reLAKSation 112.
Corporate or
cooperate: IntraFish have expressed the view that the banks, who now run the
bulk of the Norwegian aquaculture industry, seem to believe that there are too
many small, weak companies that do not have the financial stamina to survive in
hard times. This is why the banks are moving towards forming fewer, but larger
aquaculture companies in Norway. Speculation suggests that this is a short-term
plan to help the banks recoup some of the debt owing to them. Yet however much
the banks motivation is to minimise their losses, their current strategy is one
which is already well established.
As far
back as 1989, when prices first collapsed, forecasts proposed that the salmon
farming industry would eventually be dominated by a handful of very large
farming companies. This was because as production grew, prices would fall. To
match the lower income, costs would have to be slashed and the most logical way
that this could be achieved would be through economies of scale. Thus, farms
would have to be large. However, this does not mean that the industry will
consist of just the largest farming groups. There will also be room for those
companies who can develop their own niche markets where cost is not the major
concern. Equally, there is always scope for smaller companies to co-operate
together in order to benefit from the same economies of scale as the largest
farms.
What is
clear is that there will be continuing change. Salmon farming has evolved
significantly from the earliest days, when it was envisaged that commercial
fishermen might keep one or two small cages of salmon to supplement their
income. This evolution will undoubtedly continue unabated.
Sadly,
some sections of the industry have not yet recognised the implications of
fighting this change. IntraFish report that there is strong local opposition to
the sale of the new Midnor. There is concern that new ownership will lead to job
losses, which will affect the local community. Thus, the Work Group in new
Midnor have said that they would prefer to have the company operating
independently under local ownership than as part of a much larger group. What
they fail to realise is that the days of the local independent company are
numbered. The choice is now one of corporate or cooperate.
Price, price,
price! Following several weeks of sustained
increases, the rise in prices appears to have stalled. Whether this is the start
of another downturn in the run up to Christmas is still unclear, but it
certainly brings into question whether prices will reach NOK 30 next year as
some commentators have previously suggested.
The predictions
that prices will rise are very much based on estimates of the potential biomass
of fish coming up for harvest, yet we at Callander McDowell believe that other
factors besides biomass can drive prices up and down. The most important of
these is consumer demand.
We have described
many times previously that we believe that as prices rise, then demand will drop
off. This is because salmon has undergone a significant metamorphosis from its
former luxury image to one more akin to a commodity product. The many consumers
who are responsible for absorbing the huge production of farmed salmon do so
because they recognise that salmon represents a value for money purchase, which
can be used as an every day meal choice, not because they have aspirations of a
luxury lifestyle. If salmon becomes too expensive then these consumers, who
after all now represent the main market for salmon, will simply seek a cheaper
alternative meal. This may or may not even be fish.
This relationship
between price and volume can be illustrated with a specific example, which has
recently highlighted in the news. This is the example of Scottish salmon sold
under Label Rouge in France.
The interim
report of the Scottish Salmon Development Project was published at the beginning
of October (see www.scottishsalmon.co.uk).
It’s threefold aim was to ensure that the salmon industry operates in a
sustainable manner; to ensure that the salmon produced is of high and consistent
quality and to ensure that existing markets expand and that new markets and
products are developed. In this last context, the report asserts that exports of
Label Rouge Scottish salmon have increased for the fifth consecutive year from
2,493 tonnes in 1997 to 4,947 tonnes in 2002 – an increase of nearly 100%. In
addition, consumers are also prepared to pay a premium of around 25% for Label
Rouge Scottish salmon.
Sales of Label
Rouge salmon may have grown by nearly 100% in five years, but the total volume
is actually tiny, both in terms of Scottish and European production. It is not
even equivalent to the volume of salmon exported from Norway for just this week.
