The salmon feed sector now faces a new reality after the boom period, 2011 to 2014, when it had growth of nearly 50% over the three years, expanding in volume terms due to the rapid growth of salmon farming and, in value terms, as a result of the rising cost of feed commodities.
“Salmon feed producers will experience a slow down in sales up to 2016. We don’t expect any contraction for the major players – the scenario is more likely to be stable sales and zero to low growth due to three factors: a salmon farming sector expanding at a slower pace, a reduction in cost of feed per unit due to various events including a record soybean harvest in the US, and the overcapacity brought into the Norwegian salmon market by the vertical integration move by Marine Harvest,” Gorjan Nikolik, associate director animal protein, Rabobank International, told feednavigator.
Marine Harvest feed plant
That salmon farmer’s 200,000 metric tons (MT) feed facility in Bjugn, Norway, came on stream in July and is set to cover about 60% of its total Norwegian requirement by 2015.
“The new facility is currently operating at 50% capacity but is slated to reach 100% by next year. Marine Harvest is planning to announce when it is likely to construct a second feed mill in Norway in the coming months, with such expansion likely again to reduce sales growth for feed players in that competitive market,” said Nikolik.
Indeed, ABN Amro’s Maarten Bakker reckons that it will take two years to clear the overcapacity generated by the addition of Marine Harvest’s salmon feed into the Norwegian arena.
Challenges and opportunities
However, in his salmon industry outlook released last month, Nikolik stressed that with such challenges come opportunities for the supply side: “Salmon farmers rely on the suppliers of equipment, medicines, genetics, vaccines or feed to introduce innovations that will help control lice and disease outbreaks, help achieve the ASC (Aquaculture Stewardship Council) certification and ensure future growth of the industry.”
Feed manufacturers, he told this publication, need to continue to focus their R&D work on ingredients that improve performance, margins and values, in particular fish meal and fish oil alternatives to support a salmon production sector keen to display its sustainability credentials and meet ASC accreditation criteria.
Feed technology that can help the industry manage to reduce its exposure to lice populations would also benefit the supplier and the farmer, considering the increasing regulation the Norwegian and Chilean salmon producers are facing in relation to lice levels on their farms, said Nikolik.
“But, perhaps, the route to greater profitability for salmon feed producers lies in their ability to diversify into other aquaculture species and leverage their expertise in developing novel feed formulations,” said the analyst.
The big aqua feed players are already making inroads in this regard:
Biomar has moved into producing feed for sea bass, sea bream, and other Mediterranean species, and feed for fresh water species like trout and sturgeon, he said. Skretting has diversified on a global scale through both acquisition and joint ventures in multiple species and regions from Australia to Japan to Brazil to China and Africa.
“Salmon producer clients tend to be large companies and, as with any consolidated client base it is difficult to get really good margins. It tends to be the open formula model, whereby the company dictates the ingredients and the feed producer delivers.
Targeting a more fragmented aquaculture sector would allow a closed formula model, and higher margins especially as the bigger aqua feed players can leverage their formulation expertise to compete with local players in Asia and beyond,” said Nikolik.