reLAKSation 200.
One
voice?: EU Commissioner for Trade, Peter
Mandelson, writing on the DG Trade website says that “The Commission works as
college and speaks in international ‘fora’ in one voice.” He adds that
“Commission and, for that matter, EU positions are agreed beforehand.”
Seemingly, some of his fellow Commissioners don’t appear to agree.
According
to IntraFish, EU Fisheries Commissioner Joe Borg told delegates at a seminar
last week in Brussels that the salmon issue had not been thought through. He
said that conflicting interests in the EU-Norwegian salmon trade dispute might
not have been considered appropriately from the outset. We, at Callander
McDowell would certainly agree with his view. This is because we currently have
the ludicrous situation where one EU Directorate has been trying to encourage
consumers to eat more salmon because of the health benefits associated with
omega-3 fatty acids, whilst at the same time another Directorate has been
working to restrict supplies of salmon and force its price out of the reach of
the average consumer.
DG Trade has said initiatives like the promotion of omega-3 fatty acids or the scheme to encourage conversion to organic production have nothing to do with the dumping issue, but they are so wrong. It is impossible to isolate the dumping issue from what is happening in the marketplace, especially when the trade dispute is not really about dumping at all, but about the market image of Scottish and Irish salmon instead. Added to that are the questions of health and even more importantly whether farmed fish are a valuable tool for relieving fishing pressures on commercially important fisheries.
The
EUSPG argue that cheap imports are forcing them out of business. However, we
would argue that rather than penalise imported salmon and at the same time
destroy the hard worked for market, it would surely make more sense to direct
help specifically towards the handful of complainant farming companies instead.
Unfortunately, as we have pointed out previously, the trade directorate follows
a very narrow protocol from which it cannot divert. As a result, this handful of
Scottish and Irish farmers are likely to make salmon too expensive to have as an
everyday meal choice. However, this is what these farmers want. They want their
salmon to be seen as something special and they want to make sure that only a
few select consumers can afford to pay for it. Is it no wonder that
Commission’s one voice seems to have fragmented?
Can’t
compete – Won’t compete?: The newspaper,
Scotland on Sunday reported that the new Managing Director of Marine Harvest
Scotland, Havard Grontvedt had said that ‘we will never be able to compete
with Norway and Chile on cost because of the Scottish regulations that prevent
us having larger farms. He added that ‘we will, as a result of the company
efficiency programme, get much closer in terms of cost and that we can build on
our advantages, such as our proximity to the UK market.’
Of
course, Mr Grontvedt has the benefit of being able to see how costs differ in
each arena of Marine Harvest’s international operations. The rest of us are
much more reliant on the availability of published data. So far, only the
Norwegian government has been willing to publish annual cost of production data.
By comparison, data from the Scottish industry has been very difficult to
access. There is no reason, why such data shouldn’t be available yet the
Scottish industry has resisted its publication. We can only wonder if this is
because it doesn’t support their argument that their cost structure is higher
than in Norway and Chile. Certainly, the last time that data was published was
back in 1992/3, which was when the results of a study by the Scottish
Agricultural College found that Scots farmers actually had a cost advantage.
Since
then there has been a large gap in our knowledge, which was supposed to be
rectified by the Strategic Framework for Scottish Aquaculture. The strategy
states that “the Scottish industry contends that its costs are higher than
those of its competitors in other countries. The disparities are said to relate
to direct regulatory and rental costs as well to imposed inefficiencies of scale
deriving from regulatory constraints. It will be considered whether an
independent study should be commissioned to look at the costs which regulation
imposes on aquaculture in Scotland in relation to the protection which is
derived from it and its impact on competitiveness and to compare these costs
with those in other countries.”
The
planned timescale was that the need for such a study would be confirmed by May
2003 with the study due for completion by November 2003. According to the
Scottish Executive website, the first part was completed but it was not until
May 2004 that the invitation to tender for the study was issued. The contract
was due to be awarded by the end of 2004 with the study completed by June 2005.
