Professional Documents
Culture Documents
The Marine Harvest Salmon Industry Handbook The purpose of this document is to give financial analysts and investors a better insight into the salmon farming industry, and what Marine Harvest considers to be the most important value drivers .
Contents
1. Introduction 3 7. Cost dynamics 7.1 Economy in salmon farming 7.2 Production costs 7.3 Cost component mortality and disease 7.4 Feed and feed ingredients 7.5 Salmon feed producers 7.6 Raw material market 7.7 Price, cost and EBIT development Norway 7.8 Salmon farming is a capital intensive industry 7.9 Capital needs when building biomass 7.10 Accounting principles for biological assets 7.11 Investments and payback time for new entries 8. Salmon diseases, mitigation, and R&D 8.1 Salmon disease prevention and treatment 8.2 Most important disease risks 8.3 Fish health and vaccination (Norway) 8.4 Research and Development 9. Secondary Processing (VAP) 9.1 European value-added processing (VAP) industry 9.2 Market segment (2009) 9.3 The European market for smoked salmon 40 40 41 42 43 44 45 46 47 48 49 50 52 52 53 54 55 56 57 58 59 2. Definition of segment 4 2.1 Seafood as part of the larger protein space 4 2.2 Stagnating wild catch growing aquaculture 5 2.3 Salmonids only contribute 2.5% of global seafood supply6 2.4 Supply of wild and farmed salmonids 7 2.5 Salmonids harvest 2011 8 3. The attributes of salmon 3.1 A healthy product 3.2 Resource efficient production 9 9 10
4. World market of farmed Atlantic salmon 12 4.1 Estimates of the market for farmed Atlantic salmon 12 4.2 Historic total harvest of Atlantic salmon 13 4.3 Trade and product flow - Atlantic salmon 14 4.4 Projecting future harvest volumes 15 4.5 Yield per smolt 16 4.6 Development in standing biomass 17 4.7 Supply and demand historic prices for Atlantic salmon 18 4.8 Historic price development by local reference prices 19 4.9 Different sizes different prices (Norway) 20 4.10 Price indexes vs. FOB packing plant 21 4.11 Price neutral demand growth - historically 6-7% 22 4.12 Price of Atlantic salmon relative to other proteins sources23 5. Industry structure 5.1 Top 5-10 players in main producing regions 5.2 Number of players producing 80% of Atlantic salmon 6. Production of salmon 6.1 Establishing a salmon farm 6.2 Access to licenses Norway 6.3 Access to licenses Scotland 6.4 Access to licenses Chile 6.5 Access to licenses Canada 6.6 The Atlantic salmon life/production cycle 6.7 Production inputs 6.8 Factor influencing the pace of production 24 24 25 26 27 29 32 33 34 35 37 39
Appendix Weight conversion ratios and key words Some historic acquisitions and divestments Marine raw materials in salmon feed Sustainability of fish feed Atlantic salmon production cycle Marine Harvest history Marine Harvest worldwide Marine Harvest downstream (VAP) Marine Harvest sales channels (2011) Sources for industry and market information
60 61 62 64 65 66 67 68 69 70 71
Updated as of July 17th 2012 Disclaimer While every reasonable precaution has been taken in the preparation of this document, Marine Harvest assumes no responsibility for errors or omissions, or for damages resulting from the use of the information contained herein. The information contained in this document is believed to be accurate. However, no guarantee is provided. Use this information at your own risk.
1. Introduction
Salmon Salmon is the common name for several species of fish of the family Salmonidae (e.g. Atlantic salmon, Pacific salmon), while other species in the family are called trout (e.g. brown trout, seawater trout). Although several of these species are available from both wild and farmed sources, all commercially available Atlantic salmon is farmed. Salmon live in the Atlantic and Pacific Oceans, as well as the Great Lakes and other land locked lakes. Typically, salmon are anadromous: they are born in fresh water, migrate to the ocean, then return to fresh water to reproduce. Atlantic salmon farming started on an experimental level in the 1960s but became an industry in Norway in the 1980s and in Chile in the 1990s. About 60% of the worlds salmon production is farmed. Farming takes place in large nets in sheltered quiet waters such as fjords or bays, or in tanks on land. Most of the cultured salmon come from Norway, Chile, Scotland and Canada. Salmon is a popular food. Salmon consumption is considered to be healthy because of the fish's high content of protein and Omega-3 fatty acids.
The volume figures in this industry handbook are mainly expressed in HOG (head on gutted). For a weight conversion table, see appendix.
2. Definition of segment
2.1 Seafood as part of the larger protein space
Source: FAO, Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision
Although 70% of the Earths surface is covered by water, only 6% of the protein sources for human consumption is produced in this element today. The global population is expected to grow by 2 billion, to more than 9 billion, by 2050. Assuming consumption per capita stays constant, this implies a 40% increase in demand for protein. The estimates for population growth, however, assume that the growth will mainly occur in Asia and Africa, which has the lowest protein consumption per capita today. When factoring in a trend of increased consumption per capita in these areas, the demand may double by 2050. Knowing that resources for increased land-based protein production will be scarce, a key question is how protein production in sea can be expanded.
4
Atlantic salmon
There has been a considerable increase in total and per capita fish supplies over the past few decades. Aquaculture is the fastest growing animal food producing sector, and in 2011 the aquaculture industry contributed 42% of the fishery output for human consumption. On average, fish provides about 30 kilocalories per person per day globally. The dietary contribution of fish is more significant in terms of proteins - it provides the worlds population with 6% of their intake of protein. While global human population is growing at 1.7% annually, aquaculture outpaces this rate by 1.4% - growing at 3.1% annually. Annual per capita fish consumption rose from 9.9kg in the 1960s to 18.4kg in 2009. A total of 126 million tonnes (live weight equivalent) fish was available for human consumption in 2009, where Asia consumed almost two thirds. To maintain current consumption level in 2030 taking population growth into account, an additional 23 million tonnes of fish production is needed. With the stagnating wild catch, the growth in fish production (and protein supply) is expected to come from the fast growing aquaculture industry. FAO estimates that in 2030, aquaculture will have increased from 45 million tonnes to 85 million tonnes.
Even with an increase in production of Atlantic salmon of more than 600% since 1980, total global supply of salmonids is still marginal compared to most other seafood categories. Whitefish is about ten times larger and consists of a much larger number of species. Fish species - harvest/catch volumes 2010
5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 Tilapia and other Cichlids Alaska Pollock Atlantic salmon Pangasidae Atlantic cod Large trout Bass & Bream Wild Farmed
Million tonnes LW
Coho
Note: live weight is used because different species have different conversion ratios
The graph compares selected species and their respective harvest/catch volumes in 2010. Harvest of Atlantic salmon was more significant than Atlantic cod and pangasidae. But, compared to two the largest whitefish species, tilapia and Alaska pollock, Atlantic salmon was only about half the volume harvested.
Note: Small and large trout are not included in farmed volumes
Source: Kontali Analyse
The general supply of seafood in the world is shifting more towards aquaculture as the supply from wild catch is stagnating in several regions, and for many important species. Wild catch of salmonids is varying between 700 000 and 1 000 000 tonnes HOG, whereas farmed salmonids are increasing. The first year when the total supply of farmed salmonids was dominated by farmed, was in 1999. Since then, the share of farmed salmonids has increased and has become the dominant source. The total supply of all farmed salmonids was over 1.6 million tonnes (HOG) in 2011. The same year, the total catch quantity of wild salmonids was about 930 000 tonnes, with pink, chum and sockeye being most common species. Origin and markets for wild salmonids
Source: Kontali Analyse The diagram shows competition of wild salmon in different markets for Atlantic salmon. About 25% of total wild catch of salmon has been imported frozen to China (from the US, Russia and Japan), and later been re-exported as frozen fillets. Once re-exported from China, one cannot distinct between the different regions.
