“There are a lot of uncertainties at the moment, in particular when it comes to oil prices and market access.” — Dr. Magni Laksáfoss.
The Faroese have always depended heavily on the availability of fish as a food resource. Indeed, ever since the island nation’s slow entry into the modern age in the 19th and 20th centuries, fish has been the mainstay of exports; and overall, the export trade is something that the Faroese economy remains highly focused on.
By far the largest share of that trade consists of seafood, to a large degree exported as raw fish but also in significant amounts as semi-processed and to a lesser extent as value added products.
The Faroese seafood trade is basically structured around the twin pillars of wild caught and farmed fish, with further subcategories applicable to the highly diverse wild fish industry.
In spite of the obvious similarities and indeed commonalities between fisheries and aquaculture across much of their value chains, there are significant differences, too, not merely in the basic method of sourcing and their implications but also in historical and cultural characteristics.
In a way, you’re looking at two parallel worlds that overlap or interjoin at certain points.
For some, the seafood business may have the appearance of an old-fashioned world of its own steeped in local tradition and heritage and so on. While there’s some truth to that in some places around the world, discounting advertising imagery, it’s generally not the case in the context of a modernized fish industry such as that of the Faroe Islands.
But here’s the point: the fact remains that the business environment in which this trade operates is known as a rapidly changing one, and the Faroes is no exception to the rule.
Following the EU
Clearly, uncertainties make up a major and complex factor in the seafood industry, whether fisheries or aquaculture, whether in relation to internal business processes ranging from sourcing to sales, in the natural environment including weather and climate, in the legislative and regulatory environment, or in the marketplace, all of which is constantly influenced by variations and fluctuations from the mundane and readily foreseeable to the more dramatic such as force majeure events.
A few years ago the specter of meddling via politics loomed large in connection with a long-awaited fisheries reform in the Faroe Islands. Social issues became conflated and confused with fisheries policy issues and societal divisions tended to arise. However, with most concerns addressed after some back and forth, political risks were relegated to the rear, before global health issues instead made their way to the fore—that is, until the emergence of the current, extremely volatile situation in international relations, with war in Eastern Europe, sanctions on all sides and rapidly rising commodity prices.
The elephant in the room: Russia, up until now a major trading partner, is being subjected to economic sanctions and trade barriers and the political leadership of the Faroe Islands has expressed its willingness to follow in the footsteps of the European Union, however with some exceptions to apply to trade bans, notably food i.e. fish.
But even if Faroese fish can still be exported to buyers in Russia from that perspective, new systemic barriers in international shipping as well as in money transactions could make it cumbersome.
“Over the last decade or so, the Russian Federation became by far the most important market for wild caught pelagic fish from the Faroe Islands, and even a very significant market for Faroese farmed salmon,” said Dr. Unn Laksá, CEO of Blue Resource (Sjókovin), a not-for-profit research organization affiliated with the Faroese seafood industry.
“In 2021 the Faroe Islands exported almost 147,000 tonnes of fish to Russia at a value of more than 2 billion DKK [278.4 million EUR]; that’s a large share of the country’s total exports of 524,000 tonnes at a value of slightly over 10 billion DKK [1.34 billion EUR]. So we’re roughly talking about one-fifth of the total value of our exports.”
Both wild caught and farmed fish could be in the risk zone in terms of market access to Russia; however, that risk appears to be lower for farmed salmon compared to the situation facing exports of pelagic fish like mackerel and herring.
“Now that our access to that market is uncertain due to the war in Ukraine, we’re faced with possibly having to find new markets to offset that trade,” Dr. Laksá noted; “but fortunately, at least when it comes to farmed salmon, demand appears to be growing globally and the price is looking favorable from a Faroese point of view. However, nobody knows what the situation will look like in six, twelve, eighteen months from now.”
So the prospects for the long-booming aquaculture business continue to look fairly bright at the moment despite some darker clouds gathering on the European economic horizon more generally.
