After 20 years of strong growth, the aquaculture industry is now showing a declining growth rate and declining margins in most parts of the value chain. The exceptions are fish health and well boats, which are essential to overcoming what are still the industry's biggest challenges; lice and disease. This reflects that this is where farmers also have the largest cost increases.
Within these segments, both growth and EBITDA margins have increased in recent years, according to the 2019 edition of consulting and auditing company EY's "The Norwegian Aquaculture Analysis." This annual report, now in its fourth edition, is the most comprehensive overview of Norwegian aquaculture, through all links in the value chain.
Some key features of this year's report:
• Biological risk and increased environmental requirements will persist
• Capital intensity increases drastically in the industry and leads to a drop in the return on capital in the aquaculture sector.
• Tax: biological risk and mobile industry (ref. risk) make it different from oil and hydropower. New investments move abroad with breakthroughs and increased success in land-based farming (ref. Atlantic Sapphire- Florida)
• We see pressured margins and lower growth in the supplier industry
“The industry is entering a new, even more knowledge- and data-based era,” says Eirik Moe, partner and sector leader for aquaculture and seafood at EY.
– The pace of innovation is high and the initiatives are numerous to solve the industry's challenges. The ability to utilize big data and transform such input into useful decision-making will increasingly be the key to success. Those who are furthest along are already working with machine learning and artificial intelligence in their projects, and have the ability to form partnerships with experts and researchers.
Research and development in the area includes both technological and structural changes. For example, offshore facilities are being tested, and the industry is also developing solutions for land-based facilities that meet regulatory, environmental and economic requirements.
2018 was a particularly good year for seafood companies on the Oslo Stock Exchange. The Oslo Seafood Index, which includes all large, listed seafood companies, increased by 50 percent in 2018. In comparison, the general stock exchange index had a negative return of 1.8 percent.
It is therefore not difficult to understand that the industry is attracting capital and interest from large investors. At several points in the value chain, there have also been mergers and acquisitions, both from industrial companies and buyout funds.
Perhaps the biggest challenge now appears to be of a political nature.
– We are seeing signs of growing protectionism and the building up of tariff barriers and other trade barriers in world trade. If this were to spread, an international commodity such as Norwegian fish would naturally suffer. So far, however, not much has happened, and the fact that trade with China has opened up again is currently the most positive thing for exports. Here, volumes have increased sharply in a short time, says Moe.
Read The Norwegian Aquaculture Analysis here (pdf, 4mb) ey
