reLAKSation 209.
Which
way now?: Both IntraFish and
seafoodintelligence.com have published a number of reports about the recent
meeting in Oslo hosted by First Securities for investors and analysts. One after
another, the leading lights of the fish farming business delivered their spin on
their individual company as well as the wider industry. This was an major
opportunity to demonstrate to the financial sector that fish farming can live up
to the hype. According to Kontali Analyse, it is the biggest companies that are
most to blame for the negative impression that the financial sector has gained
of the aquaculture industry. Kontali Analyse have examined the accounts for
salmon farming companies for the period 1996 - 2004 and found that it is the
smaller companies that are coping best. This is because they are able to
maintain focus on the day to day running of the business and because they remain
in close proximity to production. Kontali also suggest that local ownership is
crucial. Considering this analysis, IntraFish have asked whether it is smart of
the big companies to continue with their consolidation?
We,
at Callander McDowell, have no doubt as to how the future of salmon farming
should look. We first expressed our view of the industry as long ago as 1989 and
little has occurred since to change this view. We have always said that this
view will depend on the type of market image that producers want for the salmon
they produce. If the intention is to produce salmon for the small luxury market,
as some Scottish farmers would like to see the industry, then the make-up would
consist of small and medium sized companies producing limited quantities of
quality salmon. By comparison, if the future industry is to produce huge
quantities of value for money salmon for the mass market, then it will be
dominated by a handful of major international players. Whether it is perceived
to be right or wrong, we certainly believe that the second option must prevail,
especially as the industry has already moved well down this route. Just because
the small to medium sized companies are profitable now does not mean that they
will continue to be so. Equally, the same applies to the biggest companies.
Under new management, they have adapted to the changing market and should
benefit accordingly. This does not mean that the small and medium companies do
not have a place in a future industry, it just means that they must specialise
and develop niche markets. It is already apparent that there are opportunities
to do this.
It
is also apparent that the biggest companies have adopted very different
strategies to achieve their future goals. Whichever strategy they do adopt, it
is clear that a focus on the market must be paramount. Only time will tell which
companies take this message on board.
As
already discussed, we, at Callander McDowell, have a very clear picture of how
the salmon industry will develop. Speaking at the conference, Nutreco's Wout
Dekker said that the salmon farming industry should look to the intensive
poultry industry for a model of ways to ensure future profitability. This view
is nothing new. The intensive broiler industry has been promoted as a model of
salmon farming for at least fifteen years, but much of the industry has
dismissed the idea. In fact, there has been a general reluctance to consider any
ideas from outside the industry and this is in part because much of the
industry's attention has been focused on trade disputes rather than on industry
development. Even Mr Dekker, who has promoted this idea, seems to be unaware of
how much the salmon market has progressed outside of farming. He told the First
Securities conference that chicken has a range of 50 different products
including legs, drumsticks, breasts and whole chickens. In addition, there are
also many by-products. By comparison, he said that salmon has relatively few
processed products.
We
are sure that if salmon had legs and wings, the industry would be selling such
cuts. Chicken producers do have other options besides raw flesh, but this
doesn't mean that salmon is not as versatile. Callander McDowell have collected
examples of over 400 salmon products from the marketplace and this does not
include any made from smoked salmon.
The
past thirty years of salmon farming has been characterised by a focus on
production. The success of the industry over the next thirty years will depend
on whether this focus can be redirected to the market. As Mr Dekker suggests,
there are models outside salmon farming from which the industry can learn. The
challenge is how willing the industry is to do so?
Up
or down?: Helge Moen, organiser of the First
Securities conference was described by IntraFish as being most optimistic about
the future prospects for the salmon industry. He said that he expects prices to
maintain a high level up until around 2007.
We,
at Callander McDowell, have always argued that it is very easy to make price
forecasts since few people if any remember what was said when the forecast fails
to materialise. The press is littered with such forecasts of not only prices,
but production outputs etc, but they rarely attempt to follow up on these
forecasts and why should they? By then, it's just history.
We
are not in the business of making forecasts and cannot say whether Mr Moen's
prediction is right or wrong. We are just not as optimistic as him. After all,
prices appear to have already taken a slow downward trend and past experience
has shown that whilst Christmas is a period of higher demand, there is also a
higher level of supply as farmers try to capitalise on the expectation that
prices should be higher. Of course, this year things may be very different.
There
are a number of factors which have contributed to higher price levels this year.
