reLAKSation 310. Callander McDowell
Up or down?: IntraFish report that Lars Liabo of Kontali Analyse has written in his monthly report that the current disease problems in both Chile and Norway have eased the pressure on prices and lessened the likelihood of a possible price collapse. Prices have remained relatively strong despite an ever increasing flow of salmon to market. This has concerned some observers who do not believe that prices can continue at the same level. It should be inevitable that the established relationship between price and volume will eventually kick in and prices will fall but, as yet, a sustained lower price level has yet to materialise. Mr Liabo clearly believes that the recent disease outbreaks have had some effect in maintaining current price levels. However this view is not universally held. Salmon farmer Nils Martin Williksen for one does not share Mr Laibo’s view. He told IntraFish that he believes that a strong Russian market has helped keep prices high.
We, at Callander McDowell, have previously indicated that we are not in the business of forecasting prices. We have also suggested that the current price level cannot be sustained but we cannot say when it may weaken. This is because there are so many different factors at play. Clearly, disease will affect the harvest but no-one wants to see any farm suffering from a disease problem and certainly no-one should want to gain a price advantage because of a disease outbreak elsewhere, at least for no other reason than next time it could be you. Yet, at the same time, these outbreaks are too recent to have sufficiently exerted any effect on prices.
In addition, since most Chilean salmon are exported to the US, the effect of a disease problem in Chile should not impact too greatly on the European market just as any disease in Norway should not affect the market in the US. The markets are isolated from each other and each has its own dynamics. For example, if exports from Chile to the US should fall, it is unlikely that the US market will pull in salmon from Norway. Instead, there will probably be more dependence on wild caught Pacific salmon from Alaska and elsewhere. Meanwhile, the European market is benefiting from strong demand from Russia to the extent that more developing markets in Western Europe are suffering from lower demand as a result of the resulting higher prices.
Finally, the salmon market is not isolated from the global marketplace and the increasing demand for fish and seafood which has tended to force prices upwards. Prices may be relieved as more and more farmed produce reaches the market, not just salmon but also the various warmwater species.
Salmon prices may remain strong for some time yet but eventually, they will fall. This may be seen as disastrous since it will certainly affect profitability. Yet, lower prices will also stimulate demand and bring about even greater opportunities to compensate for any lost margin. Unfortunately, there is still a too simplistic view of the salmon market with regard to price. High prices are seen as good and low prices are perceived as bad. This is why there is a fascination with the continual stream of price forecasts. This focus on price masks the real opportunities for market development and sustained industry profitability. This will not change until the industry enters the next phase of salmon production.
Keeping pace: The Scotsman newspaper reported that the Scottish Salmon Producers’ Organisation wants to increase annual production from an estimated 137,000 tonnes to 200,000 tonnes by 2017 to improve competitiveness. Sid Patten of the SSPO told the Scotsman that ‘We are not keeping pace with the other major salmon producing countries.’
We, at Callander McDowell, are puzzled by Mr Patten’s statement. For the last eighteen years, Scotland has repeatedly accused Norway of over-production. Only recently, Scotland’s new First Minister has said that the current EU trade measures must be kept in place to protect the Scottish industry from Norwegian expansion. If Norway has been continually over-producing, why would the Scottish industry now want to keep pace with a Norwegian industry that is over-producing?
We are also unclear why such expansion would help improve competitiveness. If the SSPO does not consider that Scottish production is competitive at 137,000 and therefore must expand, what chance is there for the Irish and Faeroes industries? Of course, the answer is that size is not everything. To repeat an often used expression; it is not the size that counts but what you do with it that is important! Scotland can be just as competitive at 137,000 tonnes as it could at 100,000 tonnes or 200,000 tonnes.
Mr Patten also said that the EU’s market share is declining which it will but does it matter. The Scottish industry has always believed that they produced the highest quality salmon which merits a premium price. Yet, if the Scottish industry wants to retain this position, it can only do so if it is a niche, not a mass market producer. High end markets, by their very nature, tend to be small and thus as the wider mass market expands, it is inevitable that the top end sector will shrink. If, on the other hand, Scotland wants to compete in the mass market, then that is a totally different perspective.
