reLAKSation 195.
A
morality tale: Imagine when a gun is fired
that as soon as the trigger is pulled, a chain of events unfolds which are
totally unstoppable. If someone happens to be standing in front of the muzzle,
then there is every likelihood that they will be shot. The rights and wrongs of
this process are irrelevant because once the trigger is pulled, then it is
inevitable that the bullet will find its target.
In
much the same way, once a dumping case is initiated, the ensuing process is
unstoppable. The rights and wrongs of the case are of no interest. If dumping
margins are uncovered then the inevitable outcome will the imposition of
punitive measures. This is akin to being shot by the gun.
Much
of the current debate concerning this dumping case focuses on whether the
Norwegian industry should suffer dumping duties or be offered the opportunity to
accept a minimum import price instead. We, at Callander McDowell, prefer to
leave this dilemma to others. Instead, we question whether the European
Commission was right to accept this case and then allow it to proceed? Should
the trigger have been pulled in the first place?
There
are two reasons why we do not believe that the European Commission should have
accepted, nor progressed, this dumping case. The first is because it was run in
parallel with the safeguard case. Whilst there is nothing to stop the Commission
from running these two cases in parallel, because one was submitted by a
government and the other by producers, the reality was these were identical
cases. The only reason the British government pursued the safeguard case was
because of pressure from the EUSPG via friendly MP’s. It is interesting that
once the safeguard case was initiated, the British Government has remained
suspiciously silent on the issue. We would have thought that if the British
authorities were so concerned about the salmon industry, they would have
continued to campaign on their behalf. Instead, silence other than at the
Aquaculture Today conference when comments made by the Scottish Executive’s
Phil Gilmour would have convinced those who didn’t know better that he was
actually speaking on behalf of the EUSPG.
The
two cases were in fact identical; submitted on behalf of the same minority of
producers; about the same issue; imports from Norway; looking for the same
solution; restricted access to the EU market. This is why DG Trade were able to
threaten Norway with a choice of either dumping duties or an MIP because
safeguard and dumping were effectively the same case.
The
second reason that the dumping case should have never been progressed was that
the EUSPG’s case was flawed. Apparently about 50% of dumping cases submitted
to DG Trade are rejected. We believe that this case was accepted because the
Commission had already concluded that Norway was guilty of dumping through the
safeguard case so the examination of the submission was only cursory. We would
argue that if the submission been assessed afresh, then it would have been
rejected because many of the claims made are simply false and can be proved to
be false. We, at Callander McDowell, hope to publish our response to the
submission in the near future but as an example of how erroneous the submission
is, we will take one simple statement that the EUSPG have used. On page 10 of
their submission in the section analysing the situation of the Community
producers, the EUSPG state:
“3)
Prices in Q1 2004 are at an all time low.” It is only takes a minute to look
at any of the guides to salmon prices to see that this was not the case and
certainly when the submission was despatched to Brussels in September 2004 it
was clear that prices had risen throughout the first quarter of the year. Its
not surprising that the EUSPG remain hidden behind a cloak of secrecy. Any open
and free discussion would show that most of their claims are totally untrue and
are designed to mislead.
The
problem for the Commission is that once their investigation is underway, there
is simply no opportunity for discussion about the right and the wrongs of the
case. They have found dumping margins, which as we have argued in previous
issues of reLAKSation, can be explained as being natural artefacts of the
salmon’s life cycle that are more evident during the farming process, and
therefore Norway must suffer the consequences. The fact that it will be many
more parts of the salmon supply chain than just Norway that will suffer the
consequences appears irrelevant. The penalty must be paid and because the trade
process does not allow for any variance, then this is what must happen. We
appreciate that declared ‘Interested Parties’ are allowed to express their
views on the case, but this means that the Commission only get to hear part of
the story. This is why we believe that the Commission’s trade directorate has
made a major error of judgement in allowing this case to progress. We would
press the Commission to be big enough to suspend the duties for the time being
and then take time to reassess the case anew.
No appetite: The talking point in this weeks’, ‘The Grocer’ magazine posed the question whether the EU’s good intentions will damage the appetite for salmon. Mike Parker, deputy chief executive of Young’s, the UK’s largest processor of farmed salmon said that they have not seen any evidence of the so-called dumping of cheap salmon. We, at Callander McDowell firmly believe that if Mr Parker said that he has not seen any change in supply pattern which would indicate that dumping had occurred, then dumping has not occurred.
By comparison, Mr Parker says that the effect of the imposition of duties has been immediate and clearly noticeable. This is because the effect of the duty has been chaos in the supply chain. This is because more than a quarter of the salmon consumed in the UK is imported from Norway. It is important to point out that this is not because Norwegian salmon is cheap or dumped, but because demand for salmon in the UK cannot be met by Scottish producers. Demand exceeds supply.
