13. How did they reach this conclusion?
Mr Chamberlain explained to the Irish meeting that salmon farming was no different to other forms of agriculture, in that it displayed a cyclical pattern of "boom and bust", related to supply and demand.
He went onto explain that unless real efforts are made to correct the situation, then the industry would be trapped in the cycle with catastrophic results.
His solution, for evening out the cycle, is to regulate the amount of product reaching the market, by matching supply to demand. This regulation of supply to demand, would then stabilise the price of salmon.
However, Mr Chamberlain recognised that regulation of the market is not without difficulties. Europe wide discussions could render farmers liable for prosecution under Anti-Competition law, unless the farmers were members of Producer Organisations, an established EC mechanism for regulating the fisheries market.
He went on to explain that the Common Fisheries Policy, the procedures which allow Producer Organisations in the fisheries sector also allows:
- Producer Organisations to be formed by salmon farmers.
- National Government assistance.
- Producer Organisations to set a minimum price for salmon, with an withdrawal financed by a levy.
- the setting of a maximum price at which salmon could be withdrawn by the Producer Organisation.
He also said that the EC legislation could be extended to allow Producer Organisations to be reimbursed for withdrawal or paid carry over premiums. It could also be made compulsory, that non-members respected the market discipline laid down by the Producer Organisation.
14. How would the Producer Organisation operate?
The original idea, as conceived by Ritson and Chamberlain, was that the salmon farming Producer Organisation would operate in much the same way as those in the fisheries sector.
At times when production started to excede demand, the Producer Organisation would start to withdraw fish from the market, once it fell to an agreed set price. This salmon would be held in storage until prices recovered. The salmon then would be released onto the market in a controlled manner. The cost of this withdrawl would be partly financed by the EC, partly by the Member State and partly from levies paid by the farmers themselves.
This system was then reconsidered following the experiences of the Norwegian salmon industry during 1991.
15. What happened to make the consultants reconsider this proposal?
Under pressure from the Scottish industry, the Norwegian salmon sales organisation (FOS) decided to withdraw salmon from the market to stabilise the selling price. Unfortunately, the withdrawal process was extremely expensive and eventually bankrupted FOS. This had significant knock on effects, right throughout the Norwegian economy. However, even early on during the withdrawal programme, it was clear that the process would not be effective in relation to salmon farming.
It was apparent that the consultants would find it difficult to promote a price stabilisation programme based on product withdrawal, at a time, when such a scheme was clearly not working. Mr Chamberlain therefore, proposed a second option.
16. What were these alternative proposals?
Mr Chamberlain suggested that a more effective method of attaining market stabilisation would be to tackle the problem from the beginning of the production process. He proposed that the number of smolts, put to sea, be controlled.
He said that this would work in practice through a programme of market monitoring by the EC. Working in collaboration with a Community Industry Management Committee and representatives of the Norwegian industry, the number of smolts could be controlled. This would involve the removal of a specified quantities of smolts from the industry, at times when a potential over-supply was anticipated.
This is the mode of operation, which was subsequently adopted as the most appropriate, for stabilising the salmon market in Europe.
17. Using hindsight, would this proposal have prevented the market disruption, which has continued to plague the industry?
To answer this question, it is necessary to consider each incident separately. The initial occasion was in 1989, when prices, first collapsed. Even had the structure for Producer Organisations been in existence during 1989, it is extremely unlikely that the Management Committee would have forecasted a price collapse, since the Management Committee is made up of representatives of the industry itself. As no-one predicted a price collapse was imminent, in terms of their own companies, there is nothing to suggest that they would have done so in collaboration. Certainly, all the market indicators were pointing to continued market growth and a healthy market demand.
It is fair to conclude, that the presence of a network of Producer Organisations would have therefore, exhibited no effect on the prevention of a price collapse in 1989.
Both Ritson and Chamberlain claim that the price collapse was actually predictable, but their assertion will be discussed later, as will the real reasons for the price collapse of 1989. Certainly, the price collapse in 1989, was very different to subsequent collapses, as will be discussed later.
