42. The SSGA call their proposals "A workable system for salmon market stabilization". Is this system actually workable?
The proposed system comprises of two strands, Producer Organisations and the European Salmon Industry Forum.
The European Salmon Industry Forum has been in existence since 1992, but its' activities have yet to be publicised. Its' make up is planned to consist of a representative from each Producer Organisation.
The SSGA suggest that each Producer Organisation will have an equal voice on the ESIF, however, they anticipate that there will be one PO representing Ireland, one from Scotland, one from Shetland, one from the Faroes and perhaps five or six from Norway. In terms of majority voting, the non EC members can out vote the European Community members on every issue. Therefore, Norwegian producers can retain their dominant position in the European market. The current situation will therefore, remain unchanged and Producer Organisations will have no influence.
The ESIF is to provide a reliable forecast of market demand and assess the likely out-put of national harvests. To do this the ESIF will appoint independent consultants to provide regular surveys of the international markets and the likely output of the industry. This information is to be supplied on a six monthly basis.
However, the mechanism of this proposal has not been really considered. It is extremely weak for three key reasons:
1. The Scottish Salmon Board, the dedicated marketing arm of the SSGA, has been active within the international salmon industry for several years. It is clear from their activities that they are unable to anticipate even changes in demand and supply in their own market. For example, during November in both 1994 and 1995, the SSB has run the Scottish Salmon Festival, a month long promotion in the UK.
This promotion has failed and has been dropped for 1996, to be replaced by a week long Italian food promotion. The reason why the festival failed was that the SSB were only able to supply fishmongers with Tartan Quality Mark salmon of 5 kg plus, when the consumers wanted to buy fish of a maximum 3 kg. Naturally, farmers were growing their salmon to the largest possible size as demanded by the smoking industry for the pre Christmas market and these were unsuitable for the retail trade.
If the SSB cannot read the market on a relatively local basis, how will a part time independent consultancy be able to provide an accurate picture of the salmon market and then link it to production.
The problem is compounded by the fact, that the market is continuing to grow. Despite claims of over-production, demand has kept pace with production, partly fuelled by the lower market prices. Will the consultants be able to link production to market price? This is unlikely.
2. A six monthly forecast can only consider at generalisations. How can a consultant predict at what size the fish will be harvested. The farmer must take advantage of the markets as they develop, and may decide to sell the fish at a small size, or equally he may decide the market has changed and it is worth retaining them to grow on to a larger size.
The current problems, affecting the market relate more to localised over-supply, rather than specific over-production. This is impossible to forecast, and unless the POs are able to regulate the volume of fish to market on any given day, impossible to control, irrespective of the controls put on smolt placement.
3. The market for which products, is to be considered by the consultants. The Scottish Affairs Committee report accuses the Scottish industry of holding on to the idea that salmon can only be sold as fresh whole fish. The market has evolved, since the early days of the industry. The market is also, still undergoing change.
It is clear that the market for fresh whole fish is declining as more salmon is sold as processed or as secondary processed added value products. Within the last three years, the market for added value, processed products has increased dramatically. In the UK, the availability for such products has increased from two to over 50. Will the consultants include the market for these products, or will they simply look at sales of the raw material.
Should the consultants look at fresh whole fish only, then there is an obvious danger that the market will be significantly underestimated. Yet, the international markets are so complex, that it will be more than a permanent job to keep track of market development.
However, if every product is considered, there is a danger that the consultants report will undermine the marketing activities of individual companies and possibly even restrict novel product development, since all confidentiality will be lost.
It is clear that the consultants role will be all powerful and enable them to dictate the development of the whole European salmon industry. It is questionable whether there is any independent consultancy capable of this role, who would be acceptable to all salmon farmers.
43. Is the system workable at farm level?
The SSGA proposals lay down the rules, to which members must adhere. However, the proposals do not state as to who is eligible to become a member and who is excluded. However, it is clear that the membership is restricted to only on-growing companies.
This means that all hatcheries and smolt producers are excluded from membership, which obviously has grave implications for the future welfare of the industry.
Simply, how can a system, which is dependent on the controlled supply of smolts, exclude those farms which are responsible for the production of these smolts. Obviously, if the Producer Organisation decides to restrict smolt placement, then smolt producers will have no say on the matter nor will be able to gain any compensation to cover the fact that they will have excess smolts that they are unable to sell.
For example, should the consultants decide that the market is over-supplied and recommend stringent cuts in production, it will be the smolt producers who will undoubtedly suffer. Many could be forced out of business, as demand for their production falls and they are left with smolts that they are prevented from selling. This surely, will threaten the whole future supply chain of the salmon farming industry.
44. What about those farms who refuse to join the Producer Organisation?
According to the SSGA, the proposals include an Extension of Discipline. This means that the Producer Organisation, which is supposed to be voluntary, would be given mandatory powers. This proposal appears to have been included even though the UK Government has refuse to grant such powers.
Under the Scottish proposals, non-members would not only be forced to agree to production controls, they would also be obliged to contribute to the costs of such controls.
45. Have the SSGA obtained total support for their proposals?
William Crowe has indicated that companies representing 99% of SSGA production have signed up to join, It has been suggested that this equates to only about 30 companies, or less than half the number of the total number of farms in Scotland.
Mr Crowe can claim such high level of support, because he has included only the on-growing companies in his membership. With Marine Harvest McConnell producing about 25,000 tonnes, this one company represents over half the production referred to. This is not representative of industry support, as can be seen by the list of sponsors.
With such a high level of support, the SSGA have sought recognition from the Scottish Fisheries Minister. They anticipated that the PO constitution would be agreed by October and the PO up and running by November 1995.
46. Has the Scottish Producer Organisation gained recognition from the Scottish Office?
At the time of writing, in November 1996, the Scottish Producer Organisation has still failed to attain official recognition from the Scottish Office. Discussions are reported to have reached a stalemate. The obvious sticking point is the inclusion of the section on the Extension of Discipline, to which the British Government will not agree. The SSGA have now apparently amended their demands but have not, as yet, released the details to their membership
47. Is the question of the Extension of Discipline, the only hurdle to overcome?
The extension of discipline is not the only unresolved question. Prior to the lauch of the SSGA PO, the Shetland Salmon Farmers Association appointed a new Chairman.
Mr John Tait expressed the view that the associations should not dictate to their members how many smolts can be put to sea. As this is the basis of Producer Organisation policy, it must bring into doubt the commitment of all the farmers associations, to this strategy.
In addition, and even more significantly, after the announcement about the Scottish PO, a group of Scottish farmers launched a rival Producer Organisation. These farmers claimed that the SSGA did not represent their views on production control and that there was a need for a second Producer Organisation to increase Scottish representation on the ESIF.
48. Discussion on Producer Organisations seems to have reached a stalemate in Scotland, what about those in Norway?
By February 1996, the Norwegians had shown some progress towards the introduction of Producer Organisations. Legislation had been drafted and was under discussion by the Norwegian Parliament. The Minister met industry representatives to discuss the proposed system.
William Crowe, of the SSGA, said that this was encouraging, but he did not believe that these discussions would not solve the then market disruption. Whilst, the SSGA welcomed Norwegian support for POs, some Norwegian farmers were becoming increasingly opposed to the concept. The industry requested that the Minister postpone his legislation whilst they commission a full investigation of all the available options.