reLAKSation 309. Callander McDowell
It’s a small world: The Fishupdate newspaper leads with an article highlighting fears that further expansion of organic salmon production may depress prices and destabilise the market. In what appears to be a microcosm of past events of standard salmon production, the organic salmon sector is in turmoil as it debates whether it should try to restrict production in order to maintain margins. For those with long memories, this reminds us of the attempts by the Scottish industry to impose production controls on the European industry through the imposition of mandatory Producer Organisations. The idea was that if production could be curtailed, then margins could be protected. The attempts failed for a number of reasons, not least that mandatory controls would be viewed as being akin to running a cartel but also because the industry had no concept of the size of the market for salmon and thus would have been unable to match production to demand.
The Soil Association, one of the certifiers of organic standard, told Fishupdate that they are concerned that harvests of organic salmon are expected to double by 2008 to the consequential detriment of the organic salmon market. Last year, production of organic salmon in Scotland reached 4,900 tonnes, an increase of 60% on the previous year. The Soil Association has produced new figures suggesting that production will grow to 10,000 tonnes by 2008.
However, the Soil Association’s concerns have been challenged by Jeremy Ryland Langley, specialist fish buyer for the supermarket chain Waitrose. He believes that there will not be sufficient supply of organic salmon as retailers start to sell more organic fish. Mr Ryland Langley told Fishupdate that demand is outstripping supply but because of the relationship that Waitrose has developed with its producers, they have managed to avoid any shortages despite a lot of pressure on prices at the moment. The Soil Association have also noted that there is a current undersupply of organic salmon but worry that continued production growth will bring about an oversupply and a negative impact on price and market stability.
We, at Callander McDowell, actually believe that both sides of this debate are right. Mr Ryland Langley will see demand continue to rise yet at the same time there is an increased likelihood that expanded production will see a negative impact on prices. To understand this conundrum, it is necessary to look at the wider organic market. A report in the Guardian newspaper suggests that the organic food revolution is still gathering pace with Britons spending £1.9bn on organic food in 2006, a 22% increase on the previous year. Yet, this still only accounts for 1.6% of all UK food sales. Whilst the Soil Association told Fishupdate that 50% of people from lower income groups will go out and actually choose to buy some organic produce, the Guardian confirms that organic food is still largely the preserve of the relatively affluent southerners. Consumers in the Scotland and the East Midlands are the least likely to buy it and most tellingly, 50% of consumers who bought organic food, thought it was too expensive!!
Waitrose are a high end supermarket with an affluent customer base centred around the South East. Waitrose customers are the archetypal organic consumer and therefore it is not surprising that Mr Ryland Langley is so upbeat about increasing consumer demand for organic fish, however we don’t think his optimism can be applied across the whole retail sector. Whilst we acknowledge that organic salmon can now be bought from all the major supermarket chains either as loose fish from the fresh fish counter or as chilled prepacks, we are not convinced that the demand is as strong in these stores as that found in Waitrose. This view is based on observations of the amount of product actually put on display. In most cases, the organic salmon is limited to a handful of portions on the counter or a few prepacks in the chiller cabinet. Of course, our observations may not reflect actual sales and it is possible that demand is rising across the whole retail sector in line with the wider organic food market.
Unfortunately, organic fish has to overcome one obstacle that is not apparent for other organic food and that is the actual credibility that fish can be organic. Unlike every other area of food production, much of the fish we eat is harvested from the wild and this is thought by many to be the prime example of organic food. It is natural and untainted by man, yet wild fish cannot be classed as organic as the certifiers have decreed that organic status can only be applied to farmed fish. Unfortunately, fish farming has received so much negative press that many consumers avoid farmed fish even if it has been certified as organic. This means that whilst the wider organic sector is growing rapidly, the take up of organic fish has not been as great. To some extent, it may also reflect a wider aversion to fish because of the connotations with the way it is sold with bones, fins, and heads, complete with eyes.
The week sees the start of organic food fortnight, a major promotion across the retail sector. Different stores are taking a different approach to this promotion and it is still early days as to who is doing what. Sainsbury’s has sent out shopping vouchers to its loyalty card holders. The mailing includes a recipe for organic produce which just happens to be for organic salmon.
Waitrose has slashed the price of organic salmon portions by 25% for the promotion although the discounts began a week before the start of the fortnight.
