reLAKSation 234. Callander McDowell
Never happy?: What is it with the independently owned Scottish salmon farming industry? They never seem happy about any developments in the wider industry, which they always see as a threat rather than an opportunity. This is how it was back in 1989 and it seems that nothing much has changed since. One unnamed industry insider told fishupdate.com that the acquisition of Marine Harvest by Pan Fish is a terrifying prospect for the Scottish industry. This insider went on to say that until now, the Scottish industry has relied on diversification but this merger will give control of most of the mainland and the Western Isles to one company. He said that there are now just over 20 small independent companies left in Scotland.
Yet again, this industry insider hides behind media confidentiality preventing more free and open discussion of these issues and a misleading impression of the Scottish industry. This insider gives the impression that the Scottish industry will now consist of one large mega company and 20 or so independent players including smolt producers. We know that the independent industry under the guise of the EUSPG do not consider foreign owned companies to be part of the Scottish industry but there are several other farming businesses operating successfully in Scotland. The FRS survey for 2005 has not yet been published but the 2004 survey indicates that 57 companies are actively producing salmon and another 48 are producing salmon in freshwater. We, at Callander McDowell are unable to read every newspaper and fish farming magazine but are not aware of any wholesale closures during the last year. The reality is that if the insider’s figure are correct, then there were 20 independent salmon producers before the merger of Pan Fish and Marine Harvest and there are still 20 or so afterwards.
It is unclear what this insider means when he suggests that the Scottish industry has relied on diversification for its survival until now. He could mean that the Scottish industry has consisted of small, medium and large players and it still does. The only change is that one of the larger players has become larger still! This was both predictable and inevitable. Whilst the unnamed industry insider bemoans this latest merger, the reality is that it is this insider and his colleagues who have directly held the door wide open to such mergers and acquisitions and the increased dominance of foreign owned companies.
To understand why the independent industry should look to themselves for someone to blame for this ‘terrifying prospect’, it is necessary to turn the clock back to 1989. Prior to that date, salmon farming had been rapidly expanding satisfying the demands of a market for luxury products. Salmon farmers could sell all they could produce and at a premium price. No thought was given to future market development. It was all live for today. Then in 1989, the price of salmon suddenly collapsed. This was simply because the market for premium priced salmon had become saturated.
At this point, there are two distinct interpretations of the situation and two completely different solutions. The then Scottish industry argued that Norwegian imports had flooded the market. They claimed that the price collapse was a direct result of Norwegian over-production.
The alternate view was the very act of farming, irrespective of whether it occurred in Scotland or Norway, had forced a change in salmon’s market image. Salmon farming had metamorphosised overnight from an industry of low volumes and high margins to one of low margins and high volumes. Salmon had evolved from a luxury product to one of the wider marketplace.
The real problem was not over-production but rather under-marketing.
The Scottish industry, having blamed Norway for the low prices, adopted a strategy in which they hoped that they would return salmon’s market image to that of a luxury product. They proposed a plan to restrict production and hence keep salmon’ image special. Their plans included the introduction of import restrictions through EU mediated trade actions, backed by the imposition of production controls through the formation of a system of Producer Organisations.
The other strategy was to capitalise on the lower prices and expand the market by making salmon available as a ‘value for money’ everyday meal choice. This depended on the widespread reduction in the cost of production mainly through the economies of scale. Effectively, producers opted to expand production selling more salmon but with less margin. This might be perceived as a Norwegian strategy but actually it was the commonsense approach adopted by producers worldwide, including Scotland. Unfortunately, rather than recognise that this strategy would bring value for money salmon to a much wider consumer base, the independent Scottish industry continued to fight against it because they believed that it devalued the market image of their Scottish salmon.
