Opportunity NOKs

This is the conclusion of a new research project from Nofima, whose scientists have developed a competitive exchange rate index for seafood which shows how currency fluctuations have impacted the seafood industry’s competitive situation over the last few years.

With Norway’s small economy heavily dependent on oil, the krone is a vulnerable currency which fluctuates widely. In the report, scientists show how currency factors have had an impact on the competitiveness of its salmon exports vis-à-vis Chile, Ireland and Scotland.

Aquaculture

The positive currency effect for exports of farmed fish from 2012 to 2015 is calculated to be NOK 7.5 billion. In the same period, the fish farming sector recorded a total increase in value of NOK 18.1 billion. Higher volumes and favourable price/product mix development contributed to an increase in earnings in the fish farming sector.

Seafood in general

From 2012 to 2015, the value of all seafood exports rose by NOK 22.4 billion. Of this, NOK 14.1 billion can be linked to the weak Norwegian krone.

At the same time, the scientists have measured the effect of volume, marked price and product mix.

“We find that NOK 2.7 billion of the increase in value is linked to an increase in volume, NOK 4 billion to higher prices and/or product mix, while NOK 1.6 billion is due to synergies between changes in two or more of these components,” says Norfima’s scientist Thomas Nyrud.

He is one of the scientists responsible for the report, which illustrates differing trends in the whitefish, pelagic and salmon farming sectors. The report was commissioned by the Norwegian Seafood Research Fund (FHF).

Who benefits from currency fluctuations?

“In the long term, it is the primary stage and the consumers that will benefit most or suffer most from currency fluctuations. The sluggishness in passing on price changes results in the long-term effects varying in the sector, while at the same time there is a continual fluctuation in currencies. This makes it difficult to determine who is the winner and who is the loser in the value chain,” says Nyrud.

At risk

The seafood sector is more exposed to turbulence in the foreign exchange markets than the Norwegian export industry is in general. This is because most of the international trading involves the four major currencies – euro, US dollar, pound sterling and Japanese yen – whilst the other Norwegian export industries have, overall, a somewhat broader currency portfolio.

“In addition, the seafood sector is more heavily weighted in dollar than is the case for the rest of Norwegian industry. Statistic testing shows that over the last 15 years, the exchange rate against the US dollar has been considerably more volatile than against the euro, sterling and yen,” says Nyrud.

Profitability and currency

The scientists have studied profitability in the fisheries industry from 1993 and through to the present day, concluding that exchange rate unrest is an important factor that is seen repeatedly in the years with the best and the worst results. Foreign currency gains in one year, often followed currency losses in the following year.

Of the five most and the five least profitable years for the Norwegian whitefish industry over the last 20 years, seven coincided with major currency fluctuations, where either a weakening of the krone coincided with a positive result, or an appreciation of the krone coincided with a negative result.