2013 Salmon Industry Handbook

Salmon Farming Industry
Handbook 2013
The Marine Harvest Salmon Industry Handbook

The purpose of this document is to give financial analysts and
investors a better insight into the salmon farming industry, and what
Marine Harvest considers to be the most important value drivers
.
Contents
1. Introduction 3
2. Definition of segment 4
2.1 Seafood as part of the larger protein space 4 7. Cost dynamics 41
2.2 Stagnating wild catch growing aquaculture 5 7.1 Economy in salmon farming 41
2.3 Salmonids contribute 4.5% of global seafood supply 6 7.2 Production costs 42
2.4 Supply of wild and farmed salmonids 7 7.3 Cost component disease and mortality 43
2.5 Salmonids harvest 2012 8 7.4 Salmon feed 44
7.5 Salmon feed producers 45
3. The attributes of salmon 9 7.6 Raw material market 46
3.1 A healthy product 9 7.7 Price, cost and EBIT development Norway 47
3.2 Resource efficient production 10 7.8 Salmon farming is a capital intensive industry 48
7.9 Capital needs when building biomass 49
4. World market of farmed Atlantic salmon 12 7.10 Accounting principles for biological assets 50
4.1 Estimates of the market for farmed Atlantic salmon 12 7.11 Investments and payback time for new entries 51
4.2 Historic total harvest of Atlantic salmon 13
4.3 Trade and product flow - Atlantic salmon 14 8. Salmon health and R&D 53
4.4 Projecting future harvest quantities 15 8.1 Salmon disease prevention and treatment 53
4.5 Yield per smolt 16 8.2 Most important health risks 54
4.6 Development in standing biomass 17 8.3 Fish health and vaccination (Norway) 55
4.7 Supply and demand historic prices for Atlantic salmon 18 8.4 Research and development areas 56
4.8 Historic price development by local reference prices 19
4.9 Different sizes different prices (Norway) 20 9. Secondary Processing (VAP) 57
4.10 Price indexes vs. FOB packing plant 21 9.1 European value-added processing (VAP) industry 58
4.11 Price neutral demand growth - historically 6-7% 22 9.2 Market segment (2012) 59
4.12 Price of Atlantic salmon relative to other protein sources23 9.3 The European market for smoked salmon 60
5. Industry structure 24 Appendix 61

5.1 Top 5-10 players in main producing regions 24 Weight conversion ratios and key words 62
5.2 Number of players producing 80% of Atlantic salmon 25 Some historic acquisitions and divestments 63
Marine raw materials in salmon feed 65
6. Production of salmon 26 Sustainability of fish feed 66
6.1 Establishing a salmon farm 27 Atlantic salmon production cycle 67
6.2 Access to licenses Norway 29 Marine Harvest history 68
6.3 Access to licenses Scotland 32 Marine Harvest worldwide 69
6.4 Access to licenses Chile 33 Marine Harvest downstream (VAP) 70
6.5 Access to licenses Canada 35
Marine Harvest sales channels (2012) 71
6.6 The Atlantic salmon life/production cycle 36
Sources for industry and market information 72
6.7 Production inputs 38
6.8 Factor influencing the pace of production 40
Updated as of April 27th 2013
Disclaimer
While every reasonable precaution has been taken in the preparation of this document,
Marine Harvest assumes no responsibility for errors or omissions, or for damages resulting
from the use of the information contained herein.
The information contained in this document is believed to be accurate. However, no

guarantee is provided. Use this information at your own risk.
1. Introduction
Salmon
Salmon is the common name for several species of fish of the family Salmonidae (e.g.
Atlantic salmon, Pacific salmon), while other species in the family are called trout (e.g. brown
trout, seawater trout). Although several of these species are available from both wild and
farmed sources, all commercially available Atlantic salmon is farmed. Salmon live in the
Atlantic and Pacific Oceans, as well as the Great Lakes and other land locked lakes.
Typically, salmon are anadromous: they are born in fresh water, migrate to the ocean, then
return to fresh water to reproduce.
Atlantic salmon farming started on an experimental level in the 1960s but became an industry
in Norway in the 1980s and in Chile in the 1990s.
About 60% of the worlds salmon production is farmed. Farming takes place in large nets in
sheltered quiet waters such as fjords or bays, or in tanks on land. Most of the cultured
salmon come from Norway, Chile, Scotland and Canada.
Salmon is a popular food. Salmon consumption is considered to be healthy because of the

fish's high content of protein and Omega-3 fatty acids.
The quantity figures in this industry handbook are mainly expressed in HOG (head on
gutted). For a weight conversion table, see appendix.
3
2. Definition of segment
2.1 Seafood as part of the larger protein space
Source: FAO, Population Division of the Department of Economic and Social Affairs of the United Nations
Secretariat, World Population Prospects: The 2010 Revision
Although 70% of the Earths surface is covered by water, only 6% of the protein sources for
human consumption is produced in this element today. The global population is expected to
grow by 2 billion, to more than 9 billion, by 2050. Assuming consumption per capita stays
constant, this implies a 40% increase in demand for protein.
The estimates for population growth, however, assume that the growth will mainly occur in
Asia and Africa, which have the lowest protein consumption per capita today. When factoring
in a trend of increased consumption per capita in these areas, the demand may double by
2050. Knowing that resources for increased land based protein production will be scarce, a
key question is how protein production in sea can be expanded.
4
2.2 Stagnating wild catch growing aquaculture
Source: Kontali Analyse, FAO, OECD
There has been a considerable increase in total and per capita fish supplies over the past
few decades. Aquaculture is the fastest growing animal food producing sector, and in 2012
the aquaculture industry contributed nearly 50% of the fishery output for human consumption.
On average, fish provides about 30 kilocalories per person per day globally. The dietary
contribution of fish is more significant in terms of proteins - it provides the worlds population
with 6% of their intake of protein.
While global human population is growing at a rate of 1.7% annually, aquaculture outpaces
this rate by 1.4% - growing at 3.1% annually.
Annual per capita fish consumption rose from 9.9 kg in the 1960s, to 18.4 kg in 2009. A total
of 126 million tonnes (live weight, LW) fish was available for human consumption in 2009,
where Asia consumed almost two thirds. To maintain current consumption level in 2030
taking population growth into account, an additional 23 million tonnes of fish production is
needed.
With the stagnating wild catch, the growth in fish production (and protein supply) is expected
to come from the fast growing aquaculture industry. Food and Agriculture Organization of the
United Nations (FAO) estimates that in 2030, aquaculture will have increased from 45 million
tonnes to 85 million tonnes.
5
2.3 Salmonids contribute 4.5% of global seafood supply
Selectedseafoodspecies2011
30,0
Wild
25,0
MilliontonnesLW
Farmed
20,0
15,0
10,0
5,0

Source: Kontali Analyse
Even with an increase in production of Atlantic salmon of more than 600% since 1980, total
global supply of salmonids is still marginal compared to most other seafood categories.
Whitefish is about ten times larger and consists of a much larger number of species.
5,0 Fishspecies harvest/catchquantities2011

Wild
4,5
Farmed
4,0
MilliontonnesLW
3,5
3,0
2,5
2,0
1,5
1,0
0,5

Note: live weight (LW) is used because different species have different conversion ratios
The graph compares selected species and their respective harvest/catch quantities in 2011.
Harvest of Atlantic salmon was more significant than Atlantic cod and pangasius. But,
compared to two of the largest whitefish species, tilapia and Alaska pollock, Atlantic salmon
was less than half the quantity harvested.
6
2.4 Supply of farmed and wild salmonids
Historical supply of farmed and wild salmon
2200
2000
1800
1600
ThousandtonnesHOG
1400
1200
Wildsalmon
1000
Farmedsalmon
800
600
400
200

2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E
Note: Small and large trout are not included in farmed quantities
The general supply of seafood in the world is shifting more towards aquaculture as the supply
from wild catch is stagnating in several regions and for many important species. Wild catch of
salmonids is varying between 700 000 and 1 000 000 tonnes HOG, whereas farmed
salmonids are increasing. The first year the total supply of salmonids was dominated by
farmed, was in 1999. Since then, the share of farmed salmonids has increased and has
become the dominant source. The total supply of all farmed salmonids was over 2.1 million
tonnes (HOG) in 2012. The same year, the total catch quantity of wild salmonids was about
824 000 tonnes, with pink, chum and sockeye being most common species.
Origin and markets for wild salmonids

The diagram shows competition of wild salmon in different markets for Atlantic salmon. About
25% of total wild catch of salmon has been imported frozen to China (from the US, Russia
and Japan), and later been re-exported as frozen fillets. Once re-exported from China, one
cannot distinguish between the different origins.
7
2.5 Salmonids harvest 2012
Farmed Atlantic salmon dominates
Atlantic salmon: By quantity, the largest species of salmonids. It is a versatile product,

which can be used for a variety of categories such as smoked, fresh, grilled, sushi, as well as
ready-made meals. The product is present in most geographies and segments. Due to
biological constraints, seawater temperature requirements and other natural constraints,
farmed salmon is only being produced in Norway, Chile, UK, North America and New
Zealand/Tasmania. In 2012, the total supply of Atlantic salmon was 1.78 million tonnes HOG.
Pink: Caught in USA and Russia and used for canning, pet food and roe production. Quality
is lower than the other species and is therefore a less valued salmonid. The fish is small in
size (1.5-1.7 kg) as all catch happens in a very short time period
Large trout: Produced in Norway, Chile and the Faeroes and the main markets are Japan
and Russia. Trout is mainly sold fresh, but is also used for smoked production.
Small trout: Produced in many countries and most often consumed locally as a traditional
dish as hot smoked or portion fish. Small trout is not in direct competition with Atlantic
salmon.
Chum: Caught in Japan and Alaska. Most is consumed in Japan and China. In Japan, it is
available as fresh, while in China it is processed for local consumption and re-exported. Little
chum is found in the EU market. Varied quality and part of the catch is not for human
consumption.
Coho: Produced in Chile and is mostly used for salted products. It is in competition with trout
and sockeye in the red fish market. Although Russia has increased its import of this specie
the last years, Japan remains the largest market.
Sockeye: Caught in Russia and Alaska. It is mostly exported frozen to Japan, but some is
consumed locally in Russia and some canned in Alaska. Sockeye is seen as a high quality
salmonid and is used as salted products, sashimi and some smoked in EU.
Chinook/King: Low quantity species, but highly valued. Alaska, Canada and New Zealand
are the main supplying countries. Most quantities are consumed locally. Chinook is more in
direct competition to Atlantic salmon than the other species and is available most of the year.
8
3. The Attributes of Salmon
3.1 A healthy product
Farmed salmon is a good source for the marine

omega-3 polyunsaturated fatty acids
eicosapentaenoic acid (EPA) and docosahexaenoic
acid (DHA) that reduce the risk for cardiovascular
disease. Data also indicates that EPA and DHA
reduce the risk for a large number of other health
issues.
Salmon is viewed upon as a very versatile product,

which can be used in numerous dishes in most
culinary tradtions. It is popular with retailers as it is
produced in a controlled environment and is stable
in supply throughout the year (not subject to
seasons).
Source: FAO, Marine Harvest
Salmon is nutritious, rich in micronutrients, minerals, marine omega-3 fatty acids, very high
quality protein and several vitamins, and represents an important part of a varied and healthy
diet. FAO highlights Fish is a food of excellent nutritional value, providing high quality protein
and a wide variety of vitamins and minerals, including vitamins A and D, phosphorus,
magnesium, selenium and iodine in marine fish.
The substantial library of evidence from multiple studies on nutrients present in seafood
indicates that including salmon in your diet will improve your overall nutritional status, and
may even yield significant health benefits. In the face of increasing obesity and decreasing
health standards, governments and food and health advisory bodies in Europe and the USA
are actively encouraging their populations to consume more fish as part of their diet.
9
3.2 Resource efficient production
Protein production efficiency
The main sources of animal protein are cattle, poultry, pork and
seafood. The first three are farmed, and now also more and more of
the available seafood is farmed.
One method to measure how productive the different protein