It is this continued fight that has led to the current dominance of foreign owned companies in Scotland. It is a fight that has lasted for over fifteen years and a fight that the independent producers can never win. This is because they have ignored the needs of the consumer. Their main aim has been to persuade the European Commission’s Trade Directorate to exclude Norwegian salmon from the EU market through the imposition of quotas or high tariffs. This strategy has largely failed but has been successful in causing major disruption to the salmon market. Some Norwegian companies, who rely on the EU market, were concerned that such exclusion would damage their business’s and recognised that the only way that they could retain a presence in Europe would be through the acquisition of European farms. Hence, Norwegian companies opted to buy in Scotland and Ireland. Clearly, if the Scottish industry had concentrated on the development of their own businesses rather than exclude potential competition, the Scottish industry would have remained largely in Scottish hands. As the Scottish industry have been unable to recognise the real market potential for farmed salmon, they failed to appreciate that European farms could never meet the European market’s demand for salmon and therefore imports were essential. Unfortunately, they wanted to keep salmon special and restrict salmon to a small exclusive European minority. This was totally unrealistic and they are now paying the price in having foreign owned companies in their midst.
Equally unrealistic is the idea that the salmon industry will be diverse with many different players. Yes, there is a niche for small producers supplying specialist markets, but the mainstream industry will eventually be one dominated by a handful of very large international players. This was predictable back in 1989 and is still predictable today. Salmon farming is no different to any other business and all the factors that influence the wider business community apply just as equally to salmon farming.
Unfortunately, it seems that it isn’t just the independent Scottish producers who want to throw such ideals out of the window. Michael Foxley, Vice-Convener of the Highland Council is also keen to ignore common sense principles in his approach to the salmon farming industry. He is concerned that the trend for a smaller number of larger salmon farms will continue and that will lead to a reduction in the workforce in the remote Highland region. Whilst salmon farming was seen as a way of bring jobs to the Highlands & Islands, the reality is that farming is not a social service but a business and whilst twenty years ago, employment levels were high, new more efficient methods of production, mean productivity per man has risen and the number of jobs has fallen. Over the years, this trend has been well documented as can be seen in the FRS annual production survey. Mr Foxley cannot reverse this trend even if he believes it would create more jobs.
Mr Foxley told fishupdate.com that the trend towards larger foreign owned farms has already resulted in the dilution of Scottish salmon as a marketing label, but we at Callander McDowell would disagree. Ownership or scale of production has nothing to do with the way that salmon is promoted in the marketplace. The simple reason why the Scottish image is no longer sufficient reason to guarantee a price premium is that most consumers are totally uninterested in where the salmon was produced. What concerns them is that it is good to eat and that it represents value for money. Even the small independent farms that Mr Foxley wants to now protect have found that they need to pursue other USP’s rather than rely on their Scottish origin. For example, Loch Duart Salmon, who have just won the Daily Telegraph’s Taste of Britain Gold award, did so based on their sustainable methods not their Scottish origin. The Daily Telegraph article can be viewed on the Loch Duart Salmon website. In much the same way, other small producers have focused on organic production These are buying issues in which the consumer is interested, not their Scottish origins.
Mr Foxley asks how these few small producers can be protected. The answer is simple. They should produce what the consumer wants. However, Mr Foxley believes that the interests of these small farmers can be better served by referring the Pan Fish - Marine Harvest merger to the Competition Commission. We cannot see how this will help. If Pan Fish is told to reduce its holdings, the likelihood is yet another foreign owned company will acquire the excess production capacity. The situation for the small producers will remain unchanged.
Loch Duart Salmon has shown that if the small producers takes the right message to market it can be extremely successful. There is no reason why other producers cannot achieve the same success. Part of the problem is that the EUSPG and others have been preaching a message of doom and gloom for so long that everyone has started to believe in it. In much the same way, Mr Foxley asks the question as to how new people can be encouraged to come into the finfish farming industry but we wonder why anyone, especially new investors, would want to enter the fish farming industry when all they hear about are the terrifying prospects ahead.
Nutreco and Stolt Sea Farm Have made it clear that they want to cut their links with salmon farming. If Pan Fish are ready to invest in Marine Harvest’s future then it is a move that should be welcomed not vilified. Isn’t it time that the merchants of doom and gloom changed the record?