7
Atlantic salmon: By volume, the largest species of salmonids. It is a versatile product, which can be used for a variety of categories such as smoked, fresh, grilled, sushi as well as readymade meals. The product is present in most geographies and segments on a global scale. Due to biological constraints, seawater temperature requirements and other natural constraints, farmed salmon is only being produced in Norway, Chile, UK, North America and New Zealand/Tasmania. In 2011, the total supply of Atlantic salmon was 1.46 million tonnes HOG. Pink: Caught in USA and Russia and used for canning, pet food and roe production. Quality is lower than the other species as all catch happens in a very short time period and is therefore less a valued salmonid. The fish is small in size (1.5-1.7 kg). Large trout: Produced in Norway, Chile and the Faeroes and the main markets are Japan and Russia. Trout is mainly sold fresh, but is also used for smoked production. Small trout: Produced in many countries and most often consumed locally as a traditional dish as hot smoked or portion fish. Small trout is not in direct competition with Atlantic salmon. Chum: Caught in Japan and Alaska. Most is consumed in Japan and China. In Japan, it is available as fresh, while in China it is processed for local consumption and re-exported. Little chum is found in the EU market. Varied quality and part of the catch is not for human consumption. Coho: Produced in Chile and is mostly used for salted products. It is in competition with trout and sockeye in the red fish market. Russia has increased its import of this specie the last years but Japan remains the largest market. Sockeye: Caught in Russia and Alaska. It is mostly exported frozen to Japan, but some is consumed locally in Russia and some is canned in Alaska. Sockeye is seen as a high quality salmonid and is used as salted products, sashimi and some smoked in EU. Chinook/King: Low volume species, but highly valued. Alaska, Canada and New Zealand are the main supply countries. Most volume is consumed locally. Chinook is more in direct competition to Atlantic salmon than the other species and is available most of the year.
8
Farmed salmon is a good source for the marine omega-3 polyunsaturated fatty acids eicosapentaenoic acid (EPA) and docosahexaenoic acid (DHA) that reduce the risk for cardiovascular disease. Data also indicates the EPA and DHA reduce the risk for a large number of other health issues.
Salmon is view upon as a very versatile product, which can be used in a numerous dishes. It is popular with retailers as it is produced in a controlled environment and is stable in supply throughout the year (not subject to seasons).
Salmon is nutritious, rich in micronutrients, minerals, marine omega-3 fatty acids, very high quality protein and several vitamins, and represents an important part of a varied and healthy diet. FAO highlights Fish is a food of excellent nutritional value, providing high quality protein and a wide variety of vitamins and minerals, including vitamins A and D, phosphorus, magnesium, selenium and iodine in marine fish. The substantial library of evidence from multiple studies on nutrients present in seafood indicates that including salmon in your diet will improve your overall nutritional status, and may even yield significant health benefits. In the face of increasing obesity and decreasing health standards, governments and food and health advisory bodies in Europe and the USA are actively encouraging their populations to consume more fish as part of their diet.
8.0 Cattle
3.0 Pork
2.0 Poultry
Source: Marine Harvest, article in Fiskaren March 20 2009, British PIG BPEXX Yearbook 2007, www.pork.org
Protein production efficiency The main sources of animal protein are cattle, poultry, pork and seafood. The first three are farmed, while more and more of the available seafood is also farmed. One method to measure how productive the different protein productions are is the representative feed conversion ratio (FCR). In short, this tells us the kilograms of feed needed to increase the animals bodyweight by 1kg. If we compare farmed salmon with the other three species, we find a variation in the FCR between 1.2 and 8.0, where salmon is the most efficient in production and cattle are the least. The main reason why salmon convert feed to body weight so efficiently is that by being cold blooded they do not have to use energy to heat their bodies. Wild salmon has a FCR of approximately 10.0. 68 % of Atlantic salmon is edible meat
Edible yield
Total body weight/edible meat 80% 60% 40% 20% 0% Atlantic salmon Pork Chicken Lamb
Source: Bjrkl, J., Norwegian University and Life Sciences, Norway (2002).
10
Comparing the amount of protein in edible parts to amount of protein fed to the animal, salmon retains the most protein relative to other animal protein sources as pork, chicken and lamb.
Protein Retention
35% Kg protein in edible parts / kg protein feed 30% 25% 20% 15% 10% 5% 0% Atlantic salmon Pork Chicken Lamb
Freshwater consumption in production Freshwater is a renewable but limited natural resource, which can only be renewed through the process of the water cycle. If more freshwater is consumed through human activities than is restored by nature, the result is that the quantity of freshwater available in lakes, rivers, dams and underground waters, is reduced. This can cause serious damage to the surrounding environment. Farmed Atlantic salmon requires only 1,500 litres per kg of fresh water in production whereas producing 1 kg beef requires 14,000 litres of fresh water consumption!
11
4. World Production and Market of Farmed Atlantic Salmon 4.1 Estimates of the market for farmed Atlantic salmon
Supply of Atlantic salmon has more than doubled since 2000 (annual growth of 7%). Due to various constraints, Kontali Analyse expects annual supply growth of Atlantic salmon to drop to 4% in the period 2013-2020. The EU and the US are by far the largest markets for Atlantic salmon. Emerging markets, however, are growing at significantly higher rates than these traditional markets. As all harvested fish is sold and consumed in the market, the demand beyond 2013 is assumed equal to supply (estimated from Kontali Analyse). As can be seen from the below graph, salmon is one of the food categories that grows at a significantly higher rate than the worlds human population.
Source: Kontali Analyse, Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision
12
Farming of Atlantic salmon has always been dominated by a few producing countries as there are several natural conditions that have to be in place for optimal production, like seawater temperature range (see chapter 6), a sheltered coast line and certain biological conditions. In the beginning of the 2000s, Chile started to increase production sharply. However, in 2007 there was an outbreak of the ISA virus, which resulted in a serious production setback (20092011). Since 2010, Chilean industry has been subject to an aggressive rebuild. The production in Canada and the UK has been stable the last 5 years, and has limited potential for future growth. Other regions have generally been growing, but from rather marginal volumes.
13
14
Standing Biomass
Source: Kontali
Feed Sales
Source: feed companies
Smolt Release
Source: Producing companies
Seawater Temperature
Source: Meteorological institutes
Disease Outbreaks
Source: Media
Vaccine Sales
Source: e.g. ScanVacc
The three most important indicators on future harvest volumes are standing biomass, feed sales and smolt release. These three are good indicators on medium term and long term harvest, while the best short term indicator is standing biomass categorized by size. As most fish is harvested at a size of 4kg+, it is only the amount of large fish in the sea that can be used to estimate short term harvest. If no actual numbers on smolt releases are available, vaccine sales could be a good indicator of number of smolt releases and when the smolt is put to sea. This is a good indicator on long term harvest as it takes up to 2 years before the fish is harvested after smolt release. Variation in seawater temperature can materially impact the length of the production cycle. A warmer winter can for example increase harvest volumes for the relevant year, partly at the expense of the subsequent year. Disease outbreaks can also impact harvest volume due to mortality and slowdown of growth.
