reLAKSation 125.
Band-aid:
Last
Friday heralded yet another sad episode in the history of international salmon
farming. According to IntraFish, the UK Government, supported by Ireland,
submitted a formal application to the EU for measures to safeguard the future of
the domestic salmon farming industry by restricting the import of farmed salmon
from non-EU countries. Scottish aquaculture minister, Allan Wilson said that the
application had been submitted because the salmon farming industry has faced
severe challenges due to increased imports from outside the EU. We, at Callander
McDowell, would agree with Mr Wilson that the Scottish industry has faced the
challenge of competition from abroad, but we would fervently disagree that these
safeguards are the answer.
We
have argued many times that the Scottish industry has a specific perception of
why consumers should buy their salmon. The fact that consumers actively choose
not to buy into this perception is no reason why the Government should intervene
and seek a political solution. The answer surely is to convince the Scottish
industry that they must start to produce what the consumer wants, not what they
think the consumer wants.
Mr
Wilson said that the safeguard action will bring much need stability and
improved trading conditions back to the European salmon market. We are not
convinced. Although three quarters of British consumers have said they that not
only prefer to buy Scottish salmon, they also are prepared to pay more to buy
it, yet when faced with a choice in the supermarket, they clearly do not act in
this way. If they did, the Scottish industry would not be seeking these
safeguards. The fundamental question now is that if these safeguards are imposed
and as a result, the price of salmon rises, will these consumers now be prepared
to pay more for salmon? We very much doubt it. Most consumers buy salmon because
it represents value for money and it makes a good everyday meal choice. If the
price rises, it may no longer be considered to be good value and instead reverts
to being only for special meals. In much the same way, does the average consumer
regularly eat fillet steak as a typical evening meal? If consumers are not
prepared to pay a higher price for salmon now, why should they do so if the
price rises? We believe that if salmon prices do rise, consumption will fall and
this will be even more detrimental to the European salmon industry than if the
current situation is allowed to continue.
Mr
Wilson thinks that the safeguards will provide a better climate for renewed
investment, but we question whether anyone will want to invest in an industry
which depends on a political, rather than a commercial solution to remain in
business. Salmon farming needs to have a sound business rationale in place if it
is to move on. Mr Wilson’s safeguards only provide a sticking plaster
solution, not a permanent way forward. In addition to the application to the EU,
Mr Wilson is seeking some other measures such as an extension of the loan
Guarantee Scheme, help from the clearing banks and further discussions with
Norway. He also intends to establish a focus group to look at ways to ease the
regulatory burden. Unfortunately, none of these address the underlying issue of
the marketplace. We, at Callander McDowell recognise that the Government does
not consider that it is it’s role to tell farmers how to run their business,
but equally, we do not see why the Government cannot act as the catalyst to help
farmers better understand how they could benefit from market and product
development. If Mr Wilson can establish a focus group to look at the burden of
regulation, then why cannot he do the same to look at market development. After
all, in the past the Government, in one form or another, has spent a great deal
of their money through their various agencies in support of marketing
programmes, which clearly have not worked. Why cannot they now start to at least
establish a forum for the exchange of ideas.
Finally,
Mr Wilson has said that the Scottish Executive has worked very closely with
representatives of the industry on this submission to the EU. We, at Callander
McDowell firmly believe that if the industry had invested even half as much time
in market development as they had in seeking trade protection, whether it be
dumping or safeguards, they all would be now sitting by the sea in Marbella,
rather than whingeing and whining about having to face competition from cheaper
imports. They clearly have forgotten that in order to get a higher price premium
for Scottish salmon, then their salmon has to be priced higher than other
salmon, which therefore must be cheaper.
Label
for all?:
Recently, farmed salmon has been on the receiving end of a great deal of press
coverage, mostly about the Science report. One item in the Sunday Times that
caught our eye was that Scottish Quality Salmon had said that in response to the
Science article, ‘it was hoping to join forces in a court action with Label
Rouge, the French government’s food quality assurance scheme. Scottish farmed
salmon is the only product of its type to get Label Rouge’s seal of
approval.’, a fact that the Scottish industry have regularly highlighted.
