Seafood Business

Atlantic Salmon

The days of 45 percent annual growth in the U.S. supply of Atlantic salmon are over

Over the last decade, the farming of Atlantic salmon has become a very big business indeed. In 2002, salmon farmers will pump out more than a million metric tons of Atlantics with a wholesale value of more than $4 billion. And most of those fish will be grown by a handful of vertically integrated companies with global operations that do everything from manufacture the feed to process and sell the fish.

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At a glance

Prices

But is salmon farming a good business? Not lately. One of Norway’s largest publicly traded salmon-farming companies posted an $11 million loss in the second quarter of 2002 from its operations in Norway, Canada and Chile, blaming the loss on continued low market prices. Another large Norwegian salmon-farming company has been required to issue new shares of stock several times to stay afloat.

One of Canada’s largest food conglomerates, which owns salmon farms in Canada and Chile, has been trying to sell its salmon operations for more than a year but hasn’t found a taker. Even in Australia, salmon farmers are struggling; this June, that country’s largest salmon farm declared bankruptcy.

Of course, the struggles of salmon farmers, who have proven to be better at growing fish than selling it at a profit, are nothing new.

In 1991, the sales organization for Norwegian salmon farmers was forced to declare bankruptcy after it froze a mountain of salmon in an ill-advised attempt to prop up fresh prices. The problem then was the same: Too much Atlantic salmon hit the market too fast.

But back then everybody blamed the Norwegians. This time around, the blame — and the dumping accusations — is aimed at the Chileans, who doubled their production of Atlantics to more than 200,000 metric tons in just two years. This spring, European salmon farmers were doing their best to convince the European Union to slap a 32 percent tariff on Chilean salmon imports.

The Chileans would probably have been hauled before the U.S. International Trade Commission, too, if not for the fact that they had already been before the ITC in 1997 after a group of American salmon farmers filed a dumping claim.

Although some Chilean producers were found to be dumping, the average dumping tariff of 4.5 percent was hardly a deterrent.

But in today’s era of big, global salmon-farming companies, it’s hard to blame the other guy for the glut, since now you’re “the other guy” to someone else. Consider, for example, that the Maine salmon-farming company that spearheaded the dumping effort against the Chileans in 1997 has since been acquired by a large Norwegian salmon-farming company, which also acquired several large Chilean and Canadian farms to become one of the world’s largest producers. File a dumping claim against another salmon-farming country these days and it could hurt more than it helps.

Although farming Atlantic salmon hasn’t been a winner for producers lately, it’s been a bonanza for buyers. Low prices prompted the Outback Steakhouse chain to sign a contract for 2 million pounds of Outback-sized (11-ounce) fresh salmon portions earlier this year. Costco, the nation’s largest club store chain, says its sales of fresh farmed fillets have increased at an annual clip of about 30 percent, to more than 30 million pounds a year — or 600,000 pounds a week. The company buys a deep-skinned, well-trimmed Atlantic fillet that is almost like a loin, says one supplier. At a typical retail price of $3.79 a pound, Costco enjoys margins on salmon that are well above normal.

By locking in a low contract price and keeping the retail price the same, salmon is saving supermarket seafood departments. The seafood buyer for one national chain says he immediately added $1 million to his department’s bottom line this year in just one quarter when he signed a fresh fillet contract for $2.40 a pound.

That’s the gripe of Atlantic salmon producers, who complain they’ve been losing money growing fish while buyers have been cashing in at their expense.

Of course, salmon farmers weren’t complaining a few years ago, when fillet prices averaged $3.50 a pound from 1998 through the first half of 2000. That was good money (one Chilean farmer called them “the gold years”), which led to the big increases in production of 2001 and 2002, as farmers figured more fish would bring more profits down the road.

But as is frequently the case with an agricultural commodity like salmon, the farmers guessed wrong and planted too large a crop for the market to absorb. Lately, they’ve been paying the price.

Supply outlook

The days of 45 percent annual growth in the U.S. supply of Atlantic salmon are over, probably for quite awhile. It’s just too painful for producers. The low prices of the past two years have taken their toll, and banks are reluctant to extend more financing to some troubled farms.

One Chilean farm, for example, had to destroy 8 million smolts last year because the company lacked the money to feed them. As a result, the official projection from The Association of Chilean Salmon Farmers is that annual production of Atlantic salmon will grow no more than 10 or 15 percent for the foreseeable future — a level the farmers feel the world markets can easily absorb.

