The Case and Cause of Salmon Price Volatility

Salmon price volatility has more than doubled over the last 10 years, and is now higher than many comparable commodities. This constitutes a challenge for the markets and consumers that salmon is targeting, and the continued growth of the industry. Reduced short-run elasticity of supply is the primary reason for the volatility trend. This is supported by the empirical evidence provided in this article. Three major developments in the salmon market supply-chain provide support for this hypothesis: (1) consolidation of the upstream supply chain into fewer and larger units, (2) a premium on fixed harvest schedules to satisfy retail demand for stability, and (3) restrictions on new production capacity in conjunction with strong demand promoting “race to raise” harvest policies. We argue for the importance of small, lean, and flexible production units to limit short-run price volatility. Price volatility rewards flexibility and provides entrepreneurial incentives for a subset of units.