reLAKSation 242. Callander McDowell
A mistake?: Fishupdate.com report that Professor Terje Vassdal of the Norwegian College of Fisheries Science has warned that investing in cod farming could prove to be the wrong choice for Norway. He said that large scale production of farmed cod could push down the price of wild cod, which could be a national catastrophe. This is because wild caught cod can achieve a good price. Professor Vassdal suggests that if too much farmed cod comes to market, it could push down the price of cod, irrespective of whether it is farmed or wild caught. He added that cod farmers have to compete against a completely identical product which has an established market price. He said that the Norwegian Seafood Export Council have been trying to promote farmed cod as an unique product, but consumers will not be able to differentiate between the two. He said that cod is nothing but a mass market fish.
We, at Callander McDowell are not surprised by Professor Vassdal’s comments. He has said nothing new. Although some investors and farmers have been caught out when prices have fallen, the link between volume production and price is well established. It was both predictable and inevitable that salmon prices fell as production volumes increased. It should have been anticipated and detailed in any business strategy. Similar price falls will clearly happen with any other species selected for farming including cod. The aquaculture industry has already seen evidence of weak prices with sea bass and sea bream farming and as in any industry, the challenge is to seek margin elsewhere in the production process. Certainly, we do not believe that any growth in cod farming will be a perceived as a national disaster in Norway. It is just another opportunity.
We do agree with Professor Vassdal that it may not be the best approach to market farmed cod as the premium product. Farmed cod may make fantastic eating but in every other example of farmed fish, the wild fish are those that obtain a premium. Wild Atlantic salmon sells for more than any farmed variety and wild sea bass sells for more than the farmed examples. It is natural to want to obtain the best price for the fish and the highest margin, but unless consumers can perceive a real benefit for paying more for farmed fish, they won’t and as good as farmed cod may be, the real experts appear to be able to differentiate the wild fish from farmed. When the market starts to receive regular supplies of farmed cod in quantity, prices will fall whatever efforts are made to convince the consumers otherwise.
Branded!: This week has also seen the Observer Food Monthly feature Shetland’s organic cod. Entitled ‘New cod on the block’, the article anticipates the launch of Johnson’s organic cod into the wider market place. Previously, Shetland organic cod has only been available on a small scale at selected restaurants and outlets but now it is going mainstream with its launch into British supermarket Tesco.
We, at Callander McDowell are not sure whether this organic cod will appear under Tesco’s own name or using the Johnson’s ‘No Catch….Just Cod’ label but we were slightly surprised that Tesco and not Marks & Spencer’s or Waitrose were to be the first to promote this fish across the country. Both Marks & Spencer’s and Waitrose are associated with selling fish at the premium end of the market and for widely promoting organic produce. Tesco do sell organic salmon, but its pricing is more towards the bottom end of the organic salmon market. Our surprise is due to the fact that Jonson’s have always argued that their fish are at the premium end of the market not in the mainstream. Yet, the Observer Food Monthly reports that the price of Johnson’s cod fillets should be in shouting distance of that of wild cod (currently £5-6/kg at Billingsgate or around £10/kg at the supermarket). This means that organic cod would be expected to be above £10/kg in Tesco, yet Tesco currently sells prepacks of chilled cod at £6.97/kg, (The Billingsgate price for cod fillet was £5/kg this week). Johnson’s may have a hard time convincing Tesco customers to buy their organic product but until the packs appear in store and prices are known, it is still an unknown quantity.
Meanwhile Johnson’s chairman Laurent Viguié acknowledges that there are problems coming into the market at the premium end. He told the Observer that he is proud that he has created a brand which sets the quality benchmark. He added that it can work and it is only necessary to look at Green and Black’s chocolate for an example. Mr Viguié said that Green & Black’s have created a high-end brand that sold like hot cakes and continues to do so despite the competition. This may well be true but there are some major differences between branding organic cod and branding organic chocolate.
Branding a product is not the solution to boosting sales it seems. Certainly, as we discussed in the last issue of reLAKSation, Birds Eye have not found it the route to a profitable business. They are struggling despite being a household name. They have now resorted to criticising the competition and using negative advertising as a way of increasing their market position. This is not the best of ways of conducting business. Even before launching their brand Johnson’s MD Karol Rzepkowski appears to be using a similar approach. The Observer reports that it is hard to keep up with Mr Rzepkowski’s passionate cod talk – part sales patter, part sermon from a true believer. According to Karol’s theology ‘Cod farming is good where salmon farming is bad.’ Why not just cod farming is good? Why even mention salmon? They are different fish and different markets.
