September | October 2014

Trade shifts and price volatility prediction

The International magazine for the aquaculture feed industry

International Aquafeed is published six times a year by Perendale Publishers Ltd of the United Kingdom.All data is published in good faith, based on information received, and while every care is taken to prevent inaccuracies, the publishers accept no liability for any errors or omissions or for the consequences of action taken on the basis of information published. ©Copyright 2014 Perendale Publishers Ltd. All rights reserved. No part of this publication may be reproduced in any form or by any means without prior permission of the copyright owner. Printed by Perendale Publishers Ltd. ISSN: 1464-0058

INCORPORAT ING F I SH FARM ING T ECHNOLOGY

The global Salmon industry has just been through one of the regular reviews that only an organisa-tion like Rabobank can give. They

analyse all aspects of the diverse industry and gather data and comments from expert reviewers and put together a very detailed briefing document under reference Rabobank Industry Note #453.

Gorjan Nikolik, Senior Analyst, and his team have just finalised this report on Salmon headlined ‘This Time It’s Different’ comment-ing that the industry is reverting to the ‘high-cycle scenario’ emphasising that this has been an unusually long-lasting period of under sup-ply and high prices which is likely to continue for another two years.

Over the next few years, Rabobank believe the salmon industry will focus on issues related to biosecurity, sustainability, cost control, certification and technological innova-tions. They also predict that increased global demand will support the high price environ-ment and strong profitability of farmers and, if this remains correct, even with the Russian trade issues it will likely create large-scale trade shifts and price volatility.

The emphasis of the report is based on Norwegian production primarily because that country controls over 50 per cent of the global Atlantic salmon production but it does articulate the challenges and opportunities of the whole industry.

In Norway there is a legal production limit for salmon, which is controlled by the maximum allowable biomass (MAB) per licence. The majority of harvesters are rapidly approaching this limit. This is especially the case during late summer and early autumn/fall period. The issue has been a topic of discussion between the industry and govern-ment for some time as with a small change in whether MAB was applied to annual average rather than a single point of time could create an additional 12-15 per cent within existing licences.

The potential downside for Norwegian harvesters is twofold if they were successful in their discussions. There could be a drop in price due to extra supplies being available and, probably more importantly, the additional product could create a sanitary risk.

The favourable environmental growing conditions experienced in 2014 also suit the harvesters biggest current risk issue, the parasite, sea lice. It is one of the reasons the Norwegian Government policy has been to ensure that parasites and diseases are under control before pushing the increased volume buttons.

On the sea lice issue, the Norwegian Government have put forward an interesting proposal to the salmon farmers which ena-bles them to purchase a one-off 5 per cent increase to their MAB providing lice numbers are controlled within certain parameters and a limit on lice treatments as adhered to. This innovation in regulations is only likely to be able to be taken up by 15-20 per cent of the industry. This sort of risk versus reward approach could be expanded in the future.

Also adding to the Norwegian Governments novel approaches is the pros-pect of more issuances of so-called ‘green licences’. This could add another 70,000MT (note just 5 per cent of Norway’s salmon current production but as far as say Australia is concerned is actually more than Australia currently produces) over the next few years.

Extra volume could be obtained by improved husbandry skills, lower mortality and improving genetics but overall there is a prediction that growth in the next three years will be in the range of 3 to 5 per cent.

In Chile, the emphasis on growth limita-tions is more biological than legislative. This has been detailed in previous Rabobank reports but effectively relates to legislation that forced farmers experiencing poor biologi-cal performance to reduce farming density in their next production cycle–many aspects are similar to Norwegian 5 per cent MAB process.

There will be an impact based on this in 2015 but, on the one hand, the industry is only utilising 374 of the 1277 producer owned seawater concessions that suggests there is plenty of capacity for growth. The Chilean position is more complicated than described in Norway but what is good is that the producers and regulators have together reversed a nega-tive trend and natural growth has improved throughout 2014. Lessons have been learned during the various issues experienced in the region and that augurs well for the future.

The report highlights that Regions X and Xl are the main areas in Chile for salmon produc-tion and whilst they are getting close to their maximums the future seems to be with Region Xll, which only accounts for 10 per cent of the Chilean Atlantic Salmon biomass. This region has potential to treble its output whilst main-taining low density of production. The lack of infrastructure, labour and hatcheries and higher transport/storage costs will have an effect on how quickly the area can grow.

Salmon is riding the ‘lower supply growth’ and ‘positive demand’ train so no matter what

the product, the likelihood is the prices will remain on the higher side. The report gives more insights into EU, USA and Japan markets.

Of course the current political issues relate to Russia and the various bans on trade both ways. It is likely that over 100,000 MT of Norwegian salmon will need to find markets in other directions as Russia enforces its own embargoes and they will then need to cover their purchases with product from Faroe Islands and Chile. Will sufficient sup-ply be available from those areas? Where will the Norwegian product go? These are potential issues but even with re-shuffling the Russian situation does not change the overall high-cycle scenario even though prices are expected to come down somewhat after 2016 global supply improves.

The marketing of salmon is still emerging as countries develop and the middle class numbers rise. Those economies of so called smaller markets consumed less than 20 per cent of Atlantic salmon production but dur-ing this year that figure will be closer to 35 per cent which is twice the size of the USA market. It is within the globalisation that growth will come–markets such as Brazil and Mexico in Latin America; global population giants India and China; Indonesia, Taiwan, Malaysia, Singapore and South Korea in Asia and the Middle East–through promotion as a premium, healthy and trendy protein.

Integration is another subject discussed in this report as it highlights that larger players like Marine Harvest and LeRoy Seafoods have made acquisitions in salmon processing and there is a strong feeling that this trend will continue. This will make it difficult for specialist processors in the future.