productions are, is by using the representative feed conversion ratio
(FCR). In short, this tells us the kilograms of feed needed to
increase the animals bodyweight by one kg. If we compare farmed
salmon with the other three species, we find a variation in the FCR
between 1.2 and 8.0, where salmon is the most efficient in
production and cattle are the least. The main reason why salmon
convert feed to body weight so efficiently is because they are cold-
blooded and therefore do not have to use energy to heat their
bodies.
Wild salmon has a FCR of approximately 10.0.
Atlantic salmon boasts a high energy and protein retention compared to pig and chicken.
Source: Ytrestyl et. al (2011)
10
3.2 Resource efficient production
Edibleyield
Ediblemeat/totalbodyweight
As well as a low FCR, Atlantic

salmon has a significantly higher
edible yield in comparison with other
68%
protein sources. As much as 68% of
Atlantic salmon is edible meat.
52%
46%
AtlanticSalmon Pig Chicken
Source: Norwegian University and Life Sciences (2002)
Ediblemeatper100kgfeedfed
Most of the fish is edible meat, while

other sources of meat have a higher
level of waste or non edible meat.
57kg The combination of the FCR ratio
and edible yield, gives salmon a
23kg favourably high quantity of edible
meat per kg of feed fed, as the graph
17kg
to the left shows.
AtlanticSalmon Pig Chicken
Source: Norwegian University and Life Sciences (2002)
Freshwater consumption in production
Freshwater is a renewable but limited natural resource, which can only be renewed through
the process of the water cycle. If more freshwater is consumed through human activities than
is restored by nature, the result is that the quantity of freshwater available in lakes, rivers,
dams and underground waters, is reduced. This can cause serious damage to the
surrounding environment.
Farmed Atlantic salmon requires only 1,500 litres per kg of fresh water in production whereas
producing 1 kg beef requires 14 000 litres of fresh water consumption!
11
4. World Production and Market of Farmed Atlantic Salmon
4.1 Estimates of the market for farmed Atlantic salmon
Supply of Atlantic salmon has more than doubled since 2000 (annual growth of 7%). Due to
various constraints, Kontali Analyse expects annual supply growth of Atlantic salmon to drop
to 3% in the period 2013-2020. The EU and the US are by far the largest markets for Atlantic
salmon. However, emerging markets are growing at significantly higher rates than these
traditional markets. As all harvested fish is sold and consumed in the market, the demand
beyond 2013 is assumed equal to supply (estimated by Kontali Analyse). As can be seen
from the graph below, salmon is one of the food categories that grow at a significantly higher
rate than the worlds human population.
2500
FarmedAtlanticsalmonbymarket
2000
(thousandtonnesHOG)
1500
1000
500
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2025E
2030E
2035E
2040E
2045E
2050E
NorthAmerica SouthAmerica Europe(incl.Russia)

Asia Oceania Africa
Allmarkets Worldpopulationrebased
Source: Kontali Analyse, Population Division of the Department of Economic and Social Affairs of the United
Nations Secretariat, World Population Prospects: The 2010 Revision
12
4.2 Historic total harvest of Atlantic salmon
Farming of Atlantic salmon has always been dominated by a few producing countries as
there are several natural conditions that need to be in place for optimal production, like
seawater temperature range (see chapter 6), a sheltered coast line and certain biological
conditions.
In the beginning of the 2000s, Chile started to increase production sharply. However, in 2007
there was an outbreak of the ISA virus, which resulted in a serious production setback (2009-
2011). Since 2010, Chilean industry has been subject to an aggressive rebuild. The
production in Canada and the UK has been stable the last 5 years, and has limited potential
for future growth. Other regions have generally been growing, but from rather marginal
quantities.
13
4.3 Trade and product flow Atlantic salmon
Historically, the main market for each origin has been:

Norway EU, Russia and Asia
Chile USA, South America and Asia
Canada USA (west coast)
Scotland mainly domestic (limited export)
The logistic and perishability of the product has led to this supply trend. A new trend since the
beginning of this millennium has been that Norwegian fresh salmon meet more competition
from Chilean frozen salmon in the European market. This, together with strong competition
between mainly Norwegian and Chilean salmon in the Japanese market, and the increase in
export from Scotland and Norway to USA during the period of reduced supply from Chile,
shows that the market is becoming more globalised. Nevertheless, there will still be regional
markets for the different production countries due to cost of logistics for fresh salmon. It is
only frozen salmon that can be made available in large quantities for distant markets at low
costs. It is generally expected that the market will continue to have a preference for fresh
salmon, going forward.
Global trade flows of farmed Atlantic salmon - 2012 (HOG)
Norway,Iceland,
FaroeIslands: Russia:
Harvest:1130 000 Harvest:6000
Market:33000 Market:155 000
North America: EU:

Harvest:129 000 Harvest:156000
Market:347 000 Market:823 000 Japan:
Harvest:0
Market:57000
OtherAsia:
Harvest:0
Market:137 000
LatinAmerica:
Harvest(CL):328 000
Market:105 000
Australia&
NewZealand:
Harvest:33 000
Market:36000
14
4.4 Projecting future harvest quantities
StandingBiomass
Source:Kontali
Smolt
FeedSales Release
Source:feedcompanies Source:Producing
companies
Seawater Disease Vaccine

Temperature Outbreaks Sales
Source:Meteorological Source:e.g.
Source:Media
institutes ScanVacc
The three most important indicators on future harvest quantities are standing biomass, feed
sales and smolt release. These three are good indicators on medium term and long term
harvest, while the best short term indicator is standing biomass categorized by size. As
harvested size is normally above 4 kg, the available quantity of this size class is therefore the
best estimate of short term supply.
If no actual numbers on smolt releases are available, vaccine sales could be a good indicator
of number of smolt releases and when the smolt is put to sea. This is a good indicator on
long term harvest as it takes up to 2 years before the fish is harvested after smolt release.
Variation in seawater temperature can materially impact the length of the production cycle. A
warmer winter can for example increase harvest quantities for the relevant year, partly at the
expense of the subsequent year.
Disease outbreaks can also impact the harvest quantity due to mortality and slowdown of
growth.
15
4.5 Yield per smolt
5,0
4,5
Kgfish(HOG)/smoltreleased
4,0
3,5
3,0
2,5 Norway
2,0 Chile
1,5 UK
FaroeIslands
1,0
0,5

Generation
Source: Kontali Analyse, Marine Harvest
Yield per smolt is an important indicator of production efficiency. Due to the falling cost curve
and the discounted price of small fish, the economic optimal harvest weight is in the area of
4-5 kg (HOG). The number of harvested kilograms yielded from each smolt is impacted by
diseases, mortality, temperatures, growth attributes and commercial decisions.
The average yield per smolt in Norway was estimated to 3.52 kg (HOG) for the year 2011.
Since 2010, the Chilean salmon industry has been rebuilding its biomass after the depletion
caused by the ISA crisis commencing in 2007. In 2010/11, the Chilean salmon industry
showed a very good performance on fish harvested due to the low density of production
(improved yield per smolt). In line with the increased density, biological indicators have
deteriorated significantly in 2012/13.
Average yield in the UK and Faroe Islands in 2011 was estimated to 2.80 kg and 3.57 kg,
respectively.
16
4.6 Development in standing biomass
Because of the variation in sea water temperatures during the year, the total
standing biomass in Europe has a S-curve, which is at its lowest in May and
at its peak in October. The Norwegian industry is focused on minimizing the
natural fluctuations as license constraints put a limit to how much biomass
can be in sea at the peak of the year.
In Chile the situation is different due to more stable seawater temperatures

and opposite seasons (being in the Southern hemisphere). A more steady
water temperature gives the possibility to release smolt during the whole
year and gives a more uniform utilization of the facilities. The reduction of
standing biomass in Chile in 2008 and 2009 is due to the impact of the ISA
disease.
17
4.7 Supply and demand historic prices
PricedevelopmentAtlanticsalmon2000 Q12013
45,00 6,00
40,00
5,00
35,00
30,00 4,00
25,00
USD/lb
NOK/kg
3,00
20,00
15,00 2,00
10,00
PriceNorwegianguttedAtlanticsalmon(FCAOslo) 1,00
5,00 PriceChileanAtlanticsalmonfillet23lb(FOBMiami)
PriceFreshAtlanticsalmon810lb(FOBSeattle)
0,00 0,00
2000 2001 2002 2003 2004 2004 2005 2006 2007 2008 2009 2010 2011 2012
Due to the long production cycle and the short shelf life of the fresh product (maximum 3
weeks), the spot price clears on the basis of the overall price/quantity preference of
customers.
As most of the farmed salmon is perishable and therefore marketed fresh, all salmon
produced in one period has to be consumed in that same period. In the short term, the
production level is difficult and expensive to adjust as the planning/production cycle is three
years long. Therefore, the supplied quantity is very inelastic in the short term, while also
demand is shifting with the season. This has a large effect on the price volatility in the
market.
Factors affecting market price for Atlantic salmon are:

Supply (absolute and seasonal variations)
Demand (absolute and seasonal variations)
Globalisation of the market (arbitrage opportunities between regional markets)
Presence of sales contracts reducing quantity availability for the spot market
Flexibility of market channels
Quality
Comparing FCA Oslo, FOB Miami and FOB Seattle, there are clear indications of a global
market as the prices correlate to a high degree.
18
4.7 Historic price development by local reference prices
The three graphs above shows quarterly average prices of salmon from 2000 to Q1 2013.
As in most commodity industries, the producers of Atlantic salmon are experiencing much
volatility in the price achieved for the product. The average price for Norwegian whole
salmon the last decade has been about NOK 27/kg (HOG), for Chilean salmon fillet (2-3lb)
USD 3.31/lb, and for Canadian salmon (8-10lb), USD 2.11/lb (HOG). The pricing of Scottish
and Faroese salmon is a derivate of the price of Norwegian salmon. The price of Scottish
salmon is normally at a premium of 3-5 NOK to Norwegian salmon, whereas the Faroese is
normally at a small discount.
19
4.8 Different sizes different prices (Norway)
The most normal market size for a salmon is 4/5 kg HOG. The reason for the different sized
fish is mainly because salmon farming is a biological production process, where the fish has
different growth cycles and the biomass represents a normal distributed size variation.
The markets for the different sizes vary, as can be seen in the above graph. The processing
industry in Europe mainly uses 3-6 kg HOG but there are niche markets for small and large
fish. As these markets are minor compared to the main market, they are easily disrupted if
quantities become too high. Generally, small fish sizes are discounted and large sized fish
are sold at premium.
20
4.10 Price indexes vs. FOB packing plant
* Average difference between SSB and return to packing plant

Source: Fishpool, NOS/FHL, SSB, Norwegian Seafood Council, UrnerBarry, Kontali Analyse
Several price indices for salmon are publicly available. The two most important providers of
such statistics for Norwegian salmon are NOS/Fish Pool and Statistics Norway (SSB). Urner
Barry in the US provides a reference price for Chilean salmon in Miami and Canadian salmon
in Seattle.
In Norway the price is found by deducting freight cost from the farm to Oslo and the terminal
cost from the NOS/FHL price (~0.70 NOK). If using the SSB custom statistics, you need to
adjust for freight to border, duty and taxes, and also to adjust for quality and contract sales to
get the achieved spot price back to producer. Average difference between SSB price and
FCA Oslo is ~1 NOK, which gives the average difference between SSB price and back to
plant at NOK 1.50**.
Calculating Urner Barry Chilean fillets, back to HOG plant is more extensive. It is necessary
to use UB prices for both 2/3 lb and 3/4 lb and adjust for quantity share, market handling (4
cent), market commission (4.5%), premium fish share (92%), reduced price on downgraded
fish (30%), airfreight (USD 1.50/kg) and HOG to fillet yield (70%).
**Historically this difference fluctuates from week to week and will normally be observed in the range of
[-2 to +4]
21
4.11 Price neutral demand growth - historically 6-7%
Global supply Change in av. price

