Great uncertainty in the largest dried and salted cod market

According to Nofima researcher Ingelinn Eskildsen Pleym, there are numerous causes for concern: the market has fallen dramatically due to a sharp downturn in the Brazilian economy and resultant weak currency, but exports from Norway are falling more dramatically than the market.

In 2015, Norwegian dried and salted cod exports to Brazil fell 30 percent in volume. Last year, they fell a further 11 percent.

“Despite this, the total dried and salted cod market in Brazil fell by less than five percent last year. This means that others, perhaps the Chinese, have captured further market shares from Norwegian exporters,” remarks the researcher, who has reviewed fresh figures from the Norwegian Seafood Council. After a fall in the last two years, it appears that the market share of Norwegian dried and salted cod is about to stabilise.

“The dried and salted cod industry is in competition with the rest of the white fish market for access to raw materials, and interviews with a number of central actors indicate that production capacity is available. The industry has to take action in order to be competitive, both regarding raw materials and in the market,” Pleym believes.

The Nofima researcher has looked closely at the developments in Brazil in recent years, together with market analyst Finn-Arne Egeness from Nordea Bank.

Losing market share

The reason that Pleym is worried is that Norwegian exporters are reacting traditionally: most are sitting on the fence waiting for the market to pick up again, as they have done many times before. Moreover, some exporters only produce dried and salted cod when it is most profitable, and change to other productions when the market is low. Such passive pauses can be final, say the researcher, who believe we will see a further restructuring with fewer producers. It may seem a good thing for those who mainly base their business on dried and salted cod, but reduced competition does not necessarily increase profits.

“Given that there is a desire for increased value creation in the seafood industry in Norway, less processing in the white fish sector is bad news. If profitability does not improve, it will obviously become less attractive to produce dried and salted cod. Then we will continue to see increasing exports of whole white fish, where Norwegian processers and exporters will take on a role as raw commodity suppliers, with increased pressure on prices and resultant limitations to earnings,” the researcher argues.

Despite the downturn in Brazil, money remains to be made in areas that continue to buy. The new actors that have established themselves in the market are creative. They are exploiting the fact that dried and salted cod has gained an even stronger position in the market than it had before, thanks to finished and semi-finished products.

“We know that there are products sold at almost twice the highest price for a whole dried and salted cod in Portugal. Manufacturers manage it because they make new products that are perceived differently, marketed as unique, and sold at high prices. The large Norwegian exporters have not developed similar brands for the Brazilian market,” says Pleym. “In Norway, the focus remains on the large volume of dried and salted cod.”

A competitive edge

Historically, Norweigan dried and salted cod has comprised almost 90 percent of the market in Brazil. The researcher has interviewed many exporters about what the most important resources for competition in the market are. There was a shared focus on access to raw materials. Previously, Norwegian industry had an advantage because of its physical proximity to raw materials from the Barents Sea and the North Atlantic. Today’s production does not need to be based close to fresh raw materials, and an increasing number of different markets request Norwegian white fish for various purposes. The competition is therefore fierce.

“Overall, few of the resources the exporters named as important to their businesses are unique to them, which will make it difficult for the firms to claim a desirable position in the market. As an example, only one exporter named relationships as a critical resource. Every single relationship, whether it is to a supplier or a customer, has the opportunity to be unique and therefore to provide possibilities for a desirable position. If these companies begin to work to establish and develop new opportunities with unique positions, there may be serious consequences for the Norwegian dried and salted fish industry,” warns the researcher.

She believes that Norwegian exporters steer their own opportunities for participation in this market.

“The producers themselves have said that it is too expensive to produce more convenient products of dried and salted cod in Norway. This must, however, be based on their experiences with their volume strategy,” she suggests, and points out that portions of the Brazilian market are willing to spend a great deal on unique products.

“It shouldn’t be a question of either/or. Moreover, production abroad could be an alternative, to keep costs down, but also for better market access,” states Pleym.

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