reLAKSation 180.
Over-producing
shortages: Given that the newly imposed
safeguard measures are supposed to curtail global over-production of salmon and
stem the flow of cheap imports into Europe, it is rather ironic that Irish
producers are now unable to deliver sufficient salmon to their existing
customers. Yet, not only are they unable to meet their current commitments, but
the Irish industry is just about to embark on an Euro1.5 million promotional
campaign to persuade shoppers to buy QSP (Quality Salmon Programme) Irish salmon
rather than cheaper imported fish.
This
simply confirms to Callander McDowell that the global salmon industry is not,
and has never been, guilty of over-production. How can there be over-production
in Europe and yet Irish salmon producers are unable to produce enough for their
existing customers? According to IntraFish, Richard McNamara of the Irish
Seafood Producers Group said that ‘Its fine to say that people want it (Irish
Salmon) but for the last two years, it has been sold below the cost of
production.’ The ISGP say that shortfall is due to producers harvesting early
for eager buyers because other companies have gone out of business due to the
low prices. This makes little sense. Surely, if buyers are specifically eager
for Irish salmon, then they would be prepared to pay more for it. If price was
the deciding factor then they would turn to cheaper imported fish. If there is a
shortage of Irish fish, then producers should be able to demand higher prices.
We
recognise there is a market for high quality salmon, but as Scottish producers
have found, this market is relatively small. Most consumers are unable to
differentiate one salmon from another and are quite happy to pay for value for
money fish regardless of origin. What is clear from the retail sector is that if
consumers are offered a choice between higher priced quality product and value
for money salmon, then most will choose the value for money product. If however,
the value for money is not available, then some consumers will be prepared to
pay a higher price but most will simply look for a different meal choice. This
is the motivation behind the safeguard process. If value for money fish, whether
it be imported or not, can be excluded from the marketplace, then some customers
will be persuaded to dig deeper in their pockets if they really want to buy
salmon. This is the only way consumers will really be persuaded to buy QSP Irish
salmon at higher prices. Certainly, this is why in the UK, the Scottish Tartan
Quality Mark has disappeared from the retail multiples. When faced with a
choice, consumers prefer the value for money fish because what they want is an
everyday meal choice not a special treat.
The
hope is that if salmon imports can be curtailed, consumers will want to buy more
home produced fish. In common with Scottish independent producers, the Irish
industry hopes that safeguards will allow them to expand production, even though
they claim that the industry is suffering from over-production. Richie Flynn of
the Irish Salmon Growers Association told the Irish edition of the Sunday Times
that he hopes that Irish production can be doubled over the next few years. The
implication is clear, force consumers to buy home grown salmon by ensuring that
they don’t have any choice!
Establishment
only: Seafoodintelligence.com report that Pan
Fish Chief Executive Atle Eide has said that buyers should choose salmon from
established producing countries rather than Chile. He also suggested that the
new safeguard measures should force Chilean producers to rein in their
production growth.
Mr
Eide made these comments following publication of his company’s results, which
showed a significant improvement. Mr Eide should be undoubtedly be applauded for
turning Pan Fish round after some horrendous results. However, his comments
would imply that whilst he has achieved major success in cost cutting, he may
not have the vision to move the company into the future. The Scottish industry
has based much of its strategy on blaming Norway for its problems, rather than
seeking its own solutions. Mr Eide now appears to have taken a similar stance
against Chile, hoping that buyers will choose his Norwegian salmon over Chilean.
In much the same way, the Scots and Irish hope buyers will choose their salmon
over Norwegian.
The
problem for them all is that they all fail to realise that most consumers
aren’t in the slightest bit bothered from where the salmon they buy is
produced. The most important factors are that the salmon represents value for
money and that it is good to eat. Origin is irrelevant.
Seafoodintelligence.com
have described Mr Eide’s attack on Chile as a ‘bit immature’ and we wonder
whether this might also apply to his vision to supply the global market with
quality salmon at the lowest production costs in the industry. Is it possible
that this strategy may be undermined by lower production costs elsewhere. Could
this be why he now feels he needs to encourage buyers away from Chilean fish.
