“Waste not, want not” – an analysis of the marine ingredients industry in Northern Norway
Market researchers at Nofima, The Norwegian Institute of Food, Fisheries and Aquaculture have analysed the profitability of the marine ingredients industry in Norway. The researchers found that profitability varies greatly, and also pointed out a number of opportunities and challenges facing the industry.
Published March 11th 2019
In Northern Norway there are a number of companies that currently make use of residual raw materials from seafood. The companies vary greatly in terms of their backgrounds, the raw materials they use and the market niches they address. To achieve the goal of fully exploiting marine resources, it is important for Norwegian companies to see opportunities for commercial success.
The marine ingredients industry is a collective term for companies that use residual raw materials from the fisheries and aquaculture industries to produce ingredients for use in food and drink, dietary supplements and cosmetics. The industry is spread right across Norway, but a significant number of companies have ties to Northern Norway on account of the good access to raw materials here. Business clusters with various companies operating in the same field have built up in several places. The two biggest such clusters are in the Tromsø area and in the Vesterålen/Lofoten archipelagos. A cluster is also developing in East Finnmark.
Valuable residual materials
In recent years there has been a growing focus — within the seafood industry, amongst politicians and at government agencies — on processing and using residual raw materials from fisheries and aquaculture. The residual raw materials from seafood production are defined as what is left over after the edible parts of the fish have been removed. Interest in these materials has gone in cycles, and significant resources have been invested in increasing their value. Viewed from a historical perspective, we have gone from talking about food for seagulls (by-products) in the early 1990s to talking about food for humans (residual raw materials) today. No doubt a lot of work was done before that as well, but the key point is that now there is a shared understanding that the whole fish is potentially very valuable.
Parts of the seafood industry have experienced periods of low profitability, which has increased their interest in using more of the fish in products for human consumption and increasing the value of the residual raw materials. Meanwhile, growing environmental awareness has made it less acceptable to not make use of the whole fish or not bring fish offcuts back to land. The value of bringing back what is currently thrown over the rail has also been discussed in a Nordic context, where it was found that Norway does worse than, for example, Iceland (Laksa et al, 2016). Clearly there is potential to extract more value, but how can it been done and where should we go from here?
Claims that these resources are highly valuable is leading to growing interest amongst Norwegian manufacturers in producing intermediate and finished goods.
Significant progress has been made in some areas, and most residual
raw materials brought back to land are used. This progress can be seen,
for example, in the herring and mackerel fisheries, and in aquaculture.
In the case of white fish, residual raw materials from the domestic
processing industry are used, but a large proportion of these fish are
exported whole, and many of them are never landed in Norway. In
2016, 910,000 tonnes of residual raw materials were estimated to be
available in Norway, of which just over 222,000 tonnes were not used
(Richardsen et al 2017). In other words, as much as 25 percent of the
residual raw materials went to waste. According to one of the biggest
fishing companies in Norway, this is mainly a question of profitability
and how much companies on land are willing to pay for residual raw
materials. If the residual raw materials were to achieve the price that
many people claim they are worth, trawlers would bring them back to land
(Fiskeribladet, 2017). In order to exploit the potential that exists,
it must make financial sense for all of the companies involved — right
from harvesting through to retailing. That requires cooperation to
promote joint interests.
Claims that these resources are highly valuable is leading to growing
interest amongst Norwegian manufacturers in producing intermediate and
finished goods of various kinds. To assess to what extent, and how,
manufacturers can make best use of these raw materials will require new
knowledge. One of the UN’s sustainable development goals is for as much
as possible of the world’s edible resources to be used for food. This
also applies to food from marine sources. Although not all residual raw materials
can be used for food, there is great potential to use more. We need a
better understanding of markets and opportunities in the marine
ingredients industry so that companies can make best possible use of the
potential that exists. So what opportunities exists in the marine
ingredients industry, and what challenges does the industry face?
Marine ingredients — or finished products?
One way to use residual raw materials is to produce ingredients for food products such as protein powders and oil. These intermediate ingredients can then be used in the production of finished goods such as cod liver oil, other omega-3 products and animal feed. In Norway a group of companies has developed that is referred to as the marine ingredients industry.
