reLAKSation 237. Callander McDowell
High wire safety net: The presence or absence of a safety net below a circus high wire makes no difference as to whether the high wire performer completes his act or falls off the wire. The safety net is exactly what it says – a safety net to protect the performer’s life should he lose his footing. It has no other function.
Speaking at the Aquaculture Today 2006 conference in Edinburgh, David Wilson, Director of the Scottish Executive’s Marine Group, told delegates that the trade defence measures implemented by the European Commission have brought renewed stability to the Scottish salmon industry. He is wrong. The Minimum Import Price is simply a safety net should prices fall to a predetermined level. The MIP cannot and does not exert any upward influence on prices and anyone who believes it does is misguided. The current price rises are the result of other factors including the sudden growth of emerging markets especially in Russia. However, at the same time, it is true that the actual dumping case has had an indirect effect on the market as it has brought uncertainty and a reluctance to plan forward.
In addition, what Mr Wilson describes as stability is as far from stability as it is possible to get. Prices are not stable; they are actually rising out of control. The idea of stability is one of constancy and this is not what the industry is experiencing now. As sure as day turns to night, the current rise in prices will be followed by a price collapse. Of course, Mr Wilson doesn’t mean that the market is stale at all when he refers to stability. What he means is that prices are now higher than the perceived cost of production and thus farms should have returned to some form of profitability instead of bleating to the Executive about unfair competition and the destruction of the industry in Scotland.
Whilst the industry rubs its hands with glee at the current price levels and why not?, there is a limit to what consumers are prepared to pay and prices will peak as the market starts to resist reversing previous gains.
Some commentators would argue that such peaks and troughs are the inevitable result of a cyclical industry. We, at Callander McDowell are not yet convinced that salmon farming has reached that level of maturity. Instead, we are simply seeing the effects of artificial market interference imposed by dumping cases. We have always argued that if the blinkered minority who view trade measures as essential forms of protection had rather invested in the development of more market-led strategies then they would be now benefiting from the type of stability that Mr Wilson would prefer to see.
Conference delegates also heard from Juan Ronco from DG Fish, who, according to seafoodintelligence.com, believes that trade defence measures result in price rises and when the measures are removed, then prices crash. We, at Callander McDowell, do not believe that we will have to wait five years until the current measures are removed to see the next price collapse. It will happen long before then for the current levels cannot be sustained.
As we have already suggested, the current price rises are not the result of the trade measures but rather just one of the effects of the uncertainty that trade actions bring. Some may argue that Mr Ronco provides evidence for the imposition of permanent trade measures, but it is equally an argument against them. The removal of such artificial disruption could lead to a much better and quicker balance in the marketplace. It is possible to protect even the most inefficient farmers from international competition but eventually, they all need to live without the presence of a safety net.
Not enough: Award winning salmon farmer Nick Joy of Loch Duart Salmon told the Aquaculture Today 2006 conference that ‘Scottish’ isn’t used enough as a brand in selling food reported seafoodintelligence.com. Had anyone from Callander McDowell been able to attend the conference, we would have asked Mr Joy to explain why, despite his evangelical approach to promoting Scottish salmon, that why this is? After all, in the case of salmon, the industry has been actively promoting the Scottish image for well over fifteen years, first through the Scottish Salmon Board and then through Scottish Quality Salmon. In addition, the wider industry is backed by Seafood Scotland. Yet despite such determined efforts, the Scottish brand has not made the anticipated impact as seems to be confirmed by Mr Joy’s comments.
We, at Callander McDowell would suggest that the main reason that the Scottish brand, at least with regard to salmon, has failed to make a real impression on the marketplace is that most consumers are simply unable to distinguish Scottish salmon from any other and therefore are unwilling to pay more to buy it.
In the early days of the industry, Scottish salmon was sold at a premium price reflecting its rarity value. Certainly in the UK, all salmon was Scottish but as production and demand grew, Scottish producers could not keep up with demand so more and more salmon was imported. Farmers like Mr Joy argued that their salmon was superior to imported fish and therefore continued to deserve its premium pricing, however consumers began to find that Scottish and imported salmon tasted much the same and any differences were insufficient to justify a premium price. Prices for Scottish and imported salmon have therefore evened out much to the disgust of Mr Joy and his colleagues. It is this similar pricing that led to both the dumping and safeguard cases.
Mr Joy told delegates at the conference that much of the 3,500 tonnes of salmon he produces is targeted at the premium market. He said that his customers want a distinctly ‘different’ product together with the story and provenance of the fish but put taste at the top of their list of priorities. We, at Callander McDowell have conducted blind tastings of farmed salmon from a variety of sources including Loch Duart and cannot say that there is much difference between any and why should there be? They are all fed much on the same feed and they are reared in much the same way. Of course, there are differences as Mr Joy would argue, but lower stocking densities do not affect taste. The differences relate to the texture of the fish and this relates to the oil content, which some consumers like and others don’t and the way that the fish were handled after harvest until they reach the consumer.