30% Y-o-Y change FHL price
200001 13% 25%

ChangeinaverageFHLprice
20% 200102 7% 10%

200203 8% 3%
10% 200304 5% 11%
200405 4% 17%
0% 200506 2% 23%
5% 0% 5% 10% 15% 20% 25%
200607 10% 21%
10%
2012 200708 7% 4%
200809 2% 18%
20%
200910 1% 24%
201011 12% 19%
30%
Globalsupplychange 201112 22% 13%
Combining the data gives a linear correlation between change in global supply and change in
the Norwegian FHL price. This relation had an explanatory power of almost 87% of the
annual price development between 2000 and 2011. Including 2012, this figure decreases to
66%.
The price correlation across regional markets is generally strong for Atlantic salmon.
The Norwegian FHL price represents about two thirds of the global quantities for Atlantic
salmon.
Growth in global supply of Atlantic salmon is estimated to 119% in the period 2000-2012
(annual CAGR 7%), varying between -2% and 22% (2011-12) annually. Variation in growth
rates has been the main determinant for the variation in prices. Annual average prices have
varied between NOK 19.50 (2003) and NOK 37.45 (2010).
22
4.12 Price of Atlantic salmon relative to other protein sources
Relativepricedevelopment1980Q12013
350
300
250
Indexpricesrebased
Beef
200 Lamb
Pork
150
Chicken
100 Salmon
50
0
1980 1982 1985 1988 1991 1993 1996 1999 2002 2004 2007 2010 2013
Source: International Monetary Fund, Marine Harvest
Compared to other food sources containing animal protein, salmon has become relatively
much cheaper during the last decades.
Relative price of salmon in terms of other protein sources in selected major markets
(snap-shot of consumer prices in selected retail stores, salmon fillet compared to beef
steak, pork fillet and chicken breast fillet, April 2013)
Salmon/Beef Salmon/Chicken Salmon/Pork

UK 0.9 1.4 1.5
US 1.3 2.3 1.9
Belgium 1.3 1.7 1.9
Japan 1.3 2.0 2.0
Despite salmon having become relatively cheaper over time, it is still a rather expensive
product in the shelves.
23
5. Industry Structure
5.1 Top 5-10 players in main producing regions of farmed Atlantic salmon
2012E tonneswfe
Top10Norway H.Q. Top10UK H.Q. Top10NorthAmerica H.Q. Top10Chile H.Q.
1 MarineHarvest 283700 MarineHarvest 44700 MarineHarvest 44700 MarineHarvest 44400
2 LerySeafood 140000 ScottishSeafarms 30100 CookeAquaculture 30000 PesqueraLosFiordos 44000
3 Salmar 114000 TheScottishSalmonCompany 26600 Cermaq 21100 SalmonesMultiexport 40000
4 Cermaq 56700 Morpol(MeridianSeafood) 25600 GriegSeafood 15100 Mainstreaminkl.CMChilo 34500
5 GriegSeafood 43700 GriegSeafood 19000 NorthernHarvest 10000 Camanchaca 31120
6 Nordlaks 40000 * * Blumar 30600
7 NovaSea 38400 AustralisSeafood 19000
8 AlsakerFjordbruk 27600 EmpresasAquachile 18000
9 BremnesSeashore 27000 Invertec 18000
10 NorwayRoyalSalmon 23500 SalmonesCupquelan(Cooke) 14000
Top10 794600 Top10 146000 Top10 76200 Top10 293620
Others 388600 Others 10200 Others 66700 Others 70680
Total 1183200 Total 156200 Total 142900 Total 364300
The Marine Harvest Group represents the largest total production and holds about one
quarter of the quantity in Norway, and about one third of the quantity in North America and
UK.
In North America and the UK, production is more consolidated (see next page).
In Norway and Chile there are several more companies with a significant production quantity
of Atlantic salmon. In Chile, several of the companies also produce other salmonids, such as
coho and large trout.
24
5.2 Number of players producing 80% of the ocean-farmed
salmon and trout quantity per region
70
60
50
40
30
20 24
16
10
0
4
Norway 3
Chile 2
Scotland 2
Canada
Australia
Faroe
2012 2009 2006 2003 2000 1997 Island
Historically, the salmon industry has been made up by many, small firms. This has been the
case in Norway, and to some degree in Scotland and in Chile.
The higher level of fragmentation in Norway compared to Chile is the result of the Norwegian
governments priority to decentralised structures and local ownership. In Chile the
government put fewer demands on ownership structures in order to grow the new industry
faster.
During the last decade the salmon farming industry has been through a period of
consolidation in all regions. The consolidation trend is expected to continue.
The recent increasing number of players making up 80% of the quantity in Chile is explained
by the major reduction in output in connection with the ISA crisis. Given the current rebuild,
the situation is expected to gradually revert to fewer players.
See appendix for some historic acquisitions and divestments.
25
6. Production of salmon
In all salmon producing regions, the relevant authorities have a licensing regime in place. In
order to operate salmon farming, a license is the key prerequisite. The licenses constrain the
maximum production for each company and the industry as a whole. The license regime
varies across jurisdictions.
The salmon farming production cycle is about 3 years. During the first year of production the
eggs are fertilised and the fish is grown into approx. 100 grams in controlled freshwater
environment.
Subsequently, the fish is transported into seawater cages where it is grown out to approx. 4-5
kg during a period of 14-24 months. The growth of the fish is heavily dependent on the
seawater temperatures, which varies by time of year and across regions.
Having reached harvestable size, the fish is transported to primary processing plants where it
is slaughtered and gutted. Most salmon is sold gutted on ice in a box.
26
6.1 Establishing a salmon farm
License and location (Norway)
Since 1973, a license has been required to operate a salmon farm in Norway. A license gives
the right to farm salmon either in freshwater or in the sea. In addition, a site where the license
can be used must be granted. One license can be associated with up to four sites, and one
site may use several licenses at the same time. These licenses are awarded by the Ministry
of Fisheries and are administered by the Directorate of Fisheries. It is also possible to apply
to the Directorate of Fisheries to change the size of a site and licenses can be traded
between companies in the industry. Since 1982, new licenses have been awarded only in
limited numbers the years 1985, 1988, 1999, 2001, 2002 and 2009. At the end of 2012, there
were 963 seawater licenses in Norway. One license is set to a maximum allowed biomass
(MAB) of 780 tonnes (900 tonnes in Troms and Finnmark). Most Norwegian fish farming sites
have between 2 340 and 3 120 tonnes allowed maximum standing biomass.
License and location (Scotland)
In Scotland, the licensing system is very different. Instead of a license, there are 3 institutions
that that have to give permission before one is allowed to make use of an area: Planning
Permission; SEPA and Marine Scotland.
Individual site biomass is governed by environmental concerns, namely the assimilative

capacity of the local marine environment. As a consequence, individual site biomass is not
uniform but varies between 100 tonnes to 2 500 tonnes maximum depending on site
characteristics.
27
6.1 Establishing a salmon farm
License and location (Chile)
In Chile the licensing is based on two authorizations. The first is the authorization to operate
an aquaculture facility under certain technical requirements, which is issued by Fishery Sub
Secretary (Economy Ministry). The authorization is for unlimited time and can be traded. The
second authorization is for the physical area to operate (or permission to use national sea
areas for aquaculture production). This is issued by the Sub secretary of the Navy, which
belongs to the Defence Ministry. The use of the license is restricted to a specific geographic
area, to defined species, and to a specified limit of production or stocking density. The
production and stocking density limit is specified in the Environmental and Sanitary
Resolution involved for any issued license.
License and location (Canada)
Marine sites are located on Crown land. The Provincial Government needs to grant a so-
called tenure license to occupy a certain area of the ocean bottom. These tenures are issued
for periods varying from 5 to 15 years. An annual tenure rental fee is charged depending on
the size of the tenure. Fees are increased annually with inflation. In 2012 the annual fee for a
typical tenure of 25 ha is CAD 9 800. Tenure licenses can be renewed upon request.
In addition, the Federal Government needs to grant a license of operation. This Federal
License states all the conditions which the farm has to observe and regulates production
parameters, such as the Maximum Allowable Biomass, the use of equipment, etc. A typical
site license will range in size from 2,000 MT to 4 500 MT of Maximum Allowable Biomass.
The Federal License is presently issued for one year at the time and is renewable. It is
expected that as of 2014 a fee will be charged for this license based upon the amount of
production on the farm, however, the exact details are not known at this point of time.
The Provincial and Federal licenses are specific for one location only. Licenses may be lost
for non-compliance issues and non-payment of fees.
Equipment
To equip a grow-out facility you need cages (steel or plastic), mooring, nets, cameras, feed
barge/automats and boats. For a normal facility in Norway (850 000 smolt release) the
investment costs would be in the range of 25-30 million NOK.
28
6.2 Access to licenses - Norway
It is legal to trade licenses in Norway, however there are some restrictions. If the buyer,
through trade, gets control of more than 15% of the total licensed biomass in the country,
he/she has to apply for an approval from the Ministry of Fisheries and Coastal Affairs. The
Ministry cannot give the approval if it implies that the buyer gets control of more than 25% of
the total biomass in the country. No owner can control more than 50% of the total biomass in
any of the regions. In 1993, a salmon farming license was traded for NOK 200 000, while the
price today is normally about MNOK 20-70. In the last round of new licenses from the
government, the price was however heavily discounted (cost of MNOK 8 per license) and
awarded to small players operating in rural areas. Many of these licenses have since been
sold at large gains.
When assignment for a license is given, it has to be used within two years with a minimum of
one third of the allowed biomass. A license can be pledged. A license cannot be leased out.
Example
The figure below depicts an example of the regulatory framework in Norway.

1 company
Number of licenses for a defined area: 5
o Biomass threshold per license: 780 tonnes live weight (LW)
o Maximum biomass at any time: 3,900 tonnes (LW)
Number of sites allocated is 3 (each with a specific biomass cap)
In order to optimise the production and harvest quantity over the generations, the
license holder can play within the threshold of the three sites as long as the total
biomass in sea never exceeds 3,900 tonnes (LW).
29
6.2 Access to licenses Norway
2013 utilisation per license for the industry and the largest companies
Averageharvestperlicense2013
1400
ThousandtonnesHOG/GW
1200
1000
800
600
400
200

