Rabobank Group

Rabobank Food and Agribusiness Research,

Puerto Mont, Chile, October 2016

Gorjan Nikolik

Can sustainability become the key strength of the Salmon farming industry?

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Toronto

New York

Mexico City

Sao Paulo

Buenos Aires SydneySantiago de Chile

Willemstad

Calgary

Washington DC

Chicago

Atlanta

DallasEl Centro

San Francisco

Tasmania

Melbourne

Wellington

Cedar Falls

St Louis London

Madrid

Milan

AntwerpFrankfurt

Warsaw

Utrecht

Hong Kong

Singapore

Mumbai

Kolkata

Jakarta

Tokyo

Beijing

Delhi

Kuala Lumpur

Moscow

Istanbul

Dublin

Lubuan

Amsterdam

Paris

Bangalore

Shanghai

MaputoChimoio

Beira

Tete

Ulónguè

Malema

Maxixe

Nampula

Kigali

Asuncion

46 Countries Over 600 Offices Over 55,000 Employees

Rabobank: Globally leading food and agribusiness lender and financial services provider

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• We focus on:

– Key drivers and risks at industry level

– Corporate companies

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Rabobank’s Food and Agribusiness Research

• Over 80 research professionals across the globe

• Entire product chain from farm inputs and primary production to

processors and consumers covered

• Many sector topics researched including:

– Supply & Demand Trends

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AgriCommodities

Animal Protein / Seafood Beverages Dairy Farm Inputs

Fruit & Vegetables

Grains & Oilseeds

F&A Supply Chains /Logistics

Sugar/ Bioethanol

Food retail / Consumer

trends

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Google search “farmed salmon”

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Why is the Salmon industry an especially good target for activists?I

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Consumption is

concentrated in

developed countries

For instance Sweden is a

market of similar size as

China

There is much more

activists and

sustainability concern in

developed countries then

in developing

Firstly, consumption is mostly in developed western countries

Source: Marine Harvest 2016

Atlantic Salmon market size and per capita consumption (yearly)

1,2

2,5

1,92,3

0,90,5

1,4

0,5

6,2

0,0

1,1

9,5

1,0

6,6

3,22,8

3,1

0,4

1,9

3,5

0,4

0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

400

US

Fra

nce

Germ

any

UK

Russia

Bra

zil

Italy

Japan

Sw

eden

Chin

a

Spain

Norw

ay

Pola

nd

Fin

land

Belg

ium

Isra

el

Hong K

ong

South

Kore

a

Port

ugal

Denm

ark

Ukra

ine

Kg WFEThousands MT

Total Market Consumption Per Capita

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Salmon is a high value

protein consumed by

wealthy consumers

People that buy premium

proteins are also

consumers are far more

concerned with the

environment

It is not just premium

but a protein with a

heathy image. This make

the probably that Salmon

consumers

Secondly, salmon is a premium protein at the top of the price range even in Europe

Source: albert.nl 2016

€ 0,83/100g

€ 0,87/100g

€ 1,28/100g

€ 1,69/100g

€ 2,37/100g

€ 4,29/100g

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There is no back yard

salmon farming or

subsistence salmon

farming. All producers

are large and many are

listed

From an activist point of

view this is a much

better industry to target

then for instance poor

farmers in Asia or Africa,

even if the effect on the

environment of the other

industries is more

significant

There is no moral

dilemma for activists

when targeting salmon

famers

Also there is a lot more

information on this

industry from public

sources

And lastly: The sector is supplied by large listed and corporate companies, there is no back yard or smallholder salmon farming

Who would you focus on if you

were a environmental sustainability

activist?

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Key points

1 Standards and expectations are higher for a protein that is

consumed by wealthy, sustainability and health conscious

consumers

2 Sustainability image has to match the market positioning,

seemingly now it does not

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Salmon is probably the most sustainable farmed protein II

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Criticisms of the salmon industry in the public domain are concerning the effect on the environment and food safety

ENVIRONMENT

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Use of marine

ingredient has

decreased

dramatically

Moreover some

30% of FM globally

is made form

trimmings – not

wild catch

Production of

Salmon is now

largely marine

protein creating

Fish meal and fish

oil used in salmon

feed from well

managed fisheries

With new

ingredients such as

insect meals,

bacterial meals and

algae oil even more

improvements are

on the way

Salmon farming does not contribute to overfishing or is diverting fish away from human use

Source: Marine Harvest 2016

Salmon feed formula

24%

17%59%

Global 1990

8%

49%

9%

21%

13%

Norway 2015

10%

30%

7%19%

22%

12%

Chile 2015

Other Raw Materials Veg Meal Fish Oil Veg Oil Avian Meal Fish Meal

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The low FCR is one of

the main features and

advantages of salmon

farming

This is caused by the

fact that there is no

gravity under water

and the fact that

salmon do not need to

heat their bodies.

These are the two

main energy losses of

any farmed animal.

The small bones

(result of no gravity in

water) and the

streamlined muscular

shape create a very

high edible meat yield

In fact compared to other proteins Salmon looks favourable, mainly due to the low FCR and high edible meat

Source: Marine Harvest 2016

Comparison of Salmon with other proteins

Protein Retention 31% 21% 18% 15%

Energy Retention 23% 10% 14% 27%

Edible Yield 68% 46% 52% 41%

Feed Conversion Ratio (FCR)

1.1 2.2 3.0 4-10

Edible Meat per 100 kg fed

61kg 21kg 17kg 4-10 kg

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Due to low FCR and the recirculation in the fresh water stage very little fresh water is used in salmon production

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

Salmon Poultry Pork Beef

Water use in liters per 1 kg of edible weight

Source: Norwegian Seafood Export Council 2015

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Salmon is the equivalent of a TESLA car in comparison to other proteins when it comes to CO2 emissions per kg

Source: Alf Helge Aarskog NASF 2017

0

5

10

15

20

25

30

35

Salmon Pork Beef

Greenhouse gasses (in kg CO2-equivalents per kg produced)

Kilde: Eurostat aquaculture and Wild catch, Norwegian Seafood Export Council

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Clearly in Norway

Salmon famers do not

use significant

amount of antibiotics

Due to SRS antibiotics

are used in Chile, but

no antibiotic residue

remains in the body of

the Salmon by the

time it is processed.

