Is aquaculture in Iceland 'fashionable'? "I think that there has been a steadily growing interest and attention to what is in progress and development in Iceland," reflects Stein Ove Tveiten, Arctic Fish CEO. "The increased activity and growing volumes are of course attracting more of the global supply industry, together with general stakeholders."
In fact, 2022 ended with the news of Mowi completing the acquisition of Arctic Fish. A few months earlier, CEO Ivan Vindheim, had said: "The Icelandic salmon farming industry is set for extensive development and growth in the coming years and we take great pleasure in this opportunity to play a part. Icelandic waters provide excellent growth and living conditions for the salmon."
At the time, the Icelandic government was awaiting the report commissioned from Boston Consulting Group (BCG) about 'The State and Future of Aquaculture in Iceland'. When it arrived at the end of February, it broadly confirmed what Mowi's CEO had predicted in December and added a little more: "In all scenarios, traditional [aquaculture] remains the largest producing sector by 2032."
For sure land-based aquaculture is of paramount importance in the country – and we will devote a second article to it – but both the BCG report and most of the experts we have spoken to agree Iceland's attractiveness as a location for traditional salmon farming is clear right now.
Why this attractiveness? Is aquaculture 'fashionable' in Iceland, as we wondered at the beginning? "It is not a fashion, but maybe the only salmon-producing country in sea cages with a significant potential for growth," claims Björn Hembre, CEO of Arnarlax, one of the production companies that is part of the Iceland Aquaculture & Oceans Forum (IAOF), an industry association recently created with the main objective of supporting sustainable aquaculture in the country.
So does Jón Garðar Guðmundsson, a partner at MAR Advisors, a specialized Icelandic financial firm with a focus on the seafood, energy, and infrastructure sectors. In his view, there is a limited amount of growth for countries such as Norway, the Faroe Islands, Scotland, Ireland, or Canada, so, he says, "Iceland, by location and cultural connexions with Norway and Faroe Islands, it's a logical place to look for growth opportunities."
According to the Boston Consulting Group report made for the Icelandic Ministry of Fisheries, traditional salmon farming has grown at a compound annual growth rate (CAGR) of ~35% since 2016 and has the potential to grow towards ~100kT within current regulations and technology. Without changing anything in the laws, the country is still expected to double production from traditional farming within the limits of the current framework.
Everyone we have talked to agrees on one thing: Iceland is a favorable place for aquaculture in general and that is due to the natural resources. "Our advantages are that we have very suitable temperatures, low populations of wild salmon lice populations (so lice is easy to control), and we have absence of several virus diseases that are usual in other salmon farming regions," Hembre says.
The truth is that the country has natural advantages such as affordable green energy, geothermal heat, fjords suitable for fish farming, or access to high-quality fresh and salt groundwater. But Icelandic aquaculture also has a strong commitment to sustainability and the environment not only from the current regulations but also from the producers themselves.
"If we talk about sea farming then there are not many places, or if there are any, where salmon farming is done in a sustainable way as in Iceland," claims Sigurður – Siggi – Pétursson, who was the founder of Arctic Fish and now, after leaving the company, is the founder of the education and innovation center for aquaculture Rækt.
Icelandic authorities set very strict environmental standards for license holders, but, as Thor Sigfusson, founder and chairman of Iceland Ocean Cluster and 100% Fish qualifies, "the salmon farmers in Iceland have also been very supportive of these efforts – knowing that wrong and unwise actions in early stages can seriously hurt their business and Iceland's reputation as one of the purest and best regulated coastal fish farming nations in the North Atlantic."
Adapting the current regulatory and monitoring framework to limit the environmental impact and facilitate the sustainable growth of the sector is precisely one of the requirements that the BCG report points out as essential to unlock the full potential of Icelandic aquaculture to become a substantial part of the country's economy. "An aquaculture policy which ensures net positive outcomes in the environmental, social, and economic dimensions is the way forward," remarks Thor Sigfusson.
