reLAKSation 28.
Crisis, what crisis?: Trond Davidsen of the Norwegian Salmon Farmers Association told Intrafish that whilst low prices and declining exports are difficult, hard and uncomfortable, there is no crisis. In this issue of reLAKSation, we at Callander McDowell would like to consider the following aspects of the current situation.
Market research: Over the past few days, the NFF and Norwegian Seafood Export Council have been working hard to obtain the most accurate figures possible relating to supply and demand within the marketplace.
This urgent need to conduct basic market research is possibly indicative of the underlying problems affecting the international salmon industry. For the past decade, whilst various sections of the global industry have claimed their problems are due to over-production, there has also been an alternative view, which is that the ongoing difficulties can be better attributed to under-marketing.
In any commercial venture, whether it is salmon farming or the manufacture of micro-chips, in depth knowledge of the market is of paramount importance. Any marketing strategy, whether it be offering free taste samples to shoppers or the industry's generic promotional campaign must be underwritten by extensive knowledge of the marketplace. On the basis of this knowledge, decisions can be made as to what 'product' is produced, who will buy it, when will they buy it and how much are they prepared to pay for it?
The fact that the Norwegian industry has conducted this urgent assessment of the marketplace would suggest that they do not have such full knowledge of the marketplace and therefore are unable to make any real decisions about the products that they produce.
The Norwegian industry is concerned that whilst previous major price falls have stimulated consumer demand, the current low prices have not. There are two possible explanations of why this is. The first is that export volume has tended to focus on percentage market share. Thus, press reports such as that in FIS.com indicate that Norway has lost 11% of the European salmon market during the last year, with market share dropping from 66 to 55 per cent. Up to August, Norwegians exports increased only by 1%, whilst Chilean and Scottish exports grew by 86 and 20 per cent respectively. However, such figures need to be put into perspective in that 86% of a small amount is still significantly less than the 1% of Norway's much larger export volume.
Yet, at the same time, the decline in Norwegian market share indicates both the constraints of the EU salmon agreement and the increasing competitiveness in the international market place. This confirms the urgent need for the salmon industry to adopt a much more market-led approach in future.
The second possible explanation for the decline is the changing needs of the marketplace. Some years ago, the former head of the Norwegian Seafood Export Council, Dag Eivind Opstad, suggested that the European market was reaching saturation. His view was mistaken as clearly, the European market has continued to grow. Yet more importantly, the reason that the market has not reached saturation is because it is changing.
The consumer demand for fresh salmon may be starting to level off, although growth will undoubtedly continue, as the availability of other species remains low. This can be illustrated with a breakdown of sales at Tesco, the UK's leading supermarket chain. According to Intrafish, salmon now outsells cod by 3 to 1, but a much more important statistic is that only 43% of total fish sales at Tesco are of fresh fish. Martin Cooke, technical manager for Tesco underlined these sales with confirmation that Tesco has 700 UK stores with 14 million customers, which would suggest that Tesco sales might reflect the wider UK marketplace.
Fresh fish, including fresh salmon, account for less than half the market for fish in the UK at least. This means that over 50% of fish sales are in other forms. These include frozen, chilled and canned. Additional market research would suggest that younger consumers prefer their fish in other forms to fresh and thus as this group ages, demand for fresh fish might even decline.
The Chilean industry has increased exports of salmon to Europe. Much of this is frozen and rather than ending up sold directly to the consumer, this fish is being used for further processing to meet the demand of this larger market sector.
All these are factors which, not only the Norwegian salmon producers, but also the whole international salmon industry needs to consider. The market for salmon is becoming much more differentiated and it is clear that the salmon industry needs to respond to these changes. Unfortunately, the limitations of this views-letter mean that there is insufficient space to discuss this complex issue.
Feed stops: The current low salmon prices have prompted the suggestion for an imposition of a stop on feeding. The aim is to try to force prices upward. The news service Intrafish reports that prices might rise by NOK5/kg if the global industry agreed to join the campaign.
Press reports indicate that this suggestion has not been widely welcomed, we remain unconvinced that a stop on feeding would bring about any price rise.
Certainly, experience shows that any previous attempts to 'manage' prices have not only failed but have had a long lasting and detrimental impact on the industry, for example, the freezing programme of 1991. The freezing programme managed to sustain prices in the short term, but the build up of a salmon mountain meant that large quantities of salmon were still available and in need of a buyer. Inevitably, the price differential was swallowed up by the costs of the freezing programme. This resulted in a near catastrophe for the Norwegian industry.
In 1993, some of the largest Scottish companies also tried to hold back fish from the market with the aim of forcing prices upwards. This failed because, like the salmon mountain and other subsequent attempts to restrict the flow of fish to market, the buyers were all aware that eventually the salmon would have to come to market.
The problem with any attempt to manage prices is that buyers might feel that the industry is trying to interfere with their right to buy fish at the market price. They may then feel justified in delaying any purchases with the knowledge that as the holiday period approaches many farmers will be desperate to off-load their fish to market. They will then be able to buy fish at even cheaper prices.
It is also worth remembering that many of the new consumers, who now buy salmon do so because it is a low cost, value for money fish. These consumers might well be deterred from buying salmon again if the price were to rise. This is because they simply want to buy a low cost meal option and are not that bothered whether it is salmon or some other species. Rising prices may well cause the market to shrink.
The underlying problem for the salmon industry is that the very act of farming has resulted in a change of salmon's market image. However, there is no reason why this changing image cannot be overcome, either at international, national or company level.
Salmon agreement: An Intrafish editorial comment suggests that the EU salmon agreement is well past its' sell by date. The editor raises several points about the one-sidedness of the agreement, but he forgets that the agreement was meant to be a compromise punishment resulting from the alleged dumping complaint. It was therefore intended to restrict Norwegian expansion, but at the same time enable European processors to maintain a supply of raw material. As we have suggested previously, the real issue was whether the dumping margins uncovered during the investigation were real or simply a natural artefact of the salmon farming cycle.
Yet, Intrafish suggests that the agreement was to ensure a stable framework existed for all European producers, with a better balance between Norwegian and the Scots and Irish industries. The problem is that this is simply production control by the back door. This might have worked if the underlying issue was production related, for example over-production. However, as this was not the case, the agreement remains pointless.
Instead, it is the market which needs to be addressed and until it is, the current difficulties will persist. The EU salmon agreement did include a provision for marketing through the joint generic promotion. Unfortunately, promotion is only a small part of the marketing mix and therefore this does not a really provide a full answer to the question of under-marketing.
This deficiency can be illustrated from the comments made in Intrafish concerning the generic campaign. The editor suggests that critics of the campaign have previously said that Norway's competitors are winning market share with the financial support of Norwegian salmon farmers. This assumption only works if the generic campaign can be judged to be stimulating market demand. Whilst econometric studies support this view, the reality of the marketplace is that it is simply the widespread availability of low cost fish, which has promoted market growth.
The salmon agreement has passed its sell date. Unfortunately, this was already the case on the same date it was signed. Production control, in whatever form, is not the answer to low prices, but rather the implementation of a well defined market strategy, which should help alleviate the situation.