reLAKSation 179.

"Safeguard Special Two"

Fully verified: The Irish Minister for the Marine, Pat ‘the Cope’ Gallagher welcomed the introduction of the safeguard measures. IntraFish reports that he said that the important Irish salmon industry was being threatened by imports, mainly from Norway, being sold below production cost throughout the EU. He added that this has been ‘fully verified’ by the Commission after it undertook an extensive investigation.

Yet, we, at Callander McDowell, are not so confident as ‘the Cope’, that the case against Norway has been fully proven because there are elements in the safeguard document which we believe are open to question. We believe that if that some of the figures do not add up, then the whole investigation, and hence the case against Norway, could well be ‘unverified.’

The Commission Regulation no 206/2005 of 4th February 2005 imposing definitive safeguard measures against imports of farmed salmon is a long and detailed document. It was prompted by representations from the EUSPG to the Scottish Executive who were concerned that cheap imports were damaging the industry in Scotland. They demonstrated this with figures which showed that Scottish production was in decline. These appear in the original British application document. We included these figures in a previous issue of reLAKSation but they are worth repeating here. According to the EUSPG, Scottish production was as follows:

      Year    Production

2000        120,000

2001        131,000

2002        133,000

2003        138,000 est

2004        110,000 est

When these figures first appeared, we argued that there was an apparent discrepancy with the official Scottish Executive figures published by the Fisheries Research Services. The last official figures were for the year 2002. While we might expect some variation with the estimated of future production, we are at a loss to explain how the EUSPG figures for previous years are at a variance with the official Scottish Executive data:

     Year    Production

      2000     128,959

2001     138,519

2002     145,609

2003     176,596 est

Unfortunately, we are unable to reconcile these figures because as yet, the Scottish Executive has failed to publish their data for 2003. We would have normally expected this to appear last October, some four months ago. Some might argue that the delay is due to the fact that the official production data does not support the claims made by the EUSPG but we will have to wait until the data is finally published before we can make any conclusion.

Section 8.2.3 of the safeguard regulations details the total production by Community producers. For 2003, salmon production in the EU grew by 13.7% to a total of 190,903 tonnes. This total comes mainly from Scottish and Irish producers together with one farm in Latvia and two in France. If these small producers are discounted and Irish production of about 22,000 tonnes a year is removed, then according to the Commission, Scottish production for 2003 must be around 169,000 tonnes. This is over 30,000 tonnes higher than the EUSG have claimed and must undermine their argument that the Scottish industry has experienced major difficulties.

As we have already pointed out, we are unable to verify these figures as they have not been published as they are still awaiting verification. We presume that the Scottish Executive have provided what figures they do have to the Commission, but clearly they cannot be verified as accurate. We can only suggest that as some doubt exists as to the accuracy of at least part of the Commission’s data, then the accuracy of the whole investigation must be suspect.

Consuming issues: Paragraph 46 (section 8.2.1) of the safeguard agreement states that between 2000 and 2003 consumption in the Community increased by 21% from 507,705 tonnes to 618,038 tonnes. We, at Callander McDowell feel that it is a shame that the European Commission has buried this fact in the middle of this document. This is a fantastic achievement of which the salmon farming industry should be proud. Salmon farmers should be singing their own praises from the roof tops. Yet, instead of highlighting this success, the Commission appear intent on using it as evidence as to why Norwegian and other imports should be curtailed.

In paragraph 47, the Commission partially ascribe this increased consumption to the fall in prices at wholesale level. This is nonsense.

It is only necessary to look at the development of salmon prices on the IntraFish price graph to see that prices only fell to low levels late on in 2003. Before then, prices were controlled by the EU salmon agreement and it was only the termination of the agreement which saw prices fall. This must be proof that attempts to manipulate the market through artificial trade measures will never bring the hoped for stability. We know that the EUSPG would argue that if the agreement had not been scrapped that prices would have remained viable, however, it is equally true that they would never have fallen as they did if the Commission had not forced the agreement on the European industry in the first place.

With the salmon agreement in force until mid 2003, the Commission cannot blame low prices on the increased consumption. Perhaps the Commission has forgotten that part of the EU salmon agreement was in fact the joint generic marketing of salmon. Reporting the success of the campaign, Svein Berg of NSEC said that up to April 2002, $35.5 million had been spent on marketing salmon. Perhaps this increased marketing activity as enforced by the EU might have more to do with the increased consumption of salmon in the Community than any effect of low prices.

