reLAKSation no 312

Speculate to accumulate: IntraFish report that investors in the salmon industry appear to be more concerned with lower than expected fish prices than any fallout from the cut in interest rates announced by the US Federal Reserve this week. According to Aslak Berge of First Securities, investors have been taken by surprise by the recent fall in salmon prices. He said that there are quite a lot of worried investors who didn’t expect to see the salmon price so low in September believing instead that prices would still be in the upper twenties (NOK). Tore Ostby of the Handelsbanken added that the market is now waiting for more news about where the price is heading. Meanwhile, analysts at Glitnir Bank have suggested that supplies will remain high for the rest of the year but as demand in key markets, especially in Europe, remains strong, Glitnir believe that the outlook for the short term is for relatively stable prices.

We, at Callander McDowell, are always surprised by these regular deliberations in relation to salmon prices. There appears to an expectation of some simplistic mathematical forecasting system that will provide adequate forewarning of any major price movements. Of course, no such thing exists and it is left to the sort of ‘finger in the air’ guesstimate to provide some form of forecast as to where prices will be headed. In addition, as salmon prices seem inextricably linked by a simplistic relationship with share prices, price falls generally drag down share prices. Of course the reverse is true and rising prices can push share prices upwards but since 1989, price falls have been more predominant than the increases.

In the world of forecasting salmon prices, the main indicator of where prices are headed is the biomass in the sea but this can be extremely misleading. Higher levels of biomass are not really an indicator that prices will fall, just as low biomass would suggest a price rise. It is not the amount of fish in the sea which is paramount but the amount harvested at any particular time. It is just impossible to predict which salmon companies are due to harvest on any day nor how much they plan to send to market. If the amount of fish reaching market is low, prices will be stronger than if larger volumes start to appear. There is simply no way to forecast this because the reasons for harvesting fish can vary.

We have always taken the view that it doesn’t really matter how much fish is sent to market at any one time as long as it doesn’t all compete for the same market demand. Instead, we have repeatedly argued that the industry needs to invest in market development to ensure that salmon are despatched to a variety of different and non-competitive markets. Thus salmon farming companies investing in product development should be recognised as diversifying the market and should not all be treated identically when fish prices move. Sadly, the forecasting system has not developed in this way leaving share prices dependent on salmon prices.

Glitnir is hopeful that prices will now remain stable. We have no idea whether they are right or wrong as the Christmas period is always an unknown with many farmers trying to capitalise on expected increases in demand. Glitnir say that demand remains strong in Europe, which is why salmon prices have kept high. Yet, our own observations of the retail sector in the two main European markets, the UK and France appear to indicate that demand is flagging because salmon prices are too high for consumers who are used to paying value for money prices for salmon. We have just returned from France where any salmon farmers might find the availability of salmon in the main retailers to be rather depressing. Fresh fish counters, which once were a sea of pink, are now dominated by wild caught fish species. The range of smoked salmon products has dramatically shrunk whilst chilled and frozen added value products have become increasingly difficult to find. The picture is only a little better in the UK. Lower prices are essential if consumer demand is to be stimulated in these markets. Yet, if demand is as strong as Glitnir indicates, then perhaps any speculation is unnecessary since such strong demand will keep prices up. Investors shouldn’t be too worried as they have to speculate too in order to accumulate.

Couch potatoes: The Times reported that the recent salmon escapes could turn wild fish into couch potatoes. They say that whilst they are an identical species, one is lean and fit, the other is an obese, idle creature, a couch potato with fins. They add that when the two interbreed, the results can be a genetic disaster. The Times article was prompted by the news that the Association of Salmon Fishery Boards and the Rivers and Fisheries Trusts of Scotland are now submitting a formal complaint to the European Commission. The latest escape occurred next to the Langavat Special Area of Conservation and close to the mouth of the Grimestra salmon river, described in the EU Habitats Directive, as the best salmon system in the Western isles.

Using reporting more akin to the tabloid press, the Times compare farmed salmon to wild:

As part of the establishment, it is not surprising that the Times have taken this stance. The fancy name of the Association of Salmon Fishery Boards and the Rivers and Fisheries Trusts of Scotland may appear to mask the true interest of these groups – they are only interested in the preservation of sport fishing for salmon. They blame salmon farms for their failure to catch more salmon but ignore the fact that salmon rivers far from the Scottish salmon farms also suffer from falling catches. It would be interesting to know if these organisations would kick up such a fuss if farmed cod or farmed halibut were to escape from their cages. The answer is no. Their response relates only to their vision of sport fishing for salmon.

