reLAKSation 230. Callander McDowell
Organic growth: According to Seafoodintelligence.com, Deputy Minister Rhona Brankin has said that half the demand for organic produce in Scotland is now being met by Scotland’s own organic farmers. The Minister was visiting an organic livestock farm to coincide with the publication of a report studying market penetration of organic produce. The report suggests that Scottish farmers are on target to provide 70% of demand for organic food and are also increasing their share of the UK and international markets.
Unfortunately, the report does not provide a clear picture as to a true level of demand for organic produce in Scotland and therefore it is possible that whilst half the demand is now being met, the actual level of demand could be very low. Certainly, Scotland does not have a good reputation for consumption of such foods.
The report includes a section on organic aquaculture production. This states that Scotland is responsible for the production of all organic salmon in the UK, with most being growth in the Western and Orkney Isles. Production in Shetland is focused to grow as newly certified farms become operational. Production in 2004/5 was approximately 2,500 tonnes worth £6.8 million compared with 3,117 tonnes in 2003/4. This decline in production is surprising since all the forecasts for organic production including of organic fish are for continuing growth. This fall is therefore contrary to all market trends.
We, at Callander McDowell, suspected that this contraction of output would be blamed on the continuing claims of Norwegian dumping since it coincided with the submission of the dumping complaint by the European Salmon Producers Group during 2004. These independent farmers argue that cheap imports have forced down prices making it uneconomic to farm salmon in Scotland. It is some of these same farmers who have opted to convert to organic production recognising that the small niche market offers greater rewards. Yet, the market for organic salmon is distinct from that for traditional salmon. Price is not the main driving factor for most consumers of organic salmon and hence the presence of cheaper traditional salmon, whether dumped or not, should not influence these consumers to avoid organic salmon. The trade dispute with Norway cannot be the reason why organic production has fallen. The report actually suggests that the reason why production fell was due to a wariness of market trends and changes in husbandry practices. Simply, organic farmers have been slow to respond to what the market wants.
This can be illustrated by the fact that with high levels of production in Scotland, but only low levels of demand, organic salmon producers should be able to achieve close to 100% supply of Scottish demand for organic salmon. However, the report highlights that at least one retailer stocks Irish organic salmon in its Scottish stores. At the same time, these farmers could argue that as the main market for organic salmon is in the South of England with over 70% of total expenditure, that this must be their main target. By comparison, Scotland share is only 10% and therefore much less important.
None of these minor issues should detract from the clear message emanating from this report. Organic salmon is a high value niche market, demand for which is high and is expected to increase in the coming years.
Yet, this message is not new. Repeated forecasts have predicted that demand for organic produce, including salmon, is the main growth area in the food sector. Producers have been largely slow to respond, especially those who are best qualified to service specialist niche markets. We, at Callander McDowell, have always puzzled why small independent producers have spent time and money arguing that cheap imports have undermined their businesses instead of responding to these well publicised changes in the marketplace. Even DG Trade have now recognised that organic salmon is distinct from traditional salmon, as compared to ‘Scottish’ salmon which appears undistinguishable from Norwegian or even Chilean salmon. In Council Regulation 85/2006 which imposes the definitive antidumping duty on imported Norwegian salmon, the Commission consider that organic salmon should be disregarded in the investigation because of the higher cost of production and higher sales price. Given the forecast in market demand for organic salmon, the big question which only the EUSPG can answer is why any of their members are still producing traditional salmon. Certainly, if they are not producing organic salmon, then they jolly well should be. This week, one of the leading retailer of organic salmon, Marks & Spencer, have put signs up in their stores advising their customers that they are unfortunately experiencing low supplies of organic salmon and are working their hardest to restore supplies back to their normal levels. They may have a very hard job doing so if the industry do not have enough fish to meet demand.
Trustworthy!: Shetland Marine News report that Shetland Development Trust could lose as much as £500,000 from the collapse of Hoove Salmon and Papil Salmon. After lengthy negotiations involving a number of interested companies, the assets of the two farms have now been sold to Scottish Sea Farms and so will remain in production boosting salmon production in Shetland and securing jobs. This contrasts with the situation in recent years when a number of Shetland farms folded prompting the EUSPG to submit their dumping complaint to Brussels claiming that cheap imports were forcing salmon producers out of business.
It is interesting that Shetland was the focus of these bankruptcies and farms elsewhere in Scotland and the islands managed to weather the storm without suffering insolvency. Whilst cheap imports make an easy target of blame for these business failures, there do seem to be some common features to most, but perhaps not all, of the bankruptcies. One seems to be the level of indebtedness to the Shetland Development Trust, which has lost huge sums of money through its investment in salmon farming. Whilst, we would certainly encourage continued investment in salmon farming, it is possible that previous investments were not used in the most effective way to develop a business capable of competing in a changing marketplace. Another is that some of the farms appear to have been under the same ownership. It remains a puzzle as to why farmers would want to operate several different salmon production companies as this only increases the operating costs. Of course, it also opens up the opportunity to apply for grants more than once.
Perhaps the main reason why Shetland companies collapsed so easily is that they were able to access too much money too easily and their businesses were just not sufficiently viable to service the debt. Of course, this is just conjecture and we may be totally wrong, but it does not seem that the Shetland experience is typical of the wider Scottish salmon industry.