The appearance of discounted organic salmon in Waitrose stores before the link with the organic promotion was publicised was not of any particular note. This was because all the leading supermarkets have been regularly discounting organic salmon throughout the summer months. The usual reasons for offering discounts include raising awareness, stimulating consumer demand or encouraging slow moving products. The fact that these discounts have been protracted and have been across most supermarkets tends to suggest that the discounts relate to an excess of product. This conflicts with the Soil Association’s indication of a current undersupply. Of course, salmon sales tend to be slower during the summer months before building up to the Christmas peak. However, if this was the reason for the widespread discounting of organic salmon, then similar discounts would be expected across the traditional salmon market too and this did not happen. Could it be that the market for organic salmon is already reaching saturation in which case, the Soil Associations concerns may well be valid? At the same time, the high end market, such as that in Waitrose, may well be growing but not fast enough to absorb all the increased production.
As we suggested at the beginning of this comment, the organic salmon sector is just a microcosm of the wider salmon industry. Just as expanded production has resulted in lower prices, increased organic harvest will compromise the price as the Soil Association forecasts. Yet, it doesn’t have to be like this. In the same way that investment in market development would help maintain margins in the conventional salmon industry, so would similar investment ensure that margins in organic production can be protected? As usual, the focus is all about over-production rather than a question of under-marketing.
How times have changed: ‘My most important consideration as a producer of organic salmon has been to understand the market’ is a quote highlighted at the beginning of an article in the IntraFish newspaper focusing on organic salmon and Angus MacMillan of West Minch Salmon in particular.
We, at Callander McDowell, were slightly amused on reading this quote since the one thing that the independent Scottish salmon sector to which Mr MacMillan belongs has shown the least consideration has been in understanding the salmon market. If it had, the sector would have never encouraged the Scottish Executive to apply for safeguards nor would it have submitted its dumping case against Norway. This is because, in the case of salmon, the imposition of trade measures is just an excuse for poor marketing and market knowledge. This sectors’ refusal to even engage in the concept of the market reached a peak when it forced some of the fish farming press to stop publishing marketing related articles by threatening a ban on all industry advertising in such publications. reLAKSation developed as a result of this enforced censorship.
Mr MacMillan told IntraFish that the Western Isles have proved a difficult place to farm salmon. He said that the islands are so far from the market that there is no point in doing the same as everyone else. The costs of transporting fish to the mainland is too great to engage in classic salmon farming and communications are too inadequate to handle daily dispatches of massive quantities of fish to market. Yet Mr McMillan through his membership of the EUSPG has been ready to blame Norway for his inability to compete. Yet, even the multinational companies that are also accused of selling salmon too cheaply have equally found it difficult to farm economically in these islands. That is why companies like Marine Harvest have unloaded their operations there.
This inability to compete, irregardless of Norwegian dumping, is why Mr MacMillan has finally recognised that niche production is the only alternative for small scale independent producers. It’s a shame that he had to find this out the hard way. Rather belatedly, Mr MacMillan carried out a market research exercise to determine the market requirement and the opportunities the market wanted. He concluded that he could not farm in the usual manner, nor could he produce Label Rouge brand fish as the margins did not justify the investment. Instead he opted for organic production finally converting to 100% production four years ago. It will be interesting to watch his response to the latest Soil Association concerns over future over-production.
Of course, organic production is not the only niche option. The EUSPG also recognised the need to break away from mainstream production. Back in March 2005, the EUSPG applied for the EU’s FIFG funding and were awarded £28,375 to plan future business operations in the European market but unlike any other FIFG award, the nature of the study was deemed to be commercially sensitive and therefore remained secret. At the time, then EUSPG spokesman Angus Morgan refused to make any comment when asked about the study, repeatedly hanging up the telephone to Seafoodintelligence.com.
At the time, there was speculation that the money was being used to strengthen the case against Norway in Brussels. We don’t know whether the funding was used in this way or whether it was used to determine new unspecified business opportunities. What is clear than other than the usual niche markets such as organic, Label Rouge, Freedom Food etc, this study seems to have offered little new to the independent sector but then unless it was actually directed at the market, it is unlikely to have achieved such a goal.
Whether we agree with Mr MacMillan or not, we do applaud his success as one of the pioneers of the organic sector. We also recognise that he is about the only farmer from the independent sector who is prepared to speak out. Too many of his colleagues are only to willing to hide behind the anonymity of the unnamed. At least if Mr MacMillan did not previously understand the importance of the market to salmon production it seems as if he might now. The times are certainly changing.