15
5,0 4,5 4,0 Kg fish (HOG) / smolt released 3,5 3,0 2,5 2,0 1,5 1,0 0,5 01G 02G 03G 04G 05G 06G 07G 08G 09G 10G Source: Kontali Analyse, Marine Harvest Norway Chile UK Faroe Islands
Yield per smolt is an important indicator of production efficiency. Due to the falling cost curve and the discounted price of small fish, the economic optimal harvest weight is in the area of 4-5kg (HOG). The number of harvested kg yielded from each smolt is impacted by diseases, mortality, temperatures, growth attributes and commercial decisions. The average yield per smolt in Norway was 3.79 kg (HOG) in 2010. Since 2010, the Chilean salmon industry has been rebuilding its biomass after the depletion caused by the ISA crisis commencing in 2007. In 2010/2011, the Chilean salmon industry showed a very good performance on fish harvested due to the low density of production (improved yield per smolt). With the increased density it is possible the performance is deteriorating in 2012. Average yield in the UK and Faroe Islands in 2010 was 3.05kg and 4.49kg, respectively.
16
Because of the variation in sea water temperatures over the year, the total standing biomass in Europe has a S-curve, which is at its lowest in May and at its peak in October. The Norwegian industry is focused on minimizing the natural fluctuations as license constraints put a limit to how much biomass can be in sea at the peak of the year. In Chile the situation is different due to more stable seawater temperatures and opposite seasons (being in the Southern hemisphere). A more steady water temperature gives the possibility to release smolt during the whole year and a more uniform utilization of the facilities. The reduction of standing biomass in Chile in 2008 and 2009 is due to the impact of the ISA disease.
17
Due to the long production cycle and the short shelf life of the fresh product (maximum 3 weeks), the spot price clears on the basis of the overall price/volume preference of customers. As most of the farmed salmon is perishable and therefore marketed fresh, all salmon produced in one period has to be consumed in that same period. In the short term, the production level is difficult and expensive to adjust as the planning/production cycle is three year long. Therefore, the supplied volume is very inelastic in short term, while also demand is shifting with the season. This has a large effect on the price volatility in the market. Factors affecting market price for Atlantic salmon are: Supply (absolute and seasonal variations) Demand (absolute and seasonal variations) Globalisation of the market (arbitrage opportunities between regional markets) Presence of sales contracts reducing volume availability for the spot market Flexibility of market channels Quality Comparing FCA Oslo, FOB Miami and FOB Seattle, there are clear indications of a global market as the prices correlate to a high degree.
18
The three graphs above shows quarterly average prices of salmon from 2000 to Q2 2012. As in most commodity industries, the producers of Atlantic salmon are experiencing much volatility in the price achieved for the product. The average price for Norwegian whole salmon the last decade has been about NOK 27/kg (HOG), for Chilean salmon fillet (2-3lb) USD 3.1/lb, and for Canadian salmon (10-12lb), USD 2.24/lb (HOG).
19
The most normal market size for a salmon is 4/5kg HOG. The reason for the different sized fish is mainly because salmon farming is a biological production process, where the fish has different growth cycles and the biomass represents a normal distributed size variation. The markets for the different sizes vary, as can be seen in the above graph. The processing industry in Europe mainly uses 3-6kg HOG but there are niche markets for the small and large fish. As these markets are minor compared to the main market, they are easily disrupted if volumes become too high. Generally, small fish sizes are discounted and large sized fish are sold at premium.
20
Several price indices for salmon are publicly available. The two most important providers of such statistics for Norwegian salmon are NOS/Fish Pool and Statistics Norway (SSB). Urner Barry in the US provides a reference price for Chilean salmon in Miami and Canadian salmon in Seattle. In Norway this is fairly simple by deducting freight cost from the farm to Oslo and the terminal cost from the NOS/FHL price (~0.70 NOK). If using the SSB custom statistics, you need to adjust for freight to border, duty and taxes, and also to adjust for quality and contract sales to get the achieved spot price back to producer. Average difference between SSB price and FCA Oslo is ~1 NOK, which gives the average difference between SSB price and back to plant at NOK 1.50**. Calculating Urner Barry Chilean fillets, back to HOG plant is more extensive. It is necessary to use UB prices for both 2/3lb and 3/4 lb and adjust for volume share, market handling (4 cent), market commission (4.5%), premium fish share (92%), reduced price on downgraded fish (30%), airfreight (USD 1.50/kg) and HOG to fillet yield (70%).
**Historically this difference fluctuates from week to week and will normally be observed in the range of [-2 to +4]
21
-3,0%
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
13,3% 7,0% 8,2% 5,5% 3,7% 1,6% 10,0% 6,7% -1,7% -1,4% 12,0%
The price correlation across regional markets is generally strong for Atlantic salmon. The Norwegian FHL price represents about two thirds of the global volumes for Atlantic salmon. Growth in global supply of Atlantic salmon is estimated to 119% in the period 2000-2012 (annual CAGR 7%), varying between -2% and 13% annually. Variation in growth rates has been the main determinant for the variation in prices. Annual average prices have varied between NOK 19.50 (2003) and NOK 37.45 (2010). Combining the data gives a linear correlation between change in global supply and change in the Norwegian FHL price. This relation has an explanatory power of almost 87% of the annual price development between 2000 and 2011.
22
4.12 Price of Atlantic salmon relative to other proteins sources Relative price development 1980-2012
300
250
50
0 1980
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
Compared to other food sources containing animal protein, salmon has become relatively much cheaper during the last decades. Relative price of salmon in terms of other protein sources in selected major markets (snap-shot of consumer prices in selected retail stores, June 2012) Salmon/Beef 0.8 1.3 1.2 1.0 Salmon/Chicken 1.4 2.4 1.9 2.2 Salmon/Pork 1.8 1.9 1.6 2.0
UK US Belgium Japan
Despite salmon having become relatively cheaper over time, it is still a rather expensive product in the shelves.
23
5. Industry Structure 5.1 Top 5-10 players in main producing regions of farmed Atlantic salmon (2011)
Top 10 Norway H.Q. Top 10 UK H.Q. Top 10 North America 1 Marine Harvest 217 500 Marine Harvest 50 100 Cooke Aquaculture 2 Lery Seafood 117 000 The Scottish Salmon Company 23 000 Marine Harvest 3 Salmar 93 000 Scottish Seafarms 21 800 Cermaq 4 Cermaq 37 900 Morpol (Meridian Seafood) 20 800 Grieg Seafood 5 Grieg Seafood 31 500 Grieg Seafood 14 800 Northern Harvest 6 Nordlaks 26 100 * * 7 Nova Sea 25 200 8 Alsaker Fjordbruk 24 800 9 Bremnes Seashore 21 000 10 Norway Royal Salmon 18 800 Top 10 612 800 Top 10 130 400 Top 10 Others 292 200 Others 8 800 Others Total 905 000 Total 139 200 Total * UK and North American industry are best described by top 5 producers. Top 10 Chile Marine Harvest Salmones Multiexport Pesquera Los Fiordos Australis Seafood Cermaq Salmones Cupquelan (Cooke) Empresas Aquachile Invertec Aquinova (Pesca Chile) Salmones Friosur 110 600 Top 10 4 900 Others 115 500 Total H.Q. 34 200 33 900 21 300 12 200 9 000 tonnes HOG H.Q. 26 800 25 200 22 500 18 000 15 400 13 500 12 900 11 200 8 100 7 200 160 700 38 200 198 900
The Marine Harvest Group represents the largest total production and holds about one quarter of the volume in Norway, and about one third of the volume in North America and UK. In North America and the UK, production is more consolidated (see next page). In Norway and Chile there are several more companies with a significant production volume of Atlantic salmon. In Chile, several of the companies also produce other salmonids, such as coho and large trout.
