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Strong capelin season a boon for the economy

The prospect of a vastly increased capelin quota following the most recent measurements is good news for the fishing industry and the economy more broadly. The sector’s total revenues could equal or perhaps slightly overtake last year’s ISK 350bn. Furthermore, the current account deficit could turn out a bit smaller and GDP growth slightly stronger than was envisioned at the turn of the year.

According to reports received this week, sizeable schools of capelin were found north of Iceland, and the outlook was for this year’s capelin quota to be increased by at least 100,000 tonnes. It had already been increased by 57,000 tonnes at the beginning of February, and according to the current quota, some 182,000 tonnes will be allocated to Icelandic vessels. If the quota is expanded by another 100,000 tonnes or more, the fishing industry’s export revenues will considerably stronger as a result.

The volume of caught capelin has fluctuated widely over the past decade or so, as the capelin stock itself is quite volatile. For example, no capelin quotas were issued in 2019 and 2020. A quota was issued to Icelandic ships again in 2021, but 2022 was a watershed year, when Icelandic ships were authorised to catch over 540,000 tonnes, the largest total allowable catch (TAC) since 2012.

Volume matters, but so does quality

How much in export revenues the current capelin season will generate is highly uncertain, although a hefty increase in the TAC is a good sign. 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 season is weak, as it was two years ago, every effort is made to maximise product values. As the chart indicates, these efforts were successful, and capelin export values that year exceeded those in 2017 and 2018, even though the catch was smaller in volume terms.

Global marine product prices have generally been on the rise recently, boosting growth in fishing industry export revenues. For example, Statistics Iceland’s monthly marine product price index has risen by nearly a fifth in ISK terms since the beginning of 2022. If we deflate the marine product price index with the trade-weighted exchange rate index so as to approximate foreign currency price movements in the global market, we find that the price of Icelandic products has risen by about 16%.

Will 2023 match last year’s record?

These favourable price movements, together with a bountiful capelin season, played a major role in the 18% increase (in ISK terms) in marine product export values between 2021 and 2022, despite a contraction in the exported volume of cod and other groundfish. Revenues for the year came to nearly ISK 350bn, an all-time record in nominal terms. These developments were discussed recently on Fisheries Iceland’s news and information dashboard Radarinn, which also mentioned that fish meal and fish oil accounted for nearly one-fifth of the sector’s export revenues, the largest share since 1978. And it just so happens that these products are mostly produced from capelin.

A bigger capelin quota has quite an effect on this year’s economic outlook, although at this point the windfall is still theoretical. In the macroeconomic forecast we issued at the beginning of February, we projected that marine product export volumes would shrink by nearly 3% year-on-year in 2023. We now think the contraction will turn out about half that size, or around 1.5%. If prices develop favourably, however, export revenues could equal last year’s or even exceed them.

If comments from fishing industry leaders are a sign of things to come, the capelin catch already authorised in 2023 to date plus the extra quota that may be on the horizon in coming weeks could boost capelin export revenues by around ISK 15bn relative to projections from the turn of the year. The revenue top-up could prove even larger if quota increases in the next few weeks exceed the 100,000 tonnes mentioned above. If these projections materialise, the gross increase in export revenues could amount to as much as 0.4-0.5% of GDP. After adjusting for imported inputs, we think the current account deficit could end up smaller by 0.2-0.3% of GDP as a result. Given our February forecast of a 1.4% current account deficit for 2023, this would be most welcome.


Jón Bjarki Bentsson

Chief economist