In the eight years that have followed the 2008 infectious salmon anaemia (ISA) crisis, Chile’s salmon farming industry has been challenged by volatile supplies, rising costs of production and financial losses. However, this dynamic reversed very recently with salmon farmers returning to profitability – a trend that Rabobank envisages continuing at least for the medium-term.
By the end of 2018, Chile expects to recover the 100,000 metric tons (MT) of salmon that it lost as a result of the algae bloom in the first-quarter of this year. Approximately 60,000 MT was supposed to be harvested in 2016 and a further 40,000 MT in 2017, and Gorjan Nikolik, senior analyst – seafood at Rabobank, said the expectation is that the supply will expand only slightly in 2017, but that considerable growth will be achieved in 2018, with production reaching approximately 565,000 MT.
Initially, smolt release was expected to decline relative to 2014 and 2015, but most recent figures show increasing smolt release, which further supports the 2018 recovery expectation, said Nikolik. However, it’s expected that new legislation will not allow significant growth relative to 2015 production (591,000 MT). The new regulation allows for a maximum of 3 percent growth in region 10 and 11, and only if biological performance is good. Therefore, a recovery is possible but further growth beyond this is not, he said.
Consequently, after 2018, volume growth in Chile will be limited. Growth of 2 to 5 percent is possible, if the biological conditions on farms are good. In regions 10 and 11, growth will be capped to 3 percent but could be less if there are biological issues. In region 12, at least for the next six years, growth can be higher but this region has a relatively minor share of total Chilean production.
Rabobank also reckons the cost expectations for Chile are good, highlighting that the lower biomass in the industry due to the algae bloom has improved biological conditions, with mortality now dropping well below recent averages. Furthermore, new medication is showing promise against the SRS disease that has plagued the industry for many years.
In the next few years, as the vaccine gains acceptance, it may be possible to eliminate the use of antibiotics and approximately USD 1 per kg of cost, said Nikolik. Moreover, there are other innovations that will impact the Chilean industry, especially in the field of lice control.
Chile’s salmon industry is also stepping up its marketing efforts in key markets such as the United States, which should, in the medium-term, support demand and consequently prices. The industry is also increasing its marketing efforts and cooperation in growing markets, especially China, where Norway faces increasing supply challenges, he said.
Given these expectations, Rabobank is confident that the recent (Q3 2016) return to profitably in Chile after two years of losses is set to last, while the new legislation capping growth to 3 percent (relative to 2015) should stave off a return of the Chilean rollercoaster. And although there will always be some volume and price volatility in the Chilean and global salmon industry, it is unlikely to be of the same magnitude seen in the past, said Nikolik.
Lastly, a stronger than expected volume growth in Norway in 2018 could impact prices and the profitability of the sector, but at least for now it seems that Norway is also experiencing both sea lice issues and legislative limits to growth, he said.
