For Iceland’s fisheries, Krona appreciation starts to stink

Bloomberg

Iceland has fought wars to pro-
tect its fishermen, most recently against the UK in the 1970s. Now, a record inflow of foreign tourists is threatening the industry that once built this tiny north Atla-
ntic country.
The flood of sightseers, volcano watchers and glacier trekkers is lifting the national currency, pushing up the price of Icelandic fish. It’s the latest blow to a business that has already lost its status as the biggest exporter to — you guessed it — tourism.
But tourists can be fickle, and a growing dependence on visitors risks adding to an already volatile situation (the current boom follows the ruinous collapse of Iceland’s three biggest banks in 2008). Its fishermen, by contrast, are used to weathering storms, so no effort should be spared to defend Europe’s largest fish producer after Norway, said Konrad S. Gudjonsson, an economist at Reykjavik-based Arion banki hf.
That won’t be easy. Heidrun Lind Marteinsdottir of Fisheries Iceland, the industry’s lobby arm, says there’s already talk of Icelandic companies outsourcing some of the less profitable parts of their operations, placing thousands of jobs at risk.

UNAPPRECIATED APPRECIATION
Iceland’s currency has gained nearly 19 percent against the euro and around 15 percent against the dollar over the past 12 months and is expected to continue to rise this year, according to Arion banki.
“If the appreciation of the krona continues we’ll reach the point where people will start to wonder whether it makes sense to fully process fish in Iceland,” Marteinsdottir said in a telephone interview on Feb. 28.
That would be a worrying development for Iceland’s fisheries, which employ nearly 5 percent of the island’s workforce and whose main export market is about a thousand miles south, in Britain. Add to that the devaluation of the pound and the potential aftershocks of Britain’s departure from the European Union, and it’s easy to see why the industry may be concerned.
One way fishing companies in the Nordic nation are combating the krona’s gains is by financing themselves in foreign currencies or hedging against further krona appreciation. Although hedging has been mostly banned in Iceland due to capital controls, the country’s central bank said on Feb. 24 that it would be willing to grant some exemptions. However, hedging alone is unlikely to salvage some of the smaller companies, according to Marteinsdottir.