reLAKSation 296. Callander McDowell
Tipping the balance?: An IntraFish editorial asks whether the salmon market has now found the right balance between price, volume and demand. The editorial suggests that NOK 26/kg provides a good margin for farmers enabling them to boost sales. This time last year, the price was over NOK 40/kg but the volume sold was only 6,500 tonnes. This month volumes have risen to over 10,000 tonnes on the back of lower prices.
This overview paints a pretty picture for farmers showing that they can sell volume and make a good return. Unfortunately, it is also just a snapshot in time of a changing market. As seafoodintelligence.com highlights, salmon prices have been weakening for six consecutive weeks. In April, salmon prices were NOK 29.22/kg whereas now they are down at NOK 26.17/kg. The problem is that there is no guarantee that the price slide has come to a halt. Traditionally, salmon prices always weakened during the summer months although in recent years, this pattern has become very blurred. This is due to a variety of reasons such as intentional interference with free trade and the development of markets lacking the traditional buying patterns.
The IntraFish price graph shows clearly how salmon prices have now lost any conformity with the traditional market peaks and lows. This is because salmon has become an everyday meal choice rather than a fish to be consumed at special times. It should be expected that salmon prices should now show some form of price stability in that the peaks and troughs even out. Unfortunately, the ongoing trade disputes have prevented the market from developing in this way, although may happen in the future when all barriers are removed. We can only wait to see whether prices for this year as a whole remain within the main price banding of the IntraFish graph.
At the moment, prices do seem to have reverted to the tradition pattern. Demand appears to be falling even though it might be expected that warmer weather would encourage consumers to want to eat lighter meals for which salmon is ideal. Warmer weather also encourages outdoor cooking with a BBQ which again is ideal for salmon. Yet despite this, demand is falling. It is only necessary to look at the supermarket shelves to see that salmon is now being discounted heavily to encourage consumption. Supermarkets would not need to cut prices if demand was healthy. This week, prepacked salmon fillet could be bought in a leading UK supermarket for as little as £4.49/kg (NOK 53/kg). Most other supermarkets also have fresh salmon on promotion in one form or another.
The Intrafish editorial initially asked whether there was a balance between price, volume and demand. The greater the number of parameters there are, the harder they are to juggle. We have always argued that week by week price data is difficult to interpret as it does not relate to the volumes. As the editorial highlights, as prices rise, the volume sales tends to decrease whereas lower prices tend to boost volume sales. The volume sales data can also be interchanged with demand in that demand tends to increase as prices decrease. However, this relationship can be broken and that is by stimulating demand by investing in marketing.
Regular readers of reLAKSation will know that we, at Callander McDowell, are keen to adopt a differing view to much of the industry. When high volumes push down prices, the usual talk is of over-production. However, we don’t believe that the salmon industry can ever over- produce. Demand for fish and seafood is constantly rising whilst stocks of traditionally fished species are falling. It is unlikely that demand for farmed salmon will ever be saturated. The physical limits on production will see to that. The real issue is that the salmon industry is under-marketing itself. If we can stimulate demand by getting traditional consumers to eat more; fish consumers who don’t eat salmon to try it and by presenting salmon in such differing ways that consumers who may never have wanted to eat fish, let alone salmon, are tempted to try it. The opportunities are endless yet whilst the industry is happy to discuss whether it can achieve a balance in the market it seems unwilling to invest in forcing one side of the balance equation so that it becomes irrelevant whether the market is in balance or not.
Whilst prices are high, there seems little incentive for farming companies to insure against the time when prices are not so strong. If prices do fall, then funds may not be so available to invest in marketing and promotion and the industry could fall back into the cycle of low prices and poor profitability. This would be a pity because it can be avoided.
Whilst some parts of the industry look at how a balance in the market can be achieved we, at Callander McDowell, firmly believe that the balance can be tipped in the industry’s favour by addressing the issue of under-marketing.
Open your eyes: Paul Aandahl, a market analyst with the Norwegian Seafood Export Council is unconcerned about the growing volumes of wild salmon imported from the US into the European market. He told IntraFish that it does not represent a threat to Norwegian farmed salmon exports. He said that in the first quarter if 2007, Alaskan salmon accounted for only 4 percent of the French market whereas farmed salmon amounted to 33,000 tonnes over the same period, of which almost half came directly from Norway, whilst more came through intermediary countries.
Mr Aandahl cites the example of the French market to show why US imports are not considered a negative for farmed salmon whereas had he looked at the UK market instead, he might have found a very different picture.
