reLAKSation 193.
Business as usual: In the regulation 628, the European Commission expressed the view that if anti-dumping duties are imposed, economic operators will continue to have access to unlimited quantities of imports, albeit at fair prices. It is interesting that the Commission are a judge of what is fair or not, when their investigation has not considered salmon’s position in the marketplace. The investigation has focused on production issues reflecting the production-led philosophy of the Community salmon industry. In common with Community producers, the European Commission has completely disregarded the needs of the consumer.
The Commission suggest that the anti-dumping measures are unlikely to have a material effect on retail prices, since they don’t think that the whole price will be passed on to consumers. This is because they believe that there is sufficient margin in the salmon chain for the extra cost to be absorbed before it reaches the consumer.
We, at Callander McDowell believe that the Commission are correct in their assertion that the consumer will not bear the cost of the duties. We would not be surprised if it turns out that it’ll be the Community farmers that will eventually have to pay the price. After all, it is they who are responsible for forcing this extra cost on the wider industry.
The problem for salmon farmers is that when the Commission talk about fair prices, they don’t indicate what these fair prices relate to. Is what they consider a fair price to be paid for a high quality salmon bought as a one off and intended as a special treat or do they consider this fair price to relate to a value for money everyday meal option? Certainly, the two are very different. Consumers may be happy to pay a higher price for something they buy infrequently, but may be less willing to do so if it is something they buy regularly. The evidence clearly suggests that consumers are not ready to dig deeper in their pockets for their everyday meal. Since duties were imposed, some salmon prices have increased, but most have not. Some of those that were increased have already dropped back to previous levels and finally the widespread discounting, which is a feature of the retail sector, continues without interruption.
In the UK, only one supermarket chain has increased salmon prices across the board. Morrisons has added 30p/kg to the price of whole fish, and fillets and 20p/kg to the priceof steaks. By comparison, Asda have not only held prices, they have reduced the price of whole salmon by 30p/kg.
Tesco increased its prices by 50p/kg for whole fish and fillets and 18p/kg for steaks. Subsequently, the price of all salmon products was reduced back to previous levels, except salmon steaks which were reduced by a further 16p/kg. Sainsburys have increased the price of their basic salmon fillets by 50p/kg but it would not be unexpected to see this cut by at least 30p/kg next week.
Marks & Spencers salmon remains priced at the same level as before as have all Waitrose salmon products, with the exception of fillets from the fresh fish counter which have been increased by 50p/kg. Despite this price increase, last week these fillets were discounted by £2.10/kg.
Meanwhile, Sainsbury’s, Somerfield and the Coop are all selling prepacked salmon fillets at half price, whilst Marks and Spencer have reduced their bags of salmon fillets by £2 a bag.
What is clear from these
observations is that retail salmon prices are not governed by the availability
of cheap imports. The price of salmon in supermarkets is dictated by competition
between the stores and even when prices go up due to the imposition of duties,
the supermarket price is set in response to their competitors. In common with
their customers, supermarkets have a choice and if the price is too high, they
have the choice to buy elsewhere. This is something the Commission seems to have
forgotten.
You
can’t win?: Seafoodintelligence.com report
that salmon prices in Norway have reached their highest levels for five years.
This comes at a time when the EUSPG have accused the Norwegian industry for
holding back production. They have suggested that the Norwegians are restraining
supplies in an attempt to cause chaos in the marketplace and by doing so, aim to
discredit the antidumping measures.
This
is an unlikely scenario for the Norwegian export statistics clearly disprove
these allegations. It also seems unnecessary for Norway to have to discredit
these anti-dumping measures for undoubtedly, they have already been discredited.
Seafoodintelligence.com
suggest that it is somewhat ironic that the EUSPG have now accused Norway of
restricting supplies of salmon to the EU for this is exactly what the EUSPG
want. Their repeated efforts to impose trade measures against Norway have had
one single aim; to limit supplies of Norwegian salmon in Europe. Their hope is
that prices will rise so that Scottish salmon will regain its former luxury
market image for which consumers are prepared to pay a premium price. The
problem for the EUSPG is that they fail to understand that consumers don’t
want to buy salmon as a premium product. Instead, they want to buy salmon for
their everyday meals at an affordable price. It is only necessary to look at how
the supermarkets price their salmon to see that this what their customers want.
If the EUSPG do not want to supply salmon to such market segments, then they
should leave it to those that do.
Cyclical
– not yet: Interviewed by
Seafoodintelligence.com, Rolf Domstein, CEO of Domstein ASA said that salmon
farming is a cyclical business. He qualified this statement by suggesting that
2000 and 2001 were years of a great deal of money and speculation, but since
then it has been difficult and the industry has lost a lot of money. Whilst we,
at Callander McDowell recognise that Mr Domstein has much experience of the
salmon industry, we are not convinced that the salmon farming industry has yet
become cyclical. We believe that it has the potential to become so, but we
don’t consider that it has yet. Instead, we agree with Ole Eirik Leroy who
told IntraFish that salmon farming is still an immature industry and a long way
from maturity and the cyclical production of the established agricultural
sector.
The
idea that salmon farming was cyclical was first put forward by Professor Chris
Ritson of the Agricultural Department of Newcastle upon Tyne back in 1990. He
had been asked by the then Scottish Salmon Growers Association to investigate
why prices had collapsed. He concluded that salmon farming had started to
emulate the agricultural sector and had entered the beginnings of a typical
production cycle. In this production expands to the point that demand becomes
saturated and as a result, the price collapses. Unable to remain competitive,
some producers go out of business, easing the pressure on production so that
prices recover. The return to profitability and rising prices encourages
expansion and thus the cycle continues.
However,
Prof. Ritson was wrong, the price collapse in 1989 was not the start of a cycle.
History has shown that production did not fall but actually continued to expand
right until the present. His forecasts of cyclical production failed to
materialise. Instead, the 1989 price collapse heralded the change in salmon’s
market image. The volume produced meant that the traditional market had become
saturated as Prof. Ritson believed, but rather than contracting, production
continued to expand. This was because the lower price created a whole new market
for salmon as an everyday meal choice. Salmon farming evolved from a high
margin, low volume industry to one of high volumes and low margins. In effect,
salmon farming was reinvented as a new industry and this is why it can be
considered to be still immature.
It
could be argued that since 1989, there has been some evidence of cycling within
the industry but any such cycles are simply artefacts of the continued
interference in the market through repeated dumping complaints. Had there been
no salmon agreement in 1997, then production and prices would have followed the
typical growth patterns of a developing industry. It could also be argued that
the spate of bankruptcies last year and the fall in production are also evidence
that cycling has now begun. However, the continued wrangling over production
figures indicates that in Scotland, the case has yet to be proven, despite
repeated forecasts from the EUSPG that production will fall to just over 100,000
tonnes from its current 173,000 tonne level. Any such fall in Scottish output
can be explained by the reluctance of some producers to accept the changes to
salmon’s market image even though it occurred 15 years ago. This is why the
European industry has suffered from fifteen continuous years of market
disruption and why the industry is still considered to be cyclical.
Until
producers realise that the future lies in producing what consumers want rather
than what producing what they believe that consumers want, salmon farming will
continue to show signs of cyclical production, but these are simply the relics
of an industry that still doesn’t understand what’s happening in the
marketplace.