The Dynamics of Profitability among Salmon Farmers—A Highly Volatile and Highly Profitable Sector

Abstract

Salmon farming stands out from many other industries with its very high profitability, but it is also highly volatile. The main question is whether the profit of individual firms is stable, or whether profitable firms change from year to year. The purpose of this article is to apply the theory of profit persistence to answer this question for salmon farming in Norway. By using panel data from 2010 to 2019, available from public statistics, we study the relative deviation from the average profits. We estimate the speed of adjustment to the profit norm by using a dynamic GMM estimator. We find a high degree of convergence to the average profit among salmon farmers. For companies belonging to the group with below-average profit, there is a positive correlation between growth and profitability and a negative link between debt ratio and deviation of profit rate. Our finding is that although the Norwegian aquaculture industry has large profits, there is large volatility in the profits of this industry. This is useful knowledge for investors, lenders, public authorities and others who need to know something about the risk in the aquaculture industry.

Keywords

• salmon farming
• GMM estimator
• panel data
• profit persistence
• Gibrat’s law
• law of proportionate effect (LPE)