing the prospect of a double whammy from rising costs and declining revenues. And while the study focuses on Norwegian producers, there is every reason to believe that other regions will be facing the same pressures.

And with the price of energy and feed expected to increase sharply this year, the worst may be yet to come.

The Directorate has recently published its latest profi tability survey on the salmon and trout sectors, and it off ers a sober analysis. The period covered is up to the end of 2020 which also takes in the fi rst full year of the pandemic and its impact on the industry.

The Directorate has been carrying profi tability surveys since 1982, making it one of the most experienced organisa� ons in this area.

The survey includes informa� on from all types and size of businesses producing Atlan� c salmon and rainbow trout. Presented fi gures are arithme� c averages based on all surveyed companies in the sample

They show that profi ts dropped by almost 40% in the 12 months between 2019 and 2020.

While lower salmon prices can be partly blamed on a drop in demand due to Covid, the real villain was higher costs which have li� le to do with the virus. The Directorate says they were star� ng to eat into profi ts three years before the pandemic struck.

The data also shows that salmon and rainbow trout producers (in both hatchery and food fi sh produc� on) reported pre-tax profi ts had declined by 38.7% to NOK 14.1bn (£1.17bn) over the same period.

“Further to our calcula� ons and if one adjusts for infl a� on, the fi gures show that the overall ordinary profi t has been declining over the past four years,” the report con� nues.

The average sale price of salmon fell by 6.1% between 2019 and 2020 bo� oming out at NOK 47.21 per kilo at the end of 2020. The average price is currently around NOK 78 per kilo.

At the same � me, the average total cost per kilo rose by 4.9% from NOK 38.26 in 2019 to NOK 40.15 per kilo at the end of 2020.

“Overall ordinary profi t has been declining over the past four years”

GROW OUT AND HATCHERY PRODUCTION

In grow out produc� on, the Directorate says the average cost per kilo was at its lowest in 2005, but the fi gure has more or less been increasing since then. In the 12 months between 2019 and 2020 they rose by almost 5% to NOK 40.15 per kilo.

The costs for feed is the largest item in the produc� on of Atlan� c salmon and rainbow trout, and represents 41.4 % of the total produc� on costs per kilo in 2020 (2019: 38.26%). Feed costs alone increased from NOK 15.63 (£1.32) per kg in 2019 to NOK 16.62 (£1.40) in 2020.

For hatcheries, the trend in average produc� on costs per sold fry/smolt has increased in recent years.

Average produc� on costs per sold fry/ smolt increased by 6.5% from 2019 to 2020. Average produc� on costs per sold fry/smolt were NOK 14.81 (£1.25) in 2020 (2019: NOK 13.90/£1.17).

As always, feed remains the biggest item, but there were also increases in the cost of smolts, staff salaries, fi sh health treatments, wellboat services and the use of slaughterhouses.

Some of the highlights from the survey include:  Salmon revenues totalled NOK 752bn (£63bn) in 2018, but had dropped to NOK 723bn (£60.5bn) by the end of 2020, partly as the result of the pandemic, says the Directorate.  Rainbow trout fared be� er with revenues rising from NOK 39bn (£3.25bn) in 2018 to NOK 48bn (£4bn).  Fish farming pre-tax profi ts (both salmon and trout) dropped by close to half during that period. In 2018, they totalled NOK 270.4bn (£22.5bn), but a year later they were down to NOK 193.6bn (£16bn) and by the end of 2020 they dropped again to NOK 145.6bn (£12bn).  The overall opera� ng margin in 2018 was 32.4% in 2018 and 27.6% in 2019, but came close to being cut by half 17.1% at the end of 2020.  The average opera� ng margin for grow-out producers was 17.1%, and 14.1% for hatcheries in 2020.  There was a decrease in the average opera� ng margin from 27.6%in 2019 to 17.1 % at the end of 2020 for the Atlan� c salmon and rainbow trout companies.

The study says hatcheries have a signifi cantly lower average opera� ng margin than those of grow out producers. However, calcula� ons also show a decrease in the average opera� ng margin from 15.6% in 2019 to 14.1% in 2020 for hatcheries companies.

And the survey points the fi nger at a steady rise in costs. Total produc� on costs per kilo (including slaughter and freight costs) were NOK 33.88 (£2.85) in 2018, NOK 38.26 (£3.22) in 2019 and NOK 40.15 (£3.38) at the end of 2020.

Total costs for the sector had shot up from NOK 563bn (£47bn) in 2018 to almost NOK 677bn (£56bn) by December 2020.

Li� le wonder then that during the past couple of years most fi sh farming CEOs, in their annual reports, have been at pains to stress the importance of reducing their cost base. FF

Above and below: Norwegian fi sh farms Opposite from top: Aquafeed is more expensive; Juvenile salmon