Average Marine CompanyA CompanyB CompanyC CompanyD
Norway Harvest
Norway
Source: Marine Harvest, Kontali Analyse, Fiskeridirektoratet, Quarterly reports
The graph is organized by highest harvest quantity.
Number of sea water licenses for salmon and trout in commercial use in Norway:
o 2007: 929
o 2008: 916
o 2009: 988
o 2010: 991
o 2011: 990
o 2012: 963
Because of the regulation of standing biomass (maximum allowed biomass - MAB) per
licence (780 tonnes LW), the production capacity per licence is limited. Annual harvest
quantity per license in Norway can be as much as 1 200 tonnes HOG. Larger players
typically have better flexibility to maximise output per license. The average utilisation for the
industry is hence lower than the utilisation for the largest companies.
30
6.2 Access to licenses - Norway
Industry production is approaching its limit (Norway)
Estimated MAB-utilisation in Norway 2009-2013E
900000
800000
Tonneswholefishequivalent(WFE)
700000
600000
500000
TotalMABCapacityincl.wellboat/holdingcages
400000
TotalbiomassSalmonandtrout
300000
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Jan
May
Jan
May
Jan
May
Jan
May
Jan
May
Jan
May
Jan
May
Jan
May
Jan
May
2005 2006 2007 2008 2009 2010 2011 2012E 2013E
Due to the fact that the two counties Troms and Finnmark, in Northern Norway, have a higher
MAB per license, the total MAB capacity is slightly higher than 780 tonnes LW per license.
Total biomass of salmon and trout in Norway is increasing each year and is approaching the
limit in terms of MAB, particularly in the second half of each year due to the seasonality of
farming operations.
Norwegian authorities are planning to issue approximately 5% new licence capacity during
2013. Of this, approximately 1.5% is anticipated to be applied during 2013.
31
6.3 Access to licenses - Scotland
In Scotland it is legal to trade licenses and although no restriction on number is given, there
is a limit on production quantity ascribed to any one company. This limit is determined by the
Competition Commission Authorities. Licensing aquaculture operations in the UK is currently
in a transitory state; all new applications require planning application for permission to
operate, as well as an environmental and Crown estate license. The granting of the planning
permission is aligned to the Crown estate lease for a 25 year period. All existing fish farm
leases in Scotland are currently undergoing a review process which transfers them from the
Crown estate to local regional councils. These grants are automatically given a 25 year
lease. Any site with Planning Permission is not required to go through this review process
The environmental license can be revoked in some cases of significant and long-term non-
compliance.
Most existing licenses are automatically renewed at the expiration of their lease period.
New license applications take around 6-12 months for the planning permission and around 4-
6 months for the environmental discharge license. Expansion of existing facilities is the most
efficient route in terms of cost and time, whilst brand new sites will take longer and has to go
through an Environmental Impact Assessment (EIA) process. The environmental license is
charged annually at GBP 5 338, whilst the standing rent is levied to the crown estate on
production basis as follows: GBP 22.50 per tonne harvested for Mainland sites; GBP 20.50
per tonne for Western Isles sites; GBP 1 000 annual charge if no harvesting; GBP 2 000
annual charge if dormant. The applications are also charged at GBP 174 per 0.1 hectare of
farm area, while the environmental license costs GBP 2 600 for a new site.
32
6.4 Access to licenses - Chile
The trading of licenses in Chile is regulated by the General Law on Fisheries and
Aquaculture (LGPA), in charge of Ministry of Economy and Defense.
Licenses granted before April, 2010 are issued for an indefinite period of time. However, for
companies that require loans from the state, license period is cut from indefinite to 25 years
(extension may be granted). According to the new regulation, licenses issued April 2010
onwards and licenses that have been subject to modification have a defined horizon of 25
years. This time horizon may also be extended under certain circumstances. Licenses can be
lost in case of specified violations to regulation, operation under the minimum limit during
certain period, or voluntary resignation. It can be lost if e.g. the license is used for a different
purpose than the one for which this was granted, or environmental/sanitary violations, among
others.
Aquaculture licenses must operate within the terms established by LGPA in order to avoid
expiration. Aquaculture licenses operations must be performed within one year from the date
of its official receipt and must not paralyze its operations for more than 2 consecutive years.
Besides the above, the minimum operation requirements established in Regulation issued to
this effect must be met, which corresponds to 5% of production reported in the Technical
Project of the license. And in the case of licenses that do not have a Technical Project, 5%
corresponds to the maximum operation reported between 1995 and 2000 the National Marine
Fisheries Service.
33
6.4 Access to licenses - Chile
Main issues in the new legislation are:
General Law on Fisheries and Aquaculture (LGPA), modified February 2013.
Specific regulations released from LGPA, like:

o RAMA: Associated to environmental aspects, monitoring and correct practices to
operate in environmental terms.
o RESA: Associated to sanitary aspects, fallow period, diseases, mortalities
treatment, among others.
o Minimum operation: Establishes the minimum productive of licenses and the fallow
period.
o REPLA: Establishes a protection area in case of plagues appearance, such as
Alexandrium catenella
It establishes the obligation for licenses to be registered in the Aquaculture Licenses

Register (of Armed Forces) to be authorized to exercise aquaculture activities (all leases
and transfers must be registered).
It includes new events that may lead to revocation of licenses and it strengthens some of
the rules regarding such revocation. In fact, as indicated above the untimely reporting and
the underreporting are now events that may lead to the loss of concessions and,
furthermore, one of the previous causes of revocation (i.e. accumulation of 3 serious
breaches within 2 years) was amended to a stricter standard (now it is the accumulation
of 3 serious breaches, but within 4 years).
It eliminates the different regimes that aquaculture concessions were subject to; two types
of regimes that granted different rights depending on whether or not it had habitual quality
(i.e. the right to extend the deadline to start operations or the right to transfer aquaculture
concessions without the need to wait a period). With this amendment, all aquaculture
concessions will be on equal conditions.
No impact on duration of current licenses.
Future production capacity will be impacted by the new law, and specifically by
the following:
o Gradual opening of regions XII, XI and X after 12 months, in the first
case, and after five years in the second and third cases.
o Regulations of zones, availability of areas suitable for aquaculture and
fallow periods will limit production capacity and growth rate until new
licenses can be approved and/or new areas opened.
o As from 2014, dormant operations may cause loss of license.
o Environmental conditions given by high density in some zones may
cause decreases of production limits.
o New specific regulations about maximum production density are
announced to be enacted in 2013.
34
6.5 Access to licenses - Canada
In Canada, the Provincial and Federal licenses can be assigned to a different operator
through a Government Assignment Process. The provision enables a company to transfer
the licenses to another company for reasons such as: moved processing to new area,
distance is too great and not feasible to operate, change in species, etc. The process
involves First Nations consultation, and depending on the relationships between the parties,
this can be a lengthy procedure.
Timelines vary from one year to several years to acquire licenses for a new farm. An estimate
of cost to acquire a new license/site can range from CAD 300,000 - 500,000. Since 2007 only
one new license has been issued.
35
6.6 The Atlantic salmon life/production cycle
Spawn Brood - Parr - Smolt

10-16 months
14-24 months
Growth phase
in sea
Transfer to
sea
Primary processing (to HOG) Secondary processing
Source: Marine Harvest
The total production cycle takes approximately 10-16 months in freshwater plus 14-24
months in sea water in total 24-40 months. In Chile, the cycle is slightly shorter as the sea
water temperatures are more optimal.
See the appendix for a more detailed illustration of the production cycle.
36
6.6 The Atlantic salmon life/production cycle
Norway (3 generations)
L1 G1
L2 G2
L1 G3
In the autumn, the broodfish are stripped for eggs and the ova inlay happens between
November and March. The producer has the possibility to speed up the growth of the
juveniles with light manipulation to accelerate the smoltification process by up to 6 months.
The light manipulated juveniles are called S0s and the normal grown juveniles are called
S1s.
In Norway, smolt is mainly released into seawater twice a year. S0s are released in
autumn/spring within 12 months after ova inlay, and S1s in the autumn about 18 months after
ova inlay. A very small part of the production is produced as S1, which are only put to sea 2
years after the ova inlay. The harvest is spread all around the year. In Norway, typical
harvest is the beginning of the year for S0s and second half of the year for S1s. During
summer, the supply to the market is significantly different to the rest of the year as harvest go
from S0s to S1s, and the large S0s and the small S1s dominate the supply.
After a site is harvested, the location is fallowed between 2 and 6 months before the next
generation is put to sea at the same location. Smolt may be released in the same location
with a two year cycle. In the example above, Generation 1 (G1) is put to Location 1 (L1), G2
put to L2, and then G3 is put in L1 again as the fish from G1 have been harvested and the
location has been fallowed.
Harvest quantity is largest in the last quarter of the year as this is the period of best growth,
and because most of the S1s are harvested in this period. Some of the last S0s and some
early S1s could also be harvested in this period.
37
6.7 Production inputs
Eggs
There are several suppliers of eggs to the

industry. Aquagen AS, Fanad Fisheries Ltd,
Lakeland and Salmobreed AS are some of
the most significant by quantities. Egg
suppliers can tailor their production to
demand by obtaining more or less fish for
breeding during the preceding season.
Production can easily be scaled. The egg
market is international.
Smolt
The majority of smolt are produced

in-house by vertically integrated salmon
farmers. This production is generally captive,
although a proportion may also be sold to
third parties. A smolt is produced over a 6-
12 months period from the eggs are fertilised
to a mature smolt with weight of 60-100
grams.
38
6.7 Production inputs
Source: Marine Harvest, Kontali Analyse, SSPO
Labour
In 2011, just under 5 900 people in Norway were directly employed in aquaculture, of which
more than half was employed in salmon and trout production.
According to Scotland Salmon Producers Organisation (SSPO), over 2 100 people are
employed in salmon production in Scotland. The Scottish Government estimates that 6,200
jobs are reliant on the aquaculture industry.
Estimates on Canadian employment say that around 2 500 people are directly employed in
salmon farming industry.
In Chile, employment has been significantly reduced as a consequence of the ISA situation
that developed throughout 2008. Direct employment in Chilean aquaculture (incl. processing)
is estimated to around 30 000 people in 2012.
In Norway, both salaries and levels of automation are highest, while the opposite is the case
in Chile. Salaries in UK and Canada are somewhat lower than in Norway.
Electricity
Electricity is mainly used in the earliest and latest stage in the salmons life cycle. To produce
a good quality smolt, production normally takes place in tanks on land where the water is
temperature regulated and/or recirculated which requires energy (8-10% of smolt cost in
Norway). When the salmon is processed energy is consumed. However, this depends on the
level of automation (3-5% of harvest cost in Norway).
39
6.8 Factor influencing the pace of production
Sea Water Temperature
Source: Marine Harvest, racerocks.com
The sea water temperatures vary much throughout the year in all production regions. While
the production countries on the Northern hemisphere see low temperatures during the
beginning of the year, and high temperatures in autumn varying with as much as 10oC, the
temperature in Chile is more stable varying between 10oC and 14oC. Chile has the highest
average temperature of 12oC, while Ireland has 11oC and the three other regions have an
average temperature of about 10oC.
As the salmon is a cold-blooded animal (ectotherm), the temperature plays an important role
for its growth rate. The optimal temperature range for Atlantic salmon is 8-14oC, illustrated by
the shaded area on the graph. Temperature is one of the most important natural competitive
advantages that Chile has compared to the other production regions as the production time
historically has been shorter by a few months.
With high seawater temperatures, disease risk increases, and with temperatures below 0oC,
mass mortality, both of which causes growth rate to fall.
40
7. Cost Dynamics
7.1 Economics of salmon farming
The salmon farming industry is capital intensive

and volatile. This is a result of a long production
cycle, a fragmented industry, market conditions
and a biological production process, which is
affected by many external factors.
Over time, production costs have been reduced

and productivity has increased as new technology
and new competence has been achieved. This is
believed to continue in the future as commercial
aquaculture still is a young industry.
Revenues
Reported revenues
Revenues are a gross figure; they can include invoiced freight from reference place (e.g.
FCA Oslo) to customer, and have discounts, commissions and credits deducted. Reported
revenues can also include revenues from trading activity, sales of by-products, insurance
compensation, gain/loss on sale of assets etc.
Price
Reported prices are normally stated in the terms of a specific reference price e.g. the
NOS/FHL price for Norway (FCA Oslo) and UB price for Chile (FCA Miami). Reference prices
are not reflecting freight, and other sales reducing items mentioned above. Reference prices
are for one specific product (FHL = per kg head on gutted fish packed fresh in a standard
box). Sales of other products (frozen products, fresh fillets and portions) will cause deviation
in the achieved prices vs. reference price. Reference prices are for superior quality fish, while
achieved prices are for a mix of qualities, including downgrades. Reference prices are spot
prices, while most companies will have a mix of spot and contract sales in their portfolio.
Quantity
Reported quantity can take many forms. Quantity harvested = Fish harvested in a specific
period in a standardized term; e.g. head on gutted (HOG) or whole fish equivalent (WFE), the
difference being gutting loss. Quantity sold can be reported using different weight scales:
Kg sold in product weight
Kg sold converted to standard weight unit (HOG or WFE)
Quantity sold could also include traded quantity.
41
7.2 Production costs
The figures below illustrate the main cost components and their relative importance in the
farming of salmon in the three biggest regions. The cost level is chosen for illustration
purposes.
Norway (NOK) Canada (CAD) Scotland (GBP) Chile (USD)