Our observations of the French retail sector suggest that most Pacific salmon imports are of the inferior Chum and Pink species and are sold frozen providing consumers with a cheap alternative to farmed Atlantic salmon. These imports do not really compete with fresh Norwegian salmon not only because they are frozen but because they are sold as either small whole fish or steaks and not the fillets and portions which account for the bulk of the fresh market.
The UK market is very different. Whilst some imported Pacific salmon, usually Pink and in fillets, is sold as a cheap alternative to fresh farmed salmon, much more is sold in the top and middle sections of the market.
The UK salmon market is much more developed than that found in France, primarily because there is a much greater use of salmon in added value products. As salmon prices have risen, processors have increasingly substituted more expensive farmed Atlantic salmon with cheaper Pacific salmon species.
However, it is not just economic reasons that have prompted this change. Products made with Pacific salmon species can generally display the MSC logo showing that the product is made from sustainably caught fish. Whilst, the mass consumer market is not yet driven by demand for sustainable fish, awareness of this issue is growing which may be an advantage for Pacific salmon suppliers over those supplying farmed salmon.
Whilst, the sustainable message has not yet really influenced consumers in France, it has reached some sections of the UK market with significant effect. There is a section of the market which is more concerned with food issues than with price. They tend to be at the higher end of the socio economic scale and buy organic food, attend farmers’ market, shop at Waitrose, recycle waste etc. They have taken on board the message of sustainable fish and will actively seek out those species which have been accredited by the Marine Stewardship Council. They represent only a small section of the market but their buying decisions have influenced the species stocked by most supermarkets.
This section of consumers has had a significant impact on the market for farmed salmon. Before the issue of sustainability rose to prominence, these consumers were the ones who would select only the best salmon, which they believed came from Scotland. However, the growing interest in PC issues has meant that their allegiance has changed to wild caught Pacific salmon because it is adjudged to be sustainable, no matter whether it has been previously frozen or shipped half way round the world or that it doesn’t taste as good. In response, the supermarkets have stocked ‘fresh’ Pacific salmon alongside the traditional farmed fish, selling it at a premium price because of it’s sustainability.
What has happened now is that the top end of the market has changed with Pacific salmon taking over the premium position to which Scottish farmers once aspired. At the same time, the bottom end of the market has been eroded with cheaper Pacific species displacing farmed salmon as a raw material of choice in many added value dishes. Far from expanding the salmon market in the UK, the increasing availability of Pacific salmon has narrowed the options for Scottish farmers.
If the sustainability movement, based solely on wild caught fish, is allowed to spread to Europe, then the same effect could be experienced there as well. Pacific salmon may not be a threat to Norwegian farmers today, but the months and years ahead may present a different picture.
However, if the farmed sector can show that farmed fish offer consumers a more sustainable option then… but that’s another story.
How independent is independent?: Fishupdate.com reported this week that the third party inspection and certification body Food Certification Scotland Ltd (FCS) has successfully completed a management buyout that will provide a strong platform for diversification into new areas of operation. FCS is best known in the salmon farming arena for providing accredited independent product conformity certification to the Scottish industry including Label Rouge, the Tartan Quality Mark (TQM) and Protected Geographic Indication (PGI). More recently, FCS was contracted to oversee the implementation and certification of the new Code of Good Practice for Scottish Finfish Aquaculture in its role as lead certification body.
What was not so well known outside the industry was that until this week FCS was owned by the Scottish Salmon Producers Organisation and presumably its former incarnations, Scottish Quality Salmon and the Scottish Salmon Growers Association. It seems rather incredible that any independent certifier could have been owned by the very industry it was contracted to certify. However independent such a certifier may claim to be, there must always be some question mark about its allegiance.
FCS’s own website states that the company had been carefully structured to create the means to ensure its independence with a Governing Body of seven members from outside the industry and three from within to represent the interests of the member organisations. If FCS were truly independent then surely it wasn’t necessary to have any representation from within the industry at all since any views expressed must surely have some influence.
We don’t doubt that FCS has acted properly in every respect of its operation but under industry ownership, there must always be an element of doubt. The management buyout now removes this doubt and re-enforces the company’s independence which must be a good thing. The aim of the buyout was to enable the company to diversify into other forms of certification away from salmon farming such as with the Marine Stewardship Council.
We are not surprised that the SSPO have now decided to offload this arm of their operations since gaining the various certifications appears to have done the industry little good. The last reports of sales of Label Rouge accredited Scottish salmon amounted to only about 6,000 tonnes a year. Tartan Quality Mark salmon has failed to make any impact on the UK market as a retail quality standard whilst we at Callander McDowell still wonder what benefits have been gained with PGI certification.