reLAKSation 153.
New
Chapter – same old story!:
Friday the thirteenth certainly proved to be a black day for the international
salmon industry. The European Commission have decided to institute provisional
Safeguard Measures on imports of Atlantic salmon from Norway, Iceland and the
Faeroes for a period of 200 days. Whilst we, at Callander McDowell, were always
hopeful that the EU Trade Department would reject the application for safeguards
because the application document was inherently flawed, (see the reports section
of our website) we also were conscious that politics had more bearing on this
case than the actual facts.
Angus
Morgan, secretary of the EU Salmon Producers Group, having kept a very low
profile throughout the application process, finally made a public comment in a
statement ‘This marks the beginning of a new chapter for the Scottish salmon
industry, when farmers, processors and all associated with it, can look forward
with some confidence to a much brighter future, freed from unfair competition
that was bringing the industry to its knees’.
However,
we, at Callander McDowell, believe that much of Mr Morgan’s new found
confidence may well be misplaced. There is very little evidence to suggest that
these provisional safeguard measures will bring a brighter future, because they
do not actually address any of the issues which have brought the industry to its
knees.
Mr
Morgan and his colleagues in the EU Salmon Producers Group have been blinkered
to these issues, not only during this application process, but ever since prices
fell in 1989. In this current application, they claimed that Norwegian salmon
had been imported in over-supply ‘at prices well below their costs of
production’ (i.e. dumped). These are exactly the same claims as made in the
first dumping case back in the early 1990’s. What they have ignored is that
Norway is not the only country to expand production since then. Scottish
production has expanded from 28,000 tonnes to 150,000 tonnes plus. Irish
production has also grown. All salmon producers have expanded production in
response to an increasing consumer demand for value for money salmon. The Salmon
Producers Group has failed to recognise that it is this consumer demand and not
some devious Norwegian plan, which is driving growth and the need for imports.
We,
at Callander McDowell, do not share Mr Morgan’s faith that these safeguards
represent a ‘new beginning’. Richie Flynn, Executive Secretary of the Irish
Salmon Growers Association, but speaking as a member of the EUSPG expressed the
expectations of the EUSPG when he said that will be is difficult to tell what
the immediate impact will be but obviously Irish and Scottish farmers will see
it as being a significant boost to prices. He said that the industry does really
need to see a significant increase in prices to bring profitability back into
the industry and this is why the EUSPG went down this route to limit volume.
However, as it has never been done before, he is interested to see what the
market’s reaction will be. We think that he will be disappointed.
Of
course what will happen in the future is uncertain, but whilst there may well be
a short term rise in prices, we do not think that they will be sustained. This
is because whilst there is a clear relationship between volume and price, this
relationship has been now been overridden by consumer expectation together with
the buying power of the major supermarkets.
It
is only necessary to take a look at the Scot’s home market to see that
safeguards will have little effect on prices. The application for safeguards
claims that imported salmon accounts for about two thirds of salmon consumption
in the EU, yet in the UK, it is Scottish salmon which dominates the marketplace.
There is some Norwegian and some Irish salmon available, but the majority of
salmon sold in the UK retail sector is Scottish. However, the presence of mostly
Scottish fish rather than so called cheaper imports has had little effect on
prices. In the past, farmers have complained that supermarkets have been selling
salmon at high prices, but paying them significantly less. Since the application
for safeguards was submitted, this has changed, but not because of the
application but rather because of competition between the supermarkets.
The
acquisition of Safeway by Morrison’s has heralded a supermarket price war, in
which salmon has become a key weapon. Morrison’s only sell Scottish salmon and
supposedly, their salmon is also Tartan Quality Mark standard, although they do
not label their fish as such. Despite this high quality standard, Morrison’s
salmon has always been sold at the lowest price in the UK. Whole fish have been
priced at £3.99/kg and fillets at £5.99/kg for quite some time. This low
pricing has not had much impact on the wider UK market because Morrison’s were
mainly based in the North of England. However, their acquisition of Safeway has
brought them to national prominence. As the Safeway stores have come under
Morrison’s control, consumers have found the price of salmon fillet slashed
from £8.99/kg to £5.99/kg overnight. This has had nothing to do with Norwegian
production, dumping or anything else other than bringing a lot more consumers
the benefits of value for money salmon. In response to this price restructuring,
rival supermarket chains, Asda and Tesco have brought their prices in line.
