reLAKSation 133.
Po’ed!:
Ole Petter Krabberød, until recently, Managing Director of Norway Royal Salmon,
told IntraFish that Producer Organisations have so many positive attributes as a
regulating mechanism, he is curious to
know what arguments could be put forward against them. Fortunately, we, at
Callander McDowell, are happy to satisfy Mr Krabberød’s curiousity.
Mr
Krabberød is looking for an impartial debate about PO’s in Norway. He
believes that Producer Organisations could cement relations with Brussels, as
well as neutralise the Scots and Irish. He cannot understand why many Norwegian
salmon farmers are so reticent to take on the responsibility of self regulation,
but are happy to allow the Norwegian Government to take control of production.
Perhaps, they, unlike Mr Krabberød, can see that Producer Organisations are not
the answer and any attempt to introduce them to Norway would be just another
example of appeasement.
The
problem with Producer Organisations is that their whole concept as a regulating
mechanism for salmon farming is inherently flawed. They will not solve the
recurring problems of market disruption because they are production oriented,
which is why they are called Producer Organisations. The only solution for
continued market disruption are those that address the issues of the
marketplace. Producer Organisations were originally envisaged as a way of
regulating the fishing industry. As fish stocks declined, the European
Commission needed to find some way of dividing a finite resource between every
fisherman. Producer Organisations are an ideal way to do this. Under the Common
Fisheries Policy, the national fisheries ministers sat down once a year and set
quotas for every type of fish. Each quota was divided between the various
Producer Organisations who then allocated a fixed catch to each of their
members. If we try to illustrate this as a cake, then the EU fix the size of the
cake and then how it is divided up. By comparison, if we try to use the same
example for farming PO’s, then the real problem is that no one seems to know
what size the cake should even be!
The
idea of trying to apply what are effectively measures to control fishing to the
farming industry was first conceived by Professor Chris Ritson of the Department
of Agriculture at the University of Newcastle upon Tyne. In 1990, he had been
employed as a consultant to then Scottish Salmon Growers Association to offer
possible solutions to the collapse of salmon prices. His view was that the
industry was over-producing and that production should be regulated. He believed
that as Producer Organisations were an existing method of regulation used by the
EU, they could be adapted to the farming situation.
Unfortunately,
fishing and farming may have fish in common, but they have little else. What
worked for fishing might not necessarily work for farming. The fishing industry
controls are used to protect stocks from over-fishing and they operate by
limiting how many fish can be taken. By comparison, the capacity to produce fish
by farming is potentially limitless so PO’s can only work by placing
limitations on the size of the market.
Professor
Ritson’s proposal was that a committee of eminent industry experts would be
established to discuss and set an annual figure for the size of the salmon
market. This market size would be then equated to an annual production figure
which would then be divided between the various national Producer Organisations.
This plan may seem ideal in principle but it is extremely simplistic and
unlikely to work, notwithstanding the legal issues. Firstly, whilst fisheries
experts calculate fishing quotas based on known recruitment patterns and
depletion rates, there is no magic formula for calculating market demand. Even
today, many fishermen argue that the experts have got their calculations wrong
so could salmon farmers expect any better? The answer is probably not. It is
clear that there is a already a major difference of opinion as to the size of
the market with repeated claims of over-production despite continued production
growth. Obviously some farmers are confident that the market will grow whilst
others are not. This uncertainty is also reflected in the recent admission by
Lars Liabo of Kontali that some of his forecasts were wrong. If Mr Liabo cannot
get it right, what hope is there for a Producer Organisations committee?
One
of the difficulties that the industry has in determining the size of the market
is that everyone has a very different idea as to what the market actually is.
Certainly, suggestions of over-production are more linked to price expectation
than to actual over-production. The higher the volume produced, the lower the
price and vice versa. Those sections of the industry that complain about
over-production actually mean that the price is below their own expectation and
this is the reason why they want production to be restricted either through
reduced smolt input or by more stringent border controls. The problem is that
higher prices also mean a reduced market demand but it does not mean that demand
has fallen, it simply means that some consumers are not willing to buy salmon if
the price is too high. In addition, the salmon market is not just about fresh
fish anymore. The market for salmon has become extremely sophisticated with the
development of many added value products ranging from smoked salmon to complex
ready to eat meal solutions. One of the reasons that salmon is increasingly used
in such products has been its low cost. Should the price rise, salmon would no
longer be considered to be a viable raw material for such products. This could
be extremely damaging to a processing sector that has come to rely on this
versatile and low cost raw material. The range of products now manufactured
means that it is extremely difficult to assess how much impact they have on the
size of the market. If prices remain low, the size of the market increases
significantly and as some farming companies find that they can retain some
profitability at these lower price levels, any future committee cannot ignore
this aspect of the market.
Even
if this proposed committee of experts can decide on a market size acceptable to
the whole industry, there are still other issues which must be overcome if
Producer Organisations are to function realistically.
The
first problem is how Producer Organisations would be policed. Producer
Organisations work successfully (although some may disagree) in the fishing
sector because every individual PO has been established within a member country.
This means that every PO is subject to the rules and regulations operated by the
European Commission. Norway is not a member of the EU and therefore cannot be
subjected to these rules and regulations. According to IntraFish, the EU’s
Directorate General for Competition has already expressed concern that Norway
has been previous involved in covert negotiations with Ireland and Scotland so
it is unlikely that unless Norway joins the EU, any discussion about PO’s is
pointless. Even if Norway, were a member of the EU, then there are still
unanswered questions about imports from Chile and the Faeroes.
These
insurmountable hurdles have led some advocates of Producer Organisations to
propose that this system of control could be established as a voluntary
arrangement. They have even gone as far as setting up their own voluntary
so-called Producer Organisations. There is now a Scottish PO, a European PO and
there was once a Shetland PO. Mr Krabberød has already admitted that he had an
18 month stint on the Board of the Scottish Salmon Producers Organisation,
whilst he was head of Stolt’s activities in Scotland. It is unclear as to what
the Board of this PO actually did since clearly they were not involved in the
regulation of their member’s production, which is there only purpose for their
existence. However, these voluntary PO’s could have been using the time since
they were established to conduct dry runs as a demonstration to their potential
effectiveness to the rest of the wider industry. The salmon industry might be
more convinced as to the rationale for PO’s if they could be shown that this
system of regulation would work. This has been a lost opportunity. Instead, at
least one of these ‘PO’s’ has been the vehicle for further complaints to
Brussels. This is not really their purpose, but it does allow some of the
independent farmers to gain credibility in Brussels as a recognised
representative organisation in order to pursue their own case.
Mr
Krabberød believes that a Norwegian PO would place Norway in a more favourable
light with the European Commission, especially if it were to employ the EU’s
own model for regulation. It would also reduce criticism from the Scots as it is
the type of cooperation that they have demanded for over 10 years. However, they
have also had 10 years to demonstrate that such a system would work and one of
the reasons why they have not is simply because it won’t.
The industry needs to stop this fixation with production controls and
instead focus on the necessary market development needed to secure the future of
salmon farming.