The Salmon Industry:
Twenty-Seven Predictions for the Future
Professor of Economics
Institute of Social and Economic Research
University of Alaska Anchorage
3211 Providence Drive
Anchorage, Alaska 99508
(907) 786-7717 (telephone)
(907) 786-7739 (fax)
This paper was prepared for submission to the Alaska Fisherman's Journal. It is a revised version of a paper prepared originally for a presentation to the Northwest Salmon Canners Association in October of 1997. I an indebted to numerous individuals for comments and suggestions, but in particular to Professor James Anderson of the University of Rhode Island who first suggested to me many of the "predictions" presented in this paper.
What does the future hold for the salmon industry? The past decade has brought dramatic change. What further changes might we expect in the coming decade, and beyond?
Trying to predict the future can be a useful exercise, mainly because it forces us to think about how different factors may interact to determine the future--and in doing so to begin to think in new ways about the challenges and opportunities we may face.
It is in that spirit that I offer the following "predictions" for the future of the salmon industry. They represent my sense of likely future trends or developments as the industry continues to change in response to natural, market, technological and political forces.
My goal is not to convince you that I am right. My goal is to encourage you to think about the future. Which of my predictions do you agree with? Which do you disagree with? What other predictions would you add?
I am also not arguing for any specific strategies or policies in response to these predictions. My purpose is simply to stimulate discussion of what the future may hold--which is a necessary starting point for thinking about what strategies or policies may be needed.
Some of my "predictions" are simply for the continuation of trends that are already well underway and recognized. Others are more speculative in nature. It is unlikely that all of my predictions will come true: the future always holds surprises. But I think there is a good chance that most of them will come true.
I have offered a brief discussion of the reasoning underlying each prediction. A far more detailed discussion of the arguments for and against each prediction would be possible--and preferable--but space here does not permit that. A stronger case can be made for some predictions than for others.
Keep in mind that these are not predictions for what will happen this year or next year, but rather for changes that are likely to occur gradually over the next decade and beyond.
Farmed Salmon Production
1. Farmed salmon production costs will continue to decline. Factors contributing to lower production costs will include increased feed conversion efficiency (partly by the breeding of faster-growing fish) and increased efficiency in fish processing and distribution. Yes, it is true that costs of fish meal may rise due to increased demand for fish feed as well as resource changes. But salmon farmers are predicting that other feed sources, including vegetable-derived feeds, will be developed. Keep in mind that the farmed salmon industry is still very young--two decades--in contrast to the thousands of years over which experience has accumulated in meat and poultry farming. There is every reason to expect that substantial further cost reductions will occur.
2. World farmed salmon production will continue to grow. Total world farmed salmon production increased from 7,000 tons in 1980 to 300,000 tons in 1990 to 700,000 tons in 1997. As costs of production continue to decline, farmers will have every incentive to continue to expand production. Certainly factors such as disease, storms, declining prices and political opposition will lead to reduced production in some years and/or in some countries, but over time global farmed salmon production will continue to increase.
Wild Salmon Harvests
3. Average wild salmon harvests will decline from levels of the 1990's--perhaps substantially. Contributing factors will include:
• "Regime shifts" in ocean conditions. Scientists have found correlations between long-term shifts in ocean climate conditions and harvests of salmon across the Pacific Rim. The 1990s have been a period of record harvests; it is likely that periods of lower harvests will happen again.
• Reductions in harvests of healthy commercial stocks to protect weaker stocks.
• Increased competition for the resource from sport fishing. Commercial fishing in many parts of the world, including Alaska, is subject to increasingly intense pressure from sport fishermen wanting a greater share of fish resources. These pressures are likely to intensify in Alaska, in particular in areas close to urban centers and for species prized by sport fishermen.
• Increasingly negative public attitudes towards commercial fishing, due to perceptions of over-fishing, bycatch waste, and ecological damage, as well as "fish rights" activism. These strengthen political forces working to restrict commercial harvests.
