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RaboResearch Food & Agribusiness far.rabobank.com Beyhan de Jong Associate Analyst +31 (0) 6 1170 4802

RaboResearch

Food & Agribusiness far.rabobank.com

Beyhan de Jong Associate Analyst +31 (0) 6 1170 4802

Gorjan Nikolik Senior Analyst +31 (0) 6 1243 2463

January 2019

Keeping Salmon at the Top of the Menu

Keeping Salmon at the Top of the Menu

Keeping Salmon at the Top of the Menu
Keeping Salmon at the Top of the Menu
Keeping Salmon at the Top of the Menu
Keeping Salmon at the Top of the Menu
Keeping Salmon at the Top of the Menu
Keeping Salmon at the Top of the Menu
Keeping Salmon at the Top of the Menu

How to Maintain the High Demand

Contents How salmon is winning the battle of the proteins

1

Manage in good times so you will do well in hard

High prices could hinder demand growth

5

times

6

 

Conclusions

7

Summary

Salmon has competed successfully with other animal proteins for the centre of the plate. It has outpaced growth in pork, poultry, beef, and wild-caught seafood.

Three factors have contributed to the growth of salmon demand so far, and can support further growth: (1) consumer trends favouring salmon consumption, (2) unique features of the salmon supply chain compared with other seafood categories, (3) growth strategies through new markets and new value-added products.

Meanwhile, salmon prices have been very volatile but generally increasing. Despite this, the industry has been able to gain consumers in new markets in developed and emerging economies, although it has lost some consumers in the established markets.

For the foreseeable future, we expect strong salmon demand to continue, which will keep prices at their current highs. However, we don’t anticipate the high prices to be sustainable in the long run.

The salmon industry should continue to innovate to reinforce its current value proposition as a healthy and sustainable product. The competition for the centre of the plate is getting tougher as the consumer trends that favoured salmon also favour the new range of alternative proteins.

Salmon is one of the three most popular seafood options in the Western world, and its consumption is also growing in the rest of the world. Advanced aquaculture production, the fresh seafood value chain, and a dedicated and innovative processing industry have made salmon the ‘affordable luxury’ seafood that is also a mainstream product. With its unique value proposition and the growth strategies adopted by the industry, an overall increase in salmon demand is observed. However, demand has also been fragile due to high and volatile prices. To maintain and even increase growth going forward, the industry should reposition salmon as the leading healthy and sustainable protein, and move away from being a ‘luxury’ product.

How salmon is winning the battle of the proteins

Salmon competed successfully for the centre of the plate in the last decade, due to its unique value proposition. Changing consumer trends favouring salmon, product innovations, and expansion to different markets, combined with advanced automation techniques and improved logistics, have been the main factors driving the success of salmon, and they will continue to support further demand growth.

1. Consumer trends have changed in favour of salmon

Over the last thirty years, animal protein consumption in the Western world has been driven by poultry and seafood at the expense of red meat (see Figure 1). Beef has lost favour with consumers, while poultry has experienced the highest increase in consumption. With its lower feed conversion ratios (FCRs), healthier image, versatility, product diversity, convenience, affordability, but without religious constraints, so far poultry has been the animal protein choice for consumers. At the same time, the supply side has also played an important role in poultry’s success – the involvement of genetics and a higher level of vertical integration have all contributed to poultry’s success.

Figure 1: Only poultry and seafood consumption are growing in the Western world

40 +8,4 kg 30 -0,2 kg -4,2 kg +1,8 kg 20 10 0 Poultry Pork
40
+8,4 kg
30
-0,2 kg
-4,2 kg
+1,8 kg
20
10
0
Poultry
Pork
Beef
Seafood
1990
2000
2010
per capita, kg

Source: OECD-FAO Agricultural Outlook, Rabobank 2018

Per capita consumption of seafood has also gone up. While seafood is becoming more popular among consumers, the share of farmed fish and shellfish in total seafood consumption has increased at the expense of wild catch. In the last ten years, European consumers increased aquaculture seafood consumption by almost 1kg per person, reaching 6kg. Sustainability issues, seasonality, and the complex supply chain of wild-catch seafood made farmed (shell)fish a more favourable and available option for consumers. Consequently, aquaculture has become a key alternative to the terrestrial animal proteins. With efficient FCRs, lower environmental impact, and no perceived animal welfare issues, and as a good source of lean protein, aquaculture, and in particular salmon, has successfully met consumers’ needs.

