reLAKSation 102.
Calling
their bluff: We, at Callander McDowell
believe that the European salmon industry should establish a system of Producer
Organisations at the earliest possible opportunity. There will be immediate
benefits for all producers with an improvement in prices, a stabilised market
and of course, an end to threats of further dumping actions.
They will do away with short-term quick fix measures, such as the
freezing programme and remove the Sword of Damocles hanging over the Norwegian
industry in relation to future dumping complaints. After all how can any
industry plan ahead when whatever it does, it risks someone running to Brussels
to submit yet another dumping complaint. Producer Organisations must therefore
represent the future of salmon farming in Europe. This follows on from a report
in IntraFish, which details a move by the Norwegian salmon industry to take
another look at Producer Organisations.
Those
who regularly read our views may have some difficulty in understanding why we
have suddenly changed sides and now join those who advocate production control
through Producer Organisations. Don’t be too concerned because actually we
haven’t. As usual, we, at Callander McDowell, firmly believe that it would be
a major mistake to try to set up a network of Producer Organisations. They are
simply not a suitable mechanism for dealing with the perceived problems of the
salmon industry.
However,
every time that prices have fallen over the last decade, the issue of Producer
Organisations raises it’s ugly head, along with the rush to Brussels to submit
yet another dumping complaint. We, at Callander McDowell, now feel that the
industry will never move on until this issue is finally consigned to the dustbin
where it belongs. It seems that this can never happen until we can clearly
demonstrate that Producer Organisations are not the panacea for the industry’s
ills that those who advocate PO’s would have us believe. So, lets now give
them the opportunity to show how Producer Organisations work and if they can do,
we at Callander McDowell, would be first to put up our hands and admit our
error.
In
order to put this move towards Producer Organisations into some form of context,
it is worth considering the background to how they came to be on the agenda.
In
1989, salmon prices collapsed. This caught the industry, especially in Scotland,
by surprise. The pioneering companies had opted to grow salmon because it was
considered to be a luxury fish for which consumers were prepared to pay a high
market price. However, this high price reflected the fact that salmon had a
rarity value because of its limited availability. As soon as farmers started to
capitalise on this limited availability and increase production, it was
inevitable that the high price could not be sustained. It was therefore not
unexpected that as production started to increase, prices would begin to fall.
Despite
the well-known relationship between price and volume, farmers in Scotland were
stunned by the collapse in prices. They immediately looked for someone or
something to blame and Norway became their target. They accused the Norwegian
industry of overproducing and then dumping cheap salmon into the European market
and they backed up this claim with a dumping complaint to Brussels. Once this
was in place, they commissioned an investigation of the market conditions from
the Chamberlain Partnership including Chris Ritson, Professor of Agricultural
Economics at the University of Newcastle upon Tyne. His findings were that
salmon over-production was part of a boom bust cycle. He recommended that
production should be controlled and he suggested that Producer Organisations,
which were allowed under the Europeans Commission’s Common Fisheries Policy,
should be established. Since then, a section of the Scottish industry has
relentlessly pursued these recommendations. It is only necessary to refer to the
comments made by William Crowe of the Scottish Salmon Producers Organisation in
response to Norwegian proposals to remove feed quotas. For example a report in
IntraFish quotes Mr Crowe as saying that ‘It’ll no longer be a boom bust
industry but a bust, bust boom bust industry’. No one else in salmon farming
talks in such language. In addition, Mr Crowe represents a group of farmers in a
body, which they call the Scottish Salmon Producer Organisation, as distinct
from the other Scottish salmon representative body, Scottish Quality Salmon.
Sadly,
whilst Mr Crowe and his organisation argue for the formation of a system of
Producer Organisations, they fail to recognise that Professor Ritson’s
conclusions are inherently flawed. Clearly, if the salmon industry was
over-producing in 1989, then today, there must be a mountain of unsold salmon
clogging up the European market. In 1989, Scottish production was 28,000 tonnes
and if this was contributing to any perceived over-production, then how has
production expanded to over 150,000 tonnes today. If the industry was
over-producing in 1989, then today it must be in over-drive, but clearly this is
not the case. The one difference is the market.
