reLAKSation
155.
The wrong suspect: IntraFish report that the European Commission have claimed that Europe’s salmon importers and processors are making monstrous margins of over 33%. According to the Commission, the cost of raw materials fell by 10% between 2002 and 2003 after previous falls of 18% so that by 2003, salmon prices were 26% cheaper than in 2000. At the same time, the Commission claims that selling prices have remained about the same. They, therefore, conclude that profitability has skyrocketed from 15% in 2000 to 31% in 2002 and 33% in 2003. Whilst they suggest that these figures are not necessarily representative of the whole processing sector, they do believe that such high margins are not uncommon.
We,
at Callander McDowell, are not surprised by the Commission’s findings. We have
repeatedly argued that the type of spot investigation conducted by DG Trade does
not provide a truly accurate picture of what is happening in the salmon
industry. It is relatively simple
to draw comparisons of manufacture between different producing nations of
various inert items. Raw material, labour costs, manufacture times, etc can be
identified exactly and the investigators know that they can return weeks later
and probably find identical results. By comparison, salmon is a live animal with
a long and sometimes unpredictable production cycle. Salmon are also cold
blooded and production times can be extended or compressed dependent on the
weather and the geographic locality. In addition, changing consumer demand can
mean that farms need to harvest fish earlier than commercial sense dictates.
These factors all contribute to a variable cost of production, which if examined
over the whole production cycle, will give a more realistic figure as to costs.
The type of investigation used by the European Commission could result in a very
distorted picture and it would seem that this is what has happened in the case
of the processing industry.
IntraFish
have looked at the results posted by some of the processing companies
investigated by the Commission and can find little evidence to support the
claims of high margins. This view was supported by the French Salmon Smokers
Association, whose members recorded margins of between minus 5% and plus 10% for
the years 2000 to 20003. These figures would seem to suggest that the methods
used by the Commission’s investigators have also produced erroneous results,
providing a misleading picture of the supply chain. The introduction of
safeguard measures seems to suggest that the Scottish salmon industry,
especially, the small independent producer, is on the point of collapse, with
the likelihood of many more bankruptcies following on those which occurred in
the New Year. Whilst, there were a handful of bankruptcies in Shetland then,
there is a suggestion that poor management rather than poor trading conditions
might have been the cause. Certainly, some Shetlanders have petitioned their
local Government about the way local funds have been used to support some
farming ventures.
However,
a more telling indication of the state of the industry is that since the
application for safeguards was submitted to the EU, one of the complaint
companies Loch Duart Salmon has bought out Ardvar Salmon. Clearly, industry
finances are not in as a poor state as the investigation has suggested. Loch
Duart, in common with some of the other complainant companies are members of
Scottish Quality Salmon. (We are not implying any link between SQS and the
application) Since the application was sent to Brussels, SQS has begun a major
two year promotional campaign. The £3 million promotion is jointly financed
with the Scottish Executive but this means that the industry has to find £1.5
million as its contribution. At a time when the industry is reportedly on its
knees, this seems an excessive burden to have to bear. Presumably, the EU found
that the Scottish industry was in dire straits, otherwise, it would surely not
have imposed these safeguard measures, yet, the 14 producing companies which
make up SQS, must have the resources to commit to this promotion. It doesn’t
appear to add up.
We,
at Callander McDowell, can only assume that the Commission’s view of the
industry is not a true reflection of the current state of the industry. This is
just as likely to pertain to those who are also involved in processing
downstream of the farm-gate.
Finally,
the Commission has drawn it’s conclusion about processors profitability based
on an assumption that selling prices have remained the same. Salmon prices have
fallen over the years. This has been both inevitable and predictable. This must
impact on the processing sector, especially those involved the supply of the
most competitive of processed products. These include prepacks of fillets and
steaks, smoked salmon and other simple added value products. Data collected from
the retail sector has shown that selling prices have been relatively consistent,
but such salmon products have been subjected to relentless promotional activity.
Both prepacks and smoked salmon has regularly been offered on BOGOF and
similar promotions. This must affect the price and consequently, margins must be
eroded.
The
European Commission has suggested that salmon processors have been making a
‘killing’. It seems to us, at Callander McDowell, that the only ones who can
be accused of any killing is the European Commission, who by their imposition of
safeguards, seem intent on killing off the whole of the salmon industry!
