Livestock & Feed Bussiness Worldwide: September 2017
Salmon hyperinflation: Pink fish flesh turns to gold
by Eric J. BROOKS
Resource shortages, biological constraints responsible for the underlying scarcity have not been solved. Solutions are being rolled out, but their impact may not be felt for many years.
With salmon falling from its near NOK80/kg Q1 highs to near NOK50/kg in late August, its latest market rally is over.
Even so, resource scarcities and supply side constraints that triggered the past two year’s hyperinflation are merely waiting for a new market event to rekindle an underlying tendency towards price inflation.
Analyst firm Kontali Analyse notes that production of Atlantic salmon (which accounts for 80% of farmed salmonid production) grew at 6.6% annual rate, from 1.26 million tonnes in 2007 to a peak of 2.10 million tonnes in 2015.
It has since experienced negative growth, falling 5% to 2.0 million tonnes in 2016 and production is expected to remain flat this year.
With production topping out after 2012, falling after 2015 amid 4% annual demand growth, prices had nowhere to go but up. As a result, while the volume of salmon farmed jumped by a Kontali estimated 79% from 2004 through 2016 inclusive, its value increased by nearly 300%, with most of that inflation occurring after 2015.
Since 2012, demand has grown 4% annually in volume but world salmon production increased by less than 10% over these five years. As the result, Kontali states that from 2012 through 2016 inclusive, with world production nearly flat, the value of the salmon produced jumped at a 14% annual rate.
The first large price jump occurred as 'cost-push’ inflation by high feed prices in 2012, but thereafter, the price increases were demand driven.
This reversed a long-term trend of declining (after adjusted for inflation) prices that justified salmon farming’s existence. Before it was farmed, salmon’s unit price was six to eight times higher than that of beef. Salmon farming brought its price down into the NOK25/kg to NOK30/kg (US$3/ kg to US$4/kg) range by the mid-2000s, making it only 2.5 times as expensive.
Thereafter, feed cost inflation jacked up its production cost, causing world salmon prices to fluctuate in a slightly higher NOK30/kg to NOK45kg (US$5.00/kg to US$7.50/kg range). Even so, with feed becoming more expensive input for all protein classes, salmon’s production cost did not rise faster than that of other meats, nor did its price level.
Before 2015, salmon production costs - and prices - were kept under control by minimizing the use of its only constantly hyperinflating feed input, fishmeal. While fishmeal’s cost tripled over the last seventeen years (and spiking up to five times its year 2000 price), it went from comprising 55% to 60% of salmon feed 25 years ago to 12% to 15% today.
Unfortunately, the post-2015 inflation was not due to higher input costs but a combination of rising demand and hard, biological constraints on further farm intensification.
Norway found that the vaccines it used to boost production of sustainable, antibiotic free salmon were helpless before stubborn sea lice infestations, as did northern hemisphere suppliers everywhere from Scotland to Canada. As a result, Norway’s 2017 salmon output will remain stuck in the 1.2 to 1.3 million tonne range for a fourth consecutive year.
The full article is published on the September 2017 issue of LIVESTOCK & FEED Business. To read the full report, please email to firstname.lastname@example.org to request for a complimentary copy of the magazine, indicating your name, mailing address and title of the report.