reLAKSation 128.
The application – a response: Intrafish have kindly published a copy of the UK application for safeguards on their website. This permits the application to be open for public scrutiny and since the implications of these requested safeguards could affect many businesses and employees, this is only right.
We,
at Callander McDowell, would like to think that we have an open mind as to any
potential strategy which would help secure the future of the aquaculture
industry. We have our view, but we are always willing to listen and debate the
merits of any alternative proposals. Sadly, this is not how everyone in the
industry prefers to work. Most notably, there appears a general unwillingness by
advocates of the safeguard route to argue their case. Most press reports about
the application contain reference to ‘industry insiders’ or an ‘industry
spokesperson’. If there is a section of the industry that are so convinced
that safeguards are the only route to secure the future of the industry, then
why are they not standing up and actively voicing their case. Instead, they
appear to be hiding away behind quasi-groupings such as the European Salmon
Producers Organisation.
At
least, access to this application allows all interested parties to see and
comment on the route to safeguards. We, at Callander McDowell, certainly
consider that the application document merits some form of comment and therefore
we have devoted this latest reLAKSation to our response.
It
can be difficult to assess the many claims and counter claims made during any
trade dispute. This was very much the case in 1996 when the then dumping action
was first initiated. It then proved useful to start at what was known fact and
then develop the case from there and so it is here. Whilst the temptation is to
focus on the various claims, we have looked first at the annex.
Annex
2 lists all the Scottish companies actively producing salmon. The list comprises
of 70 companies in total. This is only 3 less than the 73 companies quoted as
being actively farming salmon in the official 2002 Annual Production Survey of
Scottish Fish Farms published by the Governments’ Fisheries Research Services.
This means that from the end of 2002 to the submission of this application of
safeguards only three companies have ceased to produce salmon. This figure
should be compared with similar data from the last 10 years. In 1993, 132
companies were actively farming salmon in Scotland. This equates to a loss of
5.9 or nearly 6 farms a year. This is double the rate of losses over the last
year during which the viability of Scottish salmon has supposedly been
threatened by increased imports.
Of
course many of these 70 companies are part of larger international companies and
therefore are unlikely to support this application. Annex 7 lists those
companies, which do. The list comprises of 19 ongrowing companies and two smolt
producers. Interestingly, 7 of the ongrowing companies do not appear on the main
list of companies actively producing salmon in Scotland. A couple are those,
which have recently gone out of business in Shetland, the others are simply not
listed as producers. This means that only 12 ongrowing and 2 smolt producers out
of 70 support the application. This is not really a representative section of
the Scottish salmon industry.
Remaining
with the Government’s official annual production figures, the total volume of
salmon produced since 2000 was as follows:
2000
128,959
2001
138,519
2002
145,609
2003
176,596*
*estimate
based on reported number of smolts put to sea and fish in their first year.
By
comparison, the safeguard application document list the following production
figures for the UK:
2000
120,000
2001
131,000
2002
133,000
2003
138,000*
2004
110,000*
This
data and the estimates have been provided by the European Salmon Producers
Organisation.
We,
at Callander McDowell find it odd that the British Government’s application
for safeguards uses figures supplied by the ‘complainants’ rather than rely
on figures produced by a confidential survey conducted by one of their own
agencies. We are reluctant to suggest that the figures provided have been
massaged to make them look worse, but we cannot offer any other explanation.
Much of the concern already expressed about the current situation is that the
low prices mean that many farms no longer have sufficient capital to pay for
this year’s smolt intake. If this were the case, then this would affect
production in future years, not now. The ESPG figures suggest that Scottish
production will fall by 40,000 tonnes this year. This is an enormous and sudden
drop and cannot be explained by the small number of farm closures, nor of any
other unexplained loss of fish.
Much of the application document is focused on the current low price of salmon. This is blamed on increasing volumes of imported fish, which have supposedly forced down prices. The application document shows how prices have fallen over the months since 2000, however presenting the data in this way can be extremely misleading as it does not have any causal link. Using the data presented in the application document, we have shown in the following graph how salmon prices have varied with changing production.
Clearly,
as production has increased, the price has fallen. This is simply a continuation
of the trend that began as soon as the first farmed salmon were put to sea. The
sudden availability of farmed salmon devalued the rarity value of salmon in the
marketplace and has continued do so ever since. Farming caused the market image
of salmon to evolve from a high value, luxury product to a low cost, every day
meal choice. It was inevitable that as production increased, the price would
fall. It has done so since farmers first became concerned about falling prices
in 1989 and continued expansion of salmon farming has ensured that the price has
continued to fall. The application document suggests that this price fall has
been fuelled by imports from outside the European Community, but the reality is
that all salmon producers have contributed to the falling price. It might be
easier to understand Scottish concerns if when they first argued about
over-production in 1989, they had refrained from further expansion, but the
Scottish industry is equally guilty of contributing to the low price. Scottish
production stood at 28,000 tonnes in 1989, this year, the Government’s
forecast suggests production will exceed 170,000 tonnes. Surely such growth is
contributing to this so-called over-production as much as Norwegian or any other
producer.
The
application document raises many other questions, however, we would like to
consider just one more. This concerns business financing. The application states
that many producers are now experiencing difficulties in raising capital from
external sources such as banks. They say that traditional lenders have been
reluctant to extend finance with substantial security and perhaps this is not
surprising. The banks and other commercial lenders need to make a guaranteed
return on their investment and at present salmon farming appears unable to offer
such guarantees. The question is whether this is because the small Scottish
farms are unable to compete against imports, or more likely that these farms
have not adapted their businesses to changes in the marketplace. The answer is
actually both. The smaller farms will always find it difficult to compete with
imports, but equally, they would find it difficult to compete with the larger
farms in Scotland. Smaller farms will only succeed with a strategy aimed at
higher value niche markets because they cannot rely on being able to reduce
their cost of production to match that elsewhere.
Unfortunately,
it seems that many, but not all, of the smaller farms have tried to compete and
they are now starting to struggle with the inevitable consequences. The only
reason why they have managed to remain viable for so long is that they have been
partially protected by trade measures such as the salmon agreement and by
industry financing provided by the feed companies. This protection has now been
removed, because the salmon agreement has been terminated and because the feed
companies simply cannot afford to extend credit indefinitely. The removal of
this protection has left a gap that needs to be filled and this is why the
British Government has filed this application for safeguards. Although its aim
is to create another layer of protection, what it also does is to postpone yet
again the need to face the realities of the marketplace. These safeguards will
simply allow farmers to continue producing what they think the consumer wants
and not what the consumer actually wants. The application document states that
the unforeseen developments have given farmers little opportunity to adapt. The
reality is that low prices and increased production have been predicted for over
ten years and much of the industry has shown little interest in trying to adapt
to the changing markets. The Department of Trade and Industry who first
initiated this application should know better since their work takes them to
companies who have to accept the realities of the marketplace to stay in
business. However, given some of the data that is contained in the application
document, it wouldn’t be of too much surprise if they had been ill advised as
to the best action to take to help secure the future of salmon farming in
Scotland.