His colleague from the Iceland Ocean Cluster, member of the IAOF Board, and former Icelandic Minister of Fisheries, Árni M. Mathiesen, agrees with him. "It is absolutely necessary that people exchange views, and through that exchange, they have a possibility to shape the policies that will dictate the future of this sector," he tells WeAreAquaculture.
"The government sets the rules and guides the industry towards those goals. And the industry then, within the guidelines makes decisions on what to do and how to do it, and investors then decide whether they support it or don't support it. You need the benevolent guidance of the government," the former Minister states.
Stein Ove Tveiten agrees. "Aquaculture is a knowledge-driven industry and building up both internal know-how but also, as very important, the expertise of the government and authorities, is vital," he says. "My impression is that the authorities are partly surprised by the rapid growth and development in the last couple of years, and they are now trying to speed up their knowledge around our industry. This is positive as we see it," concludes Arctic Fish CEO.
It is about learning from, among others, the rest of the salmon-producing countries. As Thor Sigfusson says, "The late blooming of the Icelandic salmon farming opens very important opportunities to learn from countries that have a longer history in salmon farming." To achieve this, the Boston Consulting Group report commissioned by the Icelandic authorities reviews the current situation of aquaculture in the main competitor countries.
"The government and the regulators here tried to look at mistakes that have been done in Norway and the Faroe Islands," explains Jón Garðar Guðmundsson. And MAR Advisors partner continues, "We are hoping also that by coming on in the second or third wave of salmon farming we can also minimize the mistakes." Being a latecomer to salmon farming gives Iceland this advantage.
In any case, guidelines are needed, and these should be reflected in a change in the legal framework for aquaculture in the country. The BCG report is a starting point, but it will take the government a few months to complete the whole process. If all goes well it could be by the end of 2023. As Árni M. Mathiesen points out, thereafter, when the government is clear about its proposal, "then the sector will know better how to prepare itself."
In addition to the legal framework, there is another issue hovering over the future of the sector: taxation. In Iceland, as in Norway and the Faroe Islands, salmon farmers are subject to a production and resource fee based on catch volume. As volume is foreseen to increase, especially in traditional aquaculture, it is expected to provide the bulk of tax revenues over the next decade. Besides, as the BCG report points out, traditional companies are reaching the stage of generating profits, which translates into corporate tax revenues.
In the case of Iceland, moreover, aquaculture companies must pay an annual environmental fee based on their maximum allowable biomass (MAB), and a port fee to the municipalities where they dock their harvests. Some, such as Siggi Pétursson, from Rækt, consider this excessive. "We already have quite high taxes," he says, "in my personal view, it could be challenged if an industry which is young should be taxed this heavily." Although he thinks all common resources should be taxed, he adds that "the tax system in aquaculture, especially in sea farming in Iceland is too complicated".
"Regarding taxes, we are, of course, aware of our responsibility to contribute to those areas we have our operations," says on his part Arctic Fish CEO, Stein Ove Tveiten. "At the same time, we know that Iceland has a history of building industry and that the sustainability aspects of the activity are highly connected to a healthy financial situation for the companies," he continues. "This is, of course, also a trust and an expectation we as companies need to take very seriously. I believe that the authorities are more pragmatic to taxes compared to, for example, Norway, and the ongoing discussion there."
However, although the shadow of the Norwegian 'salmon tax' hovers in the air, this optimistic outlook seems to be installed in the Icelandic salmon industry, which is confident that its government will not follow suit. "Our industry in Iceland is building up and have today the highest tax level of salmon producing countries, so I hope the politicians are not too eager to increase the taxes," claims Arnarlax CEO.
Something similar asserts Árni M. Mathiesen. "If the taxation is too high, then obviously there's no interest in investing. And we can see that already in Norway, all the plans, or a very large proportion of the plans for investment, there have been recalled. So that's something that needs to be kept in mind," claims the former Minister of Fisheries but also former Minister of Finance in Iceland. For his part, his colleague at the Iceland Ocean Cluster, Thor Sigfusson, says that what is needed is to "make sure [that] the fish farms have a competitive environment to work in regarding taxation and government fees and a way to continue to grow in the areas already planned for fish farming based on best scientific knowledge."
