Marine product exports set to contract markedly

The near-term outlook is for considerably weaker marine product export revenues than was previously hoped. In the next few years, however, cod catches could turn out close to the twenty-five year average. Weaker exports of fish could wipe out the current account surplus we had forecast for 2021, but even so, the outlook remains positive for the years to come.


The Marine and Freshwater Research Institute (MFRI) recently published its advice for the coming fishing year. It is safe to say that the Institute’s findings were disappointing, as its overall recommendation is for a significant reduction in fishing. The main contribution to that outcome is a 13% year-on-year contraction in the total allowable catch (TAC) for cod. The MFRI also recommends that the perch quota be reduced by about one-fifth YoY and the ling quota by 17%. On the other hand, the Institute recommends quota increases of 11% for haddock, 13% for Greenland halibut, and 11% for plaice. But this advice does not go far towards offsetting the decline in the TAC for cod and perch.

The Institute recommends that the cod quota be set at just under 223,000 tonnes, which is about the volume caught in Icelandic waters in 2013-2015. At that time, quotas had been increased steadily in the years beforehand, following a historically low cod fishing effort towards the end of the 2000s. For the current fishing year, which concludes at the end of August, the the cod quota was reduced by 6% from the prior fishing year.

Fishing level set to approach the average of previous decades

In historical context, however, we can be well satisfied with cod fishing in the coming year if the MFRI’s advice is followed as it generally has been in the past few years. Since the end of World War II, Icelandic fishing vessels have caught an average of 260,000 tonnes of cod per year. In recent decades, however, the average catch has been smaller; for instance, the mean for the past twenty-five years has been just over 220,000 tonnes, according to figures from Statistics Iceland (SI). So it can be said that the year ahead looks set to be about average as regards cod fishing, if the MFRI’s advice is followed.

But this is probably cold comfort for fishing companies facing substantial revenue losses in coming quarters because of slashed quotas. The reduction in export revenues will also make quite a difference in a macroeconomic context if the current outlook materialises. In 2020, marine product exports totalled nearly ISK 270bn and accounted for over 28% of total export revenues. This was a much higher percentage than in the years beforehand, of course, as tourism revenues all but dried up in 2020, providing a timely reminder of the fishing industry’s importance in foreign currency revenue generation for Iceland’s small open economy, and of how valuable it is for the economy to rest on more, rather than fewer, export revenue pillars.

Cod and perch the strongest contributors

The share of cod and perch in 2020 export revenues has not been published yet, but in 2019 cod accounted for 45% and perch another 5%. These two species therefore represented half of export revenues from fishing in 2019, so a decisive cut in quotas will definitely make an impact.

In our macroeconomic forecast from May, which we published before the MFRI guidance was issued, we projected that marine product exports would increase by over 2% in volume terms this year and a scant 2% more in 2022. But MFRI’s announcement makes our forecast a long shot. It is worth noting that our forecast includes aquaculture products with marine products, and a large share of the growth we projected in May stems from aquaculture. Furthermore, there was some capelin caught this year, but none in 2020.

Upon quick perusal, however, it appears that all else being equal, there will be a slight decline in marine product export volumes in both 2021 and 2022. This year, the contraction could eat up nearly all of the ISK 20bn current account surplus we forecast in May. But for the two years to follow, the outlook is still for a sizeable current account surplus driven by rapid growth in tourism-generated export revenues. Furthermore, exports of marine products and industrial goods will continue to be one of the mainstays of export revenue generation, as they have been in recent decades.

Analyst


Jón Bjarki Bentsson


Chief economist

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