reLAKSation 138.
Price
wars: British supermarket chain Tesco have
apparently fired the first shots in a new supermarket price war by announcing a
round of price cuts worth £70 million to shoppers. IntraFish suggest that this
price war will hit salmon, however Tesco have simply realigned their prices of
the standard salmon products to that offered by Asda (WalMart) and Morrisons.
Salmon fillet is now typically £6.04/kg whilst steaks are priced £4.84/kg.
Tesco’s still have a long way to go before they match Asda for whole salmon £6.59/kg
against £2.98/kg and Morrsions, which sells whole fish for £3.99/kg.
PCB’s:
A number of environmental groups have directed a great deal of public attention
to the fact the PCB’s can be detected in farmed salmon. This has created
unnecessary consumer concern as to whether farmed salmon should be eaten at all.
This is not because such concerns could damage the salmon farming industry but
rather that salmon is being unfairly targeted by those who want to see the
closure of all salmon farms for their own self interests.
PCB’s
can be detected at very low levels in farmed salmon, but they can be also
detected in almost everything we eat. However, PCB’s are not just present in
our food, they are also present in us and they could not have all come from
eating farmed salmon. The WWF conducted s study of the blood of 47 volunteers
from 17 different European countries in which they screened for 101 different
chemical contaminants. In all, researchers found 76 chemicals, with an average
of 41 different chemicals in the blood of each volunteer. Thirteen of the
chemicals were found in every volunteer. Of the 76 chemicals detected 36 were
different PCB’s.
The
issue of PCB’s is clearly something that should be of concern to everyone, but
farmed salmon is too much of an easy target.
From
the horse’s mouth: According to IntraFish,
high production costs now threaten the UK salmon farming industry. They say that
the UK’s formal request for safeguard measures reveals that the average
production costs for Scottish salmon farmers is £2.18/kg. However, closer
inspection of the application suggests that this figure is rather misleading.
The only reference to production costs is contained within a table and refers to
just the first four months of 2003. This is at least twelve months before the
application for safeguards was submitted to Brussels and so is now clearly out
of date. In addition, the data in the application shows that the cost of
production has previously been lower than £2.18/kg
because in 2002, it was only £1.88/kg. The British application makes no
comment about why these costs have changed or whether they have any relevance to
the current application for safeguards.
In
addition, the application makes little reference as to the origin of this cost
data. A footnote in the document indicates that the figures come from a study of
independent salmon growers undertaken by the Scottish Executive. The aim was to
assess the extent of any injury, but clearly as the study is not current, it
does not reflect the present situation. The fact that the Scottish Executive has
been collecting this data appears to conflict with their work on the Strategic
Framework. Aquaculture Minister, Allan Wilson, has said that safeguards are
necessary so that the Scottish industry has time to implement the Strategic
Framework. However, one of the Framework’s key economic objectives is an
investigation of comparative costs of aquaculture production. Section 3.4 of the
Framework document states that ‘the Scottish aquaculture industry contends
that its costs are higher than those of its competitors in other countries’.
Yet as the Scottish Executive has been collecting data prior to the publication
of the Strategic Framework, it must already know whether Scottish producers are
competitive or not. Instead, they recommended that an independent study should
be commissioned to look at the costs and their impact on competitiveness. They
state that such a study should provide evidence of whether there are indeed
competition problems to be addressed. Surely, this means that the figures used
in the application document cannot be relied on as proof that the Scottish
industry is not competitive.
Clearly,
producing the evidence to show that the Scottish industry is uncompetitive does
not seem to be a priority. The Strategic Framework document set a timetable of
May 2003 for arranging the study with competition by November 2003. Yet so far
this study has yet to get under way.
As
might be expected, this is not the first time that the Scottish industry has
been asked about their costs of production and how it compares with that of
other producers. In 1994, the Scottish industry approached the Scottish Affairs
Committee of the British House of Commons for support of their attempt to
instigate a system of Producer Organisations. The committee opted to undertake
an enquiry, including verbal submissions. Their final report was published seven
months later. (Market Conditions in the Scottish Salmon Industry. Scottish
Affairs Committee Second Report No 370 5th April 1995.)