24
5.2 Number of players producing 80% of Atlantic salmon volume per region
70
70 60 50 31 40 30 20 10 22 16 28 45
55
35
18 15 16 11 5 3 4 3 3 7 8
12 8 3 2 2 2 3
Canada
Australia
2009
2006
2003
Historically, the salmon industry has been made up by many, small firms. This has been the case in Norway, and to some degree in Scotland and in Chile. The higher level of fragmentation in Norway compared to Chile is the result of the Norwegian governments priority to decentralised structures and local ownership. In Chile the government put fewer demands on ownership structures in order to grow the new industry faster. During the last decade the salmon farming industry has been through a period of consolidation in all regions. The consolidation trend is expected to continue. The recent increasing number of players making up 80% of the volume in Chile is explained by the major reduction in output in connection with the ISA crisis. Given the current rebuild, the situation is expected to gradually revert to fewer players. See appendix for some historic acquisitions and divestments.
25
6. Production of salmon
In all salmon producing regions, the relevant authorities have a licensing regime in place. In order to operate salmon farming, a license is the key prerequisite. The licenses constrain the maximum production for each company and the industry as a whole. The license regime varies across jurisdictions. The salmon farming production cycle is about 3 years. During the first year of production the eggs are fertilised and the fish is grown into approx. 100 grams in controlled freshwater environment. Subsequently, the fish is transported into seawater cages where it is grown out to approx. 45kg during a period of 14-24 months. The growth of the fish is heavily dependent on the seawater temperatures, which varies by time of year and across regions. Having reached harvestable size, the fish is transported to primary processing plants where it is slaughtered and gutted. Most salmon is sold gutted on ice in a box.
26
License and location (Norway) Since 1973, a license has been required to operate a salmon farm in Norway. A license gives the right to farm salmon either in freshwater or in the sea. In addition, a site where the license can be used must be granted. One license can be associated with up to four sites, and one site may use several licenses at the same time. These licenses are awarded by the Ministry of Fisheries and are administered by the Directorate of Fisheries. It is also possible to apply to the Directorate of Fisheries to change the size of a site and licenses can be traded between companies in the industry. Since 1982, new licenses have been awarded only in limited numbers the years 1985, 1988, 1999, 2001, 2002 and 2009. At the end of 2011, there were 990 seawater licenses in Norway. One license is set to a MAB of 780 tonnes (900 tonnes in Troms and Finnmark). Most Norwegian fish farming sites have between 2,340 and 3,120 tonnes allowed maximum standing biomass. License and location (Scotland) In Scotland, the licensing system is very different. Instead of a license, there are several institutions that that have to give permission before one is allowed to make use of an area. Individual site biomass is governed by environmental concerns, namely the assimilative capacity of the local marine environment. As a consequence, individual site biomass is not uniform but varies between 100 tonnes to 2,500 tonnes depending on site characteristics.
27
License and location (Chile) In Chile the licensing is based on two authorizations. The first is the authorization to operate an aquaculture facility, which is issued by Fishery Sub Secretary (Economy Ministry). The authorization is for unlimited time and can be traded. The second authorization is for the physical area to operate (or permission to use national sea areas for aquaculture production). This is issued by the Sub secretary of the Navy, which belongs to the Defence Ministry. The use of the license is restricted to a specific geographic area, to defined species, and to a specified limit of production or stocking density. The production and stocking density limit is specified in the Environmental and Sanitary Resolution involved for any issued license. License and location (Canada) Marine sites are located on Crown land. The Provincial Government needs to grant a socalled tenure license to occupy a certain area of the ocean bottom. These tenures are issued for periods varying from 5 to 15 years. An annual tenure rental fee is charged depending on the size of the tenure. Fees are increased annually with inflation. In 2012 the annual fee for a typical tenure of 25 ha is CAD 9,800. Tenure licenses can be renewed upon request. In addition, the Federal Government needs to grant a license of operation. This Federal License states all the conditions which the farm has to observe and regulates production parameters, such as the Maximum Allowable Biomass, the use of equipment, etc. A typical site license will range in size from 2,000 MT to 4,500 MT of Maximum Allowable Biomass. The Federal License is presently issued for one year at the time and is renewable. It is expected that as of 2013 a fee will be charged for this license based upon the amount of production on the farm, however, the exact details are not known at this point of time. The Provincial and Federal licenses are specific for one location only. Licenses may be lost for non-compliance issues and non-payment of fees.
Equipment To equip a grow-out facility you need cages (steel or plastic), mooring, nets, cameras, feed barge/automats and boats. For a normal facility in Norway (850,000 smolt release) the investment costs would be in the range of 25-30 million NOK.
28
29
The graph is organized by highest harvest volume. Number of sea water licenses for salmon and trout in commercial use o 2007: 929 o 2008: 916 o 2009: 988 o 2010: 991 o 2011: 990 o 2012: 990
Because of the regulation of standing biomass (maximum allowed biomass - MAB) per licence (780 tonnes LW) the production capacity per licence is limited. Annual harvest volume per license in Norway can be as much as 1,200 tonnes HOG. Larger players typically have better flexibility to maximise output per license. The average utilisation for the industry is hence lower than the utilisation for the largest companies.
30
Due to the fact that the two counties Troms and Finnmark, in Northern Norway, have a higher MAB per license, the total MAB capacity is slightly higher than 780 tonnes LW per license. Total biomass of salmon and trout in Norway is increasing each year and is approaching the limit in terms of MAB, particularly in the second half of each year due to the seasonality of farming operations.
31
32
Specific regulations released from LGPA, like: o RAMA: Associated to environmental aspects, monitoring and correct practices to operate in environmental terms. o RESA: Associated to sanitary aspects, fallow period, diseases, mortalities treatment, among others. o Minimum operation: Establishes the minimum productive of licenses and the fallow period. o REPLA: Establishes a protection area in case of plagues appearance, such as Alexandrium catenella
No impact on duration of current licenses. Future production capacity will be impacted by the new law, and specifically by the following: o Gradual opening of regions XII, XI and X after 12 months, on the first case, and after five years on the second and third cases. o Regulations of zones, availability of areas suitable for aquaculture and fallow periods will limit production capacity and growth rate until new licenses can be approved and/or new areas opened. o As from 2014, dormant operations may cause loss of license. o Environmental conditions given by high density in some zones may cause decreases of production limits. o New specific regulations about maximum production density are announced to be enacted in 2012.
33
In Canada, the Provincial and Federal licenses can be assigned to a different operator through a Government Assignment Process. The provision enables a company to transfer the licenses to another company for reasons such as: moved processing to new area, distance is too great and not feasible to operate, change in species etc. The process involves First Nations consultation, and depending on the relationships between the parties this can be a lengthy procedure. Timelines vary from one year to several years to acquire licenses for a new farm. An estimate of cost to acquire a new license/site can range from CAD 300,000 - 500,000. No licenses for new farms have been issued since 2007.
34
Spawn
14-24 months
10-16 months
Secondary processing
The total production cycle takes approximately 10-16 months in freshwater plus 14-24 months in sea water in total 24-40 months. In Chile, the cycle is slightly shorter as the sea water temperatures are more optimal. See the appendix for a more detailed illustration of the production cycle.
