The profitability in salmon aquaculture is very volatile to changes in the salmon price.
Therefore, the measured mean profitability from the profitability analysis conducted by the Directorate of Fisheries has fluctuated considerably from 1986 to 2014. The operating margin, which is operating profit divided by operating income, gives a good indication of profitability in the industry. The operating margin reveals how much a salmon and trout farmer earns per 100 NOK in sales revenue. The development in average operating margin in the period 1986 – 2014 is shown in figure 5. The operating margin has fluctuated sharply the last 30 years, and it has also been negative in two periods. The industry has then operated at a loss, meaning that earnings have not covered the costs.
0 100 000 200 000 300 000 400 000 500 000 600 000 700 000 800 000 900 000 1 000 000
Tons
Total production of salmon (tons) Total sales of salmon (tons)
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Figure 5: Average operating margin and production cost per kg
Source: Own creation with numbers from Norwegian Directorate of Fisheries, 2015b
The average production cost per kg salmon is also illustrated in figure 5. In the analyzed period the production cost varies from approximately 15 – 35 NOK per kg. The cost
regarding fish feed is the largest cost and accounts for around 50 % of the production cost per kg. Other production costs can be related to smolt, insurance, salaries, depreciation and other operating costs. A change in the variables like an increase in the price of fish feed can create big fluctuations in profit per kg and in that way affect the total profit. The production cost per kg steadily declined until 2005, after which it has seen a steady, albeit slow, increase. The increase in production cost is due to several reasons, but the most important reason might be cost due to prevention and treatment of sea lice and disease. These problems can in addition lead to reduced growth (e.g. it takes more time for the fish to become ready for harvesting) and thus increases the use of fish feed53. The different production variables are presented in greater detail in chapter 5.
Figure 6 below show that the sale price of salmon greatly fluctuates which has a direct impact on profits. Profit per kg is calculated as sales price per kg salmon subtracted production cost per kg salmon. The profit per kg is naturally interrelated with the operating margin showed in figure 6. The sales price and profit per kg have a correlation of 0.1756 during the entire period. However, the correlation increases to 0.8934 from 2000 to 2014. The main reason is that the production cost is continuously falling before year 2000 and is more stable in the
53 Iversen et al., 2015, p. 15
0 5 10 15 20 25 30 35 40
-20%
-10%
0%
10%
20%
30%
40%
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
NOK per kg
Average Operating Margin Average Production Cost Per Kg
32 following years. The production cost per kg declined with more than 50 % from 1986 to 2000. The salmon industry is such no firm is large enough to set the price and the product is mainly homogenous (although refining is possible). Therefore, the companies are price takers and can to a large extent only influence the cost side of operations which the figure clearly indicates.
Figure 6: Average sales price per kg, average production cost per kg and average profit per kg Source: Own creation with numbers from Norwegian Directorate of Fisheries, 2015b
Figure 7 shows the relationship between the average return on total assets per company and the price of salmon. The same relationship as above is also prominent her, namely that the correlation increase between the two after year 2000.
Figure 7: Average return on total asset per company in the industry
Source: Own creation with numbers from Norwegian Directorate of Fisheries, 2015b -10
-5 0 5 10 15 20 25 30 35 40 45
1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Sales price per KG in NOK
Sales Price Per Kg Salmon
Production Costs Per Kg Produced Salmon Profit Per Kg
0 5 10 15 20 25 30 35 40 45
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
NOK per KG
Return on total assets
Return on total assets per company Price per salmon (kg)
33 The industry’s profitability compared to other industries in Norway is also interesting, as an industry with above average profitability often attract investors and increase the investment level in the industry. This can increase the secondary effects the industry creates, in addition to possibly increasing both volume (through innovations as a result of R&D) and the
profitability in the long run. Figure 8 shows the return on total assets in different industries in Norway from 2007 to 2013, including the whole of mainland Norway. Note that all financial companies are excluded, such as investment banks. In addition, salmon and trout return on total assets are based on the profitability analysis from the Directorate of Fisheries, while the others are based on numbers from Statistics Norway.
The figure clearly show why oil and gas have been such a dominating industry in Norway, and in this period the oil price was very high except for a short period during the financial crisis. The only industry of the ones presented which in periods has been close to the same return as oil and gas is salmon and trout, but it is very sensitive to changes in prices. These two industries are quite the same in the manner of being price takers in an international market controlled by supply and demand. Further, salmon and trout are generally providing higher return than mainland Norway, industry and the information sector which all are much more stable on a lower level.
Figure 8: Return on assets in different industries 2007 – 2013
Source: Own creation, number from Statistics Norway (2016c) and Norwegian Directorate of Fisheries (2015b) 0%
5%
10%
15%
20%
25%
30%
35%
2007 2008 2009 2010 2011 2012 2013
Return on total assets
Mainland-Norway Extraction of oil and gas Industry
Information Salmon and trout
34