Following
the introduction of safeguard measures, Seafishintelligence.com also report that
Mr Eide is now rethinking his strategy in relation to adding value. Mr Eide
believes that it will now be attractive for the company to move dozens of its EU
based jobs to Norway. He is now considering cutting fillets in Norway then
smoking them inside the EU market. This will involve moving the 85 jobs at
Vestlax in Denmark to Norway. Yet, with safeguard restrictions on fillets as
well as whole fish, we at Callander McDowell, wonder how this move will benefit
Pan Fish? Certainly, we believe that there is something to be gained from adding
value outside the EU, but this should involve the whole process, not just part
of it.
We
have always argued that whilst the Scottish industry have demanded safeguards in
order to allow them time to restructure, we also believe that even farms in
Norway need to rethink their strategies in order to develop a strong and healthy
business to take them forward into the future. Mr Eide’s comments would
suggest that this is still very much the case.
Segmented:
James Hosea of the Norwegian School of Business has produced a thesis entitled
‘Branding Farmed Salmon’ in which he examines the potential for country of
origin to act as a value indicator. According to IntraFish, he says that salmon
producers should look to France, especially in the wine sector, for clues on how
to segment the market. He says that the French have been losing market share to
the Chileans but they don’t see Chilean wine as a threat. This is because the
French market is highly stratified and this allows consumers to pick and choose
wine of a specific quality at a given price. He adds that consumers know that
there is a difference between qualities of wine and that they are willing to pay
more for some than others. The implication is that Chilean wines are not as high
quality as their French counterparts and that country of origin can be used to
gauge by how much.
In
the UK market, this is not the case. The leading supermarket chain Tesco sell
about 60 different varieties of French red wine and about 35 of red wine from
South America. The French wine ranges in price from £2.52 a bottle to £12.99
for Chateauneuf du Pape, but most are mid priced. By comparison, South American
wines are priced from £2.99 to £8.99 for Errazuriz Reserve Cabinet Sauvignon,
but as with the French wines, most are mid priced. Most French wines compete
directly with the South American varieties and cannot be distinguished on
quality or price.
By
comparison, consumers find it extremely difficult to distinguish one piece of
salmon from another regardless of it’s origin. One piece of salmon looks just
like any other.
James
Horsea suggests in his thesis that Scottish and Irish salmon producers have
already carved out a higher end niche for themselves through branding efforts
and quality programmes, but whilst they think they have, the reality is that
this higher end niche does not exist in the marketplace. This is exactly why
Scottish and Irish producers have sought safeguard protection. They blame their
inability to generate a premium price for their salmon on the widespread
availability of imported fish. They reason that without the competition of
imported fish, they can regain the higher prices.
Mr
Horsea suggests that whilst the Scots and Irish have their perception of where
their salmon should be in the marketplace, the Norwegians have not. He
recommends that if the Norwegians want to offer commodity salmon, then they
should be very clear about it. If they do, he believes that Norwegian salmon
would be taken out of direct competition with the European salmon producers and
thus avoid further antidumping duties and safeguard measures. Unfortunately, Mr
Horsea is mistaken. We believe that it will make no difference at all whether
the Norwegians say they are producing commodity product or not because it is not
down to the producers who judge the market segment for their fish; it is the
consumer. This is the same problem for the Scots and Irish who believe that
consumers will be happy to pay a premium price for their salmon, yet when faced
with the choice, prefer to opt for the fish which represent the best value for
money. Most consumers can not determine which fish are quality product and which
are not and therefore tend to class all as the same.
Mr
Horsea suggests that an in-depth analysis is needed to identify how stratified
the markets really are because he believes that if the markets are segmented
then Norway and Chile are not a threat to each other or to the Scots or the
Irish. We would believe this to be a waste of time and money for the fact is
that the market for salmon is not segmented at all which is exactly why the
Scots and Irish do see Norway and Chile as a threat and why some Norwegian
producers, such as Mr Eide also believe that Chile is a threat to them.