Feed 11,65 2,17 1,49 2,05
Primary processing 2,40 0,49 0,27 0,05
Smolt 2,11 0,60 0,29 0,60
Salary 1,38 0,43 0,15 0,16
Maintenance 0,75 0,15 0,07 0,23
Well boat 1,03 0,21 0,20 0,31
Depreciation 0,63 0,23 0,11 0,12
Sales and marketing 0,52 0,01 0,06 0,01
Mortality 0,30 0,04 0,01 0,05
Other 2,56 0,80 0,47 1,15
Total* 23,33 5,13 3,12 4,73
*HOG cost in box delivered at the processing plant including mortality
Cost elements
Feed: As in all protein production, feed makes up the largest share of the total cost. The
variation in costs between the countries is based on somewhat different inputs to the feed,
logistics and the feed conversion ratio.
Smolt: Smolt production is done in two different ways; either in lakes or in closed/re-
circulated systems in tanks on land. The smolt is produced in fresh water up to about 100g
when the salmon through its smoltification phase gets ready to be put in sea water. UK has
the highest costs as there has been low scale production in both land based systems and
tanks. Chile has used lakes for this production and has had cheap labour, while in Norway
there has been a transfer from production in lakes to large scale production in land-based
systems.
Salary: Salary level differs among the production regions but in general the salary cost is low
because labour cost is a minor part of the total cost as much of the production is automated
(e.g. feed blowers).
Well boat/processing: Transportation costs of live fish, slaughtering, processing and

packing are all heavily dependent on quantity, logistics and automation.
Other operational costs: Other costs include direct and indirect costs, administration,
insurance, etc.
42
7.3 Cost component disease and mortality
EBIT costs per kg decline with increasing harvest weight. If fish is harvested at a lower
weight than optimal (caused by for example diseases), EBIT costs per kg will be higher.
During the production cycle, some mortality will be observed. Under normal circumstances,
the highest mortality rate will be observed during the first 1-2 months after the smolt is put
into seawater, while subsequent stages of the production cycle normally has a lower mortality
rate.
Elevated mortality in later months of the cycle is normally related to outbreaks of disease or
predator attacks.
There is no strict standard for how to account for mortality in the books, and there is no
unified industry standard. Three alternative approaches are:
Charge all mortality to expense when it is observed
Capitalise all mortality (letting the surviving individuals carry the cost of dead
individuals in the balance sheet when harvested)
Only charge exceptional mortality to expense (mortality, which is higher than what is
expected under normal circumstances)
It is not possible to perform biological production without any mortality. By capitalizing the
mortality cost, the cost of harvested fish will therefore reflect the total cost for the biomass
that can be harvested from one production cycle.
43
7.4 Salmon feed
Development in use of ingredients in salmon feed receipts
Global1990 Norway2012 Chile2012
12% 8% 12% 7%
24%
18%
22% 32%
59%
17% 49%
11%
15% 10%
Growth intervals 0.1 0.2 kg 0.2 1 kg 1 2 kg 2 3 kg 3 4 kg 4 5 kg

Feed consume* 0.08 kg 0.75 kg 1.00 kg 1.05 kg 1.10 kg 1.20 kg
Time, months 2 4 4 3 2 2
*Estimates for Norway only typical S1 smolt
Historically the two most important ingredients in fish feed have been fish meal and fish oil.
The use of these two marine raw materials in feed production has been reduced and
replaced by agricultural commodities such as soy, sunflower, wheat, corn, beans, peas,
poultry by-products (Chile and Canada) and rape seed oil replacing fish oil. This substitution
is mainly done because of heavy constraints on availability of fish meal and fish oil.
Fish meal and other raw materials of animal origin have a more complete amino acid profile
compared to protein of vegetable origin and have generally a higher protein concentration. It
is therefore a big challenge to produce the knowledge required to replace fish meal 100%.
During the industrys early phases, salmon feed was moist (high water content) with high
levels of marine protein (60%) and low levels of fat/oil (10%). The industry then went through
a development of pellet feeds with focus on protein and fat content. A typical recipe in the
early 1990s consisted of 45% protein, whereof most of it was marine protein, i.e. fish meal.
Today, the marine protein level is lower due to cost optimization and fish meal availability.
However, the most interesting development has been the increasingly higher inclusion of fat.
This has been possible through technological development and extruded feeds.
Due to market demands, legislation and different availability of raw materials, the ingredients
used in fish feed today are different from country to country, giving higher raw material
flexibility in certain regions as e.g. Chile and Canada. This will have an impact on the feed
price.
Feed and feeding strategies aim at growing a healthy fish fast at the lowest possible cost.
Standard feeds are designed to give the lowest possible production cost. Premium diets are
available in most countries and are being used in certain situations where extra growth rate is
profitable. Feeding control systems shall prevent feed waste and assure that the fish get
enough feed to grow to its potential. Normally the fastest growing fish show the lowest feed
conversion rate.
44
7.5 Salmon feed producers
Feedproducers'marketshare1998
Skretting
EWOS
BioMar
NorAqua
Biomaster
Other
Feedproducers'marketshare2013E
Skretting
EWOS
BioMar
Other
Source: Skretting annual report, EWOS annual report, BioMar, Marine Harvest
During the last decade, the salmonid feed industry has become increasingly consolidated.
Since 2008, there has essentially been three producers controlling the majority of the salmon
feed output, and the companies are all subsidiaries of listed companies BioMar (Schouw),
Ewos (Cermaq) and Skretting (Nutreco), and are all operating globally. Additionally, there are
some producers who are only present in their regional market.
The major cost elements when producing salmonid feed are the raw materials required and
production costs.
The feed producers have historically operated on cost-plus contracts, leaving the exposure of
raw material prices with the aquaculture companies.
One major issue in the salmon feed industry is the future supplies of the raw materials going
into feed (see next page).
45
7.6 Raw material market
2000
1800
1600
1400
USD/tonnes
1200 Fishmeal
Soymeal
1000
Wheat
800
Rapeseedoil
600
Fishoil
400
200

2006
2007
2008
2009
2010
2011
2012
Source: Marine Harvest, Holtermann
Fish oil: Price in 2012 is about 1400 USD per tonne. Since 2009 fish oil prices have steadily
increased and we expect fish oil prices to become uncorrelated with vegetable oil prices in
the future.
Rape seed oil: Rape seed oil prices have very much the same price trend as fish oil. As
there is an increasing demand for bio diesel, there will be continued pressure on price,
including other types of vegetable oil.
Fish meal: In 2012 there has been a decreasing trend in the price, but this is not expected to
continue.
Soy: After having seen the soy prices climb to the highest level in 34 years in mid-2008, the
prices fell slightly and has remained stable the last couple of years. The main reason for
2008s price increase was because of less soy was planted due to a shift from soy to corn in
many regions, and a high demand for vegetable oil in general. Corn is planted in higher
quantities due to increased demand for ethanol produced from corn, i.e. former soy areas are
used for corn production.
Vegetable protein: Soy and corn have traditionally been very important vegetable protein
sources in fish feed. As a consequence of less planting of soy and more corn used for energy
purposes, the price for these raw materials increases. Parallel to this there has been an
increase in genetic modified (GM) production of soy and corn. To be able to get non-GM
production, a premium has been put on price, i.e. non-GM products are more expensive than
GM products.
Wheat: Wheat price has been rather stable since late 2010.
46
7.7 Price, cost and EBIT development (Norway)
EBIT/kg Price/kg Cost/kg
50,00
40,00
30,00
NOK
20,00
10,00
0,00
10,00
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Adjustedaccording toCPI(2012=100)
Due to supply growth being higher than the structural growth in demand in the period 1993-
2007 there was a falling trend of the price of salmon. In recent years, this trend has been
broken due to the collapse of the Chilean industry, combined with effects of consolidation in
the industry.
As a result of cost benefits of industrialisation, consolidation and economies of scale,

combined with improvements in the regulatory framework and fish health mitigation, the cost
curve has also had a falling trend.
The average EBIT per kg for the Norwegian industry has hence been positive with the
exception of a few shorter periods, and NOK 4.02 per kg in nominal terms.
47
7.8 Salmon farming is a capital intensive industry
Cost of building biomass
For illustration purposes, the farming process has been divided into three stages of 12
months. The first 12 months is production from egg to finished smolt. After this, 24 months of
on-growing in sea follows. After the on-growing phase is over, harvest takes place
immediately thereafter (illustrated as Month 37). In a steady state there will at all times be
three different generations at different stages in their life cycle.
At the point of harvest there have been incurred costs to produce the fish for up to 36
months, where some costs were incurred to produce the smolt two years ago, further costs
incurred to grow the fish in seawater and some costs incurred related to harvest (Month
37). Sales price should cover the costs and provide a profit margin (represented by the
green rectangle).
Cash cost in the period when the fish is harvested is not large compared to sales income,
creating a high net cash flow. If production going forward (next generations) follows the same
pattern, most of the cash flow will be reinvested into salmon at various growth stages. If the
company wishes to grow its future output, the following generations need to be larger
requiring even more of the cash flow to be reinvested in working capital.
This is a rolling process and requires substantial amounts of working capital to be tied up,
both in a steady state and especially when increasing production.
48
7.9 Capital needs when building biomass
The illustration above shows how capital needs develop when one is building
production/biomass from scratch. In phase 1, there is only one generation (G) of fish
produced and the capital needs is the production cost of the fish. In phase 2, the next
generation is also put into production, while the on-growing of G1 continues, rapidly
increasing the capital invested. In phase 3, G1 has reached its last stage, G2 is in its on-
growing phase and G3 has begun to increase its cost base.
At the end of phase 3, the harvest starts for G1, reducing the capital bound, but the next
generations are building up their cost base. If each generation is equally large and everything
else is in a steady state, the capital needed would have peaked at the end of phase 3. With a
growing production, the capital needed will also increase after phase 3 as long as the next
generation is larger than the previous (if not, capital base is reduced). We see that salmon
farming is a capital intensive industry.
49
7.10 Accounting principles for biological assets
Biological assets are measured at fair value less cost to sell, unless the fair value cannot be
measured reliably.
Effective markets for sale of live fish do not exist so the valuation of live fish implies
establishment of an estimated fair value of the fish in a hypothetical market. The calculation
of the estimated fair value is based on market prices for harvested fish and adjusted for
estimated differences. The prices are reduced for harvesting costs and freight costs to
market, to arrive at a net value back to farm. The valuation reflects the expected quality
grading and size distribution. The change in estimated fair value is recognised in profit or loss
on a continuous basis, and is classified separately (not included in the cost of the harvested
biomass). On harvest, the fair value adjustment is reversed on the same line.
The biomass valuation includes the full estimated fair value of fish at and above harvest size
(4 kg LW). For fish between 1 kg and 4 kg LW a relative share of future value is included.
The best fair value estimate for fish below 1 kg, smolt and broodstock is considered to be
accumulated cost. The valuation is completed for each business unit and is based on
biomass in sea for each sea water site. The fair value reflects the expected market price. The
market price is derived from a variety of sources, normally a combination of achieved prices
last month and the most recent contract entered into. For Marine Harvest Norway, quoted
forward prices (Fish Pool) are also included in the calculation.
Operational EBIT
Operational EBIT and other operational results are reported based on the realised costs of
harvested salmon and do not include the fair value adjustments on biomass.
50
7.11 Investments and payback time for new entries (Norway)
Assumptions
Normal site consisting of 4 licenses:
Equipment investment NOK 30-35m

Number of licenses 4
Licence cost (second hand market) NOK 120-200m (~NOK 30-50m per licence)
Output per generation: ~4000 tonnes HOG
Number of smolt released: 1m
Smolt cost per unit: NOK 8

Feed price per kg: NOK 9
Economic feed conversion ratio (FCR): 1.17 (to live weight)
Conversion rate from Live Weight to HOG: 0.83
Harvest and processing incl. well boat cost per kg (HOG): NOK 3.25
Average harvest weight (HOG): 4.5 kg

