Response to the British application for safeguards

April 2004.

II. Legal basis for the imposition of safeguard measures.

The British application states that ‘ The Commission will initiate a safeguard procedure when it is apparent that there is sufficient evidence to justify the initiation of the investigation and will seek to determine whether imports of the product in question are causing or threatening to cause serious injury to the Community producers concerned’.

The application is flawed because:

1.   The evidence provided is extremely weak and does not justify the initiation of a safeguard. This evidence will be discussed in full

2.   Community producers have not been caused serious injury by the products in question. The majority of Community producers, in terms of either numbers or volume, do not support the application.

IV. Community Producers. 

The application includes a list of all Scottish producers actively producing salmon. This list contains the names of 70 farms.

The application also includes a list of those salmon farms supporting the application. There are 19 farms on this list, however 7 of those named do not appear on the list of Scottish companies actively producing salmon. Thus, it must be concluded that only 12 active farming companies support this application, accounting for 17% of the industry in terms of farm number and substantially less in terms of production volume. This means that 83% of active Scottish farms do not support the application.

V. Increased imports.

The application states that total imports have jumped by 14.7% from 238,000 tonnes to 273,200 tonnes during Jan-Sep 02-03. This represents an increase of 35,200 tonnes. If this figure is extrapolated for the whole year, it amounts to about 46,000 tonnes for 2003. It is accepted that this is not an exact figure. However, whilst the British application highlights the movement of fish from Norway into Europe, it fails to mention the flow out of Europe. Scottish exports to the US in 2003 rose by 217% over the previous year. This amounted to 23,000 tonnes.

This means that 23,000 tonnes of salmon sold in Europe in 2002 was lost to the market in 2003. This had to be replaced which accounts for the growth in imports. If these imports are adjusted to account for the US market, then total imports had increased by only 7% year on year.

The application also considered these imports using Eurostat figures. This produced an import growth of 8.3% (as compared to the 14.7%) Adjusting these figures in the same way means that imports grew by only 4% year on year. This is in line with predictions of market growth.

The application states that both sets of figures confirm that the import of imports was ‘sudden, sharp and significant’ This is clearly not the case.

VI. The increased imports were caused by unforeseen developments.

1.      Marked slowdown in consumption growth.

The application states that the US market grew by nearly 13% in 2002 but it was almost nil in 2003. This standstill has contributed to an exacerbated the problem of oversupply. However, official Scottish figures for 2003 show that exports of Scottish salmon to the US grew by 23,000 in 2003, a massive 217%. This growth in exports to the US does not support that there is a marked slow down in consumption.

The picture is similar in other markets. Exports of Label Rouge salmon to France have increased by 5.5% during 2003. By comparison, exports of all Scottish salmon to France have risen by 25% suggesting that salmon demand may not have slowed as the application states. This is confirmed by total exports of Scottish salmon, which have grown by a massive 48%. Demand is clearly expanding, not slowing down.

2.      Overproduction

The table detailing salmon production in the main producing areas gives the impression that production within the EU has started to decline, whilst that elsewhere continues to expand. The figures provided are extremely misleading. The European Salmon Producers Group an organisation established to persuade Brussels to impose trade measures against imported salmon have supplied these figures. They do not represent either the Scottish or European industries.

What is unclear is why the British application uses these figures at all when official government production figures are available. The ESPG figures suggest that Scottish production would peak in at 138,000 tonnes in 2003 and then decline rapidly to 110,000 tonnes this year. By comparison, the Government’s own figure estimate 2003 production at 176,596 tonnes, a substantial difference. This difference cannot be explained other than to suggest to the Commission that the Scottish industry is being harmed by imports.

What is more difficult to comprehend is the difference in 2002 production figures. These are not estimates as given for later years but fact. ESPG state that in 2002, Scottish production reached 133,000 tonnes whilst the official figure published by the Government show that production was actually 7,500 tonnes higher. These ESPG figures are extremely distorted and provide a unrealistic picture of Scottish production. The official figures for 2003 have yet to be published but indications suggest that they are more in line with Government predictions than those offered by the ESPG. Exports of Scottish salmon have hovered at about 50% of total production for some years. Export figures for 2003 reached 86,356 tonnes which would suggest that total Scottish production for 2003 will be around 172,712 tonnes, which is much closer to the 176,596 Government estimate.

Clearly, all producing nations, including those inside the EU are continuing to grow. The application states that the excess supply has led to a downward pressure on prices and increased pressure to export. However, this can be better explained as simply the industry response to an increasing demand for value for money fish

5. Strength of the Euro

Scottish producers may have suffered from a strong Euro but this is the inevitable outcome of the political decision to say out of the Eurozone. Norwegian and Chilean producers have to contend with the same exchange problems.

6. Market liberalisation.

Scottish producers have always known that the EU salmon agreement would be eventually withdrawn. They have had time to plan and adjust accordingly. This was not unforeseen.

VII. Serious injury.

1.      Lost market share

The data on lost market share is confused. In section V. Increased imports, the application document states that as imports increased EU producers market share fell from 28 to just over 25%. This is for the period - Jan-Sep year on year 2002-03. Yet, the document then refers to a fall over the same period from 31.5% to 26.3 suggesting a much greater fall than previously stated and therefore greater injury.

As suggested previously, it is not unexpected that the EU producers market share has fallen as a greater volume of EU salmon has been exported to markets outside the EU. One of the aims of the Scottish industry has been to export more salmon. This inevitably will have an impact on their share of the EU market, unless their production volume has also grown.

