Just Like Putting Scissors to a Market - Investigating Supply and Demand Relations of Farmed Atlantic Salmon

Abstract

Price and quantity numbers, which we are observing in a market place, occur because of an interaction between supply and demand. An understanding of what drives supply and demand is therefore important in order to understand the market in itself. This dissertation focuses on determining the impact of exogenous factors on salmon biomass growth and how producers respond to price changes. Furthermore, we determine the total demand growth and the factors affecting demand growth in the global salmon market. The first paper determines the importance of temperature in the growth of Norwegian farmed salmon for three different regions. The results show that sea temperature is a critical factor to explain growth. Periods with higher sea temperatures lead to faster growth in the North and Central regions, while leading to slower growth in the South. In the second paper, salmon farmers’ response to price changes are estimated for three different regions in Norway. We find that the salmon producers are responding to price changes in the long run, while there are limited responses to price changes in the short run. The long-run response differs from region to region, and the own-price supply elasticity is 1.22 for the Northern region, 1.39 for the Central region, and 0.58 for the Southern region, with a national average of 1.06. The third paper determines the magnitude of the shifts in annual demand across all major salmon importing regions in the world. Results indicate that demand varies considerably between years and regions and does not appear to follow a smooth trend, which is usually assumed in empirical analysis. The fourth paper extends the procedure of the third. We disentangle the impacts from income growth and price changes in substitute products from total demand shift. The remaining residual shift in demand is due to other unknown or omitted factors. Results indicate that demand shifts due to unknown factors account for a large portion of total demand growth in all regions, and this residual growth is not smooth in any region. The results demonstrate that any demand analysis focusing only on relative prices, income, and a trend variable will not appropriately account for the large variation in salmon demand in any region.