In Iceland, all production areas are located in the East and West Fjords. In 2004, when this second wave of the salmon industry began, some coastal areas were retained where traditional salmon farming was banned within their boundaries. As the BCG report recalls, "the objective was to reduce the risk of farmed salmon escaping from pens, migrating to salmon rivers, and genetically mixing with the wild salmon stocks." If we add to this the fact that some fjords are not considered suitable for salmon farming, a total of 14 fjords remain, of which 10 currently host fish farms.
Around them, there are other challenges that, beyond regulations or taxes, the industry must face: access to skilled labor and housing problems. However, it is expected that a change in the regulatory framework will also help to improve these issues. By now, companies have found a solution. "We are able to find labor, but we recruited quite internationally, and have employees from 15 countries," Björn Hembre explains, "and so far, we find housing for our staff, and are building more houses." He is referring to the apartment building that Arnarlax is constructing in Bíldudalur, the town of just 200 inhabitants where it is based, to help its workers find affordable local housing.
The fact is that, as MAR Advisors partner Jón Garðar Guðmundsson explains, for traditional Icelandic aquaculture to reach its full potential, this industry needs to build up the infrastructure. "There needs to be more processing capacity, some more ports, more education of people… In all growth industries, you need to build up the infrastructure, to get the people in the areas, to balance the environmental impact, and there is definitely a positive economic impact," he says. "You see it in the West fjords which really had been getting fewer and fewer people to work there. Now you see increases and young people are ready to move out."
As Siggi Pétursson recalls, "there's no country in the world that has been developed as fast in the salmon farming in the sea as Iceland for the last four years." Salmonids account for almost 100% of the current volume of Icelandic production and the key driver is Atlantic salmon. All this is in a country that stands out as a leader in fisheries and also has an environmentally friendly value chain focused on creating more value from whitefish by-products. How might that apply to the salmon industry?
"In Iceland, the value chain in seafood processing is like nowhere else in the world. Today this environmentally friendly value chain is mainly focused on creating more value from the by-products of whitefish. The same technology and mindset can be implemented to create more value from the byproducts of salmon," claims Thor Sigfusson. "As a nation in the forefront regarding utilization of whitefish, Icelanders should also have the courage and entrepreneurial spirit to become leading in full utilization of farmed salmon."
No doubt there are things to learn, although, as Siggi Pétursson stresses, even though the Icelandics own this knowledge and have come a long way in the use of by-products, we have to keep in mind that "salmon is quite different from whitefish." Financial advisor Jón Garðar Guðmundsson agrees. "The value chain of salmon is a bit different than for the whitefish, it is always an optimization game," he says.
Optimization that the sector must also transfer to other parts of the value chain. "In Iceland, we kept a lot of small pelagic so, we produce a lot of fish meal and fish oil. And maybe it's not necessary for us to export that and then import the fish feed afterward," claims Árni M. Mathiesen. "Maybe we could produce it ourselves, but to do that, the industry needs to reach a certain size. And we could foresee that we would reach that size in a few years' time. But not so far into the future that it's not worthwhile starting to think about having more feed production in Iceland."
The natural advantages offered by the country, its commitment to the environment, and its know-how regarding fish processing from a fully sustainable point of view are the strengths of aquaculture in Iceland. Regulatory and fiscal changes, or the adaptation of its infrastructure, are the immediate challenges it faces. But as Jón Garðar Guðmundsson says, "the demand is there, salmon is an unbelievable success story in the market, and people just need to do this step by step and keep on learning from each other, and then I think it will be a success."
Salmon farming is set to become a substantial part of the Icelandic economy and, to achieve this, traditional aquaculture in Iceland has a great ally, land-based aquaculture. Obviously, both have a common market, but, as Jón Garðar Guðmundsson also says, "There are definitely some synergies there we haven't seen." We will try to discover them in the second part of this article. Stay tuned to find them out.
