reLAKSation 134.
Safeguards or guarding the safe?: Earlier this year the Shetland Salmon Farmers Association said that 2004 was starting to look extremely bleak for the Shetland industry. They expected that production would drop by 19.6% and that smolt placement would fall by up to 50%. David Sandison of the SSFA said that salmon farming was a fundamental part of Shetland life both socially and economically. Employment had already been hit by the loss of 47 direct jobs over the past six months and should the industry’s financial difficulties continue then a further 410 jobs would be under immediate threat. In addition, the Shetland industry has recently suffered four bankruptcies with the demise of Hennover Salmon, Skerries Salmon, SSG Seafoods and Bressay Salmon and there have been warnings that others will follow.
The prospect of more farm closures and further job losses must have been a contributory factor in the decision by the British Government to apply to the EU for safeguards to protect the Scottish salmon industry. However, we, at Callander McDowell wonder whether this application might have been somewhat premature. Clearly, the sudden spate of bankruptcies was of major concern, but since then, no further companies have gone into liquidation and despite the bleak outlook painted by the industry representatives, at least one new salmon farming company has now been established in Shetland.
According to Shetland-news.co.uk, Foraness Fish Ltd was set up in January and since then this new company has bought many of the assets of the failed Bressay Salmon including the licence, the cages and a workboat. Earlier this month, Foraness Salmon also bought 330,000 immature salmon from the receivers of SSG Seafoods. The company obviously believes that there is a future in salmon farming otherwise they wouldn’t have invested in this new business. It is not even as if the new owners are entering into salmon farming with their eyes shut, since they include two of the former directors of Bressay Salmon and the former managing director of SSG Seafoods. Perhaps their renewed confidence in salmon farming could well mean that the future might not be so bleak. This willingness to invest in the industry now is perhaps an indicator that the Scottish salmon farming does not need the protection of safeguards after all.
Action or inaction?: Peter Dryburgh, the new director of the north Atlantic Fisheries College and chairman of the one day salmon industry conference in Shetland told the Scotsman that it is essential for everyone to work together to secure the future of such a crucial part of the Shetland economy. He expressed a hope that by the end of the meeting, there would be an action plan in place, which would help secure the long-term viability of the Shetland salmon farming industry.
Whether the meeting produced such an action plan is unclear but it appears to us, at Callander McDowell, from various reports of the meeting, that the Shetland industry still has no answers. IntraFish report that key amongst the ideas discussed to help the industry was the need for a more market-based approach. This is of course something that we, at Callander McDowell, would wholeheartedly endorse, however, we are concerned that what was discussed was not about the market wanted, but rather what the Shetland industry wanted consumers to buy. David Sandison, General Manager of the Shetland Salmon Farmers Association told delegates that a co-ordinated market-led approach is required to improve the perception of the quality of Shetland’s produce. Yet, experience over the last decade has shown that whilst there is a market for high quality salmon, it is extremely small. The majority of consumers do not perceive any difference between any salmon products and certainly they are not willing to pay more for it. This is why Label Rouge sales in France have struggled to pass 5,000 tonnes a year and why the Tartan Quality Mark has disappeared from British supermarkets. Quality is not an issue for most consumers. They are happy to let their retailer provide the best quality salmon they can at a price, which is affordable and allows consumers to buy salmon for their everyday meal choice. This was confirmed by Ole-Eirik Leroy of Leroy Seafoods who told delegates that contrary to local perception, salmon reared in Shetland did not fetch premium prices. He went on to say that Shetland salmon were even rated below Scottish salmon. We, at Callander McDowell are not convinced that Mr Leroy is totally correct and we would site the example that Shetland salmon is sold in Tesco under their Finest Label and is priced about 30% above their comparable standard salmon fillet.
However, it is the Finest label, not the Shetland name that is responsible for the higher price. This is because even those customers who are willing to pay a higher price for a premium product are not actually that bothered as to the origin of the salmon they buy.
If the Shetland industry is to adopt a market-led approach then certainly it should be directed at producing what consumers really want to buy and this does appear to be value for money product. This means that Shetland farmers must produce salmon in much the same way as every other farmer.
According to Shetland-News, the main emphasis of the meeting appears to tell delegates that the Shetland industry must become a low cost producer. Robert Murray, Managing Director of Mainstream Scotland said that the focus must be the cost of production. He went on to say that we must compete, compete, compete. However, this is very easy for Robert Murray to say. He has the support of a large multi-national organisation and it’s associated feed company. Most Shetland farms do not have access to such resources. By comparison, they are small producers who are unable to benefit from the savings of economy of scale and to suggest that they can compete is unrealistic. Equally, it is clear that they are unable to generate sufficient premium to offset their higher production costs.