However, price point and pure convenience are no longer the only determinants of consumer food choices. Among aquaculture seafood and other animal proteins, salmon became a winning protein due to its modern appeal, known health benefits, mild taste and attractive product offerings. Its demand has grown faster than any others. Both in the EU and in the US, salmon is currently in the top three of the most-consumed seafood categories, and is growing in markets that are saturated with protein.

2. Unique features of the salmon supply chain are contributing to the success of salmon

The unique combination of aquaculture, a fresh seafood value chain, and advanced processing technology allows salmon to be available all year round as a fresh, pre-packed product within the seafood category (see Figure 2). Thanks to aquaculture, there is no seasonality for salmon – consistent supply and quality is ensured throughout the year. Advanced logistics and cold-chain systems enable salmon to be delivered fresh from large-scale production sites in Norway, Scotland, Canada, and Chile to all Western markets. No other seafood species can replicate this in Western markets.

Figure 2: Supply chain features contribute to salmon being the winning seafood category in Western markets

 Consistent supply and quality  No seasonality  Fresh availability Aquaculture supply  Responsive
 Consistent supply
and quality
 No seasonality
 Fresh availability
Aquaculture
supply
 Responsive to consumer trends
Innovation at
 Improved logistics
 Value-adding
processing
Fresh
level
seafood
 Advanced cold-chain
 Product innovation
infrastructure
value chain
 Creating new moments of consumption
 Key to healthy and
premium image
 Adjusting to different cuisines

Source: Rabobank 2018

Salmon has a become a key raw material for the processing industry, and even has dedicated machinery. Consistent supply and quality makes salmon a good raw material for processors, especially those targeting retail. This allows different salmon products to be created at different price levels, and means it can respond to consumer trends and different cultures. This unique value chain capability enables the salmon industry to create new moments of consumption, and also to be a leader in trend-based product development. For instance, sushi has been an important contributor to salmon’s success, and recently, salmon poké bowls are becoming very popular as a ready-to-go or healthy fast food option. Currently, salmon is even emerging as a breakfast food, typically a segment of the market where seafood is least represented

Consequently, salmon as a raw material lacks competition in terms of its exclusive supply value chain within the seafood category. Other farmed seafood categories such as seabass and seabream or tilapia and pangasius have not managed to create the same value proposition as salmon. Due to their smaller size and shape, the processing of seabass and seabream is not practical, resulting in very low fillet yields. And, because of the lower price point and lack of fresh value chain of pangasius and tilapia, processors have not adopted these species. As a result, product differentiation and diversity of consumption moments of other farmed fish are not nearly as developed as salmon. Lastly, the backing of a large and diverse processing industry also results in local marketing communication, educating the consumer and further stimulating demand.

3. Demand is growing through new markets and new products

Salmon demand growth is driven by two dynamics: (1) market penetration: gaining new customers who haven’t discovered salmon yet in new and existing regions (2) new product categories: investing in value-added products that meet the emerging needs of existing customers.

