5. What was the motivatation to encourage the start of salmon farming?
The first salmon were put to sea in Europe by the Norwegian company Mowi A/S in 1965, followed three years later, in Scotland, by the Unilever company, Marine Harvest. In both cases, the move towards salmon farming was commercially motivated. This form of aquaculture was not perceived as a way of providing food to those deficient in supplies of fish. Instead, salmon farming was motivated by the potential rewards obtained through the production of a high value species for the luxury market.
Salmon had always been available as a wild caught fish, albeit in relatively small volumes. As with all luxury products, the small amount produced meant that consumers were prepared to pay a premium price for the fish. Both Unilever and Mowi thought that they could capitalise on this luxury market and supplement the limited amount of fish, which were already available. At the time, the idea of fish farming was an attractive diversion for many multi-national companies. Those, who invested in some form of aquaculture included Shell, BP, Blue Circle, Fitch Lovell, as well as Nosk Hydro.
Although it took some years to overcome all the technical problems, by the early 1980s, the leading companies began to reap the huge rewards from salmon farming.
6. Did the early successes, prompt further expansion?
Certainly, the reports of huge profits, encouraged other companies to invest in the fledgling industry. In Scotland, they were prompted by the availability of financial aid, both as grants and low cost loans. These were readily provided by the Highlands & Islands Development Board, who saw salmon farming as an ideal opportunity for job creation and the regeneration of local economies, in a region, suffering from depopulation, primarily, because of the lack of work.
As a result, salmon farming expanded rapidly in Scotland. This was further encouraged by the "yuppie" boom, created by the Conservative government in Britain. Demand for the trappings of wealth swiftly increased and hence, also the demand for salmon. Every fish that could be produced, found a ready market as soon as it attained harvest size. Production continued to soar, reaching a record level of 28,500 tonnes in 1989.
However in 1989, contrary to all expectations, the price of salmon suddenly collapsed.
7. What happened to cause the price to collapse?
The reasons for the price collapse are still disputed and the opposing view will be discussed later. However, as the purpose of this question is to explain how the idea of Producer Organisations was conceived, the explanation given here, will consider the answer from the Scottish industry viewpoint.
In 1989, whilst Scottish production reached 28,500 tonnes, the Norwegian industry were producing about 124,000 tonnes, representing about 4.5 times as much production as then being farmed in Scotland. The Scottish industry therefore, blamed the large scale of Norwegian production, for undermining the price. They claimed that Norwegian production exceeded the market demand for salmon and therefore, they had forced the price down in order to off-load the excess production.
8. What action did the Scottish industry take?
The Scottish industry were stunned that prices had fallen. This was simply not meant to happen. Industry commentators had failed to see the collapse coming and were left wondering, as to what action could be taken.
After consultation, the Scottish industry opted for an immediate response by submitting a complaint to the EC in Brussels. They claimed that the Norwegians were dumping salmon, into the European market, at below the cost of production.
The specific allegations, which were published in February 1990 (90/C 25/05), claimed that Norwegian imports had risen from 21,000 tonnes in 1986 to 28,000 tonnes in 1987, to 45,000 tonnes in 1988 and the prospect of further increases to 75,000 in 1989.
This had resulted in an increase in market share from 58% to nearly 71%, resulting in a decline in the Community producers' share. They also claimed that the sales price of imports had dropped by 18% during the second half of 1989, forcing Community producers to cut their price by 20%. The inevitable effect, was that the financial situation of Community producers would be put in jeopardy, leading to the possibility of bankruptcy and closure.
The problem for Scottish producers, was that the European Commission would not complete their investigation for some months, possibly even a year. Therefore, the introduction of any protective measures could be some time in coming.
9. Was there any other way to protect the industry?
Of all the Scottish salmon farming companies, Marine Harvest were most distraught by the collapse of prices. The management had to answer to their parent company, Unilever, who had been assured that once the early technical difficulties had been resolved, the company would be a financial success. The price collapse brought the run of huge profits to an end and the management had some explaining to do, especially as non had even expressed even a suspicion of the forthcoming price disruption.
