reLAKSation 14.
EU-Norway Agreement: A recent Intrafish article considered the possibilities for renewing the EU-Norway agreement. The obvious question is whether such a move is either necessary or desirable?
There is a view in Norway that the agreement has brought some stability and more importantly a significant rise in profitability. It would therefore be considered beneficial to extend the agreement past its current expiry date. Certainly, some Norwegian farming companies have seen a rise in profitability during the run of the agreement, yet, it is not that apparent as to whether this is a result of the agreement or simply a fortunate coincidence.
Our view is that the recent spate of higher profits is just a coincidence and that salmon farming companies would have benefited from improved profitability irrespective of the constraints of the agreement. Yet, at the same time, it must be acknowledged that the agreement has had an indirect influence on market stability. It has put an end to the constant whinging and whining, which plagued the European industry and marketplace before the 1996 dumping action. It is this, and this alone, which has brought some form of stability to the salmon industry.
Will an extension of the salmon agreement therefore bring a continuation of the higher profit levels? The answer is that it may or it may not for, as there are no real links between the two, it is just speculation as to what might actually happen.
Whether any extension to the agreement might be detrimental to the Norwegian salmon industry or not, will depend ultimately on what will happen to consumer demand for salmon? If the European market for salmon becomes saturated or demand starts to decline, then all salmon producers might start to experience difficulties, which even an extension to the salmon agreement may not overcome. It is the market itself, which is of paramount importance and as long as the industry addresses the market issues, then any extension to the salmon agreement will be just as unnecessary as the current salmon agreement.
It is only proactive and effective marketing, and not the salmon agreement, which will determine whether salmon farming companies continue to experience high profitability and minimum market disruption. This is why it is essential that the salmon industry starts to adopt those strategies which are much more market led, rather than rely on those which have been determined by production growth.
The balance between production and marketing has been an issue for many years. The earliest claims of disparity between the two were made back in 1989, when Scotland argued that the European industry was over-producing. At the time, Scottish output was well under 30,000 tonnes, yet if the industry was over-producing then, how has it been able to grow to over 125,000 tonnes? If it was over- producing then, why is the industry not in over-production now and why has it been allowed to continue to grow? The answer is that it was never over-producing, but rather it was suffering from under-marketing. This was the problem then and it is still the problem today.
Since 1989, the salmon industry has been fortunate that the market for salmon has been continually evolving and this has offset what would have been a desperate need to invest in marketing.
Back in 1989, the market perception of salmon was a high priced food intended for the luxury market. However, the continuous investment in expanded production meant that the rarity value was significantly undermined. Salmon evolved into a low cost, value for money, everyday meal option. This created a whole new market demand for salmon from consumers who had previously never considered buying it. They could see that salmon was relatively cheap when compared to more traditional marine species. Salmon thus became increasingly popular as a low cost alternative and continues to be so.
However, there will come a time when the lower prices fail to stimulate further market growth and the industry will need to pursue more aggressive market led strategies. If it doesn't, then it is likely that the market will stagnate and begin the never ending cycle of over-supply and market shortages. A renewed salmon agreement will not prevent this.
The salmon industry has already invested in marketing, but it has not been that successful. Part of the problem is a lack of understanding of what marketing is really about. To many, marketing is about how to get the message across to the consumer through promotions or advertising. However, promotion is only a small part of the marketing mix.
Marketing is about producing the right product, at the right price, at the right time, in the right place and doing so profitably. More simply, it is about producing what the consumer actually wants rather than what the producer thinks that the consumer wants. It is not enough just to distribute new recipe cards in the hope that new consumers will be convinced to buy salmon. Instead, the industry must put salmon in the forms which consumers want, especially those consumers who never buy fresh fish, nor would ever consider doing so. This is the challenge for the future.
Chile-EU-Norway salmon agreement: FIS report that Frode Blakstad of Inaq Invest has suggested that if the EU-Norway salmon agreement is renewed, then it should also include Chile.
The Chilean salmon industry must wonder what they have done wrong to be subjected to such an idea. This is because it is important to understand that the EU-Norway salmon agreement is first and foremost a punishment on Norwegian salmon producers. Although, accused of dumping cheap salmon into the European market, it was their inadequate defence, which was their real crime. The reality was that the Norwegian industry were not guilty of dumping salmon into Europe, but rather that the low prices reflected the changing image of salmon, a change which Scottish producers were reluctant to accept.