We, at Callander McDowell would certainly argue that the salmon industry should be investing more time in increased marketing than trying to restrict its competitors. After all, if the Commission’s production figures are correct, Community producers could only supply 30% of Europe’s needs in 2003!

How low is low?: In their discussion on market share (Section 8.2.7) the European Commission state in paragraph 57 that the average price of the like product fell by 20.3% between 2000 and 2003. They continue in paragraph 58 that in the first semester 2004, the information available indicates that the average unit price of the Community producers’ sales increased slightly, in line with the slight increase in average import prices but then followed a downward trend. The latest information indicates that prices are again following a downward trend and are very low.

This document was only published on February 5th yet the Commission appears to suggest that it has access limited information on prices for 2004 and that indicates prices have continued to fall. They also suggest that the latest information points to a further decline in prices.

Perhaps the Commission has never bothered to look at any one of the several websites which provide current price information for salmon. All show that prices were greatly improved during 2004 and only fell just below NOK20/kg for 6 or 7 weeks. This year, prices have strengthened even more. The higher prices obtained during 2004 were one of the main reasons why importers found it hard to understand why the Commission had continued to press for safeguards. All producers are clearly benefiting from these improvements including those within the Community.

We can only wonder where the Commission obtained this evidence for this supposed downturn in prices because it doesn’t appear to agree with that from other sources? 

Restructured: Section 10.4 of the safeguard document states that the purpose of the definitive safeguard measures is to provide the Community producers with a limited period of time in which to restructure so as to more effectively compete with imports. We, at Callander McDowell, are not hopeful that this will happen. After-all, the independent sector have known since 1989 that they faced competition from imported salmon. Since then, they appear to have made little effort to adapt or restructure other than continually pursue trade sanctions in an attempt to avoid the need to compete.

The Commission state that restructuring is already underway but time is needed to implement an organised restructuring plan. Paragraph 119 highlights the key elements of the restructuring strategy developed by the relevant national authorities in collaboration with the industry. These include:

  1. Increasing the size of salmon farms through mergers or relocation thereby increasing efficiency and reducing costs. Yet surely, this is an admission that the very farms they aim to protect with safeguards are not commercially viable. Clearly, the Commission is saying that only the large, more cost effective, farms will survive. However, we would disagree. We believe that there are ways in which the small independent farmer can not only survive, but also grow into a strong and healthy business.
  2. Diversification into other species: We have argued previously that other species should only be farmed if there is a strong commercial reason for doing so and not because it is a way of avoiding the difficulties encountered in salmon farming. Inevitably, those aiming to farm other species will eventually suffer from the same problems as the salmon industry.
  3. Improving the carrying capacity tools to allow better environmental assessments. The intention is to allow large farms and greater economies of scale. This appears to be at odds with some of the independent farms which have sought to capitalise on lower stocking densities and more environmental friendly production.
  4. Improved fallowing of farming sites with the aim of reducing sea lice infestations and disease thereby reducing costs!
  5. Seeking the establishment of coordination amongst Producer Organisations with a view to avoiding future problems of severe over-production. We, at Callander McDowell, have already expressed our views about Producer Organisations through previous issues of reLAKSation. We would just point out here that if the EUSPG, the Scottish Executive and the Commission are all unable to agree on how much salmon was produced in Scotland in 2003, how are they ever going to agree on how much salmon should be produced in future years?

We firmly believe this organised restructuring strategy will not work. It is not enough to seek further reductions in the cost or production, although these would undoubtedly help improve what margins are available. What is needed is a total rethink on the strategies adopted by the salmon industry, not just in Scotland but in Norway too. The salmon industry needs to move from the outdated production-led strategies which are at the root of the industry’s problems to those which are more market-led. Salmon farmers need to produce what the consumer actually wants, not what they think the consumer wants. Instead of seeking to produce the best salmon in the world, Scottish farmers need to take a hard look at why consumers buy salmon and then produce the right fish accordingly. Unfortunately, the Scottish Executive do not see it as their role to help farmers make such commercial decisions so the industry is left with an organised restructuring strategy which will achieve nothing.

In paragraph 120, the Commission states that if insufficient progress is made in this restructuring, then they will review the continued need of these measures. We can only hope that the Commission begins to realise that this restructuring programme will never achieve its aims and that the salmon industry cannot be protected for ever from having to make these difficult commercial decisions.      

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