Pandemic forces salmon farmers to look at downstream M&A, advisors say

The COVID-19 pandemic is likely to drive more salmon farmers to look at buying into processing to secure access to their target markets, said financial advisors from Pareto Securities and Antarctica Advisors.

Speaking on Undercurrent News’ “What COVID-19 Means for Seafood M&A” webinar (watch in full below) on June 4, Henning Lund, a senior partner at the Norwegian advisory  rm Pareto, said upstream consolidation of the salmon sector would likely continue as before, with “new regulations and generation shifts more likely to impact the sector than the pandemic”.

Ignacio Kleiman, the managing partner at boutique seafood advisory Antarctica Advisors, also noted that the effects created by the market shutdown have been felt by both ends of the supply chain in the US, for instance.

“This pandemic really broke up the value chains both ways, for large companies in the US, accessing raw material, and for raw material providers overseas realizing they can’t reach their market,” Kleiman told Undercurrent. “At the beginning, it created a little bit of chaos there.”

“Large raw material producers — both wild-caught and also aquaculture — they will want in the future to make sure they can control the value chain all the way to the market because otherwise, they get stuck with the product causing tremendous pain on the origination side,” he said.

Norway’s Mowi, the world’s largest salmon farmer by volume, is already somewhat ahead of the curve in this respect. The company is using the control of the market it has with its own plants to push a brand, MOWI, which it has started in Poland. Further launches in France and the US have been delayed and disrupted, respectively, but Mowi’s power in processing gives the company this direct access to the consumer.

Mowi has plants across Continental Europe and the UK, with the largest being the massive former Morpol factory in Poland. Aside from buying Morpol in 2012, most of Mowi’s recent downstream expansion has been organic.

The issue for salmon farmers seeking access to their target market is not a strictly Norwegian problem, however. If anything, the effects have been more keenly felt by Chilean salmon farmers, who have had to contend with steeply rising freight costs to get  sh to market, and who are still yet to see a rebound in prices in their key markets of the US and Brazil.

“We are in a couple of conversations with boards down there; clearly the Chilean producers are feeling under pressure,” Kleiman told Undercurrent. “They have realized that while they have [an] excellent product, at the same time they do not control access to the market.”

Chilean companies need to look at getting closer to their main customers in the US, said Kleiman.

“Clearly there has to be some north-south integration, because there are a group of salmon producing countries in the southern hemisphere, while the big consumption of seafood takes place in the northern hemisphere, but still, except for certain species, we do not see that much good integration between the north and the south.”

However, the real change was likely to come downstream, after national lockdowns exposed the need for direct access to the market for suppliers.

“When it comes to the processing part, I think farmers have learned from the pandemic the value of being in the whole value chain, especially those with prepacked consumer products coming into retail and also e-trade,” Lund said.

“So, I think we will see more focus from the bigger salmon farming companies on that part of the value chain,” he added. “It will be more difficult to be a small salmon farmer, and I think it will be more important to have integrated operations — so I also think we will have mergers between medium-sized companies, and…ongoing consolidation of the smallest farming companies.”

Mowi has three value-added plants in the US, in Belfast, Maine; Dallas, Texas, and Miami, Florida. The company moved to a plant in Miami almost three times bigger than the one it had before at the start of 2019. In British Columbia, Canada, the company also has a value-added plant. In Asia, Mowi has also opened a plant in the Chinese megacity of Shanghai and has other factories in Japan, South Korea, and Taiwan.

In Europe, Leroy Seafood Group has also moved deep into processing with plants in Norway and across Continental Europe close to end consumers. The company also added white sh processing capacity with its deal for Norway’s largest fishing and processing companies, Havfisk and Norway Seafoods Group (renamed Leroy Norway Seafoods) in 2015.

Mowi and Leroy are the only two Norwegian salmon farmers with significant valueadded processing in Europe, however. In the US, Canada’s Cooke joins Mowi in having significant downstream processing. Chile’s Blumar is also processing in a plant in Miami. Patagonia Seafarms, a joint venture between two Chilean farmers — Cultivos Yadran and Marine Farm Tornagaleones — also operates a plant in Miami.

Atlantic Sapphire, which plans to open a massive land-based farming facility in Florida in July, also plans to have a value-added factory to deliver finished products direct to end customers.

“We are going to see over the next  ve years an increased strategic value of having locally-produced seafood, not only for quality control but also in the future to invest, these are going to be big drivers for M&A in the next three or four years,” said Kleiman, on the webinar.

Different hemisphere, same problem

The issue for salmon farmers seeking access to their target market is not a strictly Norwegian problem, however. If anything, the effects have been more keenly felt by Chilean salmon farmers, who have had to contend with steeply rising freight costs to get fish to market, and who are still yet to see a rebound in prices in their key markets of the US and Brazil.

“We are in a couple of conversations with boards down there; clearly the Chilean producers are feeling under pressure,” Kleiman told Undercurrent. “They have realized that while they have [an] excellent product, at the same time they do not control access to the market.” Chilean companies need to look at getting closer to their main customers in the US, said Kleiman.  “Clearly there has to be some north-south integration, because there are a group of salmon producing countries in the southern hemisphere, while the big consumption of seafood takes place in the northern hemisphere, but still, except for certain species, we do not see that much good integration between the north and the south.”