35
L1
G1
L2
G2
L1
G3
In the autumn, the broodfish are stripped for eggs and the ova inlay happens between November and March. The producer has the possibility to speed up the growth of the juveniles with light manipulation to accelerate the smoltification process by up to 6 months. The light manipulated juveniles are called S0s and the normal grown juveniles are called S1s. In Norway, smolt is mainly released into seawater twice a year. S0s are released in autumn/spring within 12 months after ova inlay, and S1s in the autumn about 18 months after ova inlay. A very small part of the production is produced as S1, which are only put to sea 2 years after the ova inlay. The harvest is spread all around the year. In Norway, typical harvest is the beginning of the year for S0s and second half of the year for S1s. During summer, the supply to the market is significantly different to the rest of the year as harvest go from S0s to S1s, and the large S0s and the small S1s dominate the supply. After a site is harvested, the location is fallowed between 2 and 6 months before the next generation is put to sea at the same location. Smolt may be released in the same location with a two year cycle. In the example above, Generation 1 (G1) is put to Location 1 (L1), G2 put to L2, and then G3 is put in L1 again as the fish from G1 have been harvested and the location has been fallowed. Harvest volume is largest in the last quarter of the year as this is the period of best growth, and because most of the S1s are harvested in this period. Some of the last S0s and some early S1 could also be harvested in this period.
36
Eggs There are several suppliers of eggs to the industry. Aquagen AS, Fanad Fisheries Ltd, Lakeland and Salmobreed AS are some of the most significant by volume. Egg suppliers can tailor their production to demand by obtaining more or less fish for breeding during the preceding season. Production can easily be scaled. The egg market is international.
Smolt The majority of smolt are produced in-house by vertically integrated salmon farmers. This production is generally captive, although a proportion may also be sold to third parties. A smolt is produced over a 612 months period from the eggs are fertilised to a mature smolt with weight of 60-100 grams.
37
Labour In 2011, around 5 800 people in Norway were directly employed in aquaculture, of which more than half was employed in salmon and trout production. According to Scotland Salmon Producers Organisation (SSPO), over 2 100 people are employed in salmon production in Scotland. The Scottish Government estimates that 6,200 jobs are reliant on the aquaculture industry. Estimates on Canadian employment say that around 2 500 people are directly employed in salmon farming industry. In Chile, employment has been significantly reduced as a consequence of the ISA situation that developed throughout 2008. Direct employment in Chilean aquaculture (incl. processing) is estimated to around 18 000 people in 2011. In Norway, both salaries and levels of automation are highest, while the opposite is the case in Chile. Salaries in UK and Canada are somewhat lower than in Norway. Electricity Electricity is mainly used in the earliest and latest stage in the salmons life cycle. To produce a good quality smolt, production normally takes place in tanks on land where the water is temperature regulated and/or recirculated which requires energy (8-10% of smolt cost in Norway). When the salmon is processed energy is consumed. However, this depends on the level of automation (3-5% of harvest cost in Norway).
38
The sea water temperatures vary much throughout the year in all production regions. While the production countries on the Northern hemisphere see low temperatures during the beginning of the year and high temperatures in autumn varying with as much as 100C, the temperature in Chile is more stable varying between 100C and 140C. Chile has the highest average temperature of 120C, while Ireland has 110C and the three other regions have an average temperature of about 100C. As the salmon is a cold-blooded animal (ectotherm), the temperature plays an important role for its growth rate. The optimal temperature range for Atlantic salmon is 8-140C, illustrated by the shaded area on the graph. Temperature is one of the most important natural competitive advantages that Chile has compared to the other production regions as the production time historically has been shorter by a few months. With high seawater temperatures, disease risk increases, and with temperatures below 00C causes mass mortality. Both of which causes growth rate to fall.
39
7. Cost Dynamics
7.1 Economics of salmon farming
The salmon farming industry is capital intensive and volatile. This is a result of a long production cycle, a fragmented industry, market conditions and a biological production process, which is affected by many external factors. Over time, production costs have been reduced and productivity has increased as new technology and new competence has been achieved. This is believed to continue in the future as commercial aquaculture still is a young industry. Revenues Reported revenues Revenues are a gross figure; they can include invoiced freight from reference place (e.g. FCA Oslo) to customer, and have discounts, commissions and credits deducted. Reported revenues can also include revenues from trading activity, sales of by-products, insurance compensation, gain/loss on sale of assets etc. Price Reported prices are normally stated in the terms of a specific reference price e.g. the NOS/FHL price for Norway (FCA Oslo) and UB price for Chile (FCA Miami). Reference prices are not reflecting freight, and other sales reducing items mentioned above. Reference prices are for one specific product (FHL = per kg head on gutted fish packed fresh in a standard box). Sales of other products (frozen products, fresh fillets and portions) will cause deviation in the achieved prices vs. reference price. Reference prices are for superior quality fish, while achieved prices are for a mix of qualities, including downgrades. Reference prices are spot prices, while most companies will have a mix of spot and contract sales in their portfolio. Volume Reported volume can take many forms. Volume harvested = Fish harvested in a specific period in a standardized term e.g. head on gutted (HOG) or whole fish equivalent (WFE) the difference being gutting loss. Volume sold can be reported using different weight scales: Kg sold in product weight Kg sold converted to standard weight unit (HOG or WFE) Volume sold could also include traded volume.
40
Feed Primary processing Smolt Salary Maintenance Well boat Depreciation Sales & Marketing Mortality Other Total*
Cost elements Feed: As in all protein production, feed makes up the largest share of the total cost. The variation in costs between the countries is based on somewhat different inputs to the feed, logistics and the feed conversion ratio. Smolt: Smolt production is done in two different ways; either in lakes or in closed/recirculated systems in tanks on land. The smolt is produced in fresh water up to about 100g when the salmon through its smoltification phase gets ready to be put in sea water. UK has the highest costs as there has been low scale production in both land based systems and tanks. Chile has used lakes for this production and has had cheap labour, while in Norway there has been a transfer from production in lakes to large scale production in land-based systems. Salary: Salary level differs among the production regions but in general the salary cost is low because labour cost is a minor part of the total cost as much of the production is automated (e.g. feed blowers). Well boat/processing: The cost of transportation of live fish, slaughtering, processing and packing are all heavily dependent on volume, logistics and automation. Other operational costs: Other costs include direct and indirect costs, administration, insurance, etc.
41
EBIT costs per kg decline with increasing harvest weight. If fish is harvested at a lower weight than optimal caused by among other factors diseases, EBIT costs per kg will be higher. During the production cycle, some mortality will be observed. Under normal circumstances, the highest mortality rate will be observed during the first 1-2 months after the smolt is put into seawater, while subsequent stages of the production cycle normally has a lower mortality rate. Elevated mortality in later months of the cycle is normally related to outbreaks of disease or predator attacks. There is no strict standard for how to account for mortality in the books, and there is no unified industry standard. Three alternative approaches are: Charge all mortality to expense when it is observed Capitalise all mortality (letting the surviving individuals carry the cost of dead individuals in the balance sheet when harvested) Only charge exceptional mortality to expense (mortality, which is higher than what is expected under normal circumstances) It is not possible to perform biological production without any mortality. By capitalizing the mortality cost, the cost of harvested fish will therefore reflect the total cost for the biomass that can be harvested from one production cycle.
