reLAKSation 159.
Disrupting
the market?:
In 1989, the price of salmon in the European market collapsed. Salmon
production in Europe had soared to meet the increasing demand for luxury
products during the boom years of the 1980s. However, by 1989, this demand had
been sated and as a result, prices fell. It could be argued that the industry
had been over-producing beyond the limits of demand, but the long production
cycle had meant that warnings of the demise of the economic boom were too late
for farmers to adjust production accordingly.
Fortunately,
lower salmon prices created a whole new market for salmon. Salmon evolved from
being a luxury product to an everyday value for money meal choice. The scope for
demand suddenly grew from a limited niche market to a marketplace with an almost
infinite potential, which continues to exist even today. The salmon industry had
a unique opportunity to capitalise on the lower prices and supply this limitless
demand. Sadly, the Scottish industry of the time were unable to see this
potential and opted to try protecting the luxury status of their fish. They
blamed the collapse on Norwegian dumping and turned to Brussels to seek redress,
without much success.
It
is now nearly fifteen years since prices collapsed in 1989 and yet this minority
of independent Scottish producers continue to use imported salmon as a scapegoat
for their own failure to adapt to a changing market. They are unable to see that
most of the subsequent market disruption has been of their own making. The
constant accusations of over-production and dumping has had an increasingly
negative effect on market confidence in the industry, as have the recurring
excursions to DG Trade in Brussels. These repeated attempts to seek the
imposition of trade measures have contributed more to the destabilisation of
market prices than any production from Norway and elsewhere.
The
latest attempts to impose permanent safeguard measures provide ample
illustration as to how confidence in the industry is being significantly
undermined. This demand for safeguards have been instigated by a minority of
small producers in Scotland, yet the consequences will ripple throughout the
whole of the global marketplace. What this small group of Scottish producers
have been unable to see is that farmed salmon has now become a critically
important part of world fish supply. They cannot appreciate that their own
reluctance to adapt to an evolving market demand will impact on many others.
Even
within the EU, there is disagreement as to how the application for safeguards
should have been addressed. Denmark is still extremely unhappy about the way
that the needs of its processing sector has been by-passed and in Scotland,
there has been concern that the interests of the whole industry have not been
recognised. Sadly, support of the
safeguard process appears to have been dependent on what one country did
previously for another in the world of European politics rather than on the
rights and wrongs of the case. This lack of regard to both the wider industry
and the market has only led to further uncertainty and diminishing confidence.
Having decided that Norway is guilty as the Scots maintain, the European
Commission imposed a provisional quota on imports of Norwegian salmon. Yet in an
attempt to appease the Danes, they now appear to have changed their mind.
According to IntraFish, they firstly considered increasing the quota limit, but
they now appear to have opted to re-impose a Minimum Import Price, which
speculation suggests will be set at NOK 25.50 or Euro 3.05.
Already,
fisheries consultant in Brussels, Torben Foss has said that this level is too
high and is unlikely to be accepted by the industry. This is not surprising as
the IntraFish price guide shows that salmon prices are currently NOK 21.43 or
Euro 3.36. Buyers are unlikely to be want to pay these prices when the market
demands the best possible value for money. Already some Danish processors have
indicated that they might look to Chile to see if the industry there can meet
its needs. Other processors are likely to follow. Its not rocket science to see
that in the global market, these safeguard measures are unlikely to succeed, not
because of any deliberate attempt by Norwegian producers to circumvent the
measures, but because the marketplace will not accept them. This divergence
between what the EU and the marketplace want will undoubtedly contribute to
further market disruption as the measures fail to satisfy the demands of the
complainant industry. Clearly, the European Salmon Producers Group must already
recognise this which is why they are planning to submit another dumping and
subsidy complaint leading to more disruption and uncertainty.
DG
Trade and the European Salmon Producers Group only need to read an article,
which recently appeared in IntraFish reporting that the turbulent retail sector
continues to put the squeeze on suppliers. Geest, a supplier of a variety of
fresh foods to the retail sector reported a 16% fall in half year profits. They
blame a fall of 2% in prices caused by intense competition in the UK retail
sector. This inevitably will have a knock on effect in the Scottish salmon
industry as the UK market is, after all, their home and most important market.
We, at Callander McDowell have already reported how salmon prices have fallen in
UK supermarkets. However, whilst members of the EU Salmon Producers Group are
unlikely to supply these larger players, prices in independent fishmongers are
also under pressure as they try to remain partially competitive to the
supermarkets. Most consumers will not pay three or four times the price of that
in supermarkets just to buy from their local fishmongers. This means that the
smaller producers will be just as much under pressure to keep prices low as the
supermarkets. Sadly, as neither the European Salmon producers Group or DG Trade
seem to know what is happening in the retail sector, their attempt to force
prices up appears doomed. The inevitable outcome will be yet more market
disruption. We can only hope that it will not last for a further fifteen years.
All
at sea:
Back in 2001, we at Callander McDowell discussed the opportunities presented by
the development of open sea aquaculture, especially of salmon (see our archive
– reLAKSation no 21). We believe that salmon offer the best opportunity for
growing a low cost fish to meet the increasing consumer demand for a value for
money meal choice. There are some aspects of salmon production which the
industry has yet to exploit in commercial terms which can be met by moving
off-shore. However, whilst we certainly believe that such a move must make
economic sense, there are other benefits to be gained by taking fish production
into less environmentally sensitive areas even though this is not dictated by
the evidence. The salmon industry has to live and work in the real world and it
would make sense to increase the distance from the environmental lobby.
Yet, we believe that a move offshore could show that the aquaculture industry also has a responsibility to the environment. Currently, there are a couple of hundred oil and gas installations in the North Sea which will need to be decommissioned. We believe that many could be reused as operational units for major offshore farms. These would work on an all in all out basis using redundant fishing vessels for harvesting. We believe that the technology exists to make this work now.
We
have raised this issue again because a major conference will take place in
Ireland on Oct 6th and 7th to discuss the whole concept of open sea
farming. They hope to encourage the facilitation of large scale units producing
over 10,000 tonnes or more per site. We certainly believe that this is possible,
provided that there is both a market and a sound commercial rationale for
production of such volumes. Rather than try to impose trade measures on existing
production, we believe that the European Commission
through co-operation of its, fisheries, environmental and energy
departments would be better employed in coordinating this form of development.
Sadly, this seems unlikely. Meanwhile, a conference devoted to offshore farming
is a positive first step. Once the conference has been reported in the press, we
hope to discuss some of the issues raised.
For anyone interested,
full details of the conference go to www.bim.ie
, then click on Fishfarming and then click on Open Ocean Aquaculture Conference.