Who is left behind as Norway's traffic lights change?
Mowi and SalMar are set to benefit from altered biomass limits, but Lerøy will lose capacity
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The world’s two biggest Atlantic salmon farmers, Mowi and SalMar, will be net winners from the Norwegian government’s latest “traffic light” assessment that sets limits on growth.
But Lerøy Seafood Group, the world’s fourth-largest Atlantic farmer and the third biggest in Norway, will lose out, analysis shows.
The traffic light system designates each of Norway’s 13 salmon production areas (PO’s) as green, yellow, or red, depending on the threat that lice from salmon farms are perceived to have on migrating wild salmon smolts.
Farmers in PO’s with a red light must reduce maximum biomass by 6%, while capacity in areas with a yellow light is unchanged. Fish farmers in areas given a green light can increase production by 6% by buying extra licence capacity off the government at auction.
Green and red
In a decision published on Friday, the government gave green lights to PO1 (Swedish border to Jæren), PO12 (West Finnmark) and PO13 (East Finnmark). PO3 (Karmøy to Øygarden) was given a red light, and the remaining nine areas received yellow lights.
According to investment bank DNB Carnegie, the decision entails a gross growth of approximately 8,300 tonnes of maximum total biomass (MTB) in the green areas. At the same time, capacity must be reduced by around 5,300 tonnes of MTB in PO3.
“The decision should not have any significant market effect, as the colouring was in line with expectations,” seafood analyst Stein Alexander Aukner, head of equity research Norway at DNB Carnegie, told Fish Farming Expert’s Norwegian sister site, Kyst.no.
Among the listed fish farming companies, SalMar is the one that, according to the analysis, comes out best in this year’s traffic light round.
“SalMar has the biggest upside with an estimated MTB growth of around 2,700 tonnes, driven by the exposure to the green areas PO12 and PO13,” said Aukner.
According to DNB Carnegie, Mowi will have a smaller positive net effect of around 400 tonnes of MTB. Growth opportunities in PO1 and PO12 are partly offset by the reduction in PO3.
Net reduction for Lerøy
For Lerøy Seafood, the situation is the opposite.
“Lerøy will receive an estimated reduction of around 1,300 tonnes of MTB as a result of exposure to PO3, despite some positive effect from PO13,” said Aukner.
Grieg Seafood and Måsøval are affected to a small extent, as the companies’ production is mainly linked to yellow areas.
Growth remains low
DNB Carnegie believes the traffic light decision confirms that growth in Norwegian salmon farming will still be limited under the current system.
“This should help support strong salmon prices,” said Aukner.
He added: “It is unfortunate that only three out of 13 production areas will have the opportunity for growth, but that was as expected. It is also an important reason why work is now under way on a new system.”
I think there will be bids
The government is working on a new framework for the industry which will incentivise lower impact farming systems such as floating closed containment. Until then, growth will continue to be regulated through the current traffic light system.
Aukner also expects that farmers will take advantage of the opportunity to purchase increased capacity in the green areas.
“It's an auction, so I would think there would be bids.”
In the longer term, DNB Carnegie believes that SalMar is still among the companies that are best positioned if developments continue in the same direction.
“As of today, SalMar is well positioned because the company has a large share of its production in Central and Northern Norway,” he concluded.