42
Chile 2008
14 % 12 % 19 % 15 % 10 %
Norway 2008
15 % 26 % 15 % 29 % 15 %
Source: Marine Harvest Growth intervals Feed consume* Time, months 0.1 0.2 kg 0.08 kg 2 0.2 1 kg 0.75 kg 4 1 2 kg 1.00 kg 4 2 3 kg 1.05 kg 3 3 4 kg 1.10 kg 2 4 5 kg 1.20 kg 2
Historically the two most important ingredients in fish feed have been fish meal and fish oil. The use of these two marine raw materials in feed production has been reduced and replaced by agricultural commodities such as soy, sunflower, wheat, corn, beans, peas, poultry by-products (Chile and Canada) and rape seed oil replacing fish oil. This substitution is mainly done because of heavy constraints on availability of fish meal and fish oil. Fish meal and other raw materials of animal origin have a more complete amino acid profile compared to protein of vegetable origin and have generally a higher protein concentration. It is therefore a big challenge to produce the knowledge required to replace fish meal 100%. During the industrys early phases, salmon feed was moist (high water content) with high levels of marine protein (60%) and low levels of fat/oil (10%). The industry then went through a development of pellet feeds with focus on protein and fat content. A typical recipe in the early nineties consisted of 45% protein, whereof most of it was marine protein, i.e. fish meal. Today, the marine protein level is lower due to cost optimization and fish meal availability. However, the most interesting development has been the increasingly higher inclusion of fat. This has been possible through technological development and extruded feeds. Due to market demands, legislation and different availability of raw materials, the ingredients used in fish feed today are different from country to country, giving higher raw material flexibility in certain regions as e.g. Chile and Canada. This will have an impact on the feed price. Feed and feeding strategies aim at growing a healthy fish fast at the lowest possible cost. Standard feeds are designed to give the lowest possible production cost. Premium diets are available in most countries and are being used in certain situations where extra growth rate is profitable. Feeding control systems shall prevent feed waste and assure that the fish get enough feed to grow to its potential. Normally the fastest growing fish show the lowest feed conversion rate.
43
During the last decade, the salmonid feed industry has become very consolidated, and from 2008 there has essentially been three producers, which are all subsidiaries of listed companies, controlling the majority of the output. These companies, BioMar (Schouw), Ewos (Cermaq) and Skretting (Nutreco) are operating globally. Additionally, there are some producers who are only present in their regional market. One major issue in the salmon feed industry is the future supplies of the raw materials going into feed (see next page). The major cost elements when producing salmonid feed are the raw materials required and production costs. The feed producers have historically operated on cost-plus contracts, leaving the exposure of raw material prices with the aquaculture companies.
44
USD/tonnes
1 200 1 000 800 600 400 200 2006 2007 2008 2009 2010 2011 2012
Fish oil: Price in 2012 is about 1400 USD. Since 2009 fish oil prices has steadily increased and we expect fish oil prices to become uncorrelated with vegetable oil prices in the future. Rape seed oil: Rape seed oil prices have very much the same price trend as fish oil. As there is an increasing demand for bio diesel, there will be continued pressure on price, including other types of vegetable oil. Fish meal: In the last year there has been a decreasing trend in the price, but this is not expected to continue. Soy: After having seen the soy prices climb to the highest level in 34 years in mid-2008, the prices fell slightly and has remained stable the last couple of years. The main reason for 2008s price increase was because less soy was planted due to a shift from soy to corn in many regions, and a high demand for vegetable oil in general. Corn is planted in higher volume due to increased demand for ethanol produced from corn, i.e. former soy areas are used for corn production. Vegetable protein: Soy and corn have traditionally been very important vegetable protein sources in fish feed. As a consequence of less planting of soy and more corn for energy purposes, the price for these raw materials increases. Parallel to this there has been an increase in genetic modified (GM) production of soy and corn. To be able to get non-GM production, a premium has been put on price, i.e. non -GM products are more expensive than GM products. Wheat: Wheat has been rather stable since late 2010.
45
EBIT/kg 40,00 35,00 30,00 25,00 20,00 15,00 10,00 5,00 0,00 -5,00 -10,00 1993 1994 1995 1996 1997 1998 1999 2000 2001
Price/kg
Cost/kg
2002
2003
2004
2005
2006
2007
2008
2009
2010
Due to supply growth being higher than the structural growth in demand in the period 19932007 there was a falling trend of the price of salmon. In recent years, this trend has been broken due to the collapse of the Chilean industry, combined with effects of consolidation in the industry. As a result of cost benefits of industrialisation, consolidation and economies of scale, combined with improvements in the regulatory framework and fish health mitigation, the cost curve has also had a falling trend. The average EBIT per kg for the Norwegian industry has hence been positive with the exception of a few shorter periods, and NOK 4.12 per kg in nominal terms.
46
2011
For illustration purposes, the farming process has been divided into three stages of 12 months. The first 12 months is production from egg to finished smolt. After this, 24 months of on-growing in sea follows. After the on-growing phase is over, harvest takes place immediately thereafter (illustrated as Month 37). In a steady state there will at all times be three different generations at different stages in their life cycle. At the point of harvest there have been incurred costs to produce the fish for up to 36 months, where some costs were incurred to produce the smolt two years ago, further costs incurred to grow the fish in seawater and some costs incurred related to harvest (Month 37). Sales price should cover the costs and provide a profit margin (represented by the green rectangle). Cash cost in the period when the fish is harvested is not large compared to sales income, creating a high net cash flow. If production going forward (next generations) follows the same pattern, most of the cash flow will be reinvested into salmon at various growth stages. If the company wishes to grow its future output, the following generations need to be larger requiring even more of the cash flow to be reinvested in working capital. This is a rolling process and requires substantial amounts of working capital to be tied up, both in a steady state and especially when increasing production.
47
The illustration above shows how capital needs develop when one is building production/biomass from scratch. In phase 1, there is only one generation (G) of fish produced and the capital needs is the production cost of the fish. In phase 2, the next generation is also put into production, while the on-growing of G1 continues, rapidly increasing the capital invested. In phase 3, G1 has come to its last stage, G2 is in its ongrowing phase and G3 has begun to increase its cost base. At the end of phase 3 the harvest starts for G1, reducing the capital bound but the next generations are building up their cost base. If each generation is equally large and everything else is in a steady state, the capital needed would have peaked at the end of phase 3. With a growing production, the capital needed will also increase after phase 3 as long as the next generation is larger than the previous (if not, capital base is reduced). We see that salmon farming is a capital intensive industry
48
Biological assets are measured at fair value less cost to sell, unless the fair value cannot be measured reliably. Effective markets for sale of live fish do not exist so the valuation of live fish implies establishment of an estimated fair value of the fish in a hypothetical market. The calculation of the estimated fair value is based on market prices for harvested fish and adjusted for estimated differences. The prices are reduced for harvesting costs and freight costs to market, to arrive at a net value back to farm. The valuation reflects the expected quality grading and size distribution. The change in estimated fair value is recognised in profit or loss on a continuous basis, and is classified separately (not included in the cost of the harvested biomass). On harvest, the fair value adjustment is reversed on the same line. The biomass valuation includes the full estimated fair value of fish at and above harvest size (4 kg LW). For fish between 1 kg and 4 kg LW a relative share of future value is included. The best fair value estimate for fish below 1 kg, smolt and broodstock is considered to be accumulated cost. The valuation is completed for each business unit and is based on biomass in sea for each sea water site. The fair value reflects the expected market price. The market price is derived from a variety of sources. Normally a combination of achieved prices last month and the most recent contract entered into. For Marine Harvest Norway, quoted forward prices (Fish Pool) are also included in the calculation. Operational EBIT Operational EBIT and other operational results are reported based on the realised costs of harvested salmon and do not include the fair value adjustments on biomass.
49
Equipment investment NOK 30-35m Number of licenses 4 Licence cost (second hand market) NOK 120-200m (~NOK 30-50m per licence) Output per generation: ~4000 tonnes HOG Number of smolt released: 1m
Smolt cost per unit: NOK 8 Feed price per kg: NOK 8.40 Economic feed conversion ratio (FCR): 1.17 (to live weight) Conversion rate from Live Weight to HOG: 0.83 Harvest and processing incl. well boat cost per kg (HOG): NOK 3
For new volume capacity to be established there are many regulations to fulfil. In this model, we have used only one site for simplification purpose and because we are looking at a new company entering the industry. Most companies use several sites at the same time, which enables economies of scale and makes the production more flexible and often less costly. To simplify, smolt is bought externally. Smolt is usually less costly to produce internally, but this depends on production volume. The performance of the fish is affected by numerous factors as feeding regime, sea water temperature, diseases, oxygen level in water, smolt quality etc. Sales price chosen is the average sales price from Norway the last decade.