Jumping
on the Bandwagon:
Randi Kvissel Haugen of Matmerk has told IntraFish that the award of PGI status
to Scottish Farmed Salmon is a challenge to the Norwegian salmon industry.
However, he said that it might take 5 or 6 years for the Norwegian industry to
gain a similar award.
Yet,
we at Callander McDowell, wonder why the Norwegian industry would want to both
investing either the time or money in pursuit of such similar status? It is not
yet proven that Scottish farmers will gain any benefit from the protection of
this PGI award.
This
is not the first award that the Scottish Industry has sought. For the past 10
years, Scottish salmon has been able to carry the prestigious French quality
award, Label Rouge. Today some 5,000 tonnes of Scottish salmon is sold in France
under Label Rouge, but this is only a tiny proportion of Scottish production.
Instead, much of Scottish salmon is sold under the local Tartan Quality Mark
scheme. The fact that Scottish producers, including most who subscribe to the
Tartan Quality Mark, have had to demand the imposition of safeguards is
indicative that there is little benefit to any of these awards and schemes.
Clearly, if consumers were willing to pay extra to guarantee that the salmon
they bought was of a fixed quality or a from a certain origin, then Scottish
producers would have boosted their margins and would not claim to be in such
dire straits. The benefits of all these accolades appears rather meagre.
We,
at Callander McDowell, have always argued that the majority of consumers are not
in the slightest bit interested in the origin of the salmon they buy. In the UK,
a number of supermarkets sell packs of chilled salmon from Scotland, Norway and
sometimes Ireland, all mixed up together on the same shelf. Observations suggest
that the typical consumer simply picks up the pack which look most attractive,
without even reading the country of origin data. It is value for money which
drives most salmon purchases.
The
Scottish industry have repeatedly argued that many consumers have been misled
about the origin of the salmon they buy as they believe that most expect it to
be from Scotland. They have previously claimed that the labelling leads to
confusion, however since the introduction of the new legislation, this is not
true. The majority of salmon packs are clearly labelled, many on the front of
the pack, as to its origin. What is more is that packs of salmon sold in the
same supermarket are all priced identically, irrespective of in which country
they were farmed.
Since
the new labelling legislation, there has been one contentious issue and that is
the use of terminology such as ‘Farmed in Scotland or Norway’. The Scottish
industry claim that such labels
means that consumers are being duped into buying Norwegian salmon when they
think it could be Scottish. The supermarket group Tesco, were the main users of
such labelling but they have now radically changed their labelling strategy. The
basic labels still used the wording ‘Farmed in Scotland or Norway’ but the
packs are now overprinted with much more specific information. In fact,
Tesco’s labels now provide more information than any other supermarket with
regard to country of origin.
This week one Tesco store visited displayed salmon packs stating the following different areas of origin: Western Isles of Scotland, Shetlands, Western Mid-Norway and South West Norway. The packs were all mixed up together so consumers who are bothered about origin, can actively choose from where their salmon originates.
This
new labelling will, as the old saying goes, ‘set the cat amongst the
pigeons’. The issue of origin is no longer about different national
identities, but now, concerns specific regions.
The Shetland Isles have always tried to create a separate identity for
their salmon, but this has been as distinct from Scottish product. They are now
being differentiated from other parts of Scotland as well. We have yet to see
how many different regions Tesco will use; we have already seen Argyll used on a
pack of smoked salmon, but there
could be several different identities. The consumer is going to be faced with a
huge choice but he is unlikely to have the information available to know whether
salmon from the Western Isles of Scotland is any different to that from South
Western Norway. Most consumers will probably assume that as the packs are
otherwise identical, so is the salmon and will end up selecting the first that
comes to hand. This is exactly how most consumers buy their salmon today, so
there will be little change.
What
this new labelling does most effectively is negate the PGI status for Scottish
salmon. How many consumers will be really interested in whether the salmon they
buy is just Scottish, when they can choose to buy from the Western Isles or
Shetland at no extra cost. It cannot be too long before the name of the farm
starts to appear on the pack, as has happened in at least one case in a French
supermarket. Consumers can then start to be really selective, but we wonder
whether the main selection criteria of value for money will ever be superseded.
We very much doubt it.