This is due to the long

production cycle of

salmon and the fact

that antibiotics stay in

the body of the fish

for only a certain

amount of time

Still this is not a

concept that is easily

communicated to the

general public. If

salmon is to become

the leading protein in

terms of sustainability

antibiotic use needs to

be minimised

In Norway antibiotics are not being used in Salmon farming since the 1990s

Source: Marine Harvest 2016

Production of salmon and use of antibiotics in Norway

0

200

400

600

800

1.000

1.200

1.400

0

10

20

30

40

50

60

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Harvest volume (thousand tonnes GWE)Tonnes active substance

Antibiotics use

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In EU pigs have to

have a minimum

space requirement

of 0.8m2 per pig

They reach 120 kg

in 6 months

So approximately

10 100kg pigs

would be housed in

a 2mx4m area

The EU is a front

runner in animal

welfare. Other

regions have even

0,6m2 per pig or

less

Pigs have much

less space to move

and exhibit natural

behaviour then

salmon in virtually

any commercial

farm other then the

most organic – free

range

In terms of natural conditions at the farm salmon stand out from other proteins

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Standard chicken

minimum

requirement: 21

broilers per meter

square

Premium products

are stocked at the

rate of 13 to 17

broilers per m2

So for example in

2X4m enclosure

there could be

approximately 160

to 120 broilers

They reach 2kg in

approximately 6

weeks

Despite major

improvement

happening currently

in the chicken

industry salmon

still compares very

favorably

There is growing criticism on the living conditions in livestock farming

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In salmon farming the

environment is three

dimensional so it is hard

to compare – but the

ample space is obvious

Salmon are living in their

natural environment, and

exhibit natural behaviour

able to school and jump

Most limits are in the

range of 10kg per m3.

This represents

approximately 1% of the

volume used for farming

The growth is slow

growing to 5kg in nearly

2 years

Perhaps we can call all

farmed salmon – free

range salmon?

Space available for salmon in salmon farms is more then even most free range or biological terrestrial farmed animals

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The pristine environment

where Salmon is farmed

is the most unique

feature of the Salmon

industry

Cold, pure waters, clean

air, strong currents away

from any industry or

major population centres

This is an open natural

environment that only

the most organic, and

free range poultry, pork

or beef can compare too

Most people would

like to move and live

in the area where

salmon is farmed

But it is the region and the farming environment which is the truly unique feature of salmon farming

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Key point: Salmon is a very sustainable protein

1 Very efficient use of feed commodities and fresh water – salmon is

the Tesla of the farmed proteins

2 All farmed salmon is basically “free range” and most people would

love to live in the pristine areas where salmon are farmed

3 Salmon a heathy protein rich in Omega 3 fatty acids which have

health benefits for both the heart and the brain

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The millennials are coming!

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In 2017 the millennials will be the biggest population cohort in the US accounting for $200 billion in purchasing power

By 2017 they will have

purchasing power of 200

billion USD the largest of

any other population

cohort in the US

The millennials are known

for social media and

preferring artisanal

products to big brands

But they also:

1. Focus on heath

2. By premium (lower

size of meal but higher

quality)

3. Are concerned on

how the food is

farmed

30% by organic v.s. only

15% among baby boomers

EU and other western

countries have similar

patterns

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

15 20 25 30 35 40 45 50 55 60 65 70

Popula

tion in m

illions

Age in 2015

92 MMILLENIALS 61 M

GENERATION X

77 MBABY

BOOMERS

US population by age group in 2015

Source: US Census 2016

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Salmon farming has a

few excellent

features, such as low

FCR, high edible

protein, low

greenhouse gas

emissions, fresh water

efficacy … but these

are not easy to

communicate to the

general public

Albert Heijn, a Dutch

retailer, has recently

launched a TV

advertisement that

summarises the key

traits of farming

Salmon focusing on

the pristine

environment the

Salmon are farmed in

An example of how to communicate the salmon sustainably message to the general public

Source: Ahold.nl

https://www.youtube.com/watch?v=y3KtRkP-n9Y

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Biological issue are

correlated with some

sustainability issues such

as lice, antibiotics and

medication use

Better suitability will also

result in better biological

performance

It is important to have

the appropriate

legislation that

emphasises and supports

the industry in this was,

especially in Chile

1. Get biology in

order

2. This will help

improve suitability

image

3. Then resume

growth

Biological performance and sustainability are linked, consequently more legislation is needed to stop the “Chilean roller-coaster”

Source: Kontali, Rabobank 2016

Chilean Atlantic Salmon production in thousand tones and expectation

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

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Thank you for your attention

“The financial link in the global food

chain”™

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Contact details

Rabobank

Food & Agribusiness

Research

Utrecht Head Office

Office address

Graadt van Roggenweg 400

3500 HG Utrecht

Tel.: +31 7123 807

Rabobank International

Gorjan Nikolik

Senior Analyst Seafood

Telephone +31 30 7123825

Mobile +31 (0) 612432463

E-mail Gorjan.Nikolik@rabobank.com