The fundamental question is why have sales of Label Rouge remained at such a low
level? Firstly, it cannot be due to limitations on production because Brain
Simpson, Chief Executive of Scottish Quality Salmon told IntraFish that
virtually all the members had now signed up to Label Rouge production. Equally,
it cannot be due to questions over the quality of the fish because they carry
the respected Label Rouge mark of quality. Even if French consumers had no way
of knowing how to determine whether salmon were of high quality or not, the
Label Rouge is widely understood as a clear sign of a quality product. If it’s
not availability and it’s not quality; then it can only leave price as a
possible deterrent to purchase. With reported premiums of up to 25% over other
competitive salmon, consumers would need to be convinced that this extra cost is
worth paying. Clearly, not enough consumers have been persuaded to put their
hands in their wallets, otherwise sales volumes would have been much higher than
the current 5,000 tonnes a year.
Brain Simpson
thinks otherwise. He told IntraFish that as the markets have become more
difficult price-wise, quality has become more important as illustrated by the
increase in sales of Label Rouge salmon, despite a drop in the overall
consumption of salmon in France. However, we are not convinced that the two are
linked because the sales volume of Label Rouge salmon in the wider salmon market
is so small.
Mr Simpson also
said that Scottish Quality Salmon have been working with Scottish Development
International and Food From Britain to look at how sales of Label Rouge can be
expanded within France and also into neighbouring countries as well as into food
service. We think that any answer might be found by taking another look at the
perceived price expectation for these fish?
The basic problem
for the salmon industry is do they risk losing potential sales by demanding a
higher market price for Label Rouge or do they continue to ask for a higher
price and maintain sales at the current low level? A similar question was asked
about salmon in general back in 1989 when prices first began to fall. Should
salmon be marketed as a high priced luxury item produced in small volumes or
should production be allowed to increase so that salmon becomes more of a lower
priced everyday food choice? This question was never really answered to
anyone’s satisfaction and this was because market forces took over. The result
is that the salmon industry now produces a reasonably priced food for the modern
marketplace. The luxury market is now just a small niche sector and so is Label
Rouge. Whilst price expectations are high, the Label Rouge market will never be
big and if producers elsewhere want prices to go higher then they will face the
same limitations on the amount of salmon that they will be able to sell.
Reap what you
sow: Unilever, the multinational food
producer had been hoping to source all it’s fish from sustainable sources by
2005 but say that they are now unlikely to do so. According to IntraFish, the
delay is due to the length of time that the Marine Stewardship Council is taking
to certify sustainable stocks, especially of those large enough to meet the
demands of major users like Unilever. The company also blames the love affair
that the British consumer has with cod and haddock and their reluctance to
substitute these with species like hoki.
However, we at
Callander McDowell are not surprised that consumers buying Unilever’s
Birds-Eye fish products have rejected the more sustainable alternatives.
Birds-Eye is one of the UK’s major advertisers using both the mediums of radio
and TV to reach their potential customers. They run regular advertising
campaigns and in the case of their fish products, they make much of the fact
that they use only ‘prime fillets of cod’. This is now what their customers
expect and this is what they prefer to buy. Unilever cannot be surprised that
their customers reject any alternatives even those with the highest
environmental credentials.
Clearly,
Unilever could simply stop using cod and haddock and hope that consumers will
remain loyal to the brand irrespective of the fish content, but this is a risky
strategy. After receiving the ‘cod’ message for so long, consumers may start
to put cod before the brand and buy their fish products from other suppliers
instead. If Unilever really want to wean consumers off cod and haddock, they are
going to have to invest in more than the MSC. They are going to have to convince
the consumer that sustainable alternatives are just as good as cod and haddock
and this is going to require a major promotional campaign at least and even
then, there are no guarantees that consumers will change. Fortunately, some of
Unilever’s fish products are aimed at the children’s market and as we have
already discussed these products are heavily promoted in the media. The best way
to put over the environmental message could well be to incorporate it into kids
products first and target the advertising accordingly. These younger consumers
may be more easily persuaded to avoid cod and haddock and that it is OK to eat
alternative species instead.
Unilever are now
paying the price for it’s heavy advertising towards cod and haddock. After all
‘they can only reap what they sow’.