It is interesting to see what was actually said at the time:
At a hearing on 19th October 1994, Mr Simon Hughes MP posed the following question to the representatives of the Scottish industry including Jim Payne, then chairman of the SSGA and William Crowe the then Chief Executive.
Mr
Hughes: “We have not got any evidence from you to substantiate the claim that
you are highly competitive. Can you tell us why you have not made available the
cost of production figures?”
Mr
Payne – “The competitiveness of the industry is well documented in terms of
cost of production in a report done by international accountants Ernst &
Young. (Our note: according to reports in the press, Ernst & young later
withdrew this report).
Mr
Hughes – “Do you think that an independent and periodic analysis of industry
costs of production and profitability as takes place in Norway should also take
place in Scotland?”
Mr
Payne – “ An analysis has been done by the Scottish Agricultural College.
Subject to our not breaking the law, we will put the figures to an international
firm of accountants to look at the overall costs of the industry and the
profitability of it. We wish to control the use of these figures. We are quite
happy to submit them to the Scottish Office or another relevant government
department, but we wish to ensure that those figures remain very much within our
control in terms of how they are used.”
Mr
Hughes – “You lost me when you said ‘breaking the law’. What legal
breaches might you be making?”
Mr
Crowe – “If producers in an association decided collectively to submit the
costs for their own purposes to their consultants that would have to be cleared
with the Office of Fair Trading. It could be regarded as a restrictive trade
practice and would require OFT approval.”
Mr
Payne – “ I do not believe that there would be any difficulty but we have to
be clear on the point”
Mr
Hughes – If one of the problems that the industry believes it is facing is the
dumping of salmon at unrealistic prices and if it is to argue the point to the
European Union figures have to be supplied. We need to be able to assess the
economics of the industry without relying on figures produced by someone else.
You say that the Scottish Agricultural College and others have produced figures.
The only way to rely on the figures is for you to produce them and say ‘ This
comes from the horse’s mouth’.”
Interestingly,
whilst the SSGA contributed to the costs of the Scottish Agricultural College
study, they did not submit the results to the Scottish Affairs Committee. By
comparison, the Royal Norwegian Embassy provided a breakdown of costs for the
years 1991 to 1993. Their latest figure was NOK23.35/kg
The
Scottish industry also submitted a written memorandum to the Committee including
comment on production costs. This read:
Cost
of Production.
The
major factors impacting on delivered costs are:
1.
Growth and survival of the fish
2.
Feed costs
3.
Finance expenses
4.
Distribution costs
With
the exception of finance expenses, comparison of the other major cost elements,
between Scottish producers and other producers world-wide, indicate that on a
delivered basis, Scottish producers are amongst the most competitive in the
world, if not THE most competitive. The growth rates and yields in Scotland have
greatly improved over the past 2-3 years and are now the best in Europe. Feed
costs are similar throughout the whole European industry. Close proximity to the
domestic and EU market give Scottish producers an advantage in costs of
distribution.
Although
the SSGA were reluctant to publish the cost of production data, the results of
the Scottish Agricultural College study were presented at an industry meeting in
Inverness.
Comparison
of production costs between Scottish and Norwegian salmon farms during 1993.
Source:
Roy Sutherland, Scottish Agricultural College, Aberdeen.
Clearly,
there is a great deal of confusion as to whether the Scottish industry is
competitive or not. An editorial in IntraFish draws attention to the fact that
Scottish Sea Farms, a 21,000 tonne integrated producer enjoyed a profit last
year. IntraFish say that this result warrants respect because 2003 was the worst
year ever in the European salmon farming business. This year, the pressure on
margins has been eased due to rising prices. This makes the British application
for safeguards more difficult to comprehend. Until, the Scottish industry is
more open with production cost data, the reality is that we will never know if
the industry is competitive or not. The fact that companies like Scottish Sea
Farms are able to make a profit demonstrates such competitiveness is possible.