49. So, what is the position regarding the formation of Producer Organisations, at present?
The pursuit by the Scottish industry to establish a network of Producer Organisations appears to have stalled. Discussions about the recognition of the voluntary Scottish producer Organisation have reached a stalemate over the issue of Extension of Discipline, which the Scottish Office refuses to grant.
There is the view that, having failed to achieve to convert the Scottish Office to their view, the SSGA have continued with a strategy of whingeing and whining, aimed at market destabilisation. This might encourage the Government, the EC and the Norwegian authorities to support their measures. However, there is no proof to suggest that this is the case other than the view of the PO working party chairman, who said privately, that the current dumping complaint negated the need for Producer Organisations.
The Scottish industry could believe that, if a positive result from the dumping complaint is obtained, then the threat of action may be sufficient for the Norwegian authorities to agree to their demands. This in turn, may convince the Scottish Office to agree.
Equally, the Scottish industry could believe, that having waited for over four years to get as far as they have, it may be worth waiting for another year, in the hope that the forthcoming elections may bring about a change in Government. Whilst, opposition MPs often express concern about the industry, there is nothing to suggest that once they are in power, other more important issues push the issue of the salmon industry to the end of the queue for policy changes. It should be remembered that the Scottish Affairs Committee is a cross party committee and includes members from the opposition, who all agreed to the recommendations.
The Scottish industry may also be waiting for the outcome of the Norwegian investigation. Having had some success in converting the Norwegian Fisheries Minister to their view, albeit for dubious reasons, the Minister has now resigned. The position, of his replacement, on Producer Organisations is still unclear. Therefore, the results of the investigation are important to the Scottish industry.
The outcome of this investigation cannot be prejudged, but it is clear from discussions with many other experts working in the wider agricultural and food sectors, that once the emotive involvement is stripped away and the true logic of these proposals are analysed, they make little sense, since they simply restrain a vibrant and growing industry, exhibiting enormous potential.
However, the likelihood is that the concept of Producer Organisations will not leave the drawing board. There are simply too many hurdles to overcome.
50. In the extremely unlikely event that Producer Organisations are established, what will be the outcome?
This is the great unknown. There are however, a number of scenarios, which will depend on the final arrangement of the Producer Organisations. These factors include:
1. The actual briefing given to the consultants. Will this cover all salmon products, or simply be restricted to whole fresh fish.
2. The competency of the consultants and their understanding of both the industry and the markets.
3. The make up of the European Salmon Industry Forum. If each member has an equal vote, how are national issues to be resolved. Under current proposals, the Norwegians will out vote Community producers on every issue.
4. Whether the Producer Organisations are voluntary or mandatory.
5. The power of the European industry to prevent imports from non European sources. The industry has discounted Chile as being able to influence the European market. This is a gross under-assessment, which only considers the possibility of imports of fresh whole fish. It is unlikely that the Chileans would now even contemplate such exports. Instead, if they wanted to export fresh salmon, they would do so as deboned fillets.
The range of possibilities as to what might happen if Producer Organisations are introduced, is vast. However, three of these possible outcomes are as follows:
A: The consultants see that salmon is actually under-marketed and that the potential is still unexploited, provided that the industry expand the market through product development. They recommend that the industries continue to expand freely, each to its' own ability. This is no different to the current free market and therefore the need for Producer Organisations is negated, and simply another unnecessary expense.
B: The Scottish industry have, mistakenly, claimed that the market is only expanding at 10%. The consultants because of their restricted briefing, agree. They then recommend that the industry should only expand at the same rate. The ESIF lay down a mandatory limit, which is enforced by the individual Producer Organisations. Since, the market has been grown by many of the processors, who see the availability of salmon as a incentive to supplement wild caught white fish products with those made from salmon, these processors will find either salmon availability decline or prices rising. Both are equally a disincentive to use salmon and the market will shrink in response. The ESIF, will then need to place further restrictions on expansion to compensate. Alternatively, the processors will turn to sources from outside Europe, which will then destabilise the market further.
C: The consultants believe that the expansion of production has destroyed the special image of salmon and recommend that production should be curtailed to enable producers to regain this image. Mandatory controls restrict the future smolt placement so production is reduced. This has the immediate effect that the existing demand for cheap salmon will disappear. Unfortunately, many farms will become unprofitable as all production costs rise to compensate for the lower volumes. The effect is that prices rise, but profitability diminishes. This does not take into account those producers, who have managed to obtained a niche market for themselves. They would find that they would be unable to maintain their contracts simply in response to the inefficiency of other producers.
The European industry will shrink as many of the producers, especially those of smolts, face closure. However, unless strict controls are put in place against imports, the market demand for salmon will suck in floods of cheaper imports.
Non of these outcomes actually favour the European industry and it is difficult to even think of one, which would.
51. In the unlikely event that Producer Organisations are formed, what methods of control, could they impose?
There are really only three options as to potential control measures. These are:
1. Control of the placement of smolts of sea. As already discussed, restricting the smolt placement has absolutely no influence on possible market disruption. Even if smolt placement was reduced from present levels, there is nothing to stop all the resultant fish from being harvested on one single day. This would cause total chaos.
2. Control of growth rates. The Norwegian authorities are currently restricting growth rate by limiting the amount of feed which can be fed. Whilst, this may restrict the space at which the fish reach harvest size, it does not stop all the fish from being harvested on one single day and therefore does not control market disruption. In addition, the slower growth rate, results in increased production costs and reduced the competitiveness of producers in the marketplace.
3. Salmon is controlled at harvest. This would involve either restricting the release of fish to market or withdrawal of fish if the market is in danger of over-supply. The experience of the agricultural sector shows that this is an extremely costly way of regulating the market. This is especially so, when the product concerned has a relatively short shelf life even when frozen, as the Norwegian industry found to its' cost in 1991.
All three methods of control illustrated, will not provide the solution to the recurring problems of the salmon industry. The answer must be found elsewhere.