A strong capelin season this winter could prove to be a real shot in the arm for the economy. If the newly published guidance from the Marine and Freshwater Research Institute turns out accurate, the coming winter should see the largest capelin season in nearly twenty years. The Institute’s preliminary guidance, published following autumn measurements, provides for a total allowable catch (TAC) of over 900,000 tonnes. In comparison, the TAC for last season, which extended through August, was 127,000 tonnes, some 71,000 of which were caught by Icelandic ships. Over the decade beforehand, Icelandic ships’ quotas ranged from just over 100,000 tonnes to nearly 600,000, apart from 2019 and 2020, when no quotas were issued.
Capelin quota gets a big boost, spurring on the economic recovery
In all likelihood, the newly begun fishing year will bring Iceland’s biggest capelin catch in nearly two decades. If so, marine product exports will probably grow year-on-year, in defiance of our previous expectations. Moreover, year-2022 GDP could well turn out as much as 0.8 percentage points stronger than it would otherwise.
It appears clear that this year’s catch will exceed last year’s many times over. But it is well to bear in mind that a portion of the capelin quota is allocated to foreign ships, under international agreements between Iceland and neighbouring countries. According to a summary published in Morgunblaðið, approximately 660,000 tones will be allocated to Icelandic ships and just over 240,000 to Greenland, Norway, and the Faeroe Islands.
Furthermore, it is highly uncertain how much export revenue such a large capelin catch might generate. Product prices are a factor, of course, but the composition of export products is important as well. For instance, capelin roe and whole frozen capelin are much more valuable products than capelin meal and oil. When the catch is weak, as it was last year, every effort is made to maximise product values. Those efforts were successful last year, as was discussed in this summer’s SFS newsletter. The risk is that a larger share of the catch will used to extract oil, and a surge in supply could also push prices downwards across the board. In addition, there is no guarantee that the entire TAC will be caught, although Icelandic fisheries actually appear well prepared to take full advantage of the coming season.
But even with all these caveats, it still looks as though a surge in capelin-generated export revenues is in store for the coming season. Capelin generated just over ISK 18bn in export revenues in the first eight months of 2021 – the first double-digit capelin season since 2018. We do not consider it overly optimistic to project at least three times that figure for the 2021-2022 fishing year as a whole, or ISK 50-70bn, and the possibility of an even higher total cannot be ruled out.
Capelin is a highly volatile species, as are many other pelagics. At its best, it was second only to cod in export revenue generation, but in the past few years it has been relatively weak. Even so, capelin has generated nearly 8% of all fishing export revenues over the past decade. Fortunately, other pelagics have filled the gap in recent years, including blue whiting and, of course, mackerel.
A small fish with outsized economic impact
What will this good news mean for the Icelandic economy? In our recently published macroeconomic forecast, we assumed that this winter’s capelin season would be acceptable, as indicators of a year-on-year increase had already come to the fore. But the guidance just issued is much more generous than we could have imagined, with the result that marine product exports look set to grow as much as 6-8% this year, as opposed to the 2% contraction we had projected. To be sure, there will be an increase in imported inputs for the fishing industry, although we expect the effects of this to be modest. The current account balance could therefore improve somewhat faster in 2022 than we had anticipated. Other things being equal, this will bring with it a more rapid ISK appreciation than we forecast in September, which in turn will cause inflation to fall more quickly than we previously projected. A strong capelin season will also create jobs and boost economic activity, not least in the regions where catches are landed and processed, particularly to include the East Fjords and the Westman Islands.
As a result of this good news, we estimate that year-2022 GDP growth could be in the neighbourhood of 4.4%, well above the 3.6% we forecast in September. But as baseball great Yogi Berra is reputed to have said, “It ain’t over ‘till it’s over” – words worth remembering in view of the provisos we have described above concerning actual catches, price movements, product composition, and other factors. But even with all of the provisos, we think it’s safe to say that the probability of robust growth in the coming year has increased with the latest news about this small yet valuable salmonid that has so often proven bountiful for Iceland.