Production does not seem to have increased significantly and some claim that
overall, it might have decreased. Certainly, the EUSPG have argued that Scottish
production has declined due to farm closures and the lack of finance to pay for
smolts. However, the continued absence of official production figures means that
any changes are difficult to substantiate. The imposition of dumping duties have
had an effect on process although once they were removed, prices did not take an
immediate dive. Whilst the EU's market interference has had some effect,
although claims that the MIP has brought stability, has no clear basis. The MIP
will only come into play if prices fall below it. Even then, it doesn't mean
that prices in Europe cannot fall lower, it only means Norway is prevented from
exporting fish at lower prices.
Of
one thing, we're certain. The future industry cannot base its expectations on
high prices. The salmon industry seems to be aiming its production at the value
for money mass market. This market is not prepared to pay high prices. If prices
do rise, then the extra income should be considered to be just a bonus. It
cannot be the platform on which to base the future industry.
Protection
- a common theme:
According to seafoodintelligence.com, Ofimer - the French Seafood Board
has reported that following a strong fall in salmon imports during 2004 due to
the adverse publicity surrounding farmed salmon, 2005 has seen a healthy
recovery. Salmon imports into France rose by 24% in value and 13% in volume.
Most of this growth has come from Norway (46%) for fresh salmon and Chile (28%)
for frozen. By comparison, Ofimer report that imports of fresh salmon from the
UK have declined.
This
must be bad news for the Scottish industry which has focused heavily on the
French market.
Scottish Quality Salmon had reported that exports of Label Rouge Scottish
salmon to France increased by 21% during 2004 to 6761 tonnes, compared with 5592
tonnes in 2003. The expectation had been that Scottish exports to France,
including those of Label Rouge salmon would continue to increase. In a press
release, SQS had said "Label Rouge Scottish salmon has PGI status now as
well, which guarantees its distinctive regional characteristics. PGI status puts
Scottish Farmed Salmon on a par with Champagne and Parma Ham as a product
recognised by the EU for its quality and distinctive regional characteristics.
PGI is better recognised in continental Europe than in the UK and as France is
already a significant market for Scottish Farmed Salmon, we expect PGI to give
added impetus to sales there." The news from Ofimer would suggest that the
added presence of PGI status has not worked.
Scottish
Quality Salmon had also believed that UK consumers would increasingly see PGI as
a badge of quality and authenticity. "UK food producers have perhaps been
slower than some markets to recognise the value of PGI status. But that is
rapidly changing and consumers here will become much more familiar with PGI, its
logo and what it stands for”. Just as in France, the presence of PGI status
appears to have little impact. Certainly, we at Callander McDowell, have seen
absolutely no evidence of PGI badged salmon in the UK marketplace.
We
wonder whether this is just another example of the salmon industry preferring to
focus on their own perception of the market image of their salmon rather than
those of concern to the consumer. We have repeatedly suggested that country of
origin is of little concern to most consumers. Instead, they are more interested
in whether it is good to eat and whether it is value for money. The fact that
the salmon comes from Scotland is largely irrelevant.
Fishupdate.com
recently reported that Food from Britain have added EU Protected Name Foods to
their buyers’ guide. Although the foods listed raise other issues, which are
too numerous to discuss here, the various entries provide an insight as to what
the producers consider most important.
Whitstable
Oysters are listed as a protected name. Their entry reads “ Whitstable is
renowned for the quality of its oysters, the meat of which is fat and succulent.
Oysters have been produced in the area since Roman Times.”. By comparison, the
entry for Scottish Farmed Salmon states ”Scottish farmed salmon must be
typical of the species, Salmon salar (Atlantic salmon). Scottish farmed salmon
have a consistent shape. The fish must have a rounded ventral body surface when
viewed laterally and the body wall musculature should show no significant
tendency to collapse when carcass is eviscerated. Scottish farmed salmon have an
iridescent appearance and are silver in colour. The fish colour must have a
minimum intensity of 26 on the Roche scale. Scottish farmed salmon are firm with
a fibrous to smooth to even texture. Scottish farmed salmon have a consistent
flavour due to the rapid chilling post harvest.”
Presumably,
this description of Scottish farmed salmon will be included on packs of PGI farm
salmon in the shops and on the menus of those restaurants serving Scottish farm
salmon. Producers would surely want to be sure that consumers are not being
misled into eating something without this form of protection. After all, it does
sound very tasty!