Mortality in sea: 10%
Sales price: NOK 27
Source: Marine Harvest, Kontali Analyse
For increased capacity to be established, there are many regulations to fulfil.
In this model, we have used only one site for simplification purpose as we are looking at a
new company entering the industry. Most companies use several sites at the same time,
which enables economies of scale and makes the production more flexible and often less
costly.
To simplify, smolt is bought externally. Smolt is usually less costly to produce internally, but
this depends on production quantity.
The performance of the fish is affected by numerous factors as feeding regime, sea water
temperature, disease, oxygen level in water, smolt quality, etc.
Sales price chosen is the average sales price from Norway the last decade.
51
7.11 Investments and payback time for new entries (Norway)
Results
Because of the simplifications in the model and low, non-optimal production regime,
production cost is higher than industry average. Due to high entry barriers in terms of capital
needs and falling production costs with quantity, new companies in salmon production will
experience higher average production costs. During the production of each harvest the
working capital needed at this farm, given the assumptions, would be peaking at MNOK 75
(given that the whole harvest is harvested at the same time).
45,00
FCR=1.0 FCR=1.2
40,00
Yearspaybacktimeoninvestments
35,00
30,00
25,00
20,00
15,00
10,00
5,00

23 24 25 26 27 28 29 30 31
NOK/kg
With a sales price at the historic average level, payback time for the original investments
would be about 15 years. This result is very sensitive to sales price and economic feed
conversion ratio (FCR), as the figure above shows.
Sales price of NOK 27 is chosen as this is close to the historical average price in Norway.
FCR at 1.17 is achievable on average, while lower economic FCR is possible for parts of
production and is a target for the industry.
52
8. Salmon health and R&D
8.1 Salmon disease prevention and treatment
Maximising survival and maintaining healthy fish stocks are primarily achieved through good
husbandry and health management practices and policies. Such practices, in addition,
reduce exposure to pathogens and the risk of health challenges. The success of good health
management practices have been demonstrated on many occasions and have contributed to
an overall improvement in the survival of farmed salmonids.
Fish health management plans, veterinary health plans, bio security plans, risk mitigation
plans, contingency plans, disinfection procedures, surveillance schemes as well as
coordinated and synchronised zone/area management approaches, all support healthy
stocks with emphasis on disease prevention.
For the majority of salmonid health conditions, prevention is achieved through vaccination at
an early stage in production. Vaccines are widely used commercially to reduce the risk of
health challenges. With the introduction of vaccines a considerable number of bacterial
health challenges have been effectively controlled, with the additional benefit that the quantity
of medicine prescribed in the industry has been minimised.
In some situations however medicinal treatment is still required to maximise survival and
even the best managed farms may use medicines from time to time. For several of the viral
diseases, no effective vaccines are currently available.
53
8.2 Most important health risks
Infectious Pancreatic Necrosis (IPN)

IPN is caused by the IPN virus and is widely reported. It is a contagious virus that can cause
mortality if not managed appropriately. IPN can affect Atlantic salmon fry, smolts and larger
fish post-transfer. Available vaccines can protect against IPN and good results are obtained
by optimizing husbandry and biosecurity measures. In addition, promising results are now
seen by selection of families less susceptible for the disease (QTL-based selection).
Pancreas Disease (PD)

PD is caused by the Salmonid Alphavirus and is present in Europe. It is a contagious virus
that can cause reduced appetite, muscle and pancreas lesions, lethargy, and if not
appropriately managed, elevated mortality. PD only affects Atlantic salmon in seawater and
control is achieved mainly by management and mitigation practices. Combined with these
measures, vaccination is used where PD represents a risk and which provides an additional
level of protection.
Heart and Skeletal Muscle Inflammation (HSMI)

HSMI is currently reported in Norway and Scotland. Symptoms of HSMI are reduced
appetite, abnormal behaviour and in most cases low mortality. HSMI generally affects fish the
first year in seawater and control is achieved mainly by good husbandry and management
practices.
Infectious Salmon Anaemia (ISA)

ISA is caused by the ISA virus and is widely reported. It is a contagious disease that causes
lethargy, anaemia and may lead to significant mortality in seawater, if not appropriately
managed. Control of an ISA outbreak is achieved through culling / harvesting of affected fish
in addition to other biosecurity and mitigation measures. Vaccines are available and in use
where ISA is regarded to represent a significant risk.
Salmonid Rickettsial Septicaemia (SRS)

SRS is caused by an intracellular bacterium. It occurs mainly in Chile, but is also observed, to
a much lesser extent, in Norway and the UK. It causes lethargy, less appetite and can result
in elevated mortality. SRS is controlled by vaccination, but medicinal intervention (licensed
antibiotics) may also be required.
Gill Disease (GD)

GD is a general term used to describe gill conditions occurring in seawater. The changes
may be caused by different infectious agents; amoeba, virus or bacteria, as well as
environmental factors including algae or jelly-fish blooms. Little is known about the cause of
many of the gill conditions and to what extent infectious or environmental factors are primary
or secondary causes of disease.
Sea lice
Sea lice, of which there are several species, are natural occurring seawater parasites. They
can infect the salmon skin and if not controlled, they can cause lesions, secondary infection
and mortality. Sea lice are controlled through good husbandry and management practices
and the use of licensed medicines and cleaner fish (different wrasse species, eating
parasites off the salmon skin)
54
8.3 Fish health and vaccination (Norway)
Production and use of antibiotics in Norway
60 1100
50 900
Tonnesactivesubstance
'000tonnesHOG
40 700
30 500
20 300
10 100
0 100
Antibioticsuse HQAtlanticSalmon
Source: Kontali Analyse, Norsk medisinaldepot, Folkehelseinstituttet
Associated with the increase in production of Atlantic salmon in Norway in the 1980s was an
increased incidence of disease outbreaks. In the absence of effective vaccines, the use of
antibiotics reached a maximum of almost 50 tonnes in 1987. With the introduction of effective
vaccines against the main health challenges at that time, the quantities of antibiotic used in
the industry declined significantly to less than 1.4 tonnes by 1994 and has since then
continued to be very low. These developments, along with the introduction of biosecurity and
health management strategies, allowed for further expansion of the industry and respective
production quantities.
During the last two decades there has been a general stabilisation of mortality in Norway,
Scotland and Canada, which has been achieved principally through good husbandry,
management practices and vaccination. A positive development has also been observed in
Chile after rebuilding the industry following the ISA epidemic.
55
8.4 Research and development areas
Disease
Development of better tools for prevention and control of listed diseases
Vaccine developments/ improvements
Develop new, and optimize use of current licensed medicines for lice control
Development of non-medicinal technologies for sea lice control, including commercial
production of cleaner fish
Environment
Environmental risk assessments and analysis
Capacity of coastal environment to assimilate discharges from aquaculture
Interactions between cultivated and wild species
Production of sterile salmon
Genetics and immunology

Tools for health and performance monitoring of Atlantic salmon
Breeding and selection for disease resistant stock
Welfare
Optimisation of slaughter methods
Physiological and behavioural measures of the welfare of farmed fish in relation to
stocking densities, environmental and husbandry factors
Feed and nutrition

Fish oil and fish meal substitution in salmon diets maintaining fish health, performance
and quality.
Functional diets for improved fish health
Bone health and the role of nutrition
Product quality
Measures to reduce prevalence of melanin (black spots) in the fish flesh
Identify disposing factors and measures to reduce texture problems
Technology
Most of the technology used in modern salmon farming around the world today is
standardised. Technological development and knowledge exchanges continue at a constant
pace.
According to Zacco (Norwegian patenting office), patenting intensity in the salmon farming
industry has grown rapidly in the last two decades. Considerable R&D is undertaken in
several areas and the most important developments have been seen in the feed and
vaccines sector, done by large global players. In this industry the majority of producers are
small and have neither had the capital nor the competence to undertake and supervise major
R&D activities. This is expected to change as consolidation of the industry continues.
Smolt, on-growing production and processing

The technology used in these phases can be bought off the shelf. Very few patents are
granted. Technology and respective operators are becoming increasingly more advanced
and skilled.
56
9. Secondary processing (VAP)
In salmon processing we divide between primary and secondary processing.
Primary processing is slaughtering and gutting. This is the point in the value chain standard
price indexes for farmed salmon are related to.
Secondary processing is filleting, fillet trimming, portioning, different cuttings like choplets,
smoking, making ready meal or packing with Modified Atmosphere (MAP).
The products that have been secondary processed are called value-added products (VAP).
57
9.1 European value-added processing (VAP) industry
A total value of > EUR 25 billion
Employees > 135,000

Fish
66% Others
Extremely fragmented more than 4,000 19%
companies
About 50% of all companies have less than 20 Shellfish

employees and
mussels
15%
Traditionally the EBIT-margins have been between 2% and 5%
The average company employs 33 people and has a turnover of EUR 4.2 million
Source: Marine Harvest, Intrafish, EU
The seafood industry in Europe is extremely fragmented

with more than 4,000 players. Most of the companies
are fairly small, but there are also several companies of
significant size involved in the secondary processing
industry: Marine Harvest, Morpol, Icelandic Group, The
Seafood Company, Deutsche See, Caladero, Royal
Greenland, Labeyrie, and Lery Seafood.
Most of the largest players are basing their processing

on Atlantic salmon, producing smoked salmon, portions
or ready meals with different packing as vacuum or
modified atmosphere (MAP).
Consumers are willing to pay for quality and value

added. This means that we are expecting to see an
increase in demand for convenience products such as
ready-to-cook fish, together with a packing trend
towards MAP as this maintains the freshness of the
product longer than fish sold in bulk.
58
9.2 Market segment in the EU (2012)
Retailvs.Horeca Freshvs.frozen
31%
44%
56%
69%
Retail Horeca Fresh Frozen
Differentproducts
13% 10%
23%
28%
Whole Fillet Smoked OtherVAP

In the EU in 2009, more than half of the Atlantic salmon went to retailers, while 45% went to
hotels, restaurants and catering (HORECA).
Of whole salmon and salmon fillets, almost two thirds were sold as fresh fish and about one
third as frozen.
In the EU, salmon fillets and smoked salmon have an equal market share of 32% each, while
whole fish has about 19%. In this graph, other VAP consists of all value added processed
products, except smoked salmon which is represented separately.
59
9.3 The European market for smoked salmon (2012)
Estimated%shareofsmokedsalmonmarket EU2012
France
UK
Germany
Italy
Be/Ne/Lux
Spain
Scandinavia
Other
0% 5% 10% 15% 20% 25% 30%
The most common secondary processed product based on Atlantic salmon, is smoked
salmon. The European market for this product was 160,000 tonnes product weight (PW) in
2012, where France and Germany were the largest markets. The amount of raw material
needed for this production was around 258,000 tonnes HOG, up 11.5% since 2009.
European smoked salmon producers (2012E)

EstimatedAnnualRawMaterialTonnesHOG
6080000 2040000 1020000 510000
Morpol(PL) Labeyrie(FRUK) Norvelita(LT) Martiko(ES)
MarineHarvest(FR) Youngs(UK) Friedrichs(DE)
MerAlliance(FR) NeptuneIntnl.(DE)
Suempol(PL) Intermarch(FR)
Foppen(NL) Ledun(FR)
Lery(NLSENO) Ubago(ES)
The ten largest producers of smoked salmon in Europe are estimated to have a joint market
share of more 60%. The production is mainly done in Poland, France, UK, Baltic states and
the Netherlands.
After the acquisition of the German company Laschinger, Morpol is the largest producer of
smoked salmon in Europe. Morpol is based in Poland and is selling most of its production to
the German market.
Labeyrie is the second largest and sells most of its products to France, but are also found in
UK, Spain, Italy and Belgium.
Marine Harvest has its smoked salmon production in France (Kritsen) and in Belgium (La
Couronne). Marine Harvest sells its smoked salmon in France, Italy and Belgium. Marine
Harvest has acquired about 87% of the shares in Morpol and is awaiting the outcome of a
competition authority filing (expected during Q3 2013).
60
Appendix
In the appendix there is an explanation of key words, and you will find key information about
the Marine Harvest group such as key financial numbers, the companys history together with
information about our operations upstream and downstream.
61
Appendix: Weight conversion ratios and key words
Atlanticsalmon Trout Coho