Market penetration: Gaining new customers in new and established markets

We expect salmon demand to increase in the relatively new markets in developed economies such as Spain, Germany, and Italy – where salmon is not entirely ‘discovered’ yet, but where consumption is trending up with increased imports (see Figure 3). Currently, the EU as a whole is

per capita, kg

the biggest market for Atlantic salmon. Salmon is the third-most consumed seafood species after tuna and cod, but it is the category that experienced the highest demand growth in the last decade. Within the EU, France and the UK are currently the biggest and most-established salmon markets, with a longer history of salmon consumption than other EU countries. However, in recent years, salmon consumption has increased most in the developed Western markets. For instance in Spain, salmon has been the only seafood category that has grown in consumption in the last years. In Germany, salmon is now the most popular seafood choice. The consumption of salmon started with smoked salmon in the German market, continued with sushi, and now fresh fillets and many different categories of salmon are also prevalent.

Figure 3: Salmon consumption is on the rise in unsaturated markets

4.00

3.00

2.00

1.00

-

France Spain Italy UK Germany US 2009 2010 2011 2012 2013 2014 2015 2016 2017
France
Spain
Italy
UK
Germany
US
2009
2010
2011
2012
2013
2014
2015
2016
2017

Source: Kepler Cheuvreux, Rabobank 2018

The US is a market that shows even more potential for salmon demand growth. The US is the second-largest market for salmon after the EU, but the market is still relatively new, with lower per capita consumption rates. However, in the last couple of years, farmed salmon has overtaken canned tuna consumption to become the second most preferred category after shrimp. We expect salmon consumption to increase more in the US through new consumers in central parts of the country, where salmon consumption is the lowest.

But most of the new salmon customers are in the new markets in the emerging economies such as China and Brazil. China is expected to be the main growth market for salmon consumption due to changing consumption habits. In recent years, Chinese consumers have been developing a preference for marine, premium, and most importantly imported seafood products. Salmon fits Chinese consumers’ expectations for high-end, foreign, healthy, and modern food. Salmon consumption in Brazil, known for high consumption of animal proteins, has also grown rapidly in the last decade, and the expectation is that it will keep increasing going forward, with the adoption of the more convenient pre-packed fillet products. The relative proximity of the Chilean salmon industry to the large Brazilian population centres means Brazil is seen as the main growth market in South America.

New product categories: The key to consumption growth in Western seafood markets

To ensure further growth in developed economies, the salmon industry should continue to invest in product innovation especially in the convenience segment. Generally speaking, ‘not convenient’ is one of the most cited reasons when consumers are asked why they don’t purchase seafood. The health benefits of seafood products are clear to consumers, but this category is sometimes left on the shelf because of the preparation needed. Some shoppers don’t have the know-how to cook fish. Salmon is the only fish in the West that can easily provide fresh processed products. And, with further availability of fresh, pre-packed or ready-to-eat and ready-to-go products, salmon consumption could increase going forward, especially in markets such as the US.

USD million

So far, fresh pre-packed salmon has been a growth factor for salmon consumption in many geographies due to the consumer needs for convenience, its good shelf life and improved availability. The sales of this category have grown by a CAGR of 38% in the last three years (2014- 2017) in the US (see Figure 4). Leading salmon companies see value-added and pre-packed salmon products as the way to grow salmon consumption further in the US. Since 2013, fresh pre-packed sales have increased by a CAGR of 18% (see Figure 5). The availability of this category in discounters such as Lidl and Aldi also increased the preference for pre-packed salmon in Germany.

Figure 4: Fresh pre-packed salmon sales in the US

Figure 5: Fresh pre-packed salmon sales in Germany

70

60

50

40

30

20

+38% EUR million
+38%
EUR million

120

90

60

30

0

+18%
+18%

Source: Norwegian Seafood Council, Rabobank 2018

Source: Norwegian Seafood Council, Rabobank 2018

With new products entering the market, the role of product packaging has also changed. Good packaging doesn’t only make a product more attractive, but it can also make the product more convenient, fresh, and safe. As salmon already has an advantage in popularity with processors, other adjacent industries want to join in the growth, and provide new products. One example is the skin-pack technology which can further secure salmon’s place in the fresh and convenience segment.

