Seafood industry gains an additional NOK 4.7 billion due to a weaker krone
The export value of seafood amounted to NOK 107 billion in 2019, up NOK 8.2 billion from the previous year. A weaker krone accounted for 4.7 billion NOK of this increase, according to a new analysis from the food research institute Nofima.
“Without the added gain from the weaker krone, the export value for 2019 would thus have amounted to approximately 103 billion NOK, still well over the much-discussed 100 billion threshold”, says Nofima scientist Thomas Nyrud, one of a team of researchers investigating the currency effect on Norwegian seafood exports in a project funded by the Fishery and Aquaculture Industry Research Fund (FHF).
The Norwegian seafood industry relies on selling most of its production to international customers. Different types of seafood products are exported to different markets, and currencies may vary according to where the sales are made.
Krona weakened further
The Norwegian krone weakened further last year against all the main trading currencies for seafood, despite several interest rate increases from Bank of Norway and the fact that many expected the krone to strengthen. The krone fell particularly in value against the Japanese yen and US dollars, currencies for key markets for mackerel exports. The US dollar also plays an important role in much of the frozen fish exports. The smallest change was against the euro, which is important for inter alia the export of fresh and salted white fish as well as fresh salmon.
“Looking at the increase in export value, the currency effect was greatest in the pelagic sector, where 78 per cent of the increase resulted from a weaker krone. The corresponding figure for white fish and aquaculture was 49 per cent and 59 per cent, respectively”, says Nyrud.
The aquaculture industry accounted for 3.2 billion of the total currency gain of 4.7 billion, which is not surprising seeing as how aquaculture also accounts for 70 per cent of the export value. For the white fish sector, the currency effect amounted to 696 million NOK, with 500 million NOK for the pelagic sector.
“The export value of seafood has set new records every year since 2013. In 2018, we projected that the krone exchange rate contributed 1.3 billion NOK to this growth, while the contribution of the preceding year was in fact negative due to a somewhat stronger krone. In other words, the effect we see for last year is significant, and highlights the impact of large fluctuations in the krone exchange rate for export-dependent industries,” says Nyrud.
In recent months, there have been large fluctuations in exchange rates due to the Covid-19 pandemic. The Norwegian krone has weakened against all the major currencies. The researchers will further describe the consequences of this in a report to be released this summer.
The effect of currency fluctuations contributed positively in 2019 for all the seafood products studied by the scientists. The most significant impact of this effect was for frozen whole haddock, where 100 per cent of the increase in value resulted from a weaker krone. Frozen haddock is mainly exported to dollar-denominated markets and the UK, and the krone weakened significantly against both the dollar and the pound sterling last year. Without the weakening of the krone, the export value would have dropped by around 5 per cent from 2018 to 2019. Instead, it increased by about 2 per cent.
Second greatest effect
The second largest gain from currency fluctuations was for fresh whole salmon, where 88 per cent of the increase in value was due to a weaker krone. At the same time, the impact on this commodity was the greatest in terms of monetary value, amounting to 2.1 billion NOK out of a total growth of around 2.4 billion NOK, despite the fact that there were relatively small fluctuations against the euro compared to the other main currencies.
The reason for this is that there was a somewhat larger volume of salmon exported towards the end of the year, while the krone weakened slightly against the euro during this same period.
Greater harvest volumes in 2019 also contributed to this growth, but the effect was partly offset by a lower price on salmon, especially in the autumn.
Frozen whole mackerel
In third place among the “currency winners” comes frozen whole mackerel, where the krone exchange rate accounted for 76 per cent of the value increase, equivalent to 325 million NOK.
Mackerel is primarily sold to markets that pay in Japanese yen and US dollars, the two currencies the krone has weakened the most against over the past year. The price of mackerel in the markets has also increased significantly, which combined with a weaker krone has helped to increase the export value despite a decrease in export volumes.
The competitive situation between Norwegian and foreign producers is also affected by the exchange rates. The researchers have looked into three industry competitors in the international seafood markets; Chile, Iceland, and Scotland.
Chile and Scotland are key competitors in salmon production, while Iceland is a major player in the production of whitefish.
From January 2018 to December 2019, the Chilean peso weakened by 11 per cent against the Norwegian krone. Chile is a major exporter of salmon, especially to the United States, and the peso weakened by as much as 27 percent against the US dollar over the same period.
“Looking at this in isolation it means that Chilean salmon has improved its competitive position relative to Norwegian salmon both in the USA and other markets. However, a contributing factor is that the weakening of their currency is caused to a large extent by domestic unrest and ongoing protests, which among other things has caused logistical challenges for parts of the export industry”, says Nyrud.
The Icelandic krone weakened by 4 per cent against the Norwegian krone during the same period. The Icelandic krone simultaneously weakened against the euro and pound sterling by 19 and 13 per cent respectively – currencies of two key markets for both Norwegian and Icelandic white fish exports.
This gives the Icelandic white fish exporters a competitive advantage compared to their Norwegian counterparts in these markets. This development is linked to the fact that the growth in the Icelandic economy has slowed down somewhat recently after a long period of growth and a stronger Icelandic krone.
At the same time, the British pound sterling strengthened by 8 per cent against the Norwegian krone. Scottish salmon producers are a key competitor for Norwegian salmon producers in the EU market, and the pound strengthened by 4 per cent against the euro over this period.
“Looking at this in isolation, these developments have benefited Norwegian salmon manufacturers. During the autumn of 2019, the pound was strengthened significantly due to growing expectations of an electoral victory for Boris Johnson and the Conservative Party, as this would mean that the UK would withdraw from the EU (with an agreement) on 31 January 2020, thereby reducing uncertainty in the UK economy,” says Nyrud.