Mr Parker highlights that in the last two weeks, ex farm prices have been the highest for more than five years and 30% above that during early 2005. He says that it is hard to see how the EUSPG can justify a jump of this size when the impact will be to the detriment of the whole marketplace. He says that it is inevitable that consumers are going to face higher prices. He adds that this is a threat to everyone who has come to rely on salmon as a success story from farmers and processors to retailers.
Mr Parker points out that sales of salmon have risen by 60% over the past four years fuelled by the government’s own promotion of omega-3 in oily fish. He says that everyone now accepts the need to improve the nations health and it would be ironic if an EU trade squabble succeeded in dampening consumer appetite for one of the most popular and healthy proteins on the UK market.
We have included Mike
Parker’s comments on the current dispute because he is a well respected long
standing member of the seafood industry. If the EU Trade Directorate is prepared
to discount such views and allow this damaging dispute to continue, then we must
start to wonder whether the salmon farming industry has any real future.
A Fair Price: In paragraph 129 of regulation 268, the European Commission state that they consider that if anti-dumping duties are imposed, economic operators will continue to have access to unlimited quantities of imports, albeit at fair prices. They also say that given the magnitude of the margins between ex farm and the retail price, it is unlikely that the whole price rise will be passed onto consumers. This view clearly illustrates that the European Commission are completely out of touch with the realities of the marketplace. The market is driven by price, or at least the perception of price, especially low prices. This is across the board, not just for salmon. Yet, the EUSPG would have the Commission believe that the low prices they receive are the result of dumping by Norway as if the low prices they claim to have received are were unique in the marketplace.
Just this week, the Financial Times reported that a leading law firm has raised doubts over the effectiveness of the Office of Fair Trading’s investigation into supermarket power after a number of its clients complained about the way that suppliers were being treated. These suppliers were only prepared to make their complaints anonymously because they were worried about losing their business with the supermarkets. The OFT had just ended their consultation into whether the supermarkets were abusing their power over suppliers.
At the same time, the lobby group the Forum of Private Business had criticised Sainsbury’s for attempting to rip up existing contracts with 1,400 of its suppliers and impose onerous non-negotiable new payment terms. According to IntraFish. FPB Chief Executive Nick Goulding said that his group felt bullied by Sainsbury’s.
Sainsbury’s have been trying to reverse a decline in their market share. This week, they reported that they were closing in on Asda with their market share growing from 15.5% to 15.9%. Asda have about 16.6% of the market whilst market leader Tesco, currently hold over 27% of the UK grocery business, having cut prices harder than any of its competitors last month. Sainsbury’s Chief Executive, Justin King clearly feels that he has to save money where ever he can and suppliers are one area where costs can be reduced. This is why all suppliers are under pressure.
It is not just Sainsbury’s who are turning the screw. Northern Foods report that they are bracing themselves for a tough year as supermarket customers Marks & Spencer and Morrisons try to deal with a retail slowdown. Problems in M&S, which account for 30% of Northern’s sales, have hit demand and put pressure on margins. Chief Executive, Pat O’Driscoll said that ‘we are operating in a competitive market environment. People are looking to spend less and get more value for money. Mrs O’Driscoll said that in order to keep prices down , it will look to strip £25 million out of annual costs. It is also looking to save £14 million by re-negotiating contracts with suppliers.
It is against this background, that the European Commission suggest that the market will accept salmon at fair prices. We, at Callander McDowell, are not convinced. We agree with Mike Parker that higher prices will simply suppress demand. It is worth remembering that the only reason that salmon demand has grown so much is because prices have been at a level which consumers are prepared to pay. This week, the competitive pressure between supermarkets has meant that salmon prices across the board are now 30p/kg above the level that they were prior to the imposition of duties. It remains to be seen whether this rise deters consumers and they look for products that offer better value for money.
The competitive pressure between supermarkets is not limited to the UK. This week, IntraFish report that the French supermarket group Auchan has unveiled a price cutting initiative with the promotional message that ‘Auchan is inventing a life less and less expensive’. Auchan aims to cut all food products by 2.9% through its loyalty card scheme. Inevitably, as in the UK, such cuts must filter down to the suppliers as it is unlikely that the retailer will be prepared to pay for any increased sales.
The EUSPG blame Norway for their problems, but the reality is that they, like the European Commission, have little idea of what is really happening in the market place, nor what consumers really want.
Cast iron Guarantee: Richie Flynn of the Irish Salmon Grower’s Association told IntraFish that any future deal with Norway must have cast iron guarantees. We, at Callander McDowell, can certainly provide him with such a guarantee. If this dumping case is allowed to continue, then there won’t be any salmon industry to protect because consumers will be buying something else instead. That is guaranteed. How more cast iron can we be?