50
Because of the simplifications in the model and low, non-optimal production regime, production cost is higher than industry average. Due to high entry barriers in terms of capital needs and falling production costs with volume, new companies in salmon production will experience higher average production costs. During the production of each harvest the working capital needed at this farm, given the assumptions, would be peaking at MNOK 75 (given that the whole harvest is harvested at the same time). With a sales price at the historic average level, payback time for the original investments would be 12-13 years. This result is very sensitive to sales price and economic feed conversion ratio (FCR), as the figure above shows. Sales price of NOK 27 is chosen as this is close to the historical average price in Norway. FCR at 1.17 is achievable on average, while lower economic FCR is possible for parts of production and a target for the industry.
51
52
40
10
Antibiotics use
HQ - Atlantic Salmon
Associated with the increase in production of Atlantic salmon in Norway in the 1980s was an increase in mortality and the incidence of disease outbreaks. In the absence of effective vaccines the use of antibiotics increased and reached a maximum of almost 50 tonnes in 1987. With the introduction of effective vaccines against the bacterial diseases Vibriosis, Cold Water Vibriosis and Furunculosis, the quantities of antibiotic used in the industry declined significantly to less than 1.4 tonnes by 1994 and has since then continued to be very low. These developments, along with the introduction of biosecurity and mitigation measures against ISA allowed for further expansion of the industry and respective production volumes. During the last two decades there has been a general stabilisation of mortality in Norway, Scotland and Canada, which has been achieved principally through good husbandry, management practices and vaccination. However, losses during seawater are still too high in Norway and Ireland, and this area has gained increased focus the last years. A positive development has been observed in Chile after rebuilding the industry after the ISAepidemic.
54
55
In salmon processing we divide between primary and secondary processing. Primary processing is slaughtering and gutting. This is the point in the value chain standard price indexes for farmed salmon are related to. Secondary processing is filleting, fillet trimming, portioning, different cuttings like choplets, smoking or making ready meal or packing with Modified Atmosphere (MAP). The products that are secondary processed are called value-added products (VAP).
56
The seafood industry in Europe is extremely fragmented with more than 4,000 players. Most of the companies are fairly small, but there are also several companies of significant size involved in the secondary processing industry: Marine Harvest, Icelandic Group, The Seafood Company, Deutche See, Royal Greenland, Labeyrie, Lery Seafood, and Morpol. Most of the largest players are basing their processing on Atlantic salmon, producing smoked salmon, portions or ready meals with different packing as vacuum or modified atmosphere (MAP). Consumers are willing to pay for quality and value-added. This means that we are expecting to see an increase in demand for products such as ready meals and ready-to-cook, together with a packing trend towards MAP as this maintain the freshness of the product longer.
57
55%
45%
61%
Retail
Horeca
Fresh
Frozen
Different products
32% 19% 32% 16%
Fillet
Smoked
Other VAP
In the EU in 2009 more than half of the Atlantic salmon went to retailers, while 45% went to hotels, restaurants and catering (HORECA). Of whole salmon and salmon fillets almost two thirds were sold as fresh fish and about one third as frozen. In the EU, salmon fillets and smoked salmon have an equal market share of 32% each, while whole fish has about 19%. In this graph, other VAP consists of all value added processed products, except smoked salmon which is represented separately.
58
The most common secondary processed product based on Atlantic salmon, is smoked salmon. The European market for this product was 150,000 tonnes product weight (PW) in 2011, where France and Germany were the largest markets. The amount of raw material needed for this production was around 250,000 tonnes HOG, up 8% since 2009. European smoked salmon producers
Estimated Annual Raw Material - Tonnes HOG 20 - 40 000 10 - 20 000 5 - 10 000 Labeyrie (FR-UK) Norvelita (LT) Xantelar (ES) Youngs (UK) Marine Harvest (FR) Friedrichs (DE) Mer Alliance (FR) Ahumados Domingues (ES) Suempol (PL) KB Rgeri (DK) Voppen (NL) Neptune Intnl. (DE) Lery (NL-SE-NO)
The ten largest producers of smoked salmon in Europe have a joint market share of about 55-60%. The production is mainly done in Poland, France, UK, Baltic states, Germany and the Netherlands. After the acquisition of the German company Laschinger, Morpol is the largest producer of smoked salmon in Europe. Morpol is based in Poland and is selling most of its production to the German market. Labeyrie is the second largest and sells most of its products to France, but are also found in UK, Spain, Italy and Belgium. Marine Harvest has its smoked salmon production in France (Kritsen) and in Belgium (La Couronne). Marine Harvest sells its smoked salmon in France, Italy and Belgium.
59
Appendix
In the appendix there is an explanation of key words, and you will find key information about the Marine Harvest group such as key financial numbers, the companys history together with information about our operations upstream and downstream.
60
Live fish Loss of blood/starving Harvest weight Round bled fish (wfe) Offal Gutted fish, approx. (HOG) Head, approx. Head off, gutted Fillet skin on Fillet skin off
Source: Kontali Analyse
Trout
Coho
114 %
111 % 11 % 100 % 14 % 86 %
Net weight:
Weight of a product at any stage (HOG, fillet, portions). Only the weight of the fish part of the product (excl. ice or packaging), but incl. other ingredients in VAP Whole fish HOG/GW
Primary processing:
Secondary processing: Any value added processing beyond HOG/HG Biomass: The total weight of living fish, where number of fish is multiplied with an average weight
Ensilage:
Salmon waste from processing added acid IB feed stock + feed purchase UB feed stock Kg produced weight on smolt release
FCR =
Price Notifications
FOB Seattle (whole fish from Canada) FOB Miami (fillets from Chile) FCA Oslo
61
Year 1999 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2002 2002 2002 2002 2002 2002 2003 2003 2003 2003 2003 2003 2004 2004 2004 2004 2004 2005 2005 2005 2005 2005 2005 2005 2005 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006
Norway Hydro Seafoods - Sold from Norsk Hydro to Nutreco Aquaculture Gjlaks - Sold to PanFish Vest Laks - Sold to Austevoll Havfiske Torris Products - Sold from Torris to Seafarm Invest Gjlanger Havbruk - Sold to Aqua Farms Alf Lone - Sold to Sjtroll Sandvoll Havbruk - Sold to Nutreco Aquaculture Fosen Edelfisk - Sold to Salmar Langsteinfisk - Sold to Salmar Tveit Grd - Sold to Alsaker Fjordbruk Petter Laks - Sold to Senja Sjfarm Krkyfisk - Sold to Salmar Amulaks - Sold to Follalaks Kvamsdal Fiskeoppdrett - Sold to Rong Laks Matland Fisk - Sold to Bolaks Sanden Fiskeoppdrett - Sold to Aqua Farms rsnes Fiskeoppdrett - Sold to Aqua Farms Toftysund Laks - Sold to Alsaker Fjordbruk Ishavslaks - Sold to Aurora to Volden Group Loden Laks - Sold to Grieg Seafood Finnmark Seafood - Sold to Follalaks Ullsfjord Fisk - Sold to Nordlaks Henningsvrfisk - Sold to Nordlaks Flatanger Akva - Sold to Salmar Naustdal Fiskefarm/Bremanger Fiskefarm - Sold to Firda Sjfarm Fjordfisk - Sold to Firda Sjfarm Snekvik Salmon - Sold to Lery Seafood Group Aure Havbruk / M. Ulfsnes - Sold from Sjfor to Salmar Follalaks - Sold to Cermaq