Returning to the subject of Green and Blacks organic chocolate v. Johnson’s organic cod, we certainly believe that there are major differences. The success of Green and Blacks is no guarantee of success for Johnson’s. The big difference is that Green & Blacks chocolate is a manufactured product which can be distinguished from competitors not just by the label but also by the physical appearance and the taste. Farmed organic cod looks just like any other cod, at least to the public. It also is similar in taste. Clearly, some consumers will pay more for organic product but when others come to market with a competitive product, it is unlikely that this brand can be maintained. The Observer reports that Johnson’s have taken control of all the UK’s supply of cod hatchlings and this means that they can dictate terms to any newcomer to the business. However, Johnson’s do not control the cod facilities outside the UK and it will be inevitable that cod will flow into the UK from Norway.
Experience with salmon has shown that branding fresh fish doesn’t work. The Scottish industry tried to establish Scottish salmon as a brand worthy of a premium price but as consumers were unable to differentiate Scottish salmon from any other, the premium diminished leading to the ongoing trade dispute. We appreciate that country of origin is not really a brand so perhaps this is not the best example. Instead, it is worthy considering the ‘Lochinvar’ brand launched at the beginning of the 1990’s by Marine Harvest. The brand was not successful and was withdrawn. The then MD David McCarthy wrote at the time that ‘with hindsight, they don’t brand sirloin steak do they?’ It is a view worth remembering.
Meanwhile, Johnson’s are ready to act to protect their brand. The Observer reports that Johnson’s stopped supplying the Loch Fyne restaurant chain last summer because according to Karol Rzepkowski, they were abusing the cod. ‘They destroyed our fish! In the middle of the summer they were serving it with a sausage cassoulet.’ (!!!)
Mr Rzepkowski goes further saying that what they have achieved as the beginnings of a revolution. ‘We’re in a position to dictate to the retailers. They can’t force down our prices. They can’t make us erode our standards. It’s good for consumers and it could be a way to change the food industry.’
However, before trying to change the food industry, Mr Rzepkowski might first consider that the retailers don’t have to buy Johnson’s organic cod and neither do consumers!
The Alternative?: Fishupdate.com have suggested that another threat for farmed cod are new cheaper species such as Pangasius catfish. The problems of spawning this species have recently been overcome in Vietnam meaning that production costs can now fall to between € 0.5-0.6/kg with production estimated to rise to 1.8 million tonnes by 2010. The expectation is that fish like Pangasius will end up in supermarket freezers offering consumers a low cost option.
Certainly, Pangasius is a cheap option. It is already available in cash and carry outlets for just £1.50/kg but a cheap price is no guarantee that consumers will buy the fish. Fisupdate.com says that other species such as tilapia have been known for a while and it is true that tilapia can already be found on some supermarkets’ fresh fish counters. M&S have even launched a tilapia dish in their Cook range. However, this does not mean that tilapia or Pangasius will become an accepted alternative to cod or other marine species.
Although there has been a rise in the number of species consumed in the UK, the fish market is still very traditional. Those species that have made inroads into the marketplace are those with a perceived high value like sea bass or are fish like tuna and swordfish that have an eating quality more associated with meat than fish. There are plenty of cheap wild caught local species available which are not widely consumed but which are widely available. This suggests that the outlook for imported species is not great even if they are cheap.
The subject of new species was raised on BBC Breakfast TV this week with a feature about New Forest Barramundi. The presenters tried to suggest that barramundi were being grown as an alternative to cod (and chips) although the MD of the company played this down. Instead, he said that these fish may be viewed as a contribution to helping reduce the need to harvest the wild catch. Barramundi may appeal to those already buying sea bass and time will tell whether Waitrose customers are prepared to pay £14.99/kg to buy this unknown (but highly publicised) fish species. More importantly is whether this venture of growing an Australian species in a closed recirculation system will be sufficiently profitable to remain in business? This is a costly way of growing fish especially of a fish with uncertain market demand.
Tilapia are also being grown in a similar recirculation system in East Anglia. Most of these fish are being sold to Asda but as yet it is unknown whether the company is commercially viable. A previous attempt to grow tilapia in the UK failed. This was located in the grounds of a power station where they benefited from using the waste warm water. The fish were sold to Tesco on the basis that they were much fresher than imported tilapia, but as the main question was whether consumers would buy tilapia at all, the question of freshness was not an issue.
The same question could well apply to the barramundi venture. It is possible that consumers might take to the fish but if they do and fish start being imported from Australia to meet the demand, will the venture here be able to compete?
We, at Callander McDowell are passionate advocates of fish farming but we are not sure that farming alien species in the UK is the right approach.