Lower NOK exchange rate is good news for the seafood industry
The weaker exchange rate in recent years has strengthened the international competitiveness of Norway’s seafood industry, according to a new report from the food research institute Nofima.
With high production volumes and a relatively small domestic market, the Norwegian seafood industry is dependent on selling most of its products abroad.
With Norway’s small economy, heavily dependent on oil, the Norwegian krone (NOK) is a vulnerable currency which fluctuates widely. When the Norwegian krone is strong, the competitiveness of the seafood industry is weakened, while it is strengthened when the NOK weakens.
When exchange rates change, the competitive positions between different countries also change. In the report, scientists show how currency factors have had an impact on the competitiveness vis-à-vis Iceland for whitefish, and vis-à-vis Chile, Ireland and Scotland for salmon. Norway has improved its competitive position as a result of the weak krone in recent years, especially vis-à-vis Iceland and Scotland/Ireland.
Nofima’s scientists have developed a competitive exchange rate index for seafood. Using this, they can show how currency fluctuations have impacted the seafood industry’s competitive situation over the last few years.
From 2012 to 2015, the value of the total export of seafood rose by NOK 22.4 billion. Of this, NOK 14.1 billion can be linked to the weak Norwegian krone.
At the same time, the scientists have measured the effect of volume, marked price and product mix.
– Furthermore, we find that NOK 2.7 billion of the increase in value is linked to an increase in volume, NOK 4 billion to higher prices and/or product mix, while NOK 1.6 billion is due to synergies between changes in two or more of these components, says Norfima’s scientist Thomas Nyrud.
He is one of the scientists responsible for the report, which illustrates differing trends in the whitefish, pelagic and salmon farming sectors. The report was commissioned by the Norwegian Seafood Research Fund (FHF).
The export value of whitefish increased in the period 2012 – 2015 by NOK 2.8 billion. Currency fluctuations in the same period represented a positive contribution of NOK 2.9 billion. In other words, more than the total value of whitefish exports.
In reality, in many whitefish markets, there has been a decline in prices measured in trading currencies, while at the same time volume development was flat. This resulted in a slight decline in value for the sector, after making currency adjustments.
In the pelagic sector, which includes such species as mackerel and herring, currency fluctuations made a positive contribution of NOK 2.3 billion. The negative volume and price effects were so strong that the export value fell by approximately NOK 1.2 billion.
The positive currency effect for exports of farmed fish from 2012 to 2015 is calculated to be NOK 7.5 billion. In the same period, the fish farming sector recorded a total increase in value of NOK 18.1 billion. Higher volumes and favourable price/product mix development contributed to an increase in earnings in the fish farming sector.
-Over the last few years, new records have been set in seafood exports. But we find it problematic to use export values as performance indicators, particularly for whitefish and pelagic fish. The export value, measured in terms of NOK, is in no way a precise indicator of performance, says Nyrud.
-Who earns most from currency fluctuations?
-In the long term, it is the primary stage and the consumers that will benefit most or suffer most from currency fluctuations. The sluggishness in passing on price changes results in the long-term effects varying in the sector, while at the same time there is a continual fluctuation in currencies. This makes it difficult to determine who is the winner and who is the loser in the value chain, says Nyrud.
The seafood sector is more exposed to turbulence in the foreign exchange markets than is Norwegian export industry is in general. This is because most of the international trading involves the four major currencies, euro, US dollar, pound sterling and Japanese yen, whilst the other Norwegian export industries have, overall, a somewhat broader “currency portfolio”.
-In addition, the seafood sector is more heavily weighted in dollar than is the case for the rest of Norwegian industry. Statistic testing shows that over the last fifteen years, the exchange rate against the US dollar has been considerably more volatile than against the Euro, sterling and yen, says Nyrud.
Profitability and currency
The scientists have studied profitability in the fisheries industry from 1993 and through to the present day and they find that exchange rate unrest is an important factor that is seen repeatedly in the years with the best and the worst results. Foreign currency gains in one year, often followed currency losses in the following year.
Of the five most and the five least profitable years for the Norwegian whitefish industry over the last twenty years, the result in seven of the years coincided with major currency fluctuations, where either a weakening of the krone coincided with a positive result, or an appreciation of the krone coincided with a negative result.