At the end of April, coinciding with the start of the Seafood Expo Global 2023 in Barcelona, Salmon Group announced that it had entered feed contracts for NOK 22 billion (EUR 1.88 billion / USD 2.06 billion). In the release, the company focused not so much on the figure as on the importance of these long-term agreements to ensure sustainability and human rights in its feed contracts. However, this week, CEO Jan Olav Langeland reflected on his LinkedIn profile on the importance of the numbers. “22 billion Norwegian kroner – 22,000,000,000 – is a large number and clearly the largest contract values I have signed so far”, he wrote.
“The contracts we have signed are costs – costs for feed for our fish – the fish need to be fed to become healthy and nutritious food for our customers all over the world”, he continued. “The raw materials that become food for our fish are traded in a global commodity market, where a growing world population, natural events, climate change, pandemics, and wars result in increasing commodity prices”.
Spend money to make money
Certainly, NOK 22 billion is a big number. As Jan Olav Langeland also explained, when the figures are so large, it is easy to be blinded by the number and forget that the capital required to realize these securities is measured in percentage returns versus other investment opportunities. “The expression ‘you have to spend money to make money’ is well-known to most business owners”, he wrote. “However, I am more uncertain about whether those who govern this country understand the same thing”.
After all the controversy created in Norway around the so-called ‘salmon tax’, even to an outside observer, it sometimes seems that the government only looks at the industry’s profits and not at the costs. WeAreAquaculture asked the CEO of Salmon Group if he believes that this is reflected in public opinion or is it just something that politics want to take advantage of to, let’s say, “influence” that public opinion.
Langeland prefers not to speculate on whether the Norwegian authorities are deliberately influencing public opinion through selective argumentation, or whether this is actually due to a lack of knowledge about the sector and chooses to focus on the facts. “What is a fact is that a one-sided focus on the top line and profit in money is not transferable to the argument of increasing taxes for ‘extraordinary returns’, which is in the bill”, he tells us. And, adds: “Returns must be measured in percentage to distinguish between high and low – extraordinary and ordinary”.
Norwegian krone weakness, a double-edged sword
In his reflection, the Chief Executive Officer of Salmon Group also recalled that the raw materials that are converted into fish feed are traded in a global commodity market that has increased its prices with the unstable world situation. Moreover, he also pointed out that around 80% of these raw materials are traded in currencies such as dollars or euros. This means that, with a weaker Norwegian krone, these purchase agreements have become NOK 4.8 billion (EUR 412 million / USD 454 million) more expensive.
While this is happening, almost every month lately, the Norwegian Seafood Council reports a drop in export volumes that does not affect the value, which continues to increase. The reason behind this apparent contradiction is none other than this weakness of the Norwegian krone. However, while helping exports, it also exacerbates other costs such as feed or electricity. Do these gains offset the costs?
“Every month we can read headlines about increased exports of Norwegian seafood”, Jan Olav Langeland explains to WeAreAquaculture. “What gets a little lost in the headlines is the fact that it is the value and not the volume that is increasing, and that parts of the increase in value are related to changes in currency. Cost growth in aquaculture is increasing, and there are different cost profiles between parts of the country and production areas”. There is not a simple answer to our question, he says. “As fish sizes, timing, production history, etc. varies between the companies and consequently cost versus income/increased export value”.
A long-term strategy
As said above, when Salmon Group – Norway’s largest network of local fish farmers – announced the signing of these contracts, it put the spotlight on the fact that such long-term contracts with feed companies help them create better and more economically, environmentally, and socially sustainable solutions. “Good alone, better together” is a mantra that both the company and its suppliers aim to capitalize on going forward, they said. We ask Jan Olav Langeland why these long-term, strategic partnerships are so important.
“Historically, our feed agreements have had a predictability of around 12 months. We see that through longer agreements we can take further steps to whiten our main pillars fish, people, and planet. Be it new and more sustainable raw materials, an increased degree of circularity, new situationally determined functional components, etc.”, he explains to WeAreAquaculture.
“Furthermore, it is about positioning in a global raw materials market, as well as competence development in the value chain and new laws and market requirements that must be met”, he continues. “All of this will be better taken care of and developed through long-term planning, predictability, and strategic cooperation with our main suppliers of critically important input factors for our production”.
About Salmon Group
Salmon Group is Norway’s network of small and medium-sized fish farmers. Established in 2003, the administration is located in Bergen and the company is owned by 38 local salmon and trout producers of different sizes located along the entire coast. Its main task is to ensure the best possible operating and framework conditions for the companies.