reLAKSation 275. Callander McDowell
The end of the year is usually a time for reflection and three very different stories in the news this week allow us an opportunity to reflect on the future of salmon farming from three very different perspectives. This is the last reLAKSation of 2006 and all at Callander McDowell would like to wish everyone a very merry Christmas and a happy New Year. We will be back at the beginning of January with a review of the best offers on salmon found during the festive season and look forward to your continued support during 2007.
Failure: Sid Patten, Chief Executive of the Scottish Salmon Producers Organisation told the Sunday Herald that Scottish farmers were failing to capitalise on booming consumer demand for salmon. This meant that other nations were filling the gap with imports from Norway increasing to nearly 40,000 tonnes in 2005.
As a recent recruit to the salmon farming industry, it must be difficult for Mr Patten to comprehend why such a ‘major’ salmon producing nation as the UK must import any salmon at all. It would be assumed that Britain should be not only able to meet its own demand for salmon, but also develop a healthy trade in exports. However, this is something that the industry in Scotland has consistently failed to achieve.
The main reason is that the Scottish salmon industry has always believed that they could obtain a better price for their salmon from overseas. This is why they sought Label Rouge certification so many years ago. The target was to export at least fifty per cent of total production and although exports volumes once neared this figure, it was never reached. No export figures have been published recently, so it is unclear as to the present levels of exports.
With the emphasis firmly placed on the export market, there has always been an opportunity for imported salmon to fill the gap in demand. Over the last fifteen years, we, at Callander McDowell, have observed imported salmon from both Norway and Chile being sold in the UK retail sector and with the Scottish industry preferring to focus on quality rather than quantity, the gap needing to be filled has grown ever larger. Of course, the decline in Scottish production over the last couple of years has been an even greater incentive to importers, which is why imports have grown even faster.
The Sunday Herald said that the decline is the result of the closure of a number of salmon farms in Shetlands when retail price failed to match overheads. This is perhaps an over simplification since the size of the farms concerned does not account for the entire decline. Some might be attributed to reduced smolt placement due to cost, but also due to changes in production strategy and conversion to organic.
Mr Patten said that production costs in Norway appear to be a good bit lower than in Scotland yet the still to be published Scottish Executive production costs survey is reported to show that costs in both countries are similar. While they remain unpublished there is always the likelihood of the implication that the Scottish decline may be due to an imbalance between retail price and production costs, which otherwise favours Norwegian producers. However, the balance against Scotland could also be because farmers in Scotland have invested extra to show that their salmon is of higher quality. The imbalance develops when consumers refuse to pay a higher price for what they consider to be identical product, hence lower prices but higher costs.
Mr Patten said that Scotland needs a more accommodating regime to compete for investment against rivals such as Norway. The SSPO are therefore undertaking a definitive study of the differences that exist in the two countries investment climate. Interestingly, one of the aims of the Strategic Framework for Aquaculture in Scotland was to encourage investment in Scottish aquaculture. The original timetable was set at December 2003 but the project has been postponed until after the cost of production survey is completed. Rather than conduct this study, which is unlikely to produce any investment, Mr Patten could encourage the Executive to publish the results of the cost study and then initiate this plan to actually encourage the investment that he believes is necessary.
If Mr Patten does proceed with his study, he may find that it is not actually the investment climate which is different. Instead the differences may be due to the approach taken by the industry in Scotland. For the last fifteen years, some vocal Scottish producers have been whingeing and whining about dumping, unfair competition and over-production. They have painted a far from attractive vision of salmon farming and therefore it is not surprising that the financial sector has shied away. Investors want positive news and the potential to make money not a bleak picture of doom and gloom. If Scotland wants to attract investment it needs to change its tune. Its focus has always been on the production of high quality flesh which merits a premium price. The fact that consumers have been reluctant to pay this premium should be sufficient proof of the need for a different strategy. Just last week we saw salmon of about 2.5 kg – 3 kg, all tagged with a Freedom Foods label, selling for a fixed price of £13.99. This equates to about £4.66/kg - £5.59/kg depending on the exact weight. As a comparison the cheapest standard salmon selling in a UK supermarket is £5.99/kg, although this week some supermarket salmon has been discounted in the run up to Christmas. Any benefit from producing Freedom Foods accredited salmon appears to be questionable. The same applies to other UK based quality schemes such as the Tartan Quality Mark which have failed to make an impression with consumers because consumers have been unable to identify sufficient difference to justify the premium price. The higher costs have eroded the potential for profitability and this has meant farmers have had less or no money to plough back into their businesses.
Mr Patten can spend time and money conducting a definitive study of the differences in investment climate between Scotland and Norway. Alternatively, he could investigate other strategic options which the Scottish industry could pursue that might receive a more positive response from the financial community in terms of investment. He believes that if more investment was forthcoming then Scottish production could increase to 200,000 tonnes in the next five to ten years. Without a change in strategy, it is hard to see how this level of production can be justified if it all to be high quality premium salmon!!
Quality is one thing: Seafoodintelligence.com quote extracts from the Competition Commission report in which they say that the there is no clear consensus as to the superiority of salmon from either Scotland or Norway. The majority of respondents considered the salmon from both countries to be very similar. They identified that the flesh composition can be different but it doesn’t mean that one is better quality than the one; they are just different. This perhaps explains why consumers are unwilling to pay more for Scottish salmon than they would for Norwegian and why some supermarkets so readily interchange the two.
At the same time, the Competition Commission says that some supermarkets do use the Scottish label in relation to their premium ranges as it can provide a marketing advantage. However, our view is that this advantage is minimal. All the premium ranges found in supermarkets have their own specific identity that is easily recognised and selected. Customers are just as likely to buy the product irrespective of whether it has a Scottish label or not. The origin label is just used as extra justification for the premium but in fact there is no reason why salmon from a different origin could not be used in exactly the same way.
Seafoodintelligence.com suggests that whilst quality is one thing, marketing is a totally different matter. The real problem in the Scottish industry is the fact that whilst there is a desire to produce a quality product, there appears to be no desire to promote it. Producers seem to believe that the quality speaks for itself. As a result, the industry has been vastly under-marketed.
If Scotland could produce up to 200,000 tonnes in the next few years as Sid Patten suggests then it is inevitable that prices will fall unless there is investment in marketing. The industry has already found to their cost that this is what happens when production expands without a proper marketing strategy in place. The industry still has to learn that quality may well be one thing but marketing is quite something else.
Far from reality: The Observer Food Monthly dedicated all of its December issue to the foods of the future. Under the title ‘Organic oligarchs and obesity camps, genetically-engineered cows and frozen meat from Brazil. And you though the future of Bad Food Britain was a Big Mac….’, award winning food expert Joanna Blythman considered the bleak realities.
As the title suggests, Ms Blythman focused on a variety of scenarios including GM, organic and obesity, preferring to offer a wide ranging vision. However, she also managed to allow her already preconceived ideas managed to slip into her vision. She writes that in 2050 “seafood has more or less disappeared from the nation’s plate as a consequence of over-fishing and rising sea temperatures. You can’t even buy the once ubiquitous Scottish farmed salmon because the Dutch companies who owned the farms have relocated to lower cost countries such as Chile leaving abandoned cages and polluted sea lochs in their wake.”
Clearly Ms Blythman is misinformed about the salmon farming industry of today so the chances of her vision even approaching reality are non-existent. The fact is that given the right encouragement, there will be more seafood than ever on the nation’s plate, all of it farmed. This is a future to which we should all aspire.