Through May, U.S. imports of fresh Atlantic fillets from Chile were 30,500 metric tons, an increase of just 13 percent over last year — a sure sign the flood of Chilean salmon is already abating.

Supplies of Atlantics from Canada, on the other hand, are still increasing at a relatively healthy rate — at least for now. Through May, U.S. imports of Atlantic salmon from Canada, about a quarter of which are fillets, jumped 35 percent, to about 34,000 metric tons.

Look for growth in supplies from Canada to slow down, too. British Columbia farmers doubt they’ll exceed their current harvest of about 55,000 metric tons of Atlantics a year unless they get new permits.

And although the moratorium on new salmon farming sites in British Columbia has been lifted, it could be at least three years before permits are issued and fish are harvested from any new farms.

The weaker U.S. dollar has led to a sharp increase in Atlantic salmon imports from Norway. Although they’re still a small fraction of what they were before Canada and Chile came on line, imports of Norwegian salmon fillets were up almost 50 percent through May, to almost 3,000 metric tons, about 80 percent of which was fresh.

U.S. production of Atlantics from farms in Maine and Washington state has remained stable for the past few years at about 25,000 metric tons. Given the expense of getting new permits, production is not expected to increase above this level.

Through May, total U.S. imports of Atlantics were 82,000 metric tons. That’s an increase of about 30 percent over last year. Look for supplies to increase at an annual rate of about 10 to 15 percent next year as the production slowdown begins to take full effect later this year.

Price trends

If you didn’t get a chance to make a killing snapping up frozen Atlantic salmon fillets for $1 a pound and fresh for $2, you missed the boat. Those prices are history. Salmon farmers have huddled with their bankers and finally decided there’s no future in losing almost a buck a pound on every fish they grow.

This summer, the price of whole 10- to 12-pound Atlantics from New Brunswick rose almost 50 percent from the beginning of the year to about $2.15 a pound.

The same size fish from British Columbia was selling for a discount of about 50 cents a pound, largely due to the increased supply and the ongoing headaches of soft fish infected with the kudoa parasite.

On the fillet side, supermarkets were signing three-month contracts at prices averaging about $2.70 a pound for 3- to 4-pound pinbone-out fillets. That’s up about 30 cents a pound from early this year.

Portion prices, which vary widely depending on product specifications, averaged $3.25 to $4 a pound, but some large buyers signed program contracts at below $3 this spring.

Even though prices for Atlantics have increased, producers are still barely breaking even and they’re not recouping recent losses. As a result, look for prices to head higher in late 2002 and 2003.

But don’t look for average fillet prices to rise much above $3, as weak sales to white- tablecloth restaurants are putting a curb on demand.

Buying tips

Compared to wild salmon, buying Atlantics is a picnic. Still, there are some things to watch out for. Most fillet producers sell A, B, C, D and E trim. Since prices can vary as much as 10 cents a pound between trim grades, make sure you and your supplier are on the same page.

Soft, kudoa-infected fish continue to be a serious headache for B.C. farmers and their customers. If you hear below-market prices for fresh Atlantic fillets, there’s a good chance it’s either kudoa fish or fish from Chile that has sat in Miami too long. While some of this fish is still usable, be very careful, because it can quickly become unusable.

The best deals on big Atlantics are in the late spring, when farmers harvest the last of their year classes.

Although the distress sales are winding down, there may still be some discount frozen Atlantic fillets around, but be careful before you load up. The synthetic pigment farmers use can fade after six months in the freezer and the fish can be pale.

Culinary notes

The main reason sales of Atlantic salmon have exploded in recent years is because it’s a very good eating fish that’s a snap to cook. Name a cooking method, and it works with this rich, flavorful salmon. Sear it, bake it, grill it, broil it — but whatever you do, don’t overcook it.

These days more people are eating Atlantic salmon raw. Unlike wild salmon, which must be frozen before being eaten raw because of anisakis parasites, it’s safe to eat fresh Atlantic salmon raw because they eat manufactured feeds (the kudoa parasite softens the flesh but is not harmful to consume). The buttery texture and surprisingly mild flavor are similar to hamachi (yellowtail), say sashimi savants.