Other specialist groups of sport fishermen are not so blinkered to the release of ‘farmed fish’ into their fisheries. Farmed brown trout are regularly stocked into fisheries to increase the catch rate for anglers. Salmon anglers appear more elitist about their sport and are unhappy that more salmon have been released into their waters, albeit not intentionally.

The anglers are happy to make distinctions between wild and farmed salmon to highlight their sport but if the claims made in the Times comparison are examined, it is clear that the only difference is that farmed salmon are well fed. Many salmon farmers, especially in Scotland, would argue that their fish are just as lean as wild and cannot be described as flabby. Many farmed salmon are made to swim just as hard as wild fish, burning off any excess nutrient. The suggestion that farmed salmon are selectively bred to get fat is nothing more than an attempt to discredit farmed salmon. The reality is that salmon farming is still such a young industry that there has not been any time to selective breed salmon for any such characteristic. This supposed selective breeding is claimed to make farmed salmon unlikely to adapt to the wild, yet battery chickens, which are selectively bred, when released into free range environment, quickly revert to their natural behaviour. Salmon are probably no different. However, the biggest question mark over these assertions is why the Fishery Boards are so concerned about a threat to the wild genetic stock since farmed salmon do not have the energy or ability to swim upstream and breed?

The salmon industry has worked with the Fishery Boards in which ever way possible to reduce escapes. The Fishery Boards made a significant contribution to the Strategic Framework for Scottish Aquaculture. Complaining to Europe is akin to a little boy stamping its feet when it doesn’t get its own way. No farm wants to lose stock but then there is no reason to change the whole way the industry operates simply to help a minority group of salmon anglers catch a few fish.

Hoki koki : We should like to give the Marine Stewardship Council credit for standing up to the objectors to the recertification of the New Zealand Hoki fishery, especially when one of the main objectors is the organisation that was responsible for founding the Marine Stewardship Council. This follows the announcement that the Marine Stewardship Council is expected to approve recertification of the New Zealand Hoki fishery. Although the MSC’s approved certifier SGS has recommended recertification, the MSC’s objection panel appears to disagree. After a particularly damming IntraFish editorial, Rupert Howes, MSC Chief Executive wrote, that any misunderstanding was down to some unfortunate wording in the panels’ final report. However, whatever the wording, the reality is that as IntraFish point out, catch quotas for Hoki have declined from 250,000 tonnes to just over 100,000 tonnes over the last six years. Now one of the largest quota holders, Sealord has recommended that the quota be reduced to 80,000 tonnes. It is not surprising that IntraFish asked whether this decline sounds like the hallmarks of a sustainable fishery.

The problem for the MSC is that in creating demand for MSC approved fish they are actually putting more pressure on wild stocks than if no MSC certification existed. For example, there was no interest in hoki in the UK until it was offered as a sustainable alternative. Suddenly processors were interested in substituting locally caught fish with fish shipped half way round the world. If other countries developed the same interest, then there is no way that this sustainable stock would cope. Now interest has swapped to Alaskan Pollock but even more successfully. How long will it be before Alaskan Pollock stocks start to show the same sort of decline as hoki?

IntraFish suggest that the MSC are reluctant to withdraw certification from any fishery at a time when the MSC is starting to make an impact in consumer markets. This is not the first time that the MSC has appeared to influence decisions about recertification following the recent news that Mr Howes attempted to silence Alaskan concerns.

Every year the European Fisheries Ministers meet to consider and set new fishing quotas for the European Community Member States. Every year, there is major disagreement as to whether the quotas are set at a sustainable or acceptable level. The European Commission calls on the best scientific advice to help reach its decision yet it is always a bone of connection. The Marine Stewardship Council call on a number of official certification companies to decide what is or not sustainable. If the might of the European Commission cannot reach a consensus agreeable to all, how can a single certification company really know whether a fishery is sustainable or not?

The only route to total sustainability is to reduce the fishing pressure on stocks and this can only be achieved if there are sufficient alternative supplies to meet demand. In this time of growing demand and shrinking stocks, the only viable route is by increasing the availability of farmed fish. Aquaculture is the best management tool that the MSC could access but this is not an option as it is not acceptable to their founding fathers. At least when it comes to the WWF, the MSC cannot be accused of dancing completely in time with their tune!