The energy factor
As for the pelagic fish industry, a huge success story in last 15 years or so, the picture looks a bit more complicated. There’s the issue of possibly having to establish footholds in new markets—easier said than done—and there’s the risk of rocketing oil prices, arguably already sufficiently high to hurt profit margins. On the upside, this industry, almost like the salmon farmers, has the financial muscle to withstand a potential downturn and adjust accordingly, even over a relatively long time if necessary.
But then again, with reduced catch quotas for mackerel, herring and blue whiting in the cards, as per scientific recommendation, the quantities fished will most likely be reduced in the near term.
“There are a lot of uncertainties at the moment, in particular when it comes to oil prices and market access,” said Dr. Magni Laksáfoss, an economist with Blue Resource.
One would assume that for large fishing vessels depending of powerful engines to tow heavy fishing gear, the price of fuel would be a critical cofactor in determining economic viability, and that newer vessels fitted with the latest technologies are generally more energy-efficient compared to older ones—implying that the pelagic fleet for that reason would be in better shape compared with many trawlers in the whitefish and saithe business that operate within the Faroese exclusive economic zone.
Be that as it may, however, pelagic fisheries in general, whether old or new vessels, are much more cost effective per kilogram fished due to the nature of the fisheries—these species are found in much larger quantities compared to whitefish and other commercial fish. That means those non-pelagic fishing fleets, in particular trawlers but even longliners for that matter, are more vulnerable to rising fuel costs, since their fishery is less profitable.
“As for the fishing industry more generally, we can hopefully expect the pelagic sector to stay in a relatively strong albeit moderately weakened position, much depending on how the issue of market access is going to play out. In that connection we could potentially be facing a possible disruption of the price structure in the case of herring. On the other hand, the market for mackerel is more versatile. So these markets differ geographically in that herring is more narrowly focused on a very few countries, exposing that market more easily to the risk of oversupply. The big spoiler, meanwhile, could be the price of oil if it continues to rise significantly as many of these vessels consume a lot of fuel.”
Less for some
The freezer trawler segment, a traditional stronghold of the Faroese whitefish business, is a group of distant-water fishing vessels equipped with freezer holds and often filleting plants.
Most of the freezer trawlers have had a decent and stable business, exporting semi-processed cod and haddock to the UK and other markets, fishing mostly in Norwegian and Russian waters in the Barents Sea. Some of the freezer trawlers fish northern shrimp. However fears are growing that Faroese access to those Russian waters could be hanging in the balance if the trade wars continue to escalate.
“Again, this is another example of the large amount of added uncertainty we’re dealing with at the moment,” Dr. Laksáfoss pointed out. “Losing access to those fishing grounds would be a serious blow to the Barents Sea fleet, which is undergoing renewal as we speak.”
Speaking of fleet renewals, also the pelagic fleet has recently received a magnificent new trawler—Christian í Grótinum—with two others under construction.
Then there is a group of recently renewed longliners that have been fitted with freezer holds in the last few years, and these vessels have done relatively well, fishing mostly cod and haddock within the Faroese EEZ but also having access to waters off Iceland and, more distantly, off Newfoundland and Greenland.
In other sub-sectors of the Faroese fishing industry, meanwhile, things have long looked less rosy.
With less money to earn for officers and crew members, some vessel owners have been struggling to man their boats. In short, these are longliners, trawlers and gillnetters that fish within the Faroese EEZ and are not fitted with freezer holds, targeting mostly whitefish and saithe. The reason for their hardships are often discussed in the public space, with some maintaining there are too many vessels hunting too few fish in the home waters, whereas others argue that the fisheries management regime is to blame with too many good fishing grounds unnecessarily closed to commercial fishing plus other restrictions, combining to make the necessary fleet renewals very difficult, perpetuating a vicious cycle.
Whether the answer lies in more cutbacks on fishing rights or in removing excessive technical regulations is an ongoing debate, and a hot topic for another day.