Livefish 119%
Lossofblood/starving 8%
Harvestweight 111% 114% 111%
Roundbledfish(wfe)
Offal 11% 14% 11%
Guttedfish,approx.(HOG) 100% 100% 100%
Head,approx. 9% 9% 14%
Headoff,gutted 91% 91% 86%
Filletskinon 6777%(Ctrimapprox.70%)
Filletskinoff 5668%
Net weight: Weight of a product at any stage (HOG, fillet, portions). Only the
weight of the fish part of the product (excl. ice or packaging), but
incl. other ingredients in VAP
Primary processing: Whole fish HOG/GW
Secondary processing: Any value added processing beyond HOG
Biomass: The total weight of live fish, where number of fish is multiplied with
an average weight
Ensilage: Salmon waste from processing added acid
FCR = IB feed stock + feed purchase UB feed stock

Kg produced weight on smolt release
Price FOB Seattle (whole fish from Canada)

Notifications FOB Miami (fillets from Chile)
FCA Oslo
62
Appendix: Some historic acquisitions and divestments
Year Norway 2007 Arctic Seafood - Sold to Mainstream
1999 Hydro Seafoods - Sold from Norsk Hydro to Nutreco Aquaculture 2007 Fiskekultur - Sold to Haugland Group
2001 Gjlaks - Sold to PanFish 2007 UFO Laks - Sold to Haugland Group
2001 Vest Laks - Sold to Austevoll Havfiske 2007 Anton Misund - Sold to Rauma Gruppen
2001 Torris Products - Sold from Torris to Seafarm Invest 2007 Mico Fiskeoppdrett - Sold to Rauma Gruppen
2001 Gjlanger Havbruk - Sold to Aqua Farms 2008 Hamneidet - Sold to Eidsfjord Sjfarm
2001 Alf Lone - Sold to Sjtroll 2008 Misundfisk - Sold to Lery Seafood Group
2001 Sandvoll Havbruk - Sold to Nutreco Aquaculture 2008 Henden Fiskeoppdrett - Sold to Salmar ASA
2001 Fosen Edelfisk - Sold to Salmar 2008 AS Tri - Sold to Norway Royal Salmon (NRS)
2001 Langsteinfisk - Sold to Salmar 2008 Fey Fiskeopprett - Sold to Norway Royal Salmon
2001 Tveit Grd - Sold to Alsaker Fjordbruk 2008 Salmo Arctica - Sold to Norway Royal Salmon
2001 Petter Laks - Sold to Senja Sjfarm 2008 my Fiskeoppdrett - Sold to Norway Royal Salmon
2001 Krkyfisk - Sold to Salmar 2008 Nor Seafood - Sold to Norway Royal Salmon
2002 Amulaks - Sold to Follalaks 2008 Altafjord Laks - Sold to Norway Royal Salmon
2002 Kvamsdal Fiskeoppdrett - Sold to Rong Laks 2008 Lery Seafood Group - Purchased by Austevoll Seafood
2002 Matland Fisk - Sold to Bolaks 2009 Skjrgrdsfisk - Sold to Lingalaks
2002 Sanden Fiskeoppdrett - Sold to Aqua Farms 2009 Brilliant Fiskeoppdrett - Sold to Norway Royal Salmon
2002 rsnes Fiskeoppdrett - Sold to Aqua Farms 2009 Polarlaks II - Sold to Nova Sea
2002 Toftysund Laks - Sold to Alsaker Fjordbruk 2009 Fjordfarm - Sold to Blom Fiskeoppdrett
2003 Nye Midnor - Sold from Sparebank1 MidtNorge to Lery Seafood Group 2009 Fyllingsnes Fisk - Sold to Eide Fjordbruk
2003 Ishavslaks - Sold to Aurora to Volden Group 2009 Salaks merged with Rlaks
2003 Loden Laks - Sold to Grieg Seafood 2009 65 new licenses granted
2003 Finnmark Seafood - Sold to Follalaks 2010 Espevr Fiskeoppdrett - Sold to Bremnes Fryseri
2003 Ullsfjord Fisk - Sold to Nordlaks 2010 AL Nordsj - Sold to Alsaker Fjordbruk
2003 Henningsvrfisk - Sold to Nordlaks 2010 Nord Senja Fiskeindustri - Sold to Norway Royal Salmon
2004 Flatanger Akva - Sold to Salmar 2010 Mary Salmon - Sold to Blom Fiskeoppdrett
2004 Naustdal Fiskefarm/Bremanger Fiskefarm - Sold to Firda Sjfarm 2010 Fjord Drift - Sold to Tombre Fiskeanlegg
2004 Fjordfisk - Sold to Firda Sjfarm 2010 Hennco Laks - Sold to Haugland Group
2004 Snekvik Salmon - Sold to Lery Seafood Group 2010 Raumagruppen - Sold to Salmar
2004 Aure Havbruk / M. Ulfsnes - Sold from Sjfor to Salmar 2010 Stettefisk / Marius Eikremsvik - Sold to Salmar
2005 Follalaks - Sold to Cermaq 2010 Lund Fiskeoppdrett - Sold to Vikna Sjfarm (Salmonor)
2005 Aqua Farms - Sold to PanFish 2011 R. Lernes - Sold to Msval Fiskeoppdrett
2005 2011
Aurora Salmon (Part of company) - Sold from DNB Nor to Lery Seafood Group Erfjord Stamfisk - Sold to Grieg Seafood
2005 Marine Harvest Bolga - Sold to Seafarm Invest 2011 Jkelfjord Laks - Sold to Morpol
2005 Aurora Salmon (Part of company) - Sold from DNB Nor to Polarlaks 2011 Krifo Havbruk - Sold to Salmar
2005 Sjlaks - Sold from Marine Farms to Northern Lights Salmon 2011 Straume Fiskeoppdrett - Sold to Marine Harvest Norway
2005 Bolstad Fjordbruk - Sold to Haugland Group 2011 Bringsvor Laks - Sold to Salmar
2005 Skjervyfisk - Sold to Nordlaks 2011 Nordfjord Havbruk - Changed name to Nordfjord Laks
2006 Fossen AS - Sold to Lery Seafood Group 2011 Villa Miljlaks - Sold to Salmar
2006 Marine Harvest N.V. - Acquired by Pan Fish ASA Karma Havbruk - Sold to E. Karstensen Fiskeoppdrett (50 %)
2006 Fjord Seafood ASA. - Acquired by Pan Fish ASA 2011 and Mar Havbruk (50 %)
2006 Marine Harvest Finnmark - Sold from Marine Harvest to Volden Group 2012 Skottneslaks - Sold to Eidsfjord Laks
2006 Troika Seafarms/North Salmon - Sold to Villa Gruppen 2012 Villa Arctic - 10 licenses, etc. sold to Salmar
2006 Aakvik - Sold to Hydrotech 2012 Salmon Brands - Sold to Bremnes Fryseri
2006 Hydrotech - Sold to Lery Seafood Group 2012 Pundslett Laks - Sold to Nordlaks Holding
2006 Senja Sjfarm - Sold to Salmar ASA 2012 Strmsnes Akvakultur Sold to Blom Fiskeoppdrett
2006 Halsa Fiskeoppdrett - Sold to Salmar ASA 2012 Ilsvg Matfisk Sold to Bremnes Seashore
2006 Langfjordlaks - Sold to Mainstream 2012 The granting of 45 new green licenses announced
2006 Polarlaks - Sold to Mainstream 2013 Morpol 85% of shares sold to Marine Harvest
2007 Veststar - Sold to Lery Seafood Group 2013 Villa Organic 39,7% of shares sold to Lery Seafood Group
2007 Volden Group - Sold to Grieg Seafood 2013 Villa Organic 49,7% of shares sold to SalMar
2007 Artic Seafood Troms - Sold to Salmar ASA
63
Appendix: Some historic acquisitions and divestments
Year Chile
Year UK 1999 Chisal - Sold to Salmones Multiexport
1996 Shetland Salmon products - Sold to HSF GSP 2000 Salmo America - Sold to Fjord Seafood
1996 Straithaird Salmon to MH 2000 Salmones Tecmar - Sold to Fjord Seafood
1996 Gigha, Mainland, Tayinlaoan, Mull Salmon - All sold to Aquascot 2000 Salmones Mainstream - Sold to Cermaq
1997 Summer Isles Salmon - Sold to HSF GSP 2001 Pesquera Eicosal - Sold to Stolt Nielsen
1997 Atlantic West - Sold to West Minch 2003 Marine Farms - Sold to Salmones Mainstream
1998 Marine Harvest Scotland - Sold from BP Nutrition ?? to Nutreco 2004 Salmones Andes - Sold to Salmones Mainstream
1998 Gaelic Seafood UK - Sold to Stolt Seafarms 2004 Stolt Seafarm - Merged with Marine Harvest
1998 Mainland Salmon - Sold to Aquascot 2004 Pesquera Chillehue - Sold to GM Tornegaleones
1999 Hydro Seafood GSP - Initially sold to Nutreco as part of Hydro Seafood deal 2005 Aguas Claras - Sold to Acua Chile
1999 Joseph Johnston & Sons - Sold to Loch Duart 2005 Salmones Chilo - Sold to Aqua Chile
2000 Aquascot Farming - Sold from Aquascot to Cermaq 2005 Robinson Crusoe - Sold to Aqua Chile
2000 Shetland Norse - Sold to EWOS 2006 GM Tornegaleones - change name to Marine Farm GMT
Hydro Seafood GSP - Sold to Norskott Havbruk (Salmar & Lery Seafood Group) from
2000 Nutreco 2006 Merger Pan Fish - Marine Harvest - Fjord Seafood
2001 Laschinger UK - Sold to Hjaltland 2007 Pacific Star - Sold to Andr Navarro
2001 Wisco - Sold to Fjord Seafood 2007 Salmones Cupquelan - Sold to Cooke Aqua
2002 Wester Sound / Hoganess - Sold to Lakeland Marine 2009 Patagonia Salmon Farm - Sold to Marine Farm GMT
2004 Ardvar Salmon - Sold to Loch Duart 2010 Camanchaca (salmon division) - Sold to Luksic Group
2004 Hennover Salmon - Sold to Johnson Seafarms Ltd. 2011 Salmones Humboldt - Sold to Mitsubishi
2004 Bressay Salmon - Sold to Foraness Fish (from adm. Receivership) 2011 Pesquera Itata+Pesquero El Golfo - merged into Blumar
2004 Johnson Seafarms sold to city investors 2011 Landcatch Chile - Sold to Australis Mar
2005 Unst Salmon Company - Sold from Biomar to Marine Farms 2012 Landes Fish Farming Sold to Salmones Friosur
2005 Kinloch Damph - Sold to Scottish Seafarms 2012 Cultivos Marinos Chil Sold to Cermaq
Pacific Seafood Aquaculture Prod rights&permits for 20 licenses sold to
2005 Murray Seafood Ltd. - Sold from Austevoll Havfiske to PanFish 2013 Salmone Friosur
2005 Corrie Mohr - Sold to PanFish Salmones Multiexport divest parts of coho and trout prod. Into joint venture
2013 with Mitsui
2006 Wester Ross Salmon - MBO
2013 Merger in pricess Trusala nd Salmones Pacific Star
2006 Hjaltland Seafarm - Sold to Grieg Seafood ASA
2006 Orkney Seafarms - Sold to Scottish Seafarms
Year North America
2007 Lighthouse Caledonia - Spin-off from Marine Harvest
1989 Cale Bay Hatchery - Sold to Kelly Cove Salmon
2010 Northern Aquaculture Ltd - Sold to Grieg Seafood Anchor Seafarms Ltd., Saga Seafarms Ltd., 387106 British
Lighthouse Caledonia - changed name to Scottish Columbia Ltd., and United hatcheries merged into Omega
2010 Salmon Company 1994 Salmon Group (PanFish)
2010 West Minch Salmon - Sold to Scottish Salmon Company 1997 ScanAm / NorAm - Sold to Pan Fish
2010 Meridian Salmon Group - Sold to Morpol 2001 Scandic - Sold to Grieg Seafoods
2011 Skelda Salmon Farms Limited - Sold to Grieg Seafood 2004 Stolt Sea Farm - merged with Marine Harvest
2011 Duncan Salmon Limited - Sold to Grieg Seafood Atlantic salmon of Maine (Fjord Seafood)- Sold to Cooke
2004 Aquaculture
2012 Uyesound Salmon Comp Sold to Lakeland Unst (Morpol)
2004 Golden Sea Products (Pan Fish) - Sold to Smokey Foods
2013 Lewis Salmon Sold to Marine Harvest Scotland
2005 Heritage (East) - Sold to Cooke Aqua
2005 Heritage (West) - Sold to EWOS/Mainstream
2006 Marine Harvest - Sold to Pan Fish
2007 Target Marine - Sold to Grieg Seafoods
2007 Shur-Gain (feed plant in Truro)- Sold to Cooke Aqua culture
2008 Smokey Foods - Sold to Icicle Seafoods
Vernon Watkins' Salmon Farming (NFL - Canada East) -
2011 Sold to Cooke Aquaculture
Ocean Legacy/Atlantic Sea Smolt (NS - Canada East) -
2012 Sold to Loch Duart
In Norway there has been countless mergers between companies the last decade. The list
above only shows some of the larger ones (in transaction value). In Scotland the
consolidation has also been very strong. In Chile, there has been limited transaction
activity over the last two years. However, several companies have been listed on the
Santiago Stock Exchange. Canadas industry has been extensively consolidated with a few
large players and some small companies.
64
Appendix: Marine raw materials in salmon feed
A major challenge for the fast growing global fish farming industry is to secure adequate
supply of feed raw materials at acceptable prices. In salmon feed, fish meal and fish oil have
traditionally been the main ingredients, but due to reduced availability and increased prices,
substitution with cheaper and sustainable non-marine raw materials have become common
practice. Although this trend started 20 years ago, the biggest changes in feed composition
have been introduced during the past 7-8 years. Fish meal protein is being substituted with
plant proteins, such as soya concentrates and sunflower meal or with poultry by-products*,
such as feather meal. Fish meal levels in some commercial feeds are now as low as 7-8%
(was 50-60% in the 1980/90) and nutritionists believe that there is room for further reduction.
At these low levels, salmon farming is a net producer of marine protein, in others words more
fish protein is produced than what is used to make the feed. The level of fish oil substitution
varies from region to region, but in the range of 50-70% (0% in 1980/90) of the oil in salmon
diets now comes from plant sources, mainly rape/canola or poultry by-products*. Substitution
of marine raw materials has not been found to have any negative effect on growth,
susceptibility to disease, or quality of the fish.
Over the last 50 years the use of fish meal and fish oil has changed dramatically, with
aquaculture now being the main consumer (see charts).
(* Not used in Europe)
Changing use of fish oil

