John Forster

January 2002 One on One

talking to

John Forster

Aquaculture consultant

With more than 35 years’ experience in aquaculture, John Forster knows his way around a fish farm. He moved to Washington state from the United Kingdom in 1984 and started what was at the time the largest salmon farm in the United States.

Since the mid-1990s, Forster has worked as a consultant on projects around the world, and he still helps run a steelhead farm on the Columbia River. Since farmed salmon is a cornerstone of every seafood program, I contacted John at his home in Port Angeles, Wash., to get his opinion on where the farmed-salmon industry is headed.

Redmayne: Given the record low prices of the past year, what kind of shape would you say the salmon-farming industry is in?

Forster: Strangely, I would say good. The salmon-farming industry has been extraordinarily successful, and it’s now a victim of its success. If you look back at all our agricultural-commodity industries, the sort of cycle that we’re now going through in the salmon-farming industry is absolutely typical. The outlook is to go through similar cycles over the years, but hopefully less dramatic than this one; a 50 percent increase in production in one year from a country like Chile is a bit much.

How is this overproduction cycle different from earlier ones?

This is different because the Norwegians, in particular, took a considerable degree of responsibility for what they were doing. In the early ’90s, for example, they took the decision to freeze a lot of fish and take it out of the market. That has not happened this time. Most of the overproduction is coming out of Chile, and most of that product has just been shipped and sold at whatever price it will fetch. There’s been no significant attempt to take a significant volume out of production and sell it somewhere else out of the mainstream markets. So we’ve seen a steeper decline in prices than in the early 1990s.

Farmed salmon keeps getting cheaper. Why have production costs gone down so much?

We’ve seen significant improvements in survival and fish health, and that’s been due primarily to the development of vaccines. We’ve also seen improving quality in feeds and better management, and that in turn has led to healthier fish, faster growth and lower food-conversion rates. We’ve also seen increasing mechanization, including bigger cages and automatic feeding machines, which has helped with labor efficiencies.

Most salmon farmers can grow fish in the 80-cent- to $1.10-a-pound range now. If you’re at $1.10, though, you’re vulnerable.

What does that work out to in equivalent wholesale costs?

A delivered boneless fillet price of about $2.40 a pound is probably about break-even for most producers. People tell me they can buy frozen, skinless, boneless Atlantic salmon fillets for $1.50 a pound, but at that price, no producer can claim to be making money.

Do you see much potential growth in production from the United States and Canada?

In the United States, no, and in Canada it will be a struggle. On the east coast of Canada, conditions aren’t that great unless you go offshore. In British Columbia, there is an ongoing confrontation between environmentalists and the industry. In the short term, there is not much prospect of rapid growth in either country.

Have we seen the lowest prices?

We certainly have for a while, because I’m sure the present pricing, at least at the low end, is not sustainable. Having said that, a lot of larger companies entered into contract sales arrangements some time ago, and very likely a lot of these sales may be a profitable business. But there are an awful lot of companies in trouble right now.

The biggest cost in salmon farming is feed at around 55 to 60 percent, and feed costs, which are driven by the price of fish meal, are on their way up.

Who’s the lowest-cost producer of farmed salmon?

Chile probably is the lowest-cost producer because so much fish meal is manufactured there, and it doesn’t have to be exported, so you don’t have the transportation costs. Labor efficiency on the farming side is not a major issue in cost these days. The ability to get high fish performance and good food-conversion efficiency is much more important. In that respect, the Norwegians would claim they’re probably ahead of most people.

But the other part of this business is in the processing. As we move increasingly into cut-up parts — as distinguished from value-added products — processing labor becomes a significant cost issue. In the high-labor-cost economies such as Norway or North America, that is a big disadvantage compared to Chile. Also, the Chilean peso has declined significantly over the last year, and that is one factor that has led to extremely competitive Chilean pricing in recent months.

Do you see salmon prices flattening?

They should in an orderly market, but we won’t have an orderly market. We’ll go through this swing again because that’s what happens in farming. Will the costs of primary production become fairly stable? Yes, but most of the big savings have been had, and farmers will chip away at fractions of a penny. The big savings, if there are any, will come in the downstream sector in processing and in finding ways to reduce distribution costs.

Fewer than five companies now produce half the world’s farmed. Do you see more consolidation?

Yes. As more companies get in trouble, other companies will buy them. On the other hand, there’s a limit because of political reasons. For example, Nutreco [Marine Harvest] was not allowed to buy the Scottish part of Norsk Hydro because it would have been too great a share of Scottish production. There will be political restrictions on how big any one company can be. But there are no political restrictions on how big one company can be in the market, so it may be a pattern of alliances, where big producing companies align with a marketing company.

Feed companies keep buying farming and marketing companies downstream. Is that good for the industry?

If you’re driving this industry from the bottom up because you want to sell feed, you’re not necessarily going to make the best marketing decisions. The right people to be driving this industry forward are the people who market the product. The processors and the people who are driving this thing from a market point of view will have a clearer idea of the direction in which they should go.

Peter Redmayne can be e-mailed at predmayne@divcom.com