Collapsed salmon prices.

The application document claims that salmon prices had fallen by 20% in the last six months. However, as the document is undated, it is unclear which months these are. The document illustrates the decline with a set of figures and a graph, which show a steady decline from 2000 to September 2003. The state that the when the MIP was removed, the price of Scottish salmon was around 2.95 Euros and since then prices have fallen even faster, declining by a further 12% to 2.61 Euros.

The following graph shows the price developments for salmon for 2000 onwards as plotted by IntraFish. This is the price of salmon FCA Oslo

This graph, which is also available in Sterling and NOK, provides a different picture of the various price movements. What is clear is that rather than a steady decline, prices have held relatively stable in a band between Euro 2.5 and 3 since 2001 with the exception of two falls, one at the end of 2002 and another mid 2003. Prices recovered after both falls. Equally, there has also been one major price rise in 2000, which could not be sustained.

What is significant is that this graph shows that prices bottomed out at week 28 in 2003 and have subsequently risen, with a few minor fluctuations.  Although, the price may have been low when the application document was written, they had risen significantly by the time it had been submitted. The price fluctuations demonstrate that there is no sustained dumping of cheap imported salmon, but prices reflect the availability of supplies at any particular time. Even the EU would be hard pressed to organise when individual farms are harvesting their fish so that supplies are regulated to prevent such fluctuations. They also reflect the state of the market at any particular time. For example, prices tend to dip in the summer when demand is low due to vacations etc. 

The application document states that in 2001, the Commission had found that material injury had occurred when the price was Euro 3.13 therefore as the ‘current’ level was now below this, the Scottish industry must now be experiencing similar injury.

The reality is that the industry has moved on since 2001, just as it had from previous dumping cases. The industry and the market have continued to evolve and prices and costs are different. It cannot be assumed that just because prices are below Euro 3.13, then injury must have occurred. Scottish farmers are also unable to make such an assumption because of the exchange rates between the Euro and Sterling.

2.      Low prices have put the EU industry in a cost-price squeeze.

The application document states that Scottish producers have suffered because prices fell faster then costs could be reduced. A survey of Scottish salmon producers conducted in July 2003 revealed that the average margin at the time was negative .57 Euros/kg, equating to a 20% loss. In September, this loss had been estimated to increase to 31%.

It is important to point out that this survey considered the performance of independent salmon producers accounting for 23% of production. Included in this survey would be all the supporters of the application such as farms like Loch Duart.

Loch Duart are one of the largest independent farms and have a adopted a specific strategy in which they have tried to distinguish their salmon from imported fish. This means that they have opted to grow high quality fish for which they expect a premium price. To produce such high quality fish, they have decided to adopt the standards of production schemes like Freedom Food, which means that they must reduce stocking densities. This and other measures inevitably mean that their costs are much higher than not only imported fish but also of most of other Scottish producers. This means that unless they attain their premium price aspiration, they will always be at a disadvantage.

Other farms in the independent sector are relatively small and therefore by their very nature will always be uncompetitive unless they have a specific niche market or co-operate.

It is inevitable that any targeted survey of independent can demonstrate that costs exceed prices. Farms need to evolve to remain competitive but unfortunately, the independent sector has been reluctant to do so.

It is unclear into how much depth this survey actually went. The Scottish industry has always been extremely reluctant to provide such cost information because a previous survey in 1992/3 did not support their claims that the Norwegian industry had a cost advantage. It is only the recent publication of the Scottish Executive’s Strategic Framework that has brought about the recommendation for a national survey. Yet, eighteen months on, the survey has still not begun.

Ten years ago, Scottish producers did have a cost advantage over their Norwegian counterparts. It is probable that this cost advantage has now been lost due to the increased regulation of salmon farming in Scotland. The cost of this regulation is something that has been agreed in political circles and it is within the same political circles that the burden can be eased.  Clearly, any cost disadvantage experienced by Scottish producers is something, which can be easily remedied by the Scottish Executive and not Brussels. The cost disadvantage may help Norwegian importers but they are only benefiting from Scottish misfortune and therefore they should not be penalised as a result. The application document does consider this later.

3. Pre-Christmas losses.

As prices have declined, in line with the growth of production, more and more farmers have tried to capitalise on the expectation that prices would strengthen at Christmas. However, as many farmers targeted this market, prices actually weakened. This is the inevitable result of a lack of any distinct market strategy.

Business failures.

The application document states that there have been a number of announcements of significant job losses. This statement has not been qualified.

VIII. Causation

The application states that there is a clear causal link between increased imports and reduced market share of the EU product. This is not clear at all. Imports into the EU have offset an increase in exports out of the EU as well as an increase in market demand.

3.      Low priced imports of the product drove down prices and the EU producers revenues.

The application document states that EU producers had to reduce their prices to compete with low priced imports in order to sell their product. This statement conflicts with the regular claims made by the Scottish industry that by imposing higher quality standards, they are able to generate a higher market price, up to 25% above competitive product.

In order to achieve a higher price for Scottish salmon, imported salmon must be sold at a lower price otherwise no premium would be achieved. The application document cites four examples of discounting that prove imported salmon are undercutting the price of Scottish salmon. However, these are simply examples of the price differential, which the Scots expect to achieve.

In one of the examples, the price is discounted for a three-month contract. This is standard procedure and buyers would expect to receive an incentive for a fixed term of supply.