A deep dive into the seafood industry

The seafood sector largely depends on whether demand will be stable, and what will happen to the costs of fish oil. Olsen Nordby explains:

– Demand and the fisheries in Peru have great significance for the sector in the short term. We believe that demand will continue to be stable at around NOK 90 per kilo, but it may rise when consumers get used to the new price level. Salmon is, after all, somewhat more of a luxury than chicken and should trade at a premium, he points out.

Fishing in Peru normally starts in May, and Olsen Nordby is excited to see how it will turn out:

– It will be interesting to see how many anchovies are caught and not least how much fish oil is obtained from each fish. It will have relatively large implications on the cost side, he points out.

The tax shock

Let’s quickly turn back the clock to 28 September 2022. The government is proposing a new basic interest tax on aquaculture, also known as the "salmon tax".

– The salmon tax was to be introduced on 1 January 2023, but nobody knew any specifics about the tax, such as size, effect, and method. The two most important events for seafood in 2023 were firstly, when we got a settlement and the rate was set at 25%, from the original proposal of 40%. Secondly, Mowi calculated that a Norwegian tax rate of 32% was the effect on the company after the farming department received 47% tax, says the analyst.

3 megatrends

There are three major trends that affect the seafood sector – both now and in the future.

Firstly, Olsen Nordby sees a continuously increasing demand because of people wanting to eat healthier.

– Another big trend is that younger people eat more fish than older people. Thus, demand will probably grow further as the younger people get older and richer and can buy more salmon and sushi for the next generation again.

The Arctic analyst points to the US's role as a growth engine as a third megatrend.

– I think the development will continue as salmon consumption is still moderate compared to other proteins in the USA. The country is also very prosperous.

The problems with fish welfare

– How do you think the sector will look in the future, and can you single out one factor that will be particularly important?

–Then I must mention two things: As I said, I think the fishery in Peru will be the most important, as it will be significant for the cost side. Good fishing can reduce costs/kg by NOK 3-4 per kilo, which is significant.

– The most important constant factor is biology. In 2023, the problems with fish health, because of winter sores and the “perlesnormanet”, also known as the barbed wire or string jellyfish, became seriously known. It is still unclear how significant El Niño was for the biology of southern Norway and Scotland. There is talk that a new vaccine against winter sores will help towards 2025, but it is way too early to conclude. Degraded fish seems to be an increasing problem. It will probably take a long time before the industry gets full control of winter sores and other biological problems.

Olsen Nordby adds that fish welfare is essential for profitability and that Arctic therefore focuses a lot on it.

– As we see it, good fish welfare is the same as good profitability. Consumers state that they are concerned, but we see that they often choose based on price.

Which companies should we pay attention to?

According to the seafood expert, Bakkafrost and SalMar succeed well as a result of good biology, little damage and efficient operation.

– SalMar has a lot of processing in Norway, which means that the company does not have to sell its fish cheaply to other players for further processing. At the opposite end of the scale, we find Grieg. As of today, the company has very few opportunities to process the fish.

– This means that the company sells the salmon at a large discount in the market (potentially a discount of NOK 50-60 per kilo), says Olsen Nordby.

– Which companies should we keep an extra close eye on, and why?

– For me as a seafood analyst, all the companies are exciting to follow, but I think Bakkafrost Faroe Islands will be extra interesting going forward. After a disappointing 2023, we think things will turn around in 2024. Then there may be more faith in the large growth strategy in the Faroe Islands, which may give a new perception of the share.

– In Arctic, we like Bakkafrost, SalMar and Mowi the best. These are companies that are generally the best at cost control, volume growth and capital discipline.

– In the small/mid-cap segment, we also like Icelandic Salmon, Salmon Evolution and Andfjord Salmon, he adds.