Facing a prospect of falling profits, Marine Harvest tried to consider every possible option as to how to maintain profitability. The management were unable to arrive at any conclusion as to what other action could be taken, either in the short or long term.
In almost desperation, the management decided to recruit an external consultancy company. They hoped, that without the shackles of the daily involvement of company affairs, a consultant could be more detached, and therefore reach a viable and workable solution to their problems.
10. Which consultancy was appointed to consider the problem?
The magazine "Fish Farmer" was the first launched in 1977. It was a subsidiary of the well established Farmers Weekly and was intended to satisfy the need for an open forum to discuss the issues of the fledgling fish farming industry. One of the first editors, was Denis Chamberlain, who steered the magazine through its early years. He resigned in March 1980 to take up the position of deputy editor with Farmers Weekly. He later resigned from journalism to establish his own agricultural consultancy, the Chamberlain Partnership.
During the early days of the salmon farming industry, there was a great deal of camaraderie, as everyone was involved in breaking new ground. These early friendships lasted and therefore when Marine Harvest started to consider consultancy companies, there was a natural tendency to look towards existing relationships. It was therefore of no surprise that Marine Harvest should select the Chamberlain Partnership, to act on their behalf. There was some logic to this selection, since Mr Chamberlain had had some experience of the fish farming industry, even though it was nearly a decade previously.
The Chamberlain Partnership specialised in Public Affairs, relating to agriculture and the rural economy. The private (and confidential) commission from Marine Harvest during 1990, to comment on the future profitability of the salmon industry, might be considered as being outside their experience. This view, could have some validity, as Mr Chamberlain then sub-contracted the study to Christopher Ritson, a professor of agricultural economics in the Department of Agriculture and Food Marketing at the University of Newcastle upon Tyne.
Their brief was to attempt to explain the current position; to explore how the market might develop in the 1990s; and to consider whether there might be a case for policy initiatives at either a national or EC level.
Jointly, Ritson and Chamberlain presented their confidential report "The Future Market for Farmed Salmon" to the Board of Marine Harvest, during July 1991.
11. What was the mood of the Scottish industry, when the consultants' report was presented?
Before, the content of the report can be detailed, it is worth considering that the report was submitted only four months after the EC had failed to uphold the Scottish industry complaint of 1989. The Commission published the results of its' investigation on 15th March 1991 (91/142/EEC) and whilst, it did uncover some evidence of dumping, the Commission decided not to take action against Norwegian producers.
The Commission found that the complainants had been able to limit their loss of market share to 2.3% because of increasing consumption. Together, with proposed measures introduced by the Norwegian Government, the Commission found no need for further action and the case was terminated.
Against this background, of a failed complaint, Marine Harvest had even a greater urgency to find a solution for a quick and lasting return to profitability. Therefore, the Board were undoubtedly more receptive to the reports recommendations, than they would have been, had the EC imposed any measures.
12. What were the consultants' conclusions?
The report "the Future Market for Farmed Salmon" was a private commission and therefore, has never been published. However, it is possible to conclude, as to what the report contained, by considering the information, detailed in two sources. The first is a report of an Extraordinary General Meeting of the Irish salmon Growers Association, which took place on 30th July, 1992, which was addressed by Mr Chamberlain
Until, this report appeared in the summer 1992 issue of Aquaculture Ireland, knowledge of the report had been extremely limited. Marine Harvest had been so impressed with it, that they passed it onto the executive of the Scottish Salmon Growers Association. After private discussion amongst selected members, the SSGA decided to adopt the reports' recommendations. The Irish meeting had been the first publicised attempt to persuade other salmon farming industries, to adopt the recommendations as well.
The second source is a booklet, written by Professor Ritson in 1993, entitled "The behaviour of the farmed salmon market in Europe: A review" and published by the University. In this booklet, he discussed his involvement in the compilation of the 1991 report.
The clear message from their report was that the industry should establish a system of Producer Organisations, to stabilise the market.