We,
at Callander McDowell, were therefore extremely surprised to find during our new
survey of the French retail sector that whilst Scottish salmon is the only fresh
salmon sold under Label Rouge, the situation is very different for smoked
salmon.
French
consumers are faced with a bewildering range of smoked salmon. How they are able
to select the one they want from the rest is unclear, but certainly the range is
extensive. Not only do French supermarkets sell a variety of branded smoked
salmon products, they also sell smoked salmon under their own label. However, to
add the confusion, each brand is available as being from a different national
area. Thus, any specific supermarket label or brand is produced in three
different varieties, Norwegian, Scottish and Irish. A supermarket has only to
offer its own label product and one brand to give the consumer 6 different
choices. This is compounded in the larger outlets by their being a number of
different brands, each with its own different varieties.
This is further complicated by the fact that those smoked salmon producers who are able to produce smoked salmon under Label Rouge can do so for each national variety. Thus, a consumer wanting to select Label Rouge smoked salmon can buy Norwegian Label Rouge smoked salmon, Scottish Label Rouge smoked salmon or Irish Label Rouge smoked salmon. One example of this is illustrated below:
Although
smoked salmon is very different from fresh, at least one British supermarket
incorporates the Scottish Tartan Quality Mark on their packs of smoked salmon.
Against a background of claims that that only Scottish salmon is the only salmon
to carry Label Rouge, the presence of Norwegian and Irish Label Rouge smoked
salmon is unexpected. Of course, the fact that Label Rouge appears on these
packs is due to the accreditation being awarded to the smoker and not to the
salmon. Thus, even Chilean smoked salmon could feasibly carry Label Rouge.
With
so many smoked salmon products on the French market, it can be difficult to draw
any conclusion about which smoked salmon are considered to fall into the premium
category, however, Callander McDowell’s survey of the French market do show
some clear trends. The most obvious of these is that, irrespective of the
presence or absence of Label Rouge there is a pricing hierarchy. This is that
Norwegian smoked salmon is the cheapest, followed by Scottish, with Irish smoked
salmon being the most expensive. It would be interesting to see if a similar
pricing structure would appear if fresh Irish salmon were to be available in
French supermarkets. This would be very different to the observations made in
British supermarkets. Those stores that have sold identical packs of Norwegian,
Scottish and Irish salmon alongside each other have done so at exactly the same
price.
Confused
about price?: A
recent article in IntraFish suggests that salmon prices have started the year at
their best level since 2001. This news together with reports that the biomass is
much lower than last year have created a renewed optimism for stronger prices
during 2004. As a result, forecasts have again suggested that salmon prices will
reach NOK 30 by Easter.
Certainly,
the price situation appears to be positive, yet we, at Callander McDowell wonder
how much of this renewed optimism has been fuelled by a positive exchange rate
for Norwegian exporters just as conversely, the weaker European currencies have
underwritten the case for imposing safeguards.
The
only thing of which we can be sure is that nothing is certain. We can only
repeat our concern that too much weight is given to what can happen to salmon
prices almost on a day to day basis. Instead, we believe that the industry would
be better served by looking to how it can strengthen its margins over a low base
line price.
We
were interested that at a time when there are so many conflicting messages about
prices, Ivar Holmefjord of Real Seafood AS has highlighted the price
differential between the FHL price and that paid in the Rungis market. This is
not really unexpected. The structure of the Norwegian industry is such that
there are several links in the supply chain, where there could be just one. Each
link wants its cut of the action and this affects the underlying price paid.
Salmon farming is an industry with too many different profit centres.
It
is only necessary to look back through our archive to see that this is a
recurring theme of ours. The salmon industry is too fixated with the production
of raw flesh that it has consistently failed to look at what is happening in the
marketplace. There is no reason why farming companies cannot take greater
control over the supply chain and recoup extra margin, either directly or by
adding further value. This is why this fixation with price can be so damaging to
the industry. Instead, we would prefer to see a change of emphasis away from
price towards market development where raw material prices become less
significant.