The weaker exchange rate in recent years has strengthened the international competitiveness of Norway’s seafood industry, according to a new report from the Tromso-based food research institute Nofima.
With high production volumes and a relatively small domestic market, the Norwegian seafood industry is dependent on selling most of its products abroad. At the same time, with Norway’s small economy heavily dependent on oil, the Norwegian krone (NOK) is a vulnerable currency that fluctuates widely. When the Norwegian krone is strong, the competitiveness of the seafood industry is weakened, while it is strengthened when the NOK weakens.
Norway has improved its competitive position as a result of the weak krone in recent years, said scientists at Nofima, who have developed a competitive exchange rate index for seafood.
From 2012 to 2015, the total value of Norway’s seafood exports increased by NOK 22.4 billion (USD 2.7 billion, EUR 2.4 billion). Of this, NOK 14.1 billion (USD 1.7 billion, EUR 1.5 billion) can be linked to the weak Norwegian krone.
At the same time, the scientists have measured the effect of volume, marked price and product mix.
“We find that NOK 2.7 billion (USD 324.5 million, EUR 291.6 million) of the increase in value is linked to an increase in volume, NOK 4 billion (USD 481 million, EUR 432 million) to higher prices and/or product mix, while NOK 1.6 billion (USD 192.4 million, EUR 172.8 million) is due to synergies between changes in two or more of these components, said Nofima scientist Thomas Nyrud.
The report, which illustrates differing trends in the whitefish, pelagic and salmon farming sectors, was commissioned by the Norwegian Seafood Research Fund (FHF). It finds the export value of whitefish increased by NOK 2.8 billion (USD 336.7 million, EUR 302.4 million) in the period 2012–2015, while currency fluctuations in the same period represented a positive contribution of NOK 2.9 billion (USD 348.8 million, EUR 313.2 million).
In reality, in many whitefish markets, there has been a decline in prices measured in trading currencies, while at the same time volume development was flat. This resulted in a slight decline in value for the sector, after making currency adjustments, said Nofima
In the pelagic sector, currency fluctuations made a positive contribution of NOK 2.3 billion (USD 276.6 million, EUR 248.4 million), but the negative volume and price effects were so strong that the export value fell by approximately NOK 1.2 billion (USD 144.3 million, EUR 129.6 million).
Nofima calculated the positive currency effect for Norway’s exports of farmed fish from 2012 to 2015 to be NOK 7.5 billion (USD 902 million, EUR 809.8 million). In the same period, the fish farming sector recorded a total increase in value of NOK 18.1 billion (USD 2.2 billion, EUR 2 billion). Higher volumes and favorable price/product mix development contributed to an increase in this sector’s earnings, it said.
“Over the last few years, new records have been set in seafood exports. But we find it problematic to use export values as performance indicators, particularly for whitefish and pelagic fish. The export value, measured in terms of NOK, is in no way a precise indicator of performance,” said Nyrud.
“Who earns most from currency fluctuations? In the long term, it is the primary stage and the consumers that will benefit most or suffer most from currency fluctuations. The sluggishness in passing on price changes results in the long-term effects varying in the sector, while at the same time there is a continual fluctuation in currencies. This makes it difficult to determine who is the winner and who is the loser in the value chain.”
According to the report, the seafood sector is more exposed to turbulence in the foreign exchange markets than the Norwegian export industry is in general. This is because most of the international trading involves the four major currencies, euro, US dollar, pound sterling and Japanese yen, whilst the other Norwegian export industries have, overall, a somewhat broader “currency portfolio.”
“In addition, the seafood sector is more heavily weighted in dollar than is the case for the rest of Norwegian industry. Statistic testing shows that over the last 15 years, the exchange rate against the US dollar has been considerably more volatile than against the Euro, sterling and yen,” said Nyrud.
Nofima’s scientists studied profitability in the fisheries industry from 1993 through to the present day and found that exchange rate unrest is an important factor that is seen repeatedly in the years with the best and the worst results. Foreign currency gains in one year often followed currency losses in the following year.
Of the five most and the five least profitable years for the Norwegian whitefish industry over the last 20 years, the result in seven of the years coincided with major currency fluctuations, where either a weakening of the krone coincided with a positive result, or an appreciation of the krone coincided with a negative result.
