Norway at the crossroads

Norway’s salmon farming sector is poised to enter the most crucial period in its relatively short history, a new study suggests.

Almost everyone agrees the industry has been a phenomenal success, bringing prosperity and employment unimagined when the first salmon cages began appearing along the country’s fjords 50 years ago. But it has been under constant spotlight from a stream of official inquiries, environmental reviews and public argument.

Now Odd Emil Ingebrigsten, the current seafood minister, is planning a new aquaculture strategy with a strong focus on sustainability and expanding the number of land based farms.

A bit like Brenda of Bristol when told by a TV reporter a few years ago a general election was being called, some in the industry must be screaming “Not another one!”

But the review will go ahead regardless and it is likely to be far reaching. To help clarify what may lie ahead, the Norwegian arm of the international consultancy firm PwC has presented its own prognosis.

The PwC report, the latest version of the firm’s Seafood Barometer, casts doubt on earlier government predictions that, given the impact of coronavirus and today’s regulatory framework, aquaculture output (mostly salmon and trout) will hit five million tonnes by 2050.

The best case scenario, says PwC, should be around 3.7 million tonnes with a worst case figure of 1.8 million tonnes but only if the pandemic persists which, given the success of the vaccine roll-out, is thought unlikely.

Co-written by PwC Bergen partner Hanne S. Johansen and its Bergen manager Marte Vassbotten, the report also highlights some of the challenges the industry will face in the next few years – and they are formidable.

They say: “In our very first edition of PwC’s Seafood Barometer, in 2017, we discussed the Norwegian government’s ambitious vision of five million tonnes.

“Only 30% of industry leaders in our seafood survey supported this vision, and our estimates indicated that a production of 3.3m tonnes would be more realistic.“

They also point out that the most important insights came from industry representatives, collected through PwC’s Seafood Survey, which was finalised in early 2020 before the coronavirus outbreak.

The report describes Covid as a “black swan” for the industry which may halt the roadmap to significant growth. A black swan is defined as “…something so rare that it from a statistical point of view should not exist” yet like a global pandemic, it turns up from time to time.

It continues: “In 2020, a majority of industry representatives confirmed through our survey that they would invest heavily in new technology to improve biology, sustainability and profitability.

“Since 2017, we’ve seen investments to decrease emissions, in feed and technology. We’ve also seen the industry becoming increasingly more focused on sustainability.

“Other developments since 2017 can be seen in how the industry combats sea lice, and a new segment, called stun and bleed vessels, has sprung out of high mortality rates and the need to improve fish welfare.”

The authors also ask: “Land-based aquaculture is the new ‘promised land’ but is it a risk or an opportunity for Norway as a seafood nation? And perhaps data collection and advanced analysis will create giant production leaps this decade?

“In 2020, a majority of industry representatives confirmed through our survey that they would invest heavily in new technology to improve biology, sustainability and profitability. Since 2017, we’ve seen investments to decrease emissions, in feed and technology. We’ve also seen the industry becoming increasingly more focused on sustainability.”

The industry now views “sustainable production” as a key driver for increased seafood demand, a big shift since 2017. PwC says:

• The industry is not fully mature when it comes to sustainability, but we see an overall increased focus on improving sustainability.
• The industry worries about climate risk, and is already experiencing the effects of climate change
• The carbon footprint of Norwegian salmon has increased, mainly due to increased mortality and reduced growth.
• Sea lice are still the main reason for volume growth stagnation, but the focus has shifted from a belief in a few delousing methods to a combination of many methods.
• The new segment, stun and bleed vessels, has improved value creation and sustainability, and have saved an estimated 52.5 million meals, and fish worth approximately NOK 600m in 2019.
• Ambitious land-based projects close to end-markets, can represent a capital flight of NOK 65bn, and a potential threat to Norway as the global leader in salmon and trout.
• A subtle change from reactive to proactive decision making by investing in data platforms and advanced analysis.

PwC says it is now time to update growth scenarios as the sector moves towards 2050.

“We have seen several changes since our first barometer in 2017. The traffic light system has been adjusted, including two auctions for capacity.

“The Directorate of Fisheries has finalised the evaluation of development licences. We have also seen the realisation and planning of new post-smolt and land-based, full-cycle projects. These adjustments call for an update on our 2050-production estimates.

The report also points out that the uncertainty of predicting growth is always high because it depends on so many variables and challenges.

Based on current knowledge, the authors expect volume growth to come from larger smolt and stable “traffic light” growth. As they put it: “In our base case, our updated estimate for 2050 is about 400,000 tonnes above the 2017-calculations. This is mainly due to our strengthened belief in smolt production developments which increase MAB utilisation.

“However, we have calculated a considerably lower approved license volume for development licenses than estimated in 2017.

“Only 77,000 tonnes MAB have been granted in this round, and although it is expected that new schemes will follow, the bar set by the Directorate of Fisheries has made us more pessimistic about growth from such schemes.

“We still see a great focus on land-based, full-cycle projects, and we expect a rapid increase in land-based production this decade.”

Finally, the report says climate change is one challenge keeping the seafood industry awake at night.

Climate change, and society’s increased focus on it, is a risk that can affect a company’s goal achievement and has to be understood in the same way as all other business risks, it concludes.

Marte Vassbotten, PwC

Hanne S. Johansen, PwC