In answer to whether the industry needs a commodity market in addition to the premium price one, Mr Joy replied that the public doesn’t want the commodity food message. Translated, this means that Nick Joy doesn’t want salmon to be part of the commodity food industry. Instead, he wants to keep it special. It is quite clear that he is prepared to ignore what consumers want and instead wants to impose his vision of salmon farming on the marketplace. This is nothing new as it forms the whole rationale behind the dumping cases. Mr Joy and his colleagues in the EUSPG do not want consumers to benefit from eating value for money salmon. They want to premium prices. He told conference delegates that ‘we need to make the customers realise that they must pay more’. He was actually referring to sustainable production since this is the USP that Loch Duart have focused on since being unable to sell their customers the Scottish message.
Seemingly, Mr Joy’s crusade to persuade his customers to pay more has not been too successful. Loch Duart salmon can be bought from the fresh fish counters at Loch Fyne restaurants for £8.62/kg. This compares to £9.99/kg at Sainsbury’s, £9.50/kg at Booths, £10.99/kg at Waitrose and £15.00/kg at Selfridges. Organic salmon commands an even higher price with organic fillet selling at £11.25/kg in Booths, £11.99/kg in Morrisons, £15.99 in Waitrose, £19.50/kg in Selfridges, £19.99/kg in Planet Organic and £29.50/kg in Fishworks. Prepacks are even more expensive. By comparison, Loch Duart salmon looks cheap!
Vive la France?: One the very same day that Drew Cherry of IntraFish published his analysis of the French retail sector, our market consultant was in France conducting one of our regular market surveys. Mr Cherry suggests that anyone seeking seafood innovation would benefit from a similar trip to France, however we would disagree. The real dynamo for seafood innovation is the UK with France lagging well behind. The French market is certainly interesting, which is why we conduct regular surveys of the retail sector there, but it is not the driving force behind seafood development.
Mr Cherry suggests that France is amongst the largest private label buying nations but this could be due to the size of the country. Certainly, private label is in much evidence but so are well known brands. By comparison, the UK market is nearly all private label with only one or two companies managing to maintain a foothold in the sector. Mr Cherry also suggests that the largest presence of discount retailers such as Carrefour and Auchan is in France and it is these store groups that are making the branded manufacturers fight for market share. We, at Callander McDowell would not describe either Carrefour or Auchan as discounters any more than we would describe Tesco or Morrisons as such in the UK. Discount retailers are Netto, Aldi and Lidl. Instead, Carrefour and Auchan offer value for money and they have found that they can best do so by developing their own label products. The brand manufacturers have to continue to innovate to compete but this innovation still has a long way to go before it is comparable to that found in the UK.
The development of own label products means that brands do have to compete. Mr Cherry gives the impression that the brands have to heavily discount to maintain their position. This is not the impression we have gleaned. Certainly, Fleury Michon are offering 15% extra free on one product in a couple of stores and some smoked salmon producers are offering an extra slice free, but compared to the promotions in the UK, these are not exactly acts of desperation. Mr Cherry suggests that this discounting is necessary because the own label products are offered at up to 50% less. This is true but well-established brands also have a loyal following and a reputation and consumers are willing to pay more. The presence of cheaper own label products is not always sufficient reason to move away from what consumers know best. The baked beans sector is typical of this phenomenon. The risk for brand manufacturers is that if a customer wants one of their products and it isn’t in store, then consumers might decide to go to own label instead and if they then find they like the own label product, they may decide to choose that in future.
Mr Cherry suggests that chilled ready to cook is a growing category but by comparison to the UK, it is tiny. It is lacks real innovation, especially in presentation and packaging. French manufacturers, even the best-known names, still have a long way to go.
The smoked salmon sector is perhaps the most confusing. We, at Callander McDowell have always puzzled at how French consumers are actually able to make a buying decision. The choice is so huge. In addition to private label, there is a plethora of brands, each of which are available in Irish, Scottish and Norwegian variants. It is hugely confusing. However, we have recently started to notice changes in this sector. The first is that private label is now starting to dominate and the choice of named brands is diminishing. The other change is that whilst most retailers charge increasingly more for the different national identifies from Norwegian as the cheapest to Irish as the most expensive, some stores are now charging the same for all three. We wonder whether this will be the first step to removing this three tier arrangement changing to one based on the type of smoke as found in the UK.
Yet, it is not just the smoked salmon market that is changing in this way. The market for fresh salmon seems to be moving in the same direction. The Scottish industry has always argued that they benefit from a higher price because of Label Rouge. This does seem to be the case but the distinction is not quite as clear as they would suggest. This is for two reasons. The first is that only a minority of stores sell Scottish Label Rouge salmon. Secondly, those that promote Scottish fish; do not appear to sell Label Rouge salmon in direct competition with comparable Norwegian fish. Usually, whole fish and steaks are sold as Scottish Label Rouge, but the most popular portions on offer are of Norwegian origin. If the price of whole fish from different stores is compared, then Scottish fish do seem more costly, but this does not take any price differential between stores into account. However, on our latest visit, at least one store was advertising salmon portions from both Scotland and Norway at the same price.
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