• Reduced subsidies for hatcheries in Alaska as Alaska state revenues decline, and as lower prices reduce the perceived economic benefits associated with hatcheries.
• Lower profitability of wild salmon fisheries as average prices decline. As prices decline, commercial fishing will not be economically viable for some wild runs for which the costs of processing and transporting salmon to market exceed market prices.
4. Wild salmon harvests will continue to fluctuate from year to year. They always have. Significant and unpredictable year-to-year fluctuations in wild harvests represent a permanent source of market instability for wild salmon, and add to the cost and economic risk of wild salmon harvesting and processing.
5. Russian wild salmon harvests and supply to world markets may increase relative to North American harvests. This could come about as a result of Russia's shift to a market economy, increased foreign investment, and reduced restrictions on trade. However, other factors, including political uncertainty and lack of effective resource management could potentially delay or reverse increases in Russian supply.
6. Despite declining wild harvests, total world salmon supply will continue to increase. Any decline in wild harvests will expand market opportunities for farmed salmon.
Farmed Salmon Prices
7. Average prices for farmed salmon will continue to decline, although not as rapidly as in recent years. Farmed salmon prices have been trending downwards gradually over the past decade in response to increasing world supply of both farmed and wild salmon. It is this decline in prices which has enabled world markets to absorb vastly expanded production. Further farmed salmon price decreases will occur as farmed production increases and costs decline. However, growing demand will allow world markets to absorb future increases in world farmed salmon supply with relatively small price reductions.
8. Costs of production for farmed salmon will become the major factor driving long-run average prices of farmed salmon. As long as prices exceed farmed salmon production costs, farmers will expand production--which will in turn drive prices down until they approach costs of production.
9. Periodic oversupply and undersupply will cause price cycles for farmed salmon--similar to price cycles for hogs or pigs. Because of the long time period required to grow farmed salmon, farmers base their production on prices they expect to receive two or more years in the future. It is unlikely that actual production will be at levels needed to hold prices constant. In years of oversupply, prices will fall. In years of undersupply, prices will rise.
Wild Salmon Prices
10. As farmed salmon commands an increasing share of world salmon supply, wild salmon prices will be driven increasingly by farmed salmon prices. Wild salmon products perceived to be of higher quality will be able to command higher prices than farmed salmon products; wild salmon products perceived to be of lower quality will command lower prices than farmed salmon products. Prices for high quality niche-market wild salmon products will be least affected by farmed salmon prices.
11. Gradually declining farmed salmon prices will put downward pressure on wild salmon prices. However, if wild salmon supply declines, this may partially or fully offset the effects of lower farmed salmon prices.
12. Average prices for wild sockeye, chinook and coho salmon are more likely to decline than prices for pink and chum salmon. This is partly because higher valued sockeye, chinook and coho compete more directly with farmed salmon, while chum and pink salmon prices are already very low in comparison with farmed salmon. In addition, in recent years, ex-vessel prices of pink and chum have approached a "floor" imposed by the cost of catching the fish: prices cannot fall much farther or the fish will not be harvested--reducing supply of these species and helping to maintain prices at or above this "floor."
13. Average ex-vessel and wholesale prices for wild salmon will continue to fluctuate from year to year--but prices for wild salmon will become more stable than they have been in recent years. Year-to-year variations in wild harvests will continue to cause prices to vary from year-to-year. But as wild salmon's share of world markets declines, variations in wild harvests will have a relatively smaller effect on total supply or on prices--including prices of wild salmon.
Salmon Consumption and Markets
14. World salmon consumption will continue to rise as world farmed salmon production expands. Farmed and wild salmon producers will only produce as much salmon as consumers are willing to buy--and eat.