Roughly speaking, this industry comprises around 60 companies that manufacture products using raw materials from species like cod, herring, mackerel, crustaceans and salmon. Most of the companies are small or medium-sized, with the advantages and disadvantages that come with that. Of the companies interviewed by the researchers, nine produce finished goods, while the rest sell their products to other companies as ingredients. Geographically they are spread across all of Norway, with a third of them being in Northern Norway. A higher proportion of the companies in Northern Norway produce finished goods than elsewhere in the country. Traditional products like cod liver oil are also mainly produced in Northern Norway, near areas that were historically important landing sites for fish.
Profitability of the Norwegian industry
There are big differences between the companies in terms of how successfully they have converted the potential into a profitable business. Profitability doesn’t just vary between companies, it also varies from one year to another. There appears to be a tendency for companies to either experience boom or bust. In recent years the number of these companies being set up in Norway has declined, possibly because it has proved harder than expected to exploit the value of the raw materials. The total number of companies has also fallen. This may be due to low profitability, but it may also reflect mergers between companies that want greater muscle power in highly competitive markets.
Of course, Rome wasn’t built in a day. Many of the companies have a product that they have spent a long time developing and finding a niche for, and it is important to be patient about profits. Even if there is still a way to go for many companies seeking to extract value from residual raw materials, the gross value added of the industry keeps rising. The total turnover of the companies that we studied rose from around NOK 11.5 billion in 2014 to NOK 13.3 billion in 2017, or in other words by 16%.
The total gross value added also increased. Between 2014 and 2017 it rose 26% from NOK 1.97 to 2.6 billion for the companies in our selection, so many of them have made good progress. The big differences between the performances of the companies may indicate that there is less potential in some areas than others. For example, companies that mainly sell their products in Norway performed below average. The same applies to companies that used residual raw materials from salmon.
Challenges – what are the pinch points?
After interviewing a selection of the companies involved in the marine ingredients industry, it is clear that the biggest challenges are associated with raw materials and markets.
How good is the access to raw materials?
The challenges relating to raw materials that were mentioned include:
timing for production
right volume (too big or too small)
In short, greater quantities of raw materials aren’t necessarily required. That is confirmed by the fact that most of the companies consider there to be good access to raw materials.
They companies mainly use raw materials form Norway, but international sources were also mentioned, including Iceland, Peru, Turkey and various other countries are also mentioned as sources. So proximity to raw materials is an important factor, and may partly be related to the need for quality. Several of the companies consider that quality and freshness go hand in hand, as they have limited capacity for processing and frozen storage, although increasing them would improve their control over quality deterioration, and allow them to increase volumes and obtain raw materials from more different areas. Companies that want to sell residual raw materials should consider allocating frozen storage capacity to expand their potential markets.
Proximity to a fishery doesn’t necessarily ensure access to raw materials: relationships with suppliers are equally important. Our interviews suggest that it is an advantage to secure raw materials through long-term contracts, as well as buying on the open market.
Given that access to raw materials is seen as good, buyers may not be willing to pay more than they currently do, and it will be difficult to get producers of ingredients to pay extra for optimal handling or for getting the trawler fleet to land greater quantities. Moreover, although Norwegian raw materials are mainly used, competition from other fisheries may increase if it becomes more viable to base production on frozen raw materials, which is another factor that could affect prices.
Which markets are most important?
There is a big global market for residual raw materials from marine industries, in both ingredients and finished products. Most of the producers of marine ingredients have their main markets beyond Norway’s borders. China and North America are mentioned as particularly important. Customers range from feed manufacturers for fur and fish farms, through manufacturers of health and beauty products, to clothes factories and international food producers.
Currently, the main buyers of residual raw materials from marine industries are producers of intermediate ingredients and the companies that use them to make finished products. They target the markets for nutritional products, cosmetics and pharmaceutical products.
Strict requirements relating to products and production processes, as well as the approval processes involved, make it hard to serve the pharmaceutical market. The products involved are used as medication and their effectiveness must be documented. Most of the companies in our selection have therefore chosen to target other markets.
Few Norwegian companies target the cosmetics industry.