1960 1990 2010
5% 2%
20% 24% Hardenededible

20%
Aquafeed
3%
59% Industrial
16%
71% Refinededible
80%
Changing use of fishmeal

1960 1980 2010
1,5% 2%
4,1%
10%
20% Aquaculture
48,4 36,1 Chicken
50,1 % 5%
% Pig
% 49,8
% 73% Other
Source: IFFO
65
Appendix: Sustainability of fish feed
Fish meal was originally a by-product from fish oil production at the time when fish oil was
cheap oil for hardening fat (margarine production). This situation has changed and both fish
meal and fish oil are moving from being bulk raw materials to speciality raw materials.
There are considerable environmental challenges related to the use of raw materials derived
from wild fish. A reduction in feed fisheries in the coming years is therefore not unlikely. The
global catches of wild fish in the oceans are relatively stable, at around 90 million tonnes, and
about one third of this is currently converted to fish meal and fish oil. During the last 30 years
fish meal production has varied between 5 and 7 million tonnes, while fish oil is stable around
1 million tonnes. Fish oil is a limited resource and due to its high content of healthy omega -3
fatty acids, more of the fish oil now goes directly to human nutrition. Competition for this
valuable raw material is therefore increasing and the omega-3 market today takes around
150 000 out of the 6-700 000 tonnes of fish oil that satisfies the sustainability and quality
requirements for salmon feed and the omega-3 market. Pelagic fish caught off the coast of
Peru and Chile and in the North East Atlantic, are the main stocks used for fish meal and fish
oil. Peruvian anchovy is the biggest of these fisheries.
According to the UN's FAO, 90% of the fish used for fish meal and oil, is presently
unmarketable in large quantities as human food. The reason for this is that some of the
species are either unknown to people or unpalatable, or that the fish in question are too small
or turn rancid too quickly for economic storage and subsequent processing. Although the
FAO encourages using more fish directly to human consumption, they are of the opinion that
it is more efficient, in a protein-hungry world, to harvest the unmarketable species for feeding
to animals, subsequently consumed by man, than to not harvest the fish at all.
Around 24% (IFFO 2009) of the global fish meal production is based on trimmings and
discards from processing of food fish. This proportion has the potential to grow if more fish in
the future goes directly to human consumption and more efficient collection systems/logistics
for trimmings and discards are established.
According to UN, 7 million tonnes of wild catch are destroyed/discarded as non-commercial

harvest annually by commercial fisheries. This figure could have been converted into an
annual fish oil quantity of 0.5 million ton, i.e. close to 80% of the tonnage used for salmon
and trout farming (2010).
Salmon are superior to poultry and pork in converting fish meal to edible meat. This is due to
significantly better FCR and protein retention. Salmon are cold-blooded and therefore use
hardly any energy to maintain body temperature. Also in an aquatic environment, less energy
is used for movement than on land.
The dependency on wild fish in salmon feed has been significantly reduced over the last 10 -
15 years due to changes in recipes. A recent report from Nofima (Srensen et. al., 2011)
shows that the average Norwegian salmon diet in 2000 contained 37% fish meal and 31%
fish oil and that it had come down to 25% and 17% respectively in 2010. The downward trend
in the use of marine ingredients continues and with the ability of Atlantic salmon to utilise
alternative feed ingredients, lack of feed raw materials should not be a threat to the growth of
the industry. However, there will be increased competition for the best raw materials and feed
prices may therefore be affected.
66
Appendix: Atlantic salmon production cycle
67
Appendix: Marine Harvest history
The Marine Harvest Group was formally established on 29 December 2006 after a merger
between the two Norwegian companies, Pan Fish ASA and Fjord Seafood ASA, and the
Dutch company Marine Harvest N.V.
The Marine Harvest Group is the dominant leader within farming of Atlantic salmon. In 2012
the output was 392,300 tonnes HOG, which made out 22% of the industry output.
The groups production is located in all the major production regions in the world; Norway,
Chile, Canada, Scotland, Ireland and the Faeroes.
In addition to farming salmonids, there is also production of Atlantic white halibut in Norway.
Downstream; the company has significant production of value-added products, mainly based
on salmon, but also based on other species sourced from strategic partners or external
suppliers. We are one of the top producers of smoked salmon in Europe, and also do some
smoked salmon production in Chile and the US.
68
Appendix: Marine Harvest worldwide
Marine Harvest worldwide
Marine Harvest operations
Marine Harvest produces in six countries and process in a further six countries. In total, the
company is present in 22 countries and sell to more than 50 countries in the world. Marine
Harvest is listed on Oslo Stock Exchange (:MHG) and has more than 15 500 shareholders.
The head office is located in Norway. At the end of 2012, the group had 6 389 employees
worldwide, including temporary employees.
Total turnover for Marine Harvest in 2012 was MNOK 15 463 and Atlantic salmon harvest
quantity was 392 306 tons (HOG).
2012 Sales breakdown 2012 Harvest quantity (HOG)
69
Appendix: Marine Harvest downstream (VAP)
Marine Harvest downstream (VAP)
From our European downstream operations, about 75% of revenues are made in the three
countries France, Belgium and the Netherlands. Other countries where we have significant
sales are Germany, UK, Italy and Spain. Operating revenues for Marine Harvest VAP Europe
in 2012 was NOK 3 944 million.
Marine Harvests main secondary processed product is smoked salmon, which is done in
France and Belgium. We also process several other species as whitefish and flatfish to ready
meals or packed in modified atmosphere (MAP).
In addition to our European processing plants, we have two salmon smokeries on the
American continent - one in Chile (Delifish) and one in the US (Ducktrap).
70
Appendix: Marine Harvest sales channels (2012)
Marine Harvest sells its products to several categories of purchasers. We divide them into;
Retail, Food Service (hotels, restaurants, catering), Industry, Distributors and others. Each
business unit has their own sales profile. MH Canada and MH Chile sell most of their
production to distributors. In Norway and Scotland, most of the production is head-on-gutted
(HOG) and is therefore sold to industrial customers, who further process the salmon into
other products as filet, portions, smoked salmon or ready meal products.
MH VAP is processing fish from raw material to value-added products and sells 84% of the
production to final sales points met by end consumer (retail + food service).
71
Appendix: Sources for industry and market information
Marine Harvest: www.marineharvest.com

Kontali Analyse: www.kontali.no
Intrafish: www.intrafish.no
Norwegian directorate of Fisheries: www.fiskeridirektoratet.no
Norwegian Ministry of Fisheries and Coastal Affairs: www.fkd.no
Norwegian Seafood Council: www.seafood.no
Norwegian Seafood Federation: www.fhl.no
Chilean Fish Directorate www.sernaperca.cl
FAO: www.fao.org
International fishmeal and fish oil org.: www.iffo.net
Price statistics
Fish Pool Index: www.fishpool.eu
Kontali Analyse (subscription needed): www.kontali.no
Statistics Norway (SSB): www.ssb.no/laks_en/
72

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Salmon Farming Industry

The Marine Harvest Salmon Industry Handbook

5. Industry structure 24 Appendix 61

Updated as of April 27th 2013

The information contained in this document is believed to be accurate. However, no

Salmon is a popular food. Salmon consumption is considered to be healthy because of the

Source: Kontali Analyse, FAO, OECD

5,0 Fishspecies harvest/catchquantities2011

Origin and markets for wild salmonids

Source: Kontali Analyse

Source: Kontali Analyse

Atlantic salmon: By quantity, the largest species of salmonids. It is a versatile product,

Farmed salmon is a good source for the marine

Salmon is viewed upon as a very versatile product,

Source: FAO, Marine Harvest

Protein production efficiency

One method to measure how productive the different protein

Wild salmon has a FCR of approximately 10.0.

Source: Ytrestyl et. al (2011)

As well as a low FCR, Atlantic

AtlanticSalmon Pig Chicken

Source: Norwegian University and Life Sciences (2002)

Most of the fish is edible meat, while

AtlanticSalmon Pig Chicken

Source: Norwegian University and Life Sciences (2002)

Freshwater consumption in production

Source: Kontali Analyse

NorthAmerica SouthAmerica Europe(incl.Russia)

Source: Kontali Analyse

Historically, the main market for each origin has been:

Global trade flows of farmed Atlantic salmon - 2012 (HOG)

North America: EU:

Source: Kontali Analyse

Seawater Disease Vaccine

Source: Kontali Analyse, Marine Harvest

Source: Kontali Analyse

In Chile the situation is different due to more stable seawater temperatures

Source: Kontali Analyse

Factors affecting market price for Atlantic salmon are:

Source: Kontali Analyse

Source: Kontali Analyse

* Average difference between SSB and return to packing plant

Global supply Change in av. price

200001 13% 25%

20% 200102 7% 10%

Source: Kontali Analyse

Source: International Monetary Fund, Marine Harvest

Salmon/Beef Salmon/Chicken Salmon/Pork

Source: Kontali Analyse

See appendix for some historic acquisitions and divestments.

License and location (Norway)

License and location (Scotland)

Individual site biomass is governed by environmental concerns, namely the assimilative

License and location (Chile)

License and location (Canada)

The figure below depicts an example of the regulatory framework in Norway.

Source: Marine Harvest, Kontali Analyse, Fiskeridirektoratet, Quarterly reports

The graph is organized by highest harvest quantity.

Industry production is approaching its limit (Norway)

Estimated MAB-utilisation in Norway 2009-2013E

Main issues in the new legislation are:

General Law on Fisheries and Aquaculture (LGPA), modified February 2013.

Specific regulations released from LGPA, like: