reLAKSation 175.
Them and us - Part 2: In the last issue of reLAKSation, we discussed the responses to a selection of questions posed by IntraFish to the British Department of Trade and Industry. One of the other questions asked whether safeguards best served the interests of the consumer? According to the British response, consumer interests are best served by stable prices and a sustainable market. They say that the current low prices (?) cannot be sustained indefinitely and this can only be rectified by balancing consumer demand with the current loss making overcapacity and hence forcing prices upwards.
It is true that salmon prices have fallen significantly since the inception of salmon farming in the 1960’s but equally retail prices have remained relatively stable over a number of years. Callander McDowell conduct a regular survey of the retail sector and can attest that consumers do benefit from stable prices. It is only necessary to look at our annual Christmas price review to see how prices have remained relatively constant even when subjected to festive discounts.
Over the past four years, prices have only significantly fallen once and that was the result of supermarket price war when Morrisons took over the Safeway supermarket chain. Prior to the acquisition, Morrisons were selling salmon fillets at £5.99/kg whilst the price for the same product in Asda and Tesco was £7.97/£7.99/kg. However once the larger Safeway chain became part of Morrisons and the lower price was made available to many more consumers, then Tesco and Asda reacted by cutting their prices to £5.97/kg where it remains today. Clearly, this price cut had nothing to do with low price imports as other supermarkets have not changed their prices. For example, Sainsburys continue to sell salmon fillet from the fish counter at £9.99/kg.
The British response suggests that consumer demand should be balanced with overcapacity, yet consumer demand is not static, but is constantly evolving. It is worth remembering that back in 1989 when the Scottish industry first accused Norway of over-production, salmon was perceived as serving the luxury market. Since then increased production and falling prices have created a whole new market demand for salmon as an everyday meal choice. Many of these consumers fall into a category of those who eat fish regularly. There are still many consumers who never eat fish, let alone salmon. If such consumers could be convinced about the health benefits of diets rich in fish oil, then a whole new market for salmon could be opened up. Other market trends could bring different changes, but clearly, the salmon industry can only benefit from such changes to the market if they are willing to respond to them. Despite this changing market place, there are still complaints that the international salmon industry is over-producing. This is nonsense, especially when supplies of other fish species are in short supply.
The British response also suggests that it cannot be good for consumers if there is too little competition in the market, obliging them to depend almost exclusively on Norway for supplies. Of course the salmon market is different in various member states within the European Community but in the UK, which is the main area of interest to the British Government, the salmon market is dominated by Scottish fish. On the evidence of label information, Norwegian salmon accounts for only a small percentage of salmon sales and in our view, Norwegian salmon only appears in the UK market at all because the Scottish industry has focused much of its sales towards the export market. Norwegian salmon is therefore filling a gap in the marketplace, not replacing it. The DTI’s response is interesting because it appears to suggest that there is a difference between salmon farmed in Scotland by the independent farmers who have requested the safeguards and the salmon from Scottish farms owned by overseas companies. The independent sector accounts for only 20% of production, some of which is aimed at specialist markets. For example, some of the complainant producers have opted for sustainable production or welfare approval from the RSPCA. Such fish do not compete in the same marketplace as Norwegian imports and therefore the presence of Norwegian salmon should be actually irrelevant to them. The Scottish industry has always claimed that their salmon is a totally different product to imported fish. They have the scope to capitalise on this difference and develop their own dedicated marketplace. For example, the market for organic food continues to grow and could will benefit this specialist sector. This week M&S have displayed a notice that they are unable to stock sufficient organic salmon because of a shortage of supplies.
We wonder how there can be a shortage when the salmon industry is so clearly over-producing? Perhaps it’s because the salmon industry is not producing what the consumers actually want!
Big, Bigger, Biggest!: Wout Dekker, Chief Executive Officer was quoted by Seafoodintelligence.com as saying that by 2030, aquaculture would rule the world’s supply of seafood. We, at Callander McDowell, would certainly agree, especially as in every other area of food supply man has turned from hunter gathering to farming. It is inevitable that the growing demand for fish and seafood will exceed the wild catch. Europe’s seas are already suffering from over-fishing so farming must become much more important.
Mr Dekker also suggested that it is no longer unthinkable that farmed cod would one day overtake the commercial production of farmed salmon. We too believe that this is possible, however, we do have one major concern.
The move to farming marine species such as cod has been spurred on by reduced profitability in the salmon sector. Some of the marine species are perceived to have a high market price offering the scope for better marine than with salmon. This is certainly the case with halibut and turbot. There is a direct relationship between increasing production and declining prices. Marine fish farmers run the same risk of falling margins as salmon farmers. It is hoped that consumers will be prepared to pay a premium price for farmed marine fish, but we are not convinced that they are. Selfridges may be charging £55.00/kg for turbot but just this week, farmed turbot was selling in Morrisons for £9.69/kg, which is even less than Sainsburys charge for salmon fillet.
Cod does not command the same sort of premium as halibut and turbot. Most supermarkets sell cod fillet at around £6.59/kg. The price of cod has not risen despite an apparent shortage of supplies. This can only be because consumers are simply not prepared to pay a higher price for cod than that they already pay. Even Marks & Spencer who have sold farmed cod in the past and who charge a higher price than the other supermarkets are currently discounting cod by £5/kg.
If cod farming is to take off, farmers must produce cod at a price that consumers are prepared to pay. The same equally applies to salmon farmers. This is the future of intensive fish farming - high volumes, low prices.
Adding it up: Retail analyst, Dr Tim Denison, suggests that adverts like the one featuring celebrity chef Jamie Oliver who promoted smoked salmon for supermarket chain Sainsburys over Christmas, may be on the way out. He said that the financial reality of the supermarket sector will mean that the multiples can no longer afford to use costly celebrity endorsement.
However, most advertising campaigns have only a finite life and supermarkets like any other business need to innovate to keep ahead. Jamie Oliver did initially help to promote Sainsburys but like all campaigns, his adverts are becoming tired and outdated. It is not just the financial reality that demands change.
The smoked salmon advert was actually not too bad in terms of its watchability but it is unclear whether it helped promote sales. The new product was actually heavily discounted as well with two packs selling for £7.99 (normal price £6.29).IntraFish report that Sainsburys sales overall slipped by 0.4% which was a slight improvement on previous months. The real problem for Sainsburys is one of supply and keeping the shelves stocked, a problem also acknowledged by Dr Dension.
Whilst Jamie Olivers smoked salmon adverts have already disappeared, so too has the product he promoted. It is unclear whether this is because it has been delisted or because supplies are not reaching the stores. Jamie Olivers latest adverts have him talking to a store manager and its cringe factor is enough to put anyone off visiting Sainsburys at all. Sainsburys need a change and Jamie Olivers adverts will be probably one of the first things to go.