The cosmetics market covers beauty products. These products should produce cosmetic results, but documenting that is done more for the purposes of marketing, and the rules are less stringent than in the pharmaceutical industry. Few of the companies in our selection target this market, in spite of there being an increasing number of cosmetics that market the fact that they contain marine ingredients. For example, many products contain algae extracts and many others use collagen, including marine collagen. (Collagen is found naturally in the body, but the amount decreases with age. It helps to keep your skin firm.)
The market for nutritional products is perhaps the biggest and most complex, because it covers so many different areas. It includes everything from normal food to food to cater for special dietary needs. Food for special dietary needs may be dietary supplements in the shape of powders, pills or oils. It may also be specially adapted foods, fortified food and drink and additives to foods or animal feed (for farm animals, pets or animals used for fur). This is where most marine ingredients are currently used. Apart from animal feed, various dietary supplements are the main target for the companies, but some of them also produce taste enhancers and so on.
Few Norwegian companies target the cosmetics industry, and there are probably several reasons for that. The high prices of cosmetics (and pharmaceutical products) doesn’t necessarily convert itself into higher prices for the raw materials, as there can be high manufacturing, logistics and marketing costs. There are also frequently many competitors with similar products. Most of the companies currently develop ingredients for dietary supplements, which may also produce health benefits. Perhaps we will see more dietary supplements that produce cosmetic results in the future?
Terms like cosmoceuticals, nutricosmetics and nutraceuticals are used in various forums and websites. These terms may do more to confuse than to explain. Cosmoceutical and nutricosmetics are terms used for marketing purposes, and they are not used in conjunction with exporting or applying for approvals/justifying product claims. Only the term nutraceuticals is used in nutrition and pharmaceutical literature:
“Nutraceuticals, in broad, are food or part of food playing a significant role in modifying and maintaining normal physiological function that maintains healthy human beings.”
Lipi Das et.al. 2012
The dietary supplement market covers a multitude of products. It is tempting to develop a product that taps into current trends. High estimates for the value of this market are often cited. However, the actual figures vary greatly and they are often cited in beauty and fashion magazines. The factual basis for the figures is therefore highly unclear. All that is certain is that the market is big and includes so many different products that it is hard to quantify accurately.
This may help to explain why the market is considered the biggest challenge for many of the companies that are targeting international sales, whether they have it as their main market or combine it with the Norwegian one.
The main market challenges are:
Market access – competing on equal terms or getting your product approved.
Market share (competition).
The companies find, for example, that there are many unscrupulous players in the market, and that there is a need to educate and raise awareness amongst consumers. Those targeting the Norwegian market face more stable and less fierce competition. These companies produce ingredients that are then further processed, either as ingredients for animal feed or as products that may be consumed by humans.
Companies targeting the international market also mainly focus on producing intermediate ingredients, but in their case the ingredients are used for a wider range of applications than in the Norwegian market. The companies that focus on both the Norwegian and international markets tend to offer products that are sold directly to end users. Only one of the companies that targets the international market uses raw materials from white fish. Their longstanding use as animal feed may have hindered the development of new products and markets for residual raw materials from white fish.
It’s hard to break into global markets, whatever niche you’re addressing.
A majority of the companies that produce finished goods stated that the market was a challenge. They report fierce competition for consumers’ attention. This may also reflect the internal situation of the companies, as reaching this market requires a wider range of resources, including expertise and budgets for marketing to consumers. Of the companies producing ingredients, the manufacturers of oils for nutritional products find the market most challenging, regardless of whether their ingredients are used in animal feed or dietary supplements. Competition in the market affects the prices they can achieve, and thus what they can pay for raw materials.
Based on the current situation, the best opportunities for selling ingredients to the global market are in the nutrition category (e.g. dietary supplements). However, human resources, start-up capital and external investors will play an important role, as it can take a long time to develop a product and reach the market. Companies from Northern Norway represent about a third of the overall marine ingredients industry in Norway. A higher proportion of finished products are produced from residual raw materials in our region than in other parts of the country. The raw materials mainly come from white fish, salmon and crustaceans, and to a lesser extent from fish like mackerel and herring.
The companies vary in size, and buy between 1,000 and 100,000 tonnes of raw materials. In spite of there being some challenges associated with both raw materials and markets, most of the companies based in Northern Norway achieve satisfactory profitability. Proximity to good sources of raw materials and knowledge built up over a number of years provides a strong platform for continuing to develop this part of the seafood industry.