High prices could hinder demand growth

Salmon prices have been very volatile, but on an increasing trend. Despite this, the industry has been able to gain new consumers in some markets, although it has lost some consumers in others. Due to the long production cycle and fresh value chain, salmon prices have always been very volatile compared to poultry, pork, and other seafood species. While salmon prices relatively declined most in 2011, they have been increasing more than the other animal proteins since 2016 (see Figure 6). This is seen as the key disadvantage relative to poultry. However, despite the price hikes and volatility, salmon has experienced the highest demand growth in the last decade among the animal proteins (see Figure 7).

Figure 6: Relative price development of animal proteins

Figure 7: Global consumption growth of animal proteins

300 5% 4% 200 3% 100 2% 0 1% 0% Poultry meat Pig meat Bovine
300
5%
4%
200
3%
100
2%
0
1%
0%
Poultry meat
Pig meat
Bovine meat
Salmon
index 2007=100
Jan/07
Jan/08
Jan/09
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Jan/15
Jan/16
Jan/17
Jan/18
CAGR (2007-2017)
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat
Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 CAGR (2007-2017) Poultry Pig meat Bovine Salmon meat meat

Poultry

Pig meat

Bovine

Salmon

meat

meat

Source: FAO, Fishpool, Rabobank 2018

Source: OECD, Kontali, Rabobank 2018

Volatile, and mainly increasing, salmon prices have been demand-disruptive mainly in established salmon markets. When the prices were historically high in 2H 2016 and early 2017, and even surpassed NOK 70/kg, established markets such as the UK and France reacted to the high price with contracting demand (see Figure 8 and Figure 9). When prices have been stable, demand has grown the most significantly in these regions. In new markets in developed economies such as Spain, Italy and Germany, new customers became the main driver of salmon demand, unlike in mature markets. Even when the salmon prices peak, the introduction of new products in these markets managed to attract customers who were not buying salmon before. Although some consumers reduce their salmon consumption when the prices are high, new customers put the new markets in developed economies in an overall growth mode. On the other hand, new markets in emerging economies showed no specific response to changes in prices.

Figure 8: Salmon prices have been volatile

Figure 9: But not every market has responded in the same way

80 70 60 50 40 30 NOK/kg YOY change of salmon imports
80
70
60
50
40
30
NOK/kg
YOY change of salmon imports

30%

15%

0%

-15%

-30%

2016 2017 2018
2016
2017
2018
Existing New Processing New markets markets in & transition markets in developed hubs emerging economies
Existing
New
Processing
New
markets
markets in
& transition
markets in
developed
hubs
emerging
economies
economies
H1 2017
H2 2017
H1 2018

Source: Fishpool, Rabobank 2018

Source: Kontali, Rabobank 2018

Currently NOK 60/kg looks like the new normal for salmon. However, between 2006 and 2009 the average price of salmon was just NOK 30. Since then, the average price of salmon has doubled. This brings the question whether salmon can continue to be an ‘affordable luxury’ or if salmon will become a high-priced luxury product in the future. High and volatile prices have already created fragility in the demand in mature markets, and a further increase in prices could create disruptions in demand even in relatively new markets.

Manage in good times so you will do well in hard times

For the foreseeable future, we expect strong salmon demand to continue. This growth will come through customers discovering salmon in the new markets in developed and emerging economies. New product entries that add more convenience will help to increase salmon consumption with existing consumers in all markets. However, we expect slower rates of supply growth, which could keep the prices high – as they have been recently. We see two implications for the ‘new normal’ of the industry:

Don’t rely too heavily on current success

The growth of the salmon industry in the long term will be different than before, based on the relative price points of meat and other seafood products. Salmon is not the cheapest animal protein now. The new normal price level of NOK 60/kg might not be sustainable for global demand. That particularly holds true for established markets. But also for new markets both in developed and emerging economies, there is a price point which will cause contraction in demand. Even for salmon, value growth could be limited. The historical supply growth of 7% cannot be maintained at this price point. 3% will be a very respectable new level of growth if

average prices remain around NOK 60/kg. But it will also trigger substitution with other products, which takes a few years to materialise. It could be that this price point eventually results in demand destruction and opens the door for other options to salmon.