18. So what caused prices to collapse in 1991?
The price collapse of 1991, was very different to that of two years previously. Whilst, each price collapse was predictable, this second collapse was even more so. The reason being, that the Norwegian Salmon Sales Organisation (FOS) tried to interfere with the market, through the withdrawal of fish into a costly freezing programme. Whilst, this was the exact method of market control advocated by Mr Chamberlain, he excused its' failure by suggesting that the programme was applied to late and a huge backlog of salmon had already built up.
Another explanation could be that buyers were aware of the withdrawal programme and simply refused to be bullied into buying salmon at a protected market price. They therefore, delayed many of their buying decisions until the prices started to fall. Inevitably, prices could not be sustained, both because of the buyers and also because of the high costs of operating the freezing programme.
The price of salmon collapsed in 1991, simply because the industry in Norway tried to artificially regulate the market. This was a clear demonstration that market regulation, as proposed by Chamberlain and Ritson, is a costly exercise, which does not work.
19. So what caused the price to collapse in 1993?
Following similar claims in 1991, the Scottish industry continued to accuse the Norwegians of over-producing. In 1993, the price of salmon collapsed yet again, and the Scottish industry naturally laid the blame at Norways' door. However, this was not actually the case.
1993 was an ideal year for farming salmon. The weather was generally good and water temperatures were elevated. These factors, together with improvements in farming techniques, reductions in stocking density, better healthcare and high specification feeds, all contributed to the promotion of faster growth rates. In fact, conditions were so good in Scotland, that they were ideal for the development of grilse.
As a result grilse rates rose from 10 to 55%, leaving farmers with a problems. These fish had to be harvested, or else deteriorate. Unfortunately, when grilse started to appear, prices were low, as they generally were during the summer. Placing large numbers of fish on the market then, would inevitably prevent the price from strengthening. A decision was taken to put some of these fish into cold store and release them slowly onto the market in the run up to Christmas, when prices would have improved.
Unfortunately, luck did not favour Scottish producers. Firstly, buyers became aware of stocks of fish and held out for prices to weaken further. Estimates of grilse numbers were much lower than actually developed, meaning that even more fish came available for the market.
Finally, the quality of the fish in storage started to worsen. These factors weaken the price further, in fact so much, that some wholesalers, even asked to be paid to take the fish.
The Scottish industry tried to divert attention away from their own problems and push the blame towards Norway. They petitioned the British Prime Minister and even placed large advertisements, demanding Government support, in the broadsheet newspapers.
In this instance, it is obvious that Producer Organisations would have had little effect, since even the most stringent control of the number of smolts put to sea, could have influenced the rate of grilsing, over two years later.
20. What about the events of 1995?
Following the collapse in 1993, the Scottish industry continued to issue dire warnings of forthcoming collapses. They first predicted another collapse for the end of 1994, but when this failed to materialise, it was predicted for the beginning of 1995, then the middle of 1995 and finally the end of 1995. They argued that Norwegian production was expanding at over 40%, at a time when market expansion was less than 20%. This, they said, could only lead to further collapses. In addition, the Scottish industry warned of 90,000 tonnes of extra production by Norwegian farmers, the presence of which, they claimed would result in a total collapse of prices.
Inevitably, after months of dire warnings, buyers waited for falling prices, before offering contracts. With uncertainty about the markets, the price of salmon responded downwards.
Having listened to the continued warnings, sections of the Norwegian industry, began to believe the Scottish claims. An action committee was formed whose brief was to consider remedial measures. The presence of this committee simply endorsed Scottish claims and the market lost confidence and the price collapsed again.
In this instance, the advocates of Producer Organisations might suggest that production control could have prevented the collapse. However, as Norway had been harvesting an increased tonnage on a regular basis, the extra production had been easily absorbed by the market and was not excessive to demand.
The reality was that industry confidence had been undermined by continuous warnings of Norwegian over-production, even though there was no evidence of such excessive production. It is questionable whether the presence of a Producer Organisation would have made any difference, since it is clear that the salmon was been sold. It simply would depend on whether a consensus opinion could be reached in the management committee. Norwegian producers obviously thought that there was a market for this fish, whilst their Scottish counterparts did not. Under-estimates of the market demand might have led to a shortfall, but whether this is desirable, is also questionable.
These are issues which will be discussed later.