Henning Beltestad: “The market opportunities for processed Norwegian salmon are more or less completely gone after the government’s tax proposal."

Lerøy to lay off 339 employees in Norway

Scottish Sea Farms’ co-owner is blaming plans by Norway’s government for a 40% tax on salmon producers for its decision to make hundreds of secondary processing workers redundant

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“This is primarily an absolutely terrible situation for our skilled employees who are being made redundant and their families, but also for all the rest of us in Lerøy,” said the company’s chief executive, Henning Beltestad, in a press release.

“Unfortunately, the redundancies will also affect our suppliers and customers. We want to create as many jobs as possible along the Norwegian coast based on the fish we produce. We no longer get the opportunity to do that.

“The market opportunities for processed Norwegian salmon are more or less completely gone after the government’s tax proposal. The result is that we do not have work to offer many of our employees and then we have no other choice but to notify layoffs.”

Chaotic situation

He points out that the redundancies are a completely unavoidable consequence of the chaotic situation the government has inflicted on the industry, Lerøy and all their employees.

94 jobs go at Romsdal plant

The jobs in Lerøy 's own VAP plants are not the only ones disappearing. According to VG/E24, Romsdal Processing, which deals with salmon slaughter and processing of fish, has announced the layoff of 94 workers; 49 staff and 45 casual workers, which in reality is everyone connected to the business. The notice applies from 1 January.

The company is owned 45% by SalMar, 45% by Lerøy and 10% by Molde municipality.

"The challenge is that our customers do not enter into new contracts as long as it is unclear whether the new tax regime applies from 1 January," general manager Hugo-Vegar Heggdal told VG/E24.

“Although we have worked intensively for over a month to get contracts in place with our customers, we have not succeeded. To process the salmon, we have to have long-term contracts, and this market has almost completely disappeared following the government’s proposal to triple the tax (from 22% corporation tax to 62% when the salmon tax is added) and the model they are using. If we don’t have customers for our processed products, we can’t produce them either,” said Beltestad.

“I am sure that this is not the government’s intention, but it is very much the consequences of their proposal. Neither we nor our customers can take the risk of having to pay tax on an income we may not have.”

Tax proposal 'poorly prepared'

Bjarne Kristiansen, who heads the cooperation committee for NNN (Norwegian Business and Leisure Workers’ Union) in Lerøy, said that this will have even greater consequences than they first feared.

Norwegian finance minister Trygve Slagsvold Vedum, pictured, has not thought out the new tax well, says union rep Bjarne Kristiansen.

“It is terrible that it is us employees in the processing industry who will be affected by the government’s tax proposal. It is quite clear to me that (finance minister Trygve Slagsvold) Vedum and (prime minister Jonas Gahr) Støre’s proposal is very poorly prepared and poorly thought out,” said Kristiansen.

“There is only one way to correct this, and that is to postpone introduction until 1 January 2024 at the earliest, after the consultation and after the Storting (Norwegian Parliament) has made its decision in the spring of 2023. Then we can hopefully get a broad settlement that ensures framework conditions for aquaculture and a tax scheme that neither destroys the industry, the coastal districts nor our employees.”

Enormous uncertainty

Lerøy, which shares 50/50 ownership of Scotland's second-biggest salmon farmer, Scottish Sea Farms, with SalMar, said that the proposal from the Norwegian government has created enormous uncertainty in the companies and in the market.

The government’s proposal for a resource tax (salmon tax) will apply from 1 January 2023, while a final tax model will not be decided by the Storting until the summer of 2023. Only then will companies know what tax they must pay for the past six months and what details form the basis of a possible new tax base.

The company said that such a major change in taxation has never before been proposed to take effect before an impact investigation, consultation and broad settlement. The uncertainty surrounding what income should be used as the basis for the tax is one of the many major challenges with the government’s proposal, which a number of professionals have pointed out. The same professional circles also highlight the serious knock-on effects of investments that will now not be carried out, the damaging effects on Norwegian business in general and the industry’s weakened ability to attract finance, reduction in demand for Norwegian salmon, loss of jobs in rural areas and development of the industry in other countries rather than in Norway .

Why does the tax proposal hurt VAP?

Resources taxes such as the salmon tax is based on the simple premise that those who benefit financially from Norway’s natural resources, such as its fjords, should pay for doing so. The government aims to tax the income made from sales/harvest of salmon/trout, excluding revenues from smolt production or processing/value added products, etc., as the tax is only to be applied on value added in the sea.

But the proposed basis for how that income should be determined makes it very difficult for the value-added products (VAP) industry in Norway.

The proposal implies that, like Norway’s hydropower and petroleum tax regimes, the gross income must be determined based on a standard price where possible. For salmon, it is proposed to set a standard price based on the stock exchange price, i.e., the Nasdaq price with a disposal point in Oslo.

The limitations here relate to the fact that that price is set after production at sea has ended and that harvest and transport costs (after the sea phase) are included in the price.

The problem with such a standard price is that it will never (or at least very rarely) be correct in the individual case. Individual fish quality differences linked to the individual delivery will be difficult to take into account in such a system.

In addition, entering into fixed-price contracts will be a bet with a double downside. If the farmer wins the bet (fixed price greater than spot price) they also save tax on the difference between the fixed price and the spot / Nasdaq price, but if they lose the bet (fixed price less than spot price) they lose twice: first on the fixed price contract and then by having to pay tax on that “loss”. This means salmon farmers are more likely to sell on the international spot market instead.

Source: Thommessen lawyers / Norsk Fiskeoppdrett

Removed the market

Lerøy points out that, in sum, the proposal means that an industry which already contributes significantly more than other industries beyond ordinary taxes and duties, will have reduced value creation, reduced employment and actually provide reduced income to the state as a long-term result.

In the situation that has been created, Lerøy relates that from January 1, 2023 the government has removed the market for processed salmon products from Norway with the consequence that a great many of Lerøy’s employees within this part of the value chain must be made redundant from the same date.

“It is critically important that the government understands the industry’s entire value chain, the level of activity and central function in the Norwegian coastal community. According to the plan, the industry will export more than 40,000 tonnes of food a week in the future. That amounts to close to 200 million meals,” says Beltestad.

“When we see that we do not have tasks for our employees, we are obliged to notify them, that is what we are forced to do. We hope that the politicians listen, and wake up, so that any changes in taxation are based on facts and the knowledge that we know will emerge in the consultation round. The change cannot be made effective before 1 January 2024. It is urgent if we are to succeed in re-establishing the trust of our customers and redundancies can be avoided. This is very serious,” concluded Beltestad.

Read more about the salmon tax proposal and the damaging repercussions it has had for Norway's aquaculture industry and suppliers in the latest edition of Fish Farming Expert magazine, available online here.