The EU set an annual growth target for European aquaculture of between 3-4% but according to Mr Patten neither Scotland nor Europe has met it. Using this data in the context of this announcement about Scottish expansion implies that the Scottish salmon industry would like to achieve this four percent growth a year. However, in setting this target, the EU did not actually have salmon farming in mind. The original document can be found on a link on the SSPO website. The 4% growth target was aimed specifically at molluscs, new species, organic and environmentally certified products and not at conventional salmon farming.
We at Callander McDowell are passionate advocates of aquaculture and we firmly believe that salmon farmings’ real potential has yet to be realised. Despite our comments, we do not see why Scottish salmon production should not reach or even exceed 200,000 tonnes but the reason for expansion should not be because Scotland wants to keep pace with its competitors or because the EU has set expansion targets but rather that there is a market for the fish and they can be produced at a profit. Mr Patten said that ‘we cannot keep demand as far as the UK is concerned never mind the 60 countries we export to’. The truth is that this has always been the case but rather than focus on this demand, the Scottish industry has been distracted by its own vision of the market. As we have said many times before, the industry needs to evolve from one that is production-led to one that is led by the market. In a nutshell, this is what Mr Patten has been really trying to say.
Unabalanced: The Glasgow Herald also reported on the Scottish salmon industry’s new production target of 200,000 tonnes. Mr Patten told the Herald that the target was realistic and achievable if a more supportive regulatory framework could be established at both national and European level. He drew attention to the 2002 European strategy which he said emphasised the protection of the environment at the expense of the social and economic development of the industry. Instead Mr Patten said that the effort attached to the development of the industry should be equivalent to that applied to the protection of the environment.
Mr Patten specifically mentioned the 2002 European strategy because his comments formed the response to the European Commission which is carrying out a Europe-wide consultation on the industry’s potential (presumably the European aquaculture industry and not just Scottish salmon farming). We are not so sure that the EU strategy does put the environment before the social and economic needs of the aquaculture industry as Mr Patten suggests. The EU is a very diverse group of countries and as is the type of aquatic farming engaged throughout. It is therefore inevitable that some groups of producers might feel that the strategy does not go far enough for them whilst others may feel that it favours them. This is the very nature of the EU.
However, Mr Patten also suggests that support should come from not just the EU but also at national level. Not long after the EU published its strategy document, the Scottish Executive published its own strategic framework for aquaculture in Scotland. (also available through a link on the SSPO website).Unlike its European counterpart, there is absolutely no doubt that the Scottish framework does emphasise the protection of the environment at the expense of the social and economic development of the industry. It was always going to be so from the moment that the original working group was first announced as we suggested in reLAKSation no 53 back in June 2002, several months before the final framework was published in March 2003.
The Ministerial working group consisted of 23 members including the then Deputy Minister for Aquaculture Allan Wilson. Of the remaining 22 places, just five were taken by members of the aquaculture industry – 2 salmon; 1 trout, 1 shellfish and 1 marine fish representatives. The rest of the working group consisted of a mix of representatives from a variety of organisations including banking, retailing, local government, enterprise agencies and most significantly, environmental groups. The aquaculture industry and especially the salmon industry were simply outnumbered. Salmon farming was never going to be a winner from this mix and so it has proved to be but then it’s no use bleated about it now. The fact is that if the industry did feel aggrieved about the way that the strategy favoured the environment lobby then it should have made its feeling known then and not started whinging now. Mr Patten may suggest that the SSPO weren’t actually represented then and it was the former incarnation of the then Scottish Quality Salmon who participated in the working group but the reality is that other than a name change and a different Chief Executive, SQS and SSPO are effectively the same organisation.
Certainly, a more supportive regulatory framework may help the Scottish salmon industry but the reality is that it is as it has always been – the future destiny of the Scottish salmon is firmly in its own hands.