reLAKSation 21.
Low Prices: How far will salmon prices will drop? is the question posed by the news service Intrafish.
In response, Intrafish have received conflicting answers. Several unnamed exporters expect little price movement over the summer. One does not believe that the prices have yet bottomed out, whilst another thinks that the bottom is near.
By comparison, Fjord Seafood CEO, Paul Birger Torgnes believes that a better balance will be achieved by August, although prices have dropped significantly since he expressed this view. Yet, in the longer term, Mr Torgnes is optimistic about prices. He expects less fish will come to market over the next 16 to 18 months and he believes that this will force prices upwards.
We, at Callander McDowell, have stated previously that trying to forecast the price is extremely difficult. This is because there are three different factors to take into account.
The first of these is the short-term availability of fish. If producers release too many fish onto the market at the same time then this can have a dramatic effect on prices. The total volume may well be within forecasted levels for the year, but excessive localised supply can force prices below expectation The reverse is also true.
Prices are traditionally low in the summer. This follows the Easter high and the anticipation of a build up towards Christmas. It will be interesting to see whether the current low prices will start to pick up at the end of summer or whether producers have held back fish in expectation of higher pre-Christmas prices.
Last Christmas, prices failed to rise as expected and neither did Easter prices this year. It is therefore possible that there may not be any real price recovery over the forthcoming Christmas period. Of course, we would hope to be wrong and farmers can start to benefit from higher prices as soon as possible.
The second factor is the increasingly global marketplace. Norwegian exporters view their price expectation on the availability of locally produced salmon, yet we now operate in a global market place. If Norwegian salmon should be in short supply, then it is now not just Scottish and Irish producers who will look to meet the shortfall, but also those from Chile and Canada and, as highlighted recently, suppliers of wild Alaskan salmon. This global marketplace could well undermine any price recovery.
The third and most important factor to affect prices is the long term relationship with volume production.
As the volume production increased, then salmon prices have declined. This decline is expected to continue with ever increasing volumes of salmon coming to market and farming companies try to maximise margins with more production. This underlying trend is the main driver of the continued low prices. These may cycle with localised availability and demand, but it is this trend, which dictates the overriding price expectation.
How low can prices therefore fall? The answer is that they will go as low as the lowest cost of production will allow. The expectation is that the available margin will decrease to the absolute minimum, a level that only the largest farming companies will be able to bear. This does not mean that other farming companies will be forced out of business, but rather that they will need to urgently reconsider their strategic market.
Low prices are clearly here to stay. Farmers can postpone any decisions in the hope of a future recovery, or they can start to adopt the market led strategies, which will ensure their long-term survival.
On or off-shore? The Norwegian Government has produced a green paper proposing restrictions on salmon farming in 22 fjords and that five salmon farms must relocate. These measures are intended to protect stocks of wild salmon.
In the early days of the salmon farming industry, it made sense the Norwegian farmers should look to the protection of the fjords for their salmon cages.
Salmon farms were then small in number and volume and the technology they used was extremely basic. However, as the industry has grown and matured, the number and size of farms has increased. the technology has also seen dramatic improvement. Even if the question of the protection of wild salmon had not been raised, it could not be too long before even farmers themselves would start to ask how much longer farming in Norwegian fjords can continue to remain viable?
As demand for salmon continues to rise, farming companies must start to consider the possibility of moving cages off-shore. This would solve many problems, not just of stocks of wild salmon, but also of several other issues raised by environmental lobbyists.
Some equipment suppliers are now manufacturing more robust cages for use off-shore, but these are intended for sites in more exposed locations rather than those, which can be classed as being truly off-shore.
An alternative vision is that salmon farming moves not just off-shore, but into open sea locations. These may include those sufficiently distant to be out of sight of the shore.
The most obvious problem to such sites are that they are difficult to service. This is because of the potentially large distances involved. The solution lies with the oil industry, which is faced with the huge and expensive task of decommissioning many oil platforms. Stripped of their equipment, there is no reason why these cannot be used as service platforms for a large off-shore farm. Although seemingly expensive to run, a partnership with the oil companies and government, should make such farming economically viable. It is only a shame that those companies who developed both salmon and oil interests have now divested themselves of their salmon farms. These companies would have been the obvious choice to trial such farming ventures.
Irish Marketing : The Irish Sea Fisheries Board have issued a strategy document 'Realising the Market Potential for Irish Seafood'. This has produced a mixed response from the Irish fisheries sector, with some believing that it has little relevance to small independent companies, who are either too small or too specialist to react to the demands of the market place.
This is a common response and one often heard from within the wider salmon industry. Yet, the market place is so important that it is something that even the smallest producers cannot afford to ignore. The BIM report is something that merits further discussion that it will be the sole topic of the next issue of reLAKSation.