For this reason, Martin Leyland, finance director of Johnson Seafarms recommended that delegates diversify their production. He said that no industry is secure particularly if it relies on one product, therefore diversification into other species, such as cod, haddock, and shellfish must be encouraged. Yet, some of these species have yet to be commercially proven so diversification could just be as risky as to remain with salmon.
However well intentioned are the proposals to market the premium message, to reduce production costs and to diversify, we, at Callander McDowell, believe that there is a more realistic alternative solution, especially for the smaller Shetland salmon farmers who are undoubtedly suffering most. This incorporates all three other suggestions but takes it a stage further. Clearly, in order to survive, the smaller Shetland farms must reduce production costs, but at the same they need to look to gain extra premium to maximise their margins. In the face of competition from the larger more efficient companies, the only option is to co-operate. Shetland salmon farms need to form a producers co-operative through which they can benefit from the same economies of scale as the largest producers. They can buy feed together, obtain all their services together and especially sell their fish together. This immediately gives these smaller farms much more clout in the marketplace. However, co-operation alone is not enough. They need to look to the market and see what consumers are actually buying. Most producers focus on production of raw salmon flesh and this is the most competitive section of the marketplace. Yet, there are many other salmon products in the marketplace that consumers want to buy other than the basic raw flesh. Co-operation would present the smaller farmer with an opportunity to move into the market for added value products with its inherent attraction of trying to regain some of the margin lost as salmon prices fell. Producing added value products locally would also enable a co-operative to benefit from the Shetland image as it is easier to ‘brand’ a finished product in this way, than it is with raw flesh.
Interestingly, others also see this potential. Mark Watt of D Watt (Shetland) Ltd was sorry to have to make eighteen people redundant when his seafood processing company in Scalloway closed down recently. He said that the lack of farmed salmon was one of the reasons for the closure but he said that the plant could be an asset to a salmon farm, as it really needed its own source of supply.
There is absolutely no reason why through co-operation, even the smallest Shetland farmer cannot emulate the opportunities available to the largest multinational producer. We can only wait to see whether Shetland is sufficiently motivated to rise to this challenge.
Reducing demand or growing market!: In response to the British application for safeguards, the Norwegian Fisheries Ministry have submitted their response to the European Commission. In a 21-page document, which has been published by IntraFish, the Norwegian authorities expressed their concern about the current investigation into imports of farmed salmon from non-EU countries.
We, at Callander McDowell, may yet discuss this document in full, but at the moment, we would like to comment on only one section. In section 5, the Norwegian authorities have listed the factors that cause or may cause injury to the community producers and it is to one of these that we take issue. Section 5.8 suggests that demand for salmon in the UK has fallen during 2003. We, at Callander McDowell, are not in a position to say whether UK demand has fallen or not, although our regular observations would indicate that they have not. Salmon would seem to be as popular as ever and has overtaken cod as the most consumed fish in the UK.
The Norwegian assumption that demand has fallen in the UK is based solely on figures provided by Kontali Analyse. The document states that’ According to Kontali Analyse, the total harvested quantity in the UK increased by 21,000 tonnes wfe in 2003 from approximately 140,000 tonnes wfe in 2002 to 161,000 tonnes wfe in 2003. Kontali’s estimates are based on smolt release, feed consumption, feed conversion rates and fish mortality.’
Lars Liabo of Kontali Analyse has already admitted that some of his estimates for 2003 have been wrong and a reliance on such estimates can result in a misleading conclusion. Kontali have provided the Norwegian authorities with an estimated Scottish production figure for 2002, but we would prefer to rely on the official Scottish production figures released by the Fisheries Research Service in their annual production survey of Scottish fish farms. Based on actual returns and not estimates, Scottish salmon production stood at 145,609 tonnes, some 5,609 tonnes higher than Kontali estimates. For 2003, Kontali estimate that production rose to 161,000, whereas the FRS forecast based on actual smolt release is a much higher 176,596 tonnes. Whilst, it is unlikely that the actual production will not reach this level it has yet to be shown that it will not surpass Kontali’s estimate. We will not know until the official figures are released in October.
Kontali’s estimates suggest that UK domestic consumption has fallen from 102,700 tonnes in 2002 to 97,100 tonnes in 2003. This is a difference of 5,600 tonnes, which is the same figure as the difference between 2002 estimates and actual production. If Scottish production is actually found to be higher than 161,000, then UK consumption of salmon will have grown not declined. The UK market for salmon is not only growing, it is evolving. Whilst there are several factors, which may be adjudged to cause injury to Scottish producers, a fall in demand is not one of them.