How does the future of the Norwegian salmon industry look like?

        In September 2020, the Norwegian administration proposed a new tax idea for salmon and trout producers, and it would come into introduction from 1st January 2023. A new proposal is expected in March 2023, with a view that the bill is likely to be fully operational by late Q2-2023. The tax incentive was to ensure that some of the value-added profits generated by the industry will contribute to greater social benefits, especially to the coastal communities that accommodate salmon aquaculture. However, fears for industry growth and investment opportunities remain questionable as the salmon tax could harm the industry in terms of production, investment, and prices.

Lower capital investment & value-added production

        The Norwegian Seafood Federation estimates that approximately 35 billion NOK worth of capital investment were cancelled during the four months through January 2023. Rabobank’s chief seafood analyst once mentioned that the end result for total tax raised will be marginally more in the short term while arguably less in the longer term as it could reduce the rate the sector will grow at (Fletcher, 2022). Hatcheries for big smolts are highly capital-incentive and require returns to simulate investment. Less generated capital due to tax would result in slow capacity growth.

        A recurring concern regarding production growth is that the salmon tax is calculated based on Nasdaq spot price, given that many farmers sell the bulk of their fish on fixed contracts. The contract is often pegged below the reported spot price, which is much more volatile as farmers face the risk of being taxed on a spot price that is higher than the actual income received from sales. This eventually hampers the value created for the industry, reduces capital investment and, over time, weaken the market position of Norwegian salmon (Idoneboye, 2023).

Norway competitive advantage is at risk

        Due to a substantial proportion of potential capital investment being postponed since the proposal, Norway salmon production is expected to reduce over the coming years. Norway production growth could increase by approximately 3.3% between 2022-2024 but if it were to fall between 0.5-1% it would lead to tight market. Higher Norwegian salmon prices would make other producers such as Chile and Scotland beneficial.

Price uncertainty

        There appears to have no end to the phenomenal rise in price for the Norwegian salmon, according to Statistics Norway. Salmon prices now hit a record high average price of 122.88 NOK/kg in week 11, representing a 55.7% increase compared to the same period in 2022 despite total export volumes seeming to be steady (SSB, 2023). This could possibly be explained by the salmon tax effect, but prices are likely to go even higher as Easter approaches – a wonderful season for smoked salmon.

Norway’s Conservatives pledge to scrap salmon tax

        The Norwegian government, led by the Labor party, has seen its poll ratings bombarded with both the cost-of-living issue and the salmon tax. Meanwhile, the Conservative party has said that it will scrap the salmon tax if re-elected in 2025 (McDonagh, 2023). But instead of imposing tax based on when the salmon is harvested, salmon tax should be replaced by something closer to the Faroese model – taxing on the use of natural resources. There have also been rumors whether it is appropriate for such taxation to work, since only a part of the seafood industry is linked to the use of seawater.

Market Outlook  

        “What the government is planning has become a gift package for Norway’s oversea competitors” – Seafood Norway CEO Geir Ove Ystmark warned (McDonagh, 2023). The Norwegian government today- 28th March 2023 - has lowered the ground rent tax rate originally at 40% to 35%, after accounting for corporate tax and some deductions, salmon companies could face around more than 60% (McDonagh, 2023). It also aims to establish an independent price council, which could potentially lead to a higher tax burden for some companies on occasions – said by Sparebank 1 Markets. 

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