reLAKSation 244. Callander McDowell
Red Label: The European Seafood Exposition remains as large and busy as ever yet only one development caught our eye this year. As reported by IntraFish, Marine Harvest will soon launch Label Rouge accredited Norwegian salmon into the French market. Some 14 years after Scottish salmon gained this accreditation, it now seems that the Norwegian salmon industry aims to target the same top end sector of the French market.
We, at Callander McDowell wonder whether this is not another example of this red label but rather more a case of waving a red rag at a bull instead. We are all in favour of free markets and open competition but at a time when the Norwegians are trying to annul the MIP and defuse past trade disputes, leaving this niche market to the Scottish industry might have seemed to be a more sensible approach. After-all, the volumes of Label Rouge salmon sold are just a drop in the ocean of the total salmon market.
Marine Harvest’s Europe Sales Director, Laurent de Baynast, told seafoodintelligence.com that “With the introduction of Label Rouge Norwegian salmon next to Label Rouge salmon from Scotland we will offer customers and prospects a new choice and make Label Rouge salmon available and accessible to a much larger audience, thus increasing the total market size.” We are not so convinced.
IntraFish report that there has been growing demand for Label Rouge salmon and in 2004, exports from Scotland grew by 21%. However in terms of volume, this amounts to no more than 7,000 tonnes of salmon. It is also worth remembering that it has taken well over a decade to reach even this small level of demand. Surely the Scottish industry would have already taken advantage if the market had any potential to grow much faster. It is not as if there have been any real bottlenecks to production growth. Food Certification Scotland who oversee the accreditation process list just four main prerequisites for Label Rouge accreditation.
1. Feed is manufactured from only marine products (min 70%) vegetable matter, vitamins, minerals and carotenoids.
2. Fish are farmed in Scotland.
3. The flesh contains a maximum 16% fat.
4. Fish are individually numbered for traceability.
Is it possible that Norwegian Label Rouge salmon will simply compete for a share of the existing market? Certainly, our observations of the French retail sector suggest that interest in Label Rouge salmon is overstated. We accept that there is a section of the French market which will actively select Label Rouge salmon and more importantly, pay more for it, but the reality is that in the supermarket sector at least, supplies of Label Rouge salmon are diminishing. We are increasingly finding it difficult to identify Label Rouge salmon in the French supermarket sector and on those occasions that we do, they do not appear to be in direct competition with Norwegian salmon. For example, a fish counter may display whole Label Rouge Scottish salmon, Label Rouge Scottish salmon steaks, but Norwegian salmon fillets. As fillets are the most popular purchase, it is really difficult under such circumstances, to assess how much impact Label Rouge really has on the salmon market. Clearly, it is an attractive market to producers because they do receive a premium price for their fish, reportedly up to 25% more, but then, this added benefit has to be offset against the accreditation and continued inspection costs. It is a couple of years since we have seen Label Rouge salmon sold in direct and identifiable competition to a similar Norwegian presentation. Then, the price differential was about 27% but it has been difficult to make similar comparisons since.
Some producers would argue that most Label Rouge salmon is not destined for the supermarkets but rather independent fishmongers and restaurants. Those independent fishmongers we have observed which do sell Label Rouge salmon do not appear to have a high turnover of fish and their prices are not much different to those asked by some of the supermarket sector.
Will the presence of Label Rouge salmon from Norway make much impact on the French salmon market? We don’t think so. It may make a difference to the small independent Scottish salmon farmer, but only time will really tell.
Price and costs: According to IntraFish, John Rutherford, Chief Executive of SeaFish said that as he walked round the European Seafood Exposition, he could see that those who had fish to sell have smiles on their faces, whilst those looking to buy, looked rather glum. He was referring to the fact that fish prices have risen on average by 25% over the past year and whilst many processors had to pay a higher price for their raw materials, they were finding it difficult passing on these higher costs to the retail sector.
High prices are also prevalent in the salmon sector but some commentators attribute this to the imposition of the MIP, but the uncertainty of the MIP is only one factor. Current salmon prices also reflect what is happening in the wider fish market and the fact that that the industry continues to debate whether it wants to be a niche specialist or whether it should try to meet the shortfall in traditional wild caught fish supplies.
Sid Patten of the Scottish Salmon Producers Organisation said at Brussels that high prices may be good for salmon companies but that they may be affected by future production costs.
Production costs are a contentious issue, mainly because they are something that is regularly bandied about but which remain a totally unknown quantity. Production costs may well be on the rise but as Mr Patten and the SSPO have already made it clear in their response to the Fisheries & Aquaculture Bill consultation that the salmon industry is not obliged under EU law to supply cost data. Clearly, if the SSPO is keen to ensure that cost of production data remains confidential then issues such as increasing production costs should not be discussed in the public domain. No doubt, when rising costs start to affect margins, there will be no hesitation in calling for government assistance to safeguard both salmon businesses and jobs.
Whilst Mr Patten and the SSPO have suggested that they are under no obligation to provide cost of production data, (http://www.scotland.gov.uk/Publications/2006/04/06110223/0) the reality is that there is already an agreement to provide such data under the Strategic Framewwork for Scottish Aquaculture launched by former Deputy Minister Allan Wilson MSP in March 2003. One of the stated objectives was to conduct a study of comparative costs of aquaculture production. This was considered to be necessary because the ‘Scottish
Aquaculture industry contended that its costs are higher than those of its competitors in other countries.’ This study would provide evidence of whether there are competition problems to be addressed. According to the framework document, the discussion of whether such a study was needed would be completed by May 2003 and the study itself completed by November 2003.
According to the Scottish Executive, the objectives of the strategic framework were reviewed late in 2004 and it was reported that those involved in the discussions did agree that a study was required but they had some difficulty in identifying available funds to pay for the study. Tenders were requested by May 2004 but as the bids and costs varied widely, the implementation bodies decided to re-tender with additional funding made available. The contract was expected to be awarded by the end of 2004.
Since then, nothing further has been heard from the Scottish Executive but in July 2005, the Shetland News reported that KPMG had been appointed to conduct this study. The £70,000 first phase was expected to be completed by the end of August 2005 and involved a detailed desktop study of the costs in different countries. A second phase was then planned which would look at how individual companies are affected by the regulatory and fiscal environment in which they operate. Commenting on the study, David Sandison, general manager of Shetland Aquaculture, said that he hoped that the analysis would show that costs in Scotland are different from those in other countries.
It is now some nine months later, nothing further has been heard about this study, even though the first phase was completed a long time ago. Rumours, and we stress that these are only rumours, heard in Brussels suggest that the study has been put on ice for one single reason. This is that that the study has not been able to confirm that Scottish producers are disadvantaged by higher production costs. Production costs in Scotland are alleged to be similar to those found in Norway. Clearly, there will be always individual examples where Scottish farms are not as competitive as their Nordic neighbours but as the study, like that produced annually in Norway, focuses on overall trends, the study shows little difference. This is not really surprising since the last official study conducted by the Scottish Agricultural College in 1992/3 found that Scottish producers benefited from a clear cost advantage. The Scottish industry has been unwilling to participate in similar studies since because they do not support the claims presented to trade investigators in Brussels.
It wasn’t so long ago that we suggested that the annual Scottish production surveys for 2003 and 2004 were being held back from publication because the data did not support the production collapse which the EUSPG claimed had decimated the Scottish industry. Could it be that this production cost study is also been withheld for similar reasons. Even though the EU investigation has been completed, attempts to annul the MIP are ongoing.