The EU investigators did find some evidence of minor dumping margins. This does not mean that dumping occurred, but rather these were the natural artefact of the long salmon production cycle and similar margins have been found in other industries.
The Commission recognised the weakness of their findings and the importance of Norwegian salmon to the EU marketplace. Rather than impose the Draconian tariffs demanded by the Scots, the Commission offered the salmon agreement as a compromise deal. It may not be the tariffs sought by the Scots, but the agreement is still a punishment and it could still be as potentially damaging to the Norwegian industry as tariffs might have been. This is because under the terms of the agreement, Norwegian salmon could be excluded from the European market. This would have happened had prices fallen below the minimum import price perhaps caused by the importation of even cheaper salmon from countries other than Norway.
The question, which therefore begs to be asked, is why would Chilean salmon farmers be willing to subscribe to a renewed salmon agreement? After all, they have not been accused of dumping, so why should they suffer similar import restrictions as the Norwegian industry?
According to Mr Blakstad, Norway currently has to take on the sole responsibility for regulating the supply of salmon to Europe through the salmon agreement and this is something that he believes should be shared with Chilean producers. However, the salmon agreement is not the real regulatory mechanism, but rather it is the self imposed feed quotas, which have had effective control.
What Mr. Blakstad appears to be suggesting is that Chile, as a significant producer of salmon, should be subjected to similar constraints as Norway, rather than be allowed to freely develop the market for its salmon. Perhaps, Mr. Blakstad is really advocating that a form of production control be implemented across the whole of the global salmon industry. Is this a back door route to Producer Organisations?
What is most surprising about this suggestion is that as head of Inaq Invest, Mr. Blakstad might be expected to be looking for high returns from his investments in aquaculture. Any form of production control would ultimately affect the ability to produce significant returns for his investors.
Producer Organisations: The debate about the salmon agreement and the suggestion that Chile be included in any future deal come at the same time that Torben Foss of PcW has indicated that it might not be advisable for the Norwegian industry to consider Producer Organisations as an alternative option.
Professor Chris Ritson of Newcastle University first proposed Producer Organisations, as a way of regulating salmon production. Unfortunately, his interpretation of the relationship between production and the market was significantly flawed, negating his proposals to establish any form of production control. Even though such control was then, and still is, unnecessary, his suggestion that the Producer Organisational model used in the fishery sector was misguided.
Fisheries PO's are intended as a way to regulate and share out a limited resource. This is governed by availability and not by market demand. By comparison, the salmon industry offers a potentially limitless supply and it is market demand, which is the limiting factor.
PO's are perceived as the best way of maintaining the balance between supply and demand as they would control supply to the market. However, advocates of PO's have failed to appreciate the bureaucratic nightmare, which any attempt to control production, will force on salmon producers.
Firstly, before it is possible to impose any control, it will be necessary to establish the size of the market for salmon. Previous proposals to initiate a system of PO's suggested that an international committee be formed who would ascertain the market size. Yet, past evidence suggests that even the dedicated experts of the salmon marketing organisations have no clear idea of how large the market really is. For example, the now defunct SSGA/SSB were claiming over-production at the same time when they were claiming that only 40% of consumer were buying salmon and then only three or four times a year. Equally, the previous director of NSEC claimed a couple of years ago that the European market was reaching saturation, a claim that he was made to withdraw. If these organisations are unable to determine the market for salmon, then how will a part-time committee?
Even if they try, the market for salmon is so diverse, that there is a danger that those companies who have been able to innovate and develop specialist markets may find that they are inadvertently excluded from their marketplace. Thus, those companies who actively pursue a more market led approach, might find they are being penalised to help producers, who prefer to remain stuck to their outdated production strategies.
Should a PO committee ever be able to determine the market for salmon, the problems of ascertaining which companies will be able to produce how much salmon will be almost impossible to manage, especially if they supply fish outside the market considered by the PO committee.
However, all such discussion is just conjecture and will probably remain so. This is because it is unlikely that the largest farming companies will ever subscribe to a voluntary PO system. The main industry players are now all listed on the stock exchange and have an obligation to their shareholders to return continuing profits. Production control will hinder this responsibility and bring an exodus of shareholders to other more profitable ventures. This will put a question mark over the whole commercial viability of the salmon farming industry.
PO's are simply an excuse for poor marketing and it is marketing, which urgently requires the industry's time and effort.