Weak Norwegian krone continues to help fish exporters

Looking forward, many people predict that the krone will become stronger, and this can have serious consequences for actors who have large inventories of fish stored over long periods of time, such as stockfish and klippfish producers.

Researchers at Nofima are investigating how fluctuations in the Norwegian krone exchange rate affect the performance and competitive position of the Norwegian seafood industry. The aim is to provide improved ability to predict the consequences of future currency instability, and provide an exchange rate adjusted overview of the industry’s performance.

“The export value of all seafood products increased by 4.8% from 2017 to 2018, and we estimate that this increase would have been at 3.4% if the krone had not been slightly weaker in 2018 compared to the previous year. This difference of just over 1% amounts to roughly 1.3 billion NOK”, says Nofima researcher Thomas Nyrud.

Different types of seafood products are exported to different markets, and currencies may vary according to where the sales are made.

Recently, the Norwegian krone exchange rate has performed somewhat differently in relation to the euro and the dollar. From 2017 to 2018, the krone weakened somewhat in relation to the euro, while it strengthened slightly in relation to the dollar.

“This provides, among other things, a distinction between fresh products that are sold in euros to the EU market due to shorter shelf life, and frozen products that can be transported longer distances and are therefore mainly sold to markets that trade in American dollars”, says Nyrud.

Currency index

Central to the four-year research project, funded by the Norwegian Seafood Research Fund, are figures from a group of so-called exchange rate indices. These indices show trends in the Norwegian krone exchange rate when it is weighted according to trade patterns in the seafood industry.

These types of indices are compiled for all of the most important products that the industry exports. By studying the indices, we can see how the different sectors and products are affected when the Norwegian krone exchange rate changes.

“The trade-weighted currency index for all seafood exports didn’t change that much from 2017 to 2018, where the kroner became weaker by 1 percent. If we then look at sector, species and product levels, we notice similar, small changes in most of the segments. Regarding 2018, we estimate a slight but positive exchange rate contribution to export revenues in all of the three major sectors of whitefish, pelagic and farmed”, says Nyrud.

A stronger krone can result in reduced margins

The Norwegian krone exchange rate has remained weak throughout 2018 and into 2019, despite increased growth in the Norwegian economy and the policy rate being raised twice in the last six months. Many currency analysts suggest that the Norwegian krone remains weak due to unstable international markets that are characterized by headlines such as Brexit, trade war and falling stock exchanges. This creates nervous investors who then stay away from small, volatile currencies like the Norwegian krone.

At the same time, several brokerage companies predict a stronger krone from 2019 onwards, where they anticipate strong growth in the Norwegian economy and higher interest rates.

“A stronger krone will lower export prices measured in Norwegian krone and provide reduced margins at a time where high ex-vessel prices are already affecting the margins of many. This can have serious consequences for actors who have large inventories of fish stored over long periods of time, such as stockfish and klippfish producers. These actors have paid a lot of money for the raw fish this winter and spring, but may experience major changes in the selling price of the finished products if the krone strengthens too much before they are exported in late autumn and next winter”, says Nyrud.

Chile, Scotland and Iceland

The competitive situation between Norwegian and foreign producers is also affected by the exchange rates. The researchers have looked into three industry competitors in the international seafood markets; Chile, Iceland, and Scotland.

Chile and Scotland are key competitors in salmon production, while Iceland is a major player in the production of whitefish.

In Chile, economic growth has increased during the past couple of years, mainly driven by low interest rates. At the same time, the Chilean peso has gradually strengthened, with the possibility of becoming even stronger in the future. A stronger peso relative to Norwegian kroner will be beneficial to Norwegian salmon exporters and will strengthen their competitive situation.

The Icelandic krona has weakened steadily over the last few years, also in relation to Norwegian kroner. However, this comes after a long period of Icelandic currency increasing its value. Iceland’s economy has a period of formidable growth behind it, but this growth is now slowing down with a decline in exports and investments. This reduced growth has led to a weaker Icelandic krona, and a further weakening would be beneficial to the country’s export industry.

The pound has been unstable following the British people’s decision to leave the EU in 2016, and has varied in step with the negotiations and their results. Moderate growth in the British economy is expected in the near future, much depending on the outcome of Brexit, while the Bank of England has raised the policy rate twice since the autumn of 2017.

In a worst-case scenario, a so-called “hard Brexit” could result in the value of the pound falling dramatically. If we disregard any changes made to trade agreements or other conditions and focus only on currency effects, a weaker pound could cause a reduced demand for Norwegian fish in the UK, as it would be more expensive and many would choose cheaper alternatives. In addition, it can give UK exporters a price advantage in the markets and strengthen their competitiveness, in the same way that the severe weakening of the krone in 2014/2015 helped many Norwegian exporters.

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