Feed and aquaculture equipment opera-tors will likely lose out in the coming period as their core buyers will expand slower than previously. In the case of feed, as a major cost of production, every farmer will be aiming to use less, especially of feed that uses higher quantities of fish meal and fish oil. Feed in the industry grew from 2011 to 2014 by nearly 50 per cent and that sort of growth will be curtailed.

Parasites and disease alleviation innovation is happening and feed innovation is under way so there are challenges in continuous improvement but importantly they are not blank pages.

With increased profitability in the industry Rabobank predicts the major investments will be in biosecurity. The lice issue has been incentivised by the new regulation innovations in both Norway and Chile and its simply good business to put effort in this direction.

The Global Salmon Initiative (GSI) is a group comprising the majority of the world’s largest salmon producers who currently account for about 70 per cent of the glob-al Atlantic salmon production. They have

TRADE SHIFTS AND PRICE VOLATILITY

PREDICTION

30 | INTERNATIONAL AQUAFEED | September-October 2014

FEATURE

announced by 2020 that all of their farms will be Aquaculture Stewardship Council certified. This will enable the industry to display sustain-ability credentials exceeding virtually any other modern aquaculture or livestock industry. The aim for GSI is to highlight how truly commit-ted they are in harvesting a product that is as healthy to humans as it is to the environment.

Interestingly the report highlights that few salmon farmers have made significant investments in other species in aquaculture and possibly suggests that organisations may believe that knowledge and experience in salmon farming does not equate to potential success in other species.

The suggestion by Nikolik is that a poten-tially more synergetic opportunity could be the aquaculture of algae and seaweeds, a sector receiving increasing attention from academia, investors and the salmon industry. The diversity of algae and seaweeds opens up many conceivable markets beyond human consumption. Research to date has shown that seaweed fields grown adjacent to the salmon farms enable small fish to shelter, and some of those (example given is the lumpfish, Cyclopteridae family) prey on the sea lice. There is still some way to go with this before suggesting it is a solution but it is certainly a promising development.

Cost control is essential. As mentioned feed costs, pest and disease control and

certification costs are the major issues but non-feed issues such as administrative and legal expenses should not be forgotten. Issues outside the control of the industry e.g. a record soybean harvest expected in 2015 have impacts on feed costs. Chile, the report suggests, is seeing a major turnaround with strong momentum expected in 2015.

Research continues to show successful outcomes in increasing the size of the smolt before re-location in the main farming areas. This is seen as a modernisation of the process and the outcomes have indicated lower mortalities.

Open water farming will create new chal-lenges on exposed sites and the barriers to this seem to be more legal than techno-logical, as the industry has already invested in advanced ocean farming requirements. On paper, at least, open ocean farming could bring the best out of the industry and create the ideal situation relating to costs and nega-tive impacts. Maybe, the report suggests, this is a decade away but does open the prospects to the future.

Countries like Iceland, Ireland and Russia are seeing rapid expansion of their salmon farming businesses but continued expansion is not guaranteed and it will be hard to see any material impacts from these regions on the global position. In Scotland, currently the third largest producer, the aim is to increase

its current production of 150,000 MT to above 200,000 MT by 2020 and whilst this is significant in one country it still only represents 2.5 per cent growth of the global scene.

Land salmon farming is discussed but not seen as currently being the overall answer but if prices continue to strengthen and that trend continues then the opportunity will exist. Of course, land farming techniques are also going through technical improvements and the whole business case is always on the drawing board as a potential. How the industry works through its biosecurity improvements will also add to that equation in the coming years.

The report does cover the potentially controversial issue of genetic improvements. It highlights that GM feeds are already in production and are used in animal feeds and is seen as a cost improvement opportunity.

The Atlantic salmon industry is predicted to reach 3 million MT by 2020, which is 1 million MT more than 2013 and is 2 million MT more than was produced in 2005. This for a young sector with one of the best demand functions of any protein based on the back of high prices will see investments in the sector accelerate finding solutions to current bot-tleneck issues.

Clearly salmon is leading the blue revolu-tion and although there are still more tests for the industry ahead the progression and prospects appears very bright.

September-October 2014 | INTERNATIONAL AQUAFEED | 31

FEATURE

Innovations for a better world.

Aquafeed – complete solutions from a single source.

Turn to Bühler for one of the most comprehensive lines of aquafeed process technology available anywhere: from raw material handling, cooking and shaping through extrusion to drying and coating of finished products. With an extensive know-how and a passion for quality we ensure not only product uniformity and production efficiency, but also maximum sanitation and safety. Bühler – gentle processing at its best. www.buhlergroup.com/aquafeed

Aquafeed_Aeroglide_en_es_cn.indd 1 12.03.2014 13:30:59

www.aquafeed.co.uk

LINKS

• See the full issue• Visit the International Aquafeed website

• Contact the International Aquafeed Team

• Subscribe to International Aquafeed

Efficacy of a pharmaceutical preparation based on glycyrrhizic acid

– in a challenge study of white spot syndrome in Litopenaeus vannamei

The live feed revolution

Volume 17 I s sue 5 2 014 - s e P TemBeR | oCToBeR

INCORPORAT ING F I SH FARM ING TECHNOLOGY

Fish Farming Technology supplement

- RAS Technology

The Chinese Conventional Freshwater Fish Industry

The global surveillance of Antimicrobial resistance

This digital re-print is part of the September | October 2014 edition of International Aquafeed magazine. Content from the magazine is available to view free-of-charge, both as a full online magazine on our website, and as an archive of individual features on the docstoc website. Please click here to view our other publications on www.docstoc.com.

To purchase a paper copy of the magazine, or to subscribe to the paper edition please contact our Circulation and Subscriptions Manager on the link above.

INFORMATION FOR ADVERTISERS - CLICK HERE