2007 2007 2007 2007 2007 2007 2007 2007 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 2010
Veststar - Sold to Lery Seafood Group Volden Group - Sold to Grieg Seafood Artic Seafood Troms - Sold to Salmar ASA Arctic Seafood - Sold to Mainstream Fiskekultur - Sold to Haugland Group UFO Laks - Sold to Haugland Group Anton Misund - Sold to Rauma Gruppen Mico Fiskeoppdrett - Sold to Rauma Gruppen Hamneidet - Sold to Eidsfjord Sjfarm Misundfisk - Sold to Lery Seafood Group Henden Fiskeoppdrett - Sold to Salmar ASA AS Tri - Sold to Norway Royal Salmon (NRS) Fey Fiskeopprett - Sold to Norway Royal Salmon Salmo Arctica - Sold to Norway Royal Salmon my Fiskeoppdrett - Sold to Norway Royal Salmon Nor Seafood - Sold to Norway Royal Salmon Altafjord Laks - Sold to Norway Royal Salmon Lery Seafood Group - Purchased by Austevoll Seafood Skjrgrdsfisk - Sold to Lingalaks Brilliant Fiskeoppdrett - Sold to Norway Royal Salmon Polarlaks II - Sold to Nova Sea Fjordfarm - Sold to Blom Fiskeoppdrett Fyllingsnes Fisk - Sold to Eide Fjordbruk Salaks merged with Rlaks 65 new licenses granted Espevr Fiskeoppdrett - Sold to Bremnes Fryseri AL Nordsj - Sold to Alsaker Fjordbruk Nord Senja Fiskeindustri - Sold to Norway Royal Salmon Mary Salmon - Sold to Blom Fiskeoppdrett Fjord Drift - Sold to Tombre Fiskeanlegg Hennco Laks - Sold to Haugland Group Raumagruppen - Sold to Salmar Stettefisk / Marius Eikremsvik - Sold to Salmar Lund Fiskeoppdrett - Sold to Vikna Sjfarm (Salmonor) R. Lernes - Sold to Msval Fiskeoppdrett Erfjord Stamfisk - Sold to Grieg Seafood Jkelfjord Laks - Sold to Morpol Krifo Havbruk - Sold to Salmar Straume Fiskeoppdrett - Sold to Marine Harvest Norway Bringsvor Laks - Sold to Salmar Nordfjord Havbruk - Changed name to Nordfjord Laks Villa Miljlaks - Sold to Salmar Karma Havbruk - Sold to E. Karstensen Fiskeoppdrett (50 %) and Mar Havbruk (50 %) Skottneslaks - Sold to Eidsfjord Laks Villa Arctic - 10 licenses, etc. sold to Salmar Salmon Brands - Sold to Bremnes Fryseri Pundslett Laks - Sold to Nordlaks Holding
Nye Midnor - Sold from Sparebank1 MidtNorge to Lery Seafood Group 2009
2010 Aqua Farms - Sold to PanFish Aurora Salmon (Part of company) - Sold from DNB Nor to Lery Seafood 2010 Group 2010 Marine Harvest Bolga - Sold to Seafarm Invest 2011 Aurora Salmon (Part of company) - Sold from DNB Nor to Polarlaks 2011 Sjlaks - Sold from Marine Farms to Northern Lights Salmon 2011 Bolstad Fjordbruk - Sold to Haugland Group 2011 Skjervyfisk - Sold to Nordlaks 2011 Fossen AS - Sold to Lery Seafood Group 2011 Marine Harvest N.V. - Acquired by Pan Fish ASA 2011 Fjord Seafood ASA. - Acquired by Pan Fish ASA 2011 Marine Harvest Finnmark - Sold from Marine Harvest to Volden Group Troika Seafarms/North Salmon - Sold to Villa Gruppen Aakvik - Sold to Hydrotech Hydrotech - Sold to Lery Seafood Group Senja Sjfarm - Sold to Salmar ASA Halsa Fiskeoppdrett - Sold to Salmar ASA Langfjordlaks - Sold to Mainstream Polarlaks - Sold to Mainstream 2011 2012 2012 2012 2012
62
In Norway there has been countless mergers between companies the last decade. The list above only shows some of the larger ones in transaction value. In Scotland the consolidation has also been very strong. In Chile, there has been limited transaction activity over the last two years. However, several companies have been listed on the Santiago Stock Exchange. Canadas industry has been extensively consolidated with a few large players and some small companies.
63
1990
20% 5% 16% 59%
2010E
12% 1% 7% 80% Hardened edible Aquafeed Industrial Refined edible
1990
4,1 % 10,0 % 49,8 %
2010E
30,9 % 9,1 % 1,2 % 58,8 % Aquaculture Chicken Pig Other
64
65
66
The Marine Harvest Group was formally established on 29 December 2006 after a merger between the two Norwegian companies Pan Fish ASA and Fjord Seafood ASA and the Dutch company Marine Harvest N.V. The Marine Harvest Group is the dominant leader within farming of Atlantic salmon. In 2011 the output was 344,000 tonnes HOG, which made out 24% of the industry output. The groups production is located in all the major production regions in the world; Norway, Chile, Canada, Scotland, Ireland and the Faeroes. In addition to farming salmonids there is also production of Atlantic white halibut in Norway. Downstream; the company has significant production of value-added products, mainly based on salmon, but also based on other species sourced from strategic partners or external suppliers. We are one of the top producers of smoked salmon in Europe and also do some smoked salmon production in Chile and the US.
67
*Sales office
Marine Harvest operations Marine Harvest is represented in 21 countries, 6 of which have farming. The company is listed on Oslo Stock Exchange (:MHG) and has more than 15 500 shareholders. The head office is located in Norway. At the end of 2011, the group had 6 324 employees worldwide, including temporary employees. Total turnover for Marine Harvest in 2011 was MNOK 16 132 and Atlantic salmon harvest volume was 344 000 tons (HOG).
68
From our European downstream operations, about 75% of revenues are made in the three countries France, Belgium and the Netherlands. Other countries where we have significant sales are Germany, UK, Italy and Spain. Operating revenues for Marine Harvest VAP Europe in 2011 was NOK 4 463 million. Marine Harvests main secondary processed product is smoked salmon, which is done in France and Belgium. We also process several other species as whitefish and flatfish to ready meals or packed in modified atmosphere (MAP). In addition to our European processing plants, we have two salmon smokeries on the American continent - one in Chile (Delifish) and one in the US (Ducktrap).
69
Marine Harvest sells its products to several categories of purchasers. We divide them into; Retail, Food Service (hotels, restaurants, catering), Industry, distributors and others. Each business unit has their own sales profile. MH Canada and MH Chile sell most of their production to distributors. In Norway and Scotland, most of the production is head-on-gutted (HOG) and is therefore sold to industrial customers, who further process the salmon into other products as filet, portions, smoked salmon or ready meal products. MH VAP is processing fish from raw material to value-added products and sells 85% of the production to final sales points met by end consumer (retail + food service).
70
Marine Harvest: Kontali Analyse: Intrafish: Norwegian directorate of Fisheries: Norwegian Ministry of Fisheries and Coastal Affairs: Norwegian Seafood Council: Norwegian Seafood Federation: Chilean Fish Directorate FAO: International fishmeal and fish oil org.:
www.marineharvest.com www.kontali.no www.intrafish.no www.fiskeridirektoratet.no www.fkd.no www.seafood.no www.fhl.no www.sernaperca.cl www.fao.org www.iffo.net
Price statistics Fish Pool Index: Kontali Analyse (subscription needed): Statistics Norway (SSB):
71
72