Look towards the future and learn from the past

Salmon has been competing successfully against other animal proteins for a share of the centre of plate. Efficient feed conversion ratios, no apparent animal welfare issues, perceived health benefits, modern appeal, versatility, and convenient product offerings enable salmon to create a unique value proposition. However, now with the emerging alternative protein products, the competition may get tougher in established or new markets. Despite not being in full scale of production or not even in the market yet, alternative protein products are cutting through consumer concerns around health and sustainability. The first initiatives for plant-based seafood products or lab-grown meat and fish have already started. The salmon industry is already a leader in connecting with its customers but the industry’s response to biosecurity and sustainability issues around salmon farming could affect future demand growth. In the 1980s, at the peak of the success of animal protein industries, the key concern was which of the proteins would consume a larger market share. No one predicted the rise of aquaculture and salmon as the key competitor. The future competitor of salmon for the centre of the plate may not be a fish or an animal, but a completely new category – one we now barely have a name for and only loosely define as alternative proteins.

Conclusions

Salmon demand is currently strong but also fragile. Changing consumer trends, consistent supply, and product innovation lead to higher growth rates for demand than for supply, which places upward pressure on prices. With its unique value proposition and the growth strategies followed, salmon demand can grow even further. In addition to the potential growth rates in emerging economies such as Brazil or China, new customers can be gained in the western world, but also in the established markets through new value-added and convenience-oriented products. However, salmon needs to embrace the sustainable alternatives and keep innovating, and always be the leader in consumer perception as a healthy and sustainable protein. This is necessary in order to retain its status as the affordable luxury. If this does not happen, it will open the door to alternatives and competing products. The meat industry is already seeing this, with many new alternatives emerging – it is costing the sector a large part of its demand growth.

Imprint

RaboResearch

Food & Agribusiness far.rabobank.com

Beyhan de Jong

Associate Analyst

Beyhan.de.Jong@rabobank.com

Gorjan Nikolik

Senior Analyst

+31 (0) 6 1170 4802 Gorjan.Nikolik@rabobank.com +31 (0) 6 1243 2463

© 2018 – All rights reserved

This document is meant exclusively for you and does not carry any right of publication or disclosure other than to Coöperatieve Rabobank U.A. (“Rabobank”), registered in Amsterdam. Neither this document nor any of its contents may be distributed, reproduced, or used for any other purpose without the prior written consent of Rabobank. The information in this document reflects prevailing market conditions and our judgement as of this date, all of which may be subject to change. This document is based on public information. The information and opinions contained in this document have been compiled or derived from sources believed to be reliable; however, Rabobank does not guarantee the correctness or completeness of this document, and does not accept any liability in this respect. The information and opinions contained in this document are indicative and for discussion purposes only. No rights may be derived from any potential offers, transactions, commercial ideas, et cetera contained in this document. This document does not constitute an offer, invitation, or recommendation. This document shall not form the basis of, or cannot be relied upon in connection with, any contract or commitment whatsoever. The information in this document is not intended, and may not be understood, as an advice (including, without limitation, an advice within the meaning of article 1:1 and article 4:23 of the Dutch Financial Supervision Act). This document is governed by Dutch law. The competent court in Amsterdam, the Netherlands has exclusive jurisdiction to settle any dispute which may arise out of, or in connection with, this document and/or any discussions or negotiations based on it. This report has been published in line with Rabobank’s long-term commitment to international food and agribusiness. It is one of a series of publications undertaken by the global department of RaboResearch Food & Agribusiness.

global department of RaboResearch Food & Agribusiness. 8/8 RaboResearch | Keeping Salmon at the Top of