This date has now passed and nothing has been heard as to whether this study has
even begun. We wouldn’t be surprised to hear of further delays since
publication of any results may not support the claims made by EUSPG in the
ongoing dumping case. This wouldn’t be the first time that data has been
suppressed because it doesn’t support the dumping issue. After all we are
still waiting to hear the official production figures for Scotland for 2003,
even though they were published by the Scottish Executive but later withdrawn
because of supposed inaccuracies.
Seafoodintelligence.com
asked Angus Morgan of the EUSPG to
comment on Mr Grontvedt’s assertion that Scotland was not competitive. He
replied that the European Commission analysed the results and found that Norway
was less competitive than Scotland and that generally–speaking, the EUSPG are
very satisfied with the way things operate in Scotland. Clearly, this isn’t
true otherwise he wouldn’t be seeking restrictions on salmon supplies to the
UK market.
The
problem is that every sector of the international salmon industry is very
different as are the different markets. Scottish producers want a level playing
field so that they can compete against everyone else, except in the way that
they sell their salmon. The idea of a level playing field then evaporates to be
replaced with the perception that their product is superior, meriting a premium
price. The fact that the EUSPG have resorted to a dumping action clearly shows
that there is a point beyond which they are not willing to even try competing!
Finally,
whilst Mr Grontvedt says that Marine Harvest Scotland will use its proximity to
the UK market to gain an advantage over Norwegian and Chilean competition, we
remember that several years ago Marine Harvest, then under totally different
ownership and management claimed that their venture into added value under the
Lochinvar label failed because their base at Fort William was too far from the
market. How times change?
Not
strange at all: In an editorial comment in
IntraFish, Knut Eirik Olsen expresses the view that industry consolidation does
not just concern the production segment. He concludes that it can easily apply
to building a giant company where several levels are integrated in the
production chain from feed manufacture, production of fish, sales and export and
advanced production that can be expedited direct to the supermarket shelves. He
adds that it is strange that this topic was not debated long ago!
Mr
Olsen’s editorial was prompted by an interview Tor Olav Troim, COO for
industry investor John Fredriksen, who said that the time is now right for
restructuring.
There
are a variety of reasons why the salmon industry has not followed the poultry
sector and pursued a full integration strategy. The most obvious is that such
restructuring requires significant investment and there has been a dearth of
investors mostly deterred by an industry subjected to fifteen years of trade
disputes. We, at Callander McDowell, have stated several times that the root of
industry problems are due to a difference in perception of what sort of industry
we want salmon farming to be. Do we want a small niche industry producing high
quality salmon for a discerning market willing to pay a premium price or do we
want a industry supplying the wider market with value for money everyday meal
choices? We believe that there can be both, but groups like the EUSPG want to
force a choice. Until, the industry knows in which direction it is headed, it is
never going to attract significant investment other than from those who are
either willing to take the risk or who have the foresight to see what might be.
A
second reason is that some companies have looked to the past experience of
Marine Harvest who many years ago invested in the development of branded added
value products. The concept was right but the execution meant that the venture
failed. The distance from the marketplace was given as the reason for the
failure but privately, the then managing director summed up the venture by
saying that ‘they don’t brand fillet steak do they?’ Since then, any
companies considering this integrated route have thought that if a leading
company like Marine Harvest cannot make integration work, then what hope is
there for others? We would suggest otherwise. It was a long time ago and product
development has moved on a long way since then. The time is now right.
Other
companies have tried to integrate other parts of their operation. At least two
feed producers have bought into salmon farming. We had always thought that such
integration would come from farming companies buying into feed, but this never
happened with one exception in Norway. Whilst feed and farming were brought
closer together, full integration never occurred. Removal of feed manufacture as
a separate cost centre would have a significant effect on costs, but when the
bottom line is drawn in the accounts, it makes little difference to the holding
companies where the profits come from. There is thus no incentive to integrate
further. However, when operating companies are separated out, it becomes a
different story.
It
will take an adventurous investor and one without all the historical baggage
like Mr Fredriksen to kick start the integration process but once it starts, it
is inevitable that it won’t stop with him.