Salmon fillet on the wet fish counter has been cut from £7.97 to £5.97/kg and
prepacks have been cut from £8.38/kg to £6.04/kg. The price of salmon steak in
prepacks has also been cut, as it has in Sainsbury’s stores. Sainsburys have
yet to readjust the price of salmon fillets but as these are often on Buy One
Get One Free offer, they have simply continued with their normal promotional
programme. So far, they have kept the price of salmon on their wet fish counter
at its normal price.
The
problem for Mr Morgan and his colleagues in the EU Salmon Producers Group is
that as more and more consumers become used to paying about £6/kg for salmon
fillet, the less likely it will become that they will be prepared to pay a
higher price if prices rise due to these trade measures. It is easy to cut
prices, but very difficult to put them up again. The EUSPG may find that salmon
prices are still not in their control.
The
market has become used to the idea that farmed salmon is a realistic alternative
to wild caught cod and other marine species which are in short supply due to the
fisheries crisis. It is worth looking at the cod market in more detail as it
perhaps provides an indication of what might happen to salmon. We have discussed
the way in cod prices have responded to the shortage in supply in a previous
reLAKSation. Despite the claimed reduction in supply, cod prices have remained
stable, even being subjected to discounting. Supermarkets have clearly found
that consumers are not prepared to pay the higher price for cod so have kept
prices low. What has changed is that availability is poor and many consumers
have been unable to buy the cod they want. Instead, they have turned to salmon.
It will be interesting to see whether supermarkets are prepared to underwrite
the cost of salmon and simply limit the amount they buy.
However,
other factors, than those within the supermarket sector, may yet dictate what
happens to salmon prices. In their submission to the EU, the Salmon Producers
Group argued that one of the reasons why salmon prices have been so low was the
abolition of the EU Salmon Agreement, which caused Norwegian salmon to flood
onto the European market. Of course, they ignore the fact that if there had been
no salmon agreement, then the market would have not been so disrupted. The
salmon agreement was the result of previous Scottish complaints of
overproduction and dumping.
The
current safeguard measures of an 18% duty will kick in when the 186,000 tonne
quota has been reached. This can only lead to further market disruption and yet
further complaints from the EUSPG. Clearly, every farmer from Norway, Iceland
and the Faeroes is now going to try to offload his salmon before the salmon
quota is reached. If they don’t, their salmon will be subjected to a tariff
that will make the fish harder to sell. It is impossible to blame any farmer for
trying to beat the market, but it is bound to cause a rush on salmon sales and
increased pressure on salmon prices. Surely, this is not what the EU intended,
but the EUSPG might find that this is the price to pay for interfering with the
global salmon market.
It
is important to remember that the salmon market is now a global arena from which
Europe cannot isolate itself. The market place no longer depends on local
produce but trades across many borders. UK consumers can buy all types of foods
from around the world and are happy to do so. Farmed Scottish salmon no longer
competes with just Norwegian salmon, but also with wild salmon from Alaska.
Currently, Tesco are selling whole Alaskan silver salmon for £8.99/kg as
compared to local farmed fish at £6.59/kg. If the supermarkets find that they
cannot source sufficient salmon from Europe, they are clearly ready to send
their buyers overseas to source alternative supplies. Although Chilean farmers
are more focused on the US market, the opportunity of large contracts may tempt
them to send their fish into Europe, especially as Chilean salmon is exempt from
the safeguard measures. Chilean salmon has previously found its way into British
supermarkets and found willing customers. There is no reason why this cannot be
repeated if the supermarkets choose to look for alternative sources in order to
keep the price of salmon at an affordable level.
All
these contributory factors probably mean that any anticipated price rise is
unlikely to materialise. We, at Callander McDowell, may be wrong and like
everyone else we can only wait and see as to what will happen to prices over the
next few months.
Meanwhile,
what about the those farmers in Norway, Iceland and the Faeroes whose salmon
could be subjected to an 18% duty. The reality is that there are other perfectly
legal ways in which these farmers can continue to export their salmon in the EU,
without incurring this tariff. It is simply a matter of exploiting existing
consumer demand, something Mr Morgan and his colleagues in the EUSPG appear
unwilling to do.
Mr
Morgan may well be right in suggesting that these safeguard measures represent a
new chapter in salmon farming, however, we, at Callander McDowell believe that
whilst it may be a new chapter, it is still a case of the same old story. The
lessons of the last decade have still not been learnt because it is clear that
the greatest disruption to the salmon market has been caused by this readiness
to look to Brussels for answers to the question of changing consumer demand.
Acknowledgements
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