15. The greatest increases in consumption will occur in places with relatively high incomes which do not yet have high per-capita consumption of salmon or other fish. These places include the United States, some European countries, recently industrialized countries such as Taiwan and Korea, and other countries with significant higher-income populations, such as China and Brazil. Because salmon is a relatively high-cost source of protein compared with feed grains, there is less opportunity to develop markets among lower-income consumers in developing countries.
16. Japanese buyers will become less aggressive in purchasing wild salmon. Japanese per capita consumption of salmon--and other fish--is already very high in comparison with other countries. The long term trend in Japan is towards stable or declining fish consumption and expanding consumption of other proteins. Japanese salmon consumption will probably level off or perhaps decline. Wild salmon also faces growing competition in Japan from salmon and trout. Retail trade in Japan is increasingly dominated by supermarkets which are seeking to lower prices to consumers by lowering their costs. In addition, the Japanese economy is not likely to grow as rapidly in the future as it did in the past.
17. Aggressive marketing by salmon farmers will play an important role in increasing salmon consumption. Salmon farmers recognize the need for and the benefits from marketing. Salmon farmers make large investments in growing salmon. Producers in countries such as Norway and Chile are actively involved in the development of new markets. Aggressive marketing together with new value-added products have the potential to greatly expand world salmon consumption.
18. An increasing share of salmon will be marketed as value-added products. Because the competition for value-added salmon products is primarily other protein sources--rather than other fish--there is enormous potential for value-added salmon consumption to expand without significant reductions in price.
19. "Niche market" consumption of wild salmon will increase. As world salmon consumption expands, there will be many more salmon consumers. Some of the new consumers will be attracted by special characteristics of wild salmon--taste, color, nutritional value, and "romance"-- and will seek out wild salmon specifically for these qualities.
20. Per-capita canned salmon consumption will gradually decline in developed countries. Canned salmon--while still a very important market--is becoming "old-fashioned" in comparison to other products available to high-income consumers--including other fish products.
Alaska Salmon Harvesting
21. Alaska salmon will be harvested more efficiently, by methods which cost less and which result in better quality. Market pressures will drive Alaska salmon harvesters to seek ways to cut costs and increase value. Political pressures will develop to change Alaska salmon management in ways to facilitate lower costs and higher quality. Harvesters that cannot cut costs and increase value will eventually leave the industry.
22. There will be fewer salmon fishermen. Part of the trend towards more efficient harvesting will be a reduction in the number of vessels used and fishermen employed. This trend has occurred in all agricultural industries.
23. Salmon traps will return to some Alaska salmon fisheries. Salmon traps represent a potentially very efficient method of harvesting some Alaska salmon runs while also maintaining very high quality. They also represent a potential method of managing mixed stock fisheries to achieve very specific escapement goals. Traps are widely used in both Japanese and Russian salmon fisheries. For these reasons, I believe that economic and political pressures will eventually lead to an end of the ban on the use of salmon traps in Alaska, and to the use of traps in some Alaska salmon fisheries--as the circumstances that led to the ban on traps are gradually forgotten.
Alaska Salmon Processing
24. Alaska salmon will be processed more efficiently at lower cost. As with salmon harvesting, economic pressures will force processors to find ways to reduce costs. There is currently excess processing capacity for many Alaska salmon fisheries. As salmon markets become increasingly competitive, some facilities will no longer be operated.
25. The quality of Alaska salmon products will continue to improve. This process will continue because competition will continue to increase quality standards for salmon in the market place.
26. Companies which process Alaska wild salmon will diversify into farmed salmon production--and vice versa. Processing and marketing salmon is becoming increasingly complex and competitive. As the salmon industry becomes increasingly dominated by farmed salmon, companies involved in processing and marketing farmed salmon will have a competitive advantage in the processing and marketing of wild salmon.
27. The salmon industry will become increasingly competitive. The survivors in the Alaska salmon industry will be individuals and companies with some combination of lower costs, higher quality, effective product differentiation, effective marketing, and financial capacity to survive periods of lower prices.