Professor
Ritson gave absolutely no consideration to market development. He simply
accepted that the market had reached saturation, which it has not. In fact, not
only is the market not saturated, it is also evolving. The main change is that
consumers no longer perceive salmon as a luxury fish to be bought just for
special occasions. Instead, consumers have recognised that the low cost and
widespread availability means that salmon is considered to be an every day value
for money meal option. If Mr Crowe and his colleagues had spent his time looking
at positive market development rather than negative production control, perhaps,
the argument for Producers Organisations would have been resolved long ago. As
is hasn’t, the question now is whether Producer Organisations actually work in
practice?
Professor
Ritson suggested Producer Organisations as a way to regulate production because
they already existed in the fisheries sector. Whilst, fisheries PO’s also
regulate supply, there is a fundamental difference between the way that
fisheries and farming operate. Fisheries PO’s distribute a specific
predetermined catch quota between fishing boats. These quotas are based on what
scientists think that fish stocks can tolerate to remain sustainable. If stocks
go down, then so do quotas. If they should increase, then the allowable catch
will also increase.
By
comparison, applying the PO system to farming is a totally different
proposition. Farmers can produce more or less fish independently of market
conditions, which is exactly why those who advocate PO’s argue that controls
are so urgently required. Professor Ritson suggested that an independent
committee of market experts should be established, who would then determine the
size of the market. The problem is that in the time since PO’s were first
proposed, there appears to be a distinct lack of such market expertise. This is
because the market is evolving so rapidly and has changed so much from
conditions in 1989. Where do these experts draw the line? Should the salmon
market be assessed as in terms of its potential luxury market, with its
associated higher prices, or should it be viewed as a commodity product? Some
may suggest that it should be determined by the ability to generate a profitable
margin, but should that refer to large farms or the smallest. The answer is that
there is no answer. What one producer may consider a profitable market, others
may view as being a disaster! When some discuss the market they refer to
geographic locations, such as Europe, Russia or Japan. Others, like ourselves,
refer to products like convenience meals, ready to eat, smoked and so on.
Everyone has a different view of the market so that attaining a consensus of the
how large the market is will be extremely difficult. This could mean that the
future viability of those multi-national companies, at the heart of the salmon
industry, could be determined by a small number of so called industry experts.
This is no way to run a business.
We
can illustrate this deficiency using Mr Crowe as an example. Back in November
2001, IntraFish produced an article concerning imports of cheap Chilean salmon.
The article stated that it is too early to assess the impact which cheap Chilean
salmon has had on the European market according to an industry expert. Europe is
a market for fresh and chilled salmon whilst the fish from Chile has been coming
in frozen said Mr Crowe, General Secretary to the SSPO and European Adviser to
Scottish Quality Salmon. Mr Crowe also said that he believed that Chilean salmon
was not finding its way into the retail market. IntraFish certainly established
Mr Crowe as an industry expert, yet at exactly the same time that Mr Crowe
claimed that Chilean salmon was not being sold in the retail sector, we, at
Callander McDowell, were regularly monitoring ‘fresh’ Chilean salmon
portions in a large British supermarket chain. This was not a one off
observation as this store continued to supply Chilean salmon, all labelled as
such, for many more months. Clearly, if experts like Mr Crowe have no idea as to
what is happening in their local shops, how can they adjudge the size of the
European, if not global, market. Mr Crowe also illustrates a blinkered vision of
the market by stating that the market for salmon in Europe is either fresh or
chilled, not frozen. Yet, we can provide many examples of frozen salmon products
from simple fillets to complex meal solutions.
We,
at Callander McDowell believe that if the industry could develop it’s market
knowledge to the level required to regulate production through PO’s then it
probably would not be necessary to bother with PO’s at all since that market
knowledge alone would be sufficient to enable producers to take advantage of
developing market opportunities so that prices would no longer be such an issue.
Even
if these experts could determine the size of the market, how would the committee
and the various Producer Organisations distribute the production quotas? It
would be a bureaucratic nightmare. Should production be cut back by a set
percentage for small and large farms alike or should the smallest farms be
allowed to continue with their maximum production? A large cutback by a small
farm might make production uneconomical, yet why should only the large farms
bear the brunt of any reductions? This is all so totally different to what
happens in a Fisheries PO.
This
is why we say let the advocates of Producer Organisations establish their
system. Let us see how it works and whether it can successfully regulate
production to farms to regain their lost profitability? We would say let them
have their opportunity and then let us consign this concept to where it belongs
– the bin and then lets get on with market development, the only guarantee for
a successful salmon industry.
For more information about Producer Organisations see our reports section for "Eighty five questions about PO's (you may not have thought to ask)"