reLAKSation 109.

Bureaucratic nightmare: Some years ago, ECON, Senter for Okonomist Analyse AS were commissioned to investigate whether the Producer Organisation model was a realistic option for the Norwegian salmon industry. They concluded that it was not.

There now appears to be a view that if Norwegian aquaculture industry organises itself into a system of Producer Organisations in way similar way to that which might happen within the European Community, then the European Commission may be more lenient in it’s attitude towards Norwegian salmon imports According to IntraFish, this is now the crux of the debate about whether a system of Producer Organisations should be established. Torben Foss, head of the aquaculture and fisheries section of Price Waterhouse Coopers told IntraFish that it is still too early to tell whether the EU will respond favourably if the Norwegian industry does follow this route. He has been asked by FHL Havbruk to look again at the PO model.

Mr Foss has highlighted that the real benefit of Producer Organisations is that it allows ‘price cooperation’, when such cooperation is illegal in almost every other industry. He illustrated his comments with the news that two bosses of a Norwegian tanker company have been jailed in the USA for breaching American fair competition legislation. They must also pay billions of kroner in fines. Mr Foss said that if this had been the salmon industry and in the EU, then there would have been nothing illegal.

However, this suggestion is extremely misleading. The reality is that this is not the salmon industry and this is not the EU and therefore it is illegal. The implication is that the Norwegian salmon industry might avert similar illegal transactions if they were to  establish such PO’s yet this is not the case. PO’s can cooperate on price as long as they are part of the EU and for this to happen for Norwegian producers, Norway must join the European Community. PO’s are not the answer.

Clearly, if Norway were to join the EU, then the whole question of PO’s becomes redundant because Norwegian salmon farmers would gain immediate and open access across the whole of Europe. This is the only realistic solution for a Norwegian industry hoping to improve access to the European market, but such a solution is also part of a much wider political agenda.

As the Norwegian industry remains outside Europe, such ‘price cooperation’ must also remain illegal. However, the suggestion that PO’s can cooperate on price at all is also extremely misleading for this is not what the European Common Fisheries Policy has on offer.

It should be remembered that the mechanism for Producer Organisations was established to help the commercial fisheries industry overcome its own specific problems. The idea was hijacked by Professor Christopher Ritson as allowable under the CFP and a possible way of regulating excessive salmon production. The idea was attractive to the Scottish industry because in difficult times voluntary PO’s could obtain an ‘extension of discipline’ and force non-members to participate in any plans to ‘regulate’ the market. However, this idea was flawed because it would only apply to producers within Europe who had not agreed to join a PO, not producers from outside the EU.

Mr Foss told IntraFish that the PO model is an echo from the past, based on historical experiences of growing food on the Continent between the two world wars. However, Mr Foss is mistaken. We have already mentioned that PO’s were established to help the commercial fisheries sector. The EU Fisheries Department state that ‘given the unpredictable nature of fishing, which affords limited control over catches, some imbalance between supply and demand is inevitable. The Community has created mechanisms to correct the worst effects of these fluctuations’. Put simply, some seasonal fisheries my result in an abundant harvest, which the market is unable to immediately absorb. The excess catch forces down prices below an economic return for the fishermen. This makes it  not worth their while even catching the fish. To protect their income, the EU set a guidance price for a number of species which are important to the Community. These guidance are then used as reference by the Commission to set a withdrawal price. To ensure a minimum revenue for fishermen, their PO’s may then enforce this withdrawal price by taking the fish off the market when prices fall. Members then receive an indemnity from their PO, which in turn, applies for compensation from the Community.

This scenario bears little resemblance as to what happens in the farming sector. Farming should be predictable as farmers know how much they are putting to sea and therefore how much should come out. There should be no sudden deluge of fish coming to market unless farmers choose to do so. It is the timing which is critical.

As farming is more predictable, there should be no need to withdraw salmon from the market and no need for compensation, for unlike seasonal fisheries, there will be plenty more salmon following on.

The Norwegian industry have recently undergone a similar experience to that which might be expected when organised under PO’s. The price of salmon slipped due to too many fish coming to the same markets at the same time. This was due to farmers aiming to relieve cash flow following the removal of the EU salmon agreement. In order to push prices back up, a group of farming companies opted to ‘withdraw’ salmon from the market through a freezing programme. However, by the time that they were able to organise such a withdrawal, the market had already responded and prices rose without help. This would not have happened so readily in the fisheries sector, which is why PO’s are appropriate for them. This is not the case for farmers.

However, any farmers who remain unconvinced should also bear in mind that the compensation payments made to PO’s by the Community decrease as more fish are withdrawn for the market. This is because such withdrawal is perceived as a last resort, not as an easy option for those who refuse to adopt to the changing market conditions.

The challenge for the Norwegian salmon industry is not whether to adopt this bureaucratic system but whether they should be looking to market development to ease any further market disruption. Clearly, as production continues to grow, more and more salmon will come to market at exactly the same time forcing prices down. The only way that this can be avoided is if this salmon is targeted at many different and less competitive markets.      

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