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Norway salmon farmers’ Q4s confirm sea lice as key driver in 2015 supply
salmonfarmwinterASC
March 2, 2015, 9:34 am
Neil Ramsden
Salmon supply – and so prices, margins and capital expenditure capabilities – boil down to the biological management of Norway's farmers in 2015.
This time last year, at the North Atlantic Seafood Forum in Bergen, Norway, CEOs pointed to sea lice as the single biggest issue facing the salmon farming industry, and that has been borne out through 2014.
A year on, speaking at Marel's salmon ShowHow in Copenhagen, February 2015, Rabobank analyst Gorjan Nikolik suggested sea lice management will continue to define the global salmon picture this year.
It will dictate supply growth, which in turn will dictate prices; presently a supply growth of 3.7% is expected for 2015, just behind demand, he said.
After a year of strong growth in Chilean salmon supplies – an estimated 24%, three or four times greater than analysts predicted – it is Norway that is back in control when it comes to supply growth in 2015, with Chile once more constrained by its own biological situation.
Still, in Norway, capacity growth is hard to come by. Maximizing existing MAB (maximum allowed biomass) levels will involve managing all sanitary conditions, including pancreas disease (PD) and amoebic gill disease (AGD), which affect feeding and so lower harvest weights.
Currently the main factor in possibly growing salmon volumes in Norway is the awarding of 'green licenses' – which, by definition, will depend on the farms' ability to control sanitary conditions.
A second option on the table is the chance to buy a 5% expansion to any existing license but, like the green license, this comes with strict biological criteria: at a cost of NOK 1.5 million for the expansion, the farmer must also keep sea lice levels at under 0.1 lice per fish.
Early in 2015 Marius Gaard, author of Mysalmon.no, analyzed sea lice levels over 2014 in Norway. Data show average sea lice levels in 2014, measured by adult female sea lice per salmon, was just over 0.2.sea lice norway historical
In 2013 a low level of 0.15 was achieved, while 2010 and 2011 were tough years, at over 0.3. This shows that maintaining a level of below 0.1 sea lice per fish is likely to be tricky, especially in the south of Norway where sea temperatures tend to be warmer.
His recent article for Undercurrent News shows the sea lice number breakdown in greater detail, by region.
$40m on combating sea lice
The fourth quarter results of Norway's salmon farmers have shown that sea lice and sanitary conditions were, and are, a chief concern when it comes to supply.
At the NASF a year ago, Marine Harvest CEO Alf Helge Aarskog joked, “whoever solves sea lice, come and see me, because we need help”. In its Q4 report it noted higher sea levels in western Norway, Scotland and Chile than a year previously.
It also detailed what it spent on sea lice mitigation, as a group, in 2014. This was NOK 53m in Q1, NOK 80m in Q2, NOK 74m in Q3 and NOK 96m in Q4, for a year total of NOK 303m, or $40m.
“The future biological development in Norway is to a large extent in the hands of the politicians,” the company said in its Q4 report. “A modest and sustainable increase in capacity going forward is a prerequisite for improving control of issues such as sea lice, pancreas disease and amoebic gill disease.”
"The cost of medication per kg harvested was 70% higher in the fourth quarter of 2014 than in the corresponding period in 2013"
Extensive stocking of cleaner fish (wrasse) has been carried out in Norway by the farmer, and it continues to test non-medicinal tools and approaches in collaboration between its Global R&D and Technical and the operating units in Chile, Norway and Scotland.
Overall Marine Harvest saw an operational ebit margin (earnings before interest and taxes) of NOK 9.2 per kg. It noted NOK 199m total in exceptional items relating to sea lice mitigation and extraordinary mortality.
“As in previous periods, sea lice mitigation costs have been high for the harvested generation. The higher sea temperatures have resulted in a challenging sea lice situation (more treatments and significant treatment losses),” the firm said of its Norwegian operations.
“The cost of medication per kg harvested was 70% higher in the fourth quarter of 2014 than in the corresponding period in 2013, while the estimated exceptional cost related to sea lice mitigation amounted to NOK 117m (versus NOK 62m ). Quarterly and year to date exceptional sea lice mitigation costs were NOK 1.67 and NOK 1.38 per kg harvested respectively (NOK 0.90 and NOK 0.70 respectively).”
All in the same pest-ridden boat
Most of Norway's largest salmon farmers reported similar stories in their Q4s.
Salmar reported “a challenging situation with respect to salmon lice and PD” in its central Norway region, though did add it had the situation under control in the fourth quarter.
“More frequent delousing of fish held at sea accumulates the salmon lice cost per kg, and this is expected to affect the overall cost picture in 2015,” it further added.
With an overall ebit per kg of NOK 12.21, its Rauma segment’s biological situation was especially difficult, with costs of delousing rising. PD too contributed to an ebit per kg of NOK 8.74 in this region.
Salmar is planning an open-ocean fish farming facility, which it hopes will be “highly escape-proof, and its design – along with its positioning in more exposed offshore locations – will lead to reduced levels of disease and salmon lice”.
Norway Royal Salmon noted its production cost for fish harvested in Q4 was NOK 4.86 per kg lower than in the third quarter. Despite this, it said, the production cost was still high as a result of costs associated with AGD and PD.
“Region South experienced good growth in the quarter. The fish health situation in the region is still demanding.” Its overall ebit per kg in Q4 was NOK 11.4.
NRS recently heard its subsidiary Nord Senja Laks had been indicted by the Norwegian government, over misreporting of sea lice numbers. As a result the government has reserved the right to take away the 'green licenses' awarded it in 2014.
The company is forecasting an increase in harvest of 43% for 2015, to 32,000t, driven by the awards of new green licenses. However, analysts with Nordea believe the firm holds the potential of becoming a 55,000t salmon farmer following the final nomination of the nine green licenses, combined with a 5% growth scenario in Finnmark.
Grieg's Q4 costs were up as a result of lice treatment, and mortality due to gill disease in Shetland, as well as fish that had been affected by PD in Norway's Rogaland region. Its ebit per kg came to NOK 8.8.
Compare all of these ebit per kg numbers to Faroe Islands-based Bakkafrost, which did not mention sea lice in its Q4 except to say its new wellboat (coming June 2015) would enable it to use freshwater treatment to fight the pests.
It achieved ebit per kg in Q4 of DKK 14.34 (NOK 16.4) – down from the previous quarter. The Faroes have tended not to suffer from sea lice as badly as Norway, either through a less intense stocking density or less propensity to have lice in the first place, with colder sea temperatures.
