January 2019

Keeping Salmon at the Top of the Menu

How to Maintain the High Demand

Contents
RaboResearch How salmon is winning the battle of the proteins 1 Manage in good times so you will do well in hard
Food & Agribusiness High prices could hinder demand growth 5 times 6
far.rabobank.com Conclusions 7

Beyhan de Jong
Associate Analyst
+31 (0) 6 1170 4802 Summary
Gorjan Nikolik
Senior Analyst
 Salmon has competed successfully with other animal proteins for the centre of the plate. It
+31 (0) 6 1243 2463 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.

1/8 RaboResearch | Keeping Salmon at the Top of the Menu | January 2019
 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
per capita, kg

20

10

0
Poultry Pork Beef Seafood

1990 2000 2010

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.

2/8 RaboResearch | Keeping Salmon at the Top of the Menu | January 2019
 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 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

3/8 RaboResearch | Keeping Salmon at the Top of the Menu | January 2019
 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
per capita, kg

2.00

1.00

-
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.

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 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 Figure 5: Fresh pre-packed salmon sales in
US Germany
70 120

60
90
USD million

EUR million
50
+38% 60
40
30 +18%
30

20 0

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 Figure 7: Global consumption growth of animal
proteins proteins

300 5%

200 4%
index 2007=100

CAGR (2007-2017)

3%
100
2%
0
1%
Jan/07
Jan/08
Jan/09
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Jan/15
Jan/16
Jan/17
Jan/18

0%
Poultry meat Pig meat Poultry Pig meat Bovine Salmon
Bovine meat Salmon meat meat
Source: FAO, Fishpool, Rabobank 2018 Source: OECD, Kontali, Rabobank 2018

5/8 RaboResearch | Keeping Salmon at the Top of the Menu | January 2019
 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 30%

YOY change of salmon imports

70 15%

60
NOK/kg

0%

50
-15%
40
-30%
30 Existing New Processing New
markets markets in & transition markets in
developed hubs emerging
economies economies

2016 2017 2018 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

6/8 RaboResearch | Keeping Salmon at the Top of the Menu | January 2019
 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.

7/8 RaboResearch | Keeping Salmon at the Top of the Menu | January 2019
 Imprint
RaboResearch
Food & Agribusiness
far.rabobank.com

Beyhan de Jong Associate Analyst Beyhan.de.Jong@rabobank.com

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

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8/8 RaboResearch | Keeping Salmon at the Top of the Menu | January 2019