reLAKSation 320. Callander McDowell
Time to draw a line: There is absolutely no doubt in our minds that as we approach the end of 2007, the time has come for a line to be firmly drawn under the salmon dumping case and for 2008 to herald a new era in the salmon industry. The WTO has now published its findings with regard to the salmon dumping case and concluded that the EU’s anti-dumping measure is not consistent with WTO rules.
According to the Norwegian Foreign Ministry, the 337 page report has ruled in favour on 22 points, the largest number of violations found in any case of this kind in the WTO. The report will be adopted by the WTO Settlement Body 60 days after publication. Unless they appeal, the EU will then have a specified period of up to 15 months to either amend or withdraw the anti-dumping measures. However, Norway has indicated that it will request an immediate withdrawal of the MIP.
Unfortunately, it looks very much as if the new era for the salmon industry will have to wait. The EU does not appear impressed with the WTO findings as demonstrated by the heading on their press release – ‘EU welcomes WTO rejection of Norwegian call for an end to anti-dumping measures on salmon’. The press statement goes on to say that whilst the WTO Panel has found in favour of Norway with regard to certain issues relating to the measures, the EU’s measures themselves have not been called into question. As a result, the EU is analysing the precise implications of the panel report with a view to a possible appeal.
Norway has provided a list of eight main findings from the Panel’s report. Most indicate that various aspects of the EU investigation were flawed. We, at Callander McDowell, would like to read the full report before we comment on these points but what has not been discussed is that the EU’s procedures that led to the investigation were also flawed. If these procedures had been carried out correctly, then there would never have been an investigation and thus the disputed measures would have never been implemented. Sadly, the EU was never willing to accept, let alone discuss these deficiencies and thus the dumping bandwagon has been allowed to continue.
Currently, the EU is undertaking a review of the MIP that could lead to its withdrawal. The EU should just let go and remove these measures so that the industry can get on with its job of meeting the growing demand for farmed fish.
The dumping case was never really about dumping. Instead it was about how independent Scottish farmers could maintain their perceived image of Scottish salmon as a premium product. The EUSPG believed that excessive Norwegian production had devalued the market image of Scottish salmon but this was never the problem as growing demand for salmon has shown. The fundamental issue was not over-production but under-marketing and this is still very much the case. It is only a shame that the many millions that have been swallowed up in pursuit of, or fighting against, the MIP were not used in the promotion of salmon instead.
One of the main findings cited by Norway was that the basis on which the EU initiated the investigation was flawed since the complaint did not have the support of the whole EU domestic industry. If the European Commission is determined to retain the MIP and pursue an appeal, then perhaps it should first ascertain how much support there is for these measures from within the EU salmon industry. The EUSPG, which was responsible for initiating the complaint originally, appear to have sunk into oblivion but if not let them vote with the rest of the industry to either retain or repeal these measures.
Egg on their face: According to journalist Drew Cherry, writing in an IntraFish editorial, salmon company’s profits are miserable, most analysts have egg on their face and investors are out of a lot of money. This has prompted him to pose the question as to why did farmed salmon prices and shares fall so fast?
Mr Cherry attributes the fall to greed. He suggest that salmon farmers got greedy and put too much fish in the water, analysts got greedy and predicted monster profits and investors, he says are almost always greedy. We, at Callander McDowell disagree, at least in part.
We would certainly disagree that salmon farmers have put too many fish to sea. We might even argue that they haven’t put enough. We have discussed many times in previous issues of reLAKSation that farming offers the only way that the markets for fish and seafood will be satisfied in future and that we should be producing more not less salmon, yet repeatedly, as in this IntraFish editorial, the implication is that the salmon industry is over-producing. This is nonsense. It is not that we are producing too much salmon; it is we are not conveying the right message to the market about the salmon we produce nor are we willing to adapt the salmon into the right types of form that consumers want to eat. Instead, the salmon industry is fixated on the production of raw flesh and leaving it to others to persuade consumers that they should be eating it. If the salmon industry wants to put more fish to sea, then it needs to accept the responsibility to convince consumers that they should be eating it. We accept that this might be interpreted in a different way; that if consumers don’t want to eat our salmon, then we shouldn’t be producing it but sometimes it is necessary to tweak production to meet the aspirations of consumers. This is just good business.
This week, the Guardian newspaper reported that the EU is funding a project to genetically modify oilseed plants to produce essential omega-3 fatty acids as this is the only way to ensure people get enough omega-3 in their diet. The plan is to feed the omega-3 enriched plants to animals. One of the researchers said that only 30% of Britons regularly eat oily fish whilst 80% eat poultry. If 200g of poultry meat contained 300mg of omega-3 then at current levels of consumption, people would get around 120-130mg of omega-3 a day by eating chicken. He hopes that the plants will be ready in the next five years.
Our salmon is one of the richest sources of omega-3 fatty acids and yet, rather than face such opportunities, we are bemoaning the fact that the industry is over-producing. We already know that the EU is blinkered to the potential of salmon farming, but surely it would make more sense to be looking at ways of making up the shortfall in consumption rather than seek alternative, yet more contentious ways, of providing omega-3 to the general public?
Mr Cherry also suggests that investors are greedy. He is wrong; they are simply expecting the rewards of investing in business with a greater element of risk. There are plenty of safer investments for those who don’t want to take a risk but many businesses are dependent on risk takers for financing. Without such investors, there would be little innovation and progress. This is not greed.
However, Mr Cherry may be right when he suggest that analysts got greedy predicting monster profits and now have egg on their face. DnB Nor Analyst Klaus Hattlebrekke told IntraFish that no one in the industry believed that they would experience a slump. He added that a lot of the industry is trying to get to grips with this now.
According to IntraFish, one reason that many were caught out is that the salmon industry was largely bullish at the beginning of the year except a few level-headed market watchers. We, at Callander McDowell, hope that IntraFish have included us in that category. We have repeatedly argued that salmon prices have been too high, boosting some of the newer emerging markets but depressing much of the traditional marketplace. The initial price rise coincided with the imposition of the MIP creating an artificial pricing for salmon which was never going to last. We were surprised that it lasted as long as it did. Prices were always going to fall unless some form of marketing intervention took place.
The current slide in prices has also surprised some because it comes when demand for Christmas is high. This may have been true years ago but records show that prices often slide in the run up to Christmas as producers hold back harvesting in the hope the prices will pick up. This leads to a lot of salmon coming to market at exactly the same time undermining the price.
We have previously argued that what is wrong with the salmon industry is that salmon company share prices are too closely linked with salmon prices. High salmon can mean good profit expectation but equally, low prices can bring about a healthy return too. What is often lacking is a well-defined market strategy as this is really the key to future success. Perhaps if analysts don’t want to be the recipients of more scrambled eggs, they should give this more standing rather than just looking to changing prices.
Smouldering?: IntraFish reports that new species are catching fire with UK consumers. Sales of tilapia have increased by 64%, sea bass by 71% and barramundi by 301%. According to Brigitte Read, market analyst at SeaFish this is clear evidence that consumers have been listening to the sermons about buying alternative species. She said that consumers are now buying these fish helped by retailers prepared to stock their shelves with species that they wouldn’t have touched a few years ago.
Our own market observations certainly confirm that retailers are offering their customers a wider range of species than ever before but we are not sure that the market for these fish is actually catching fire. We would have thought that it is still just smouldering. For example, whilst sales of barramundi look impressive with 301% growth, the reality is that the company farming them only sold 61 tonnes last year. More stores are starting to sell tilapia but there is little incentive for consumers to give it a try whilst it sells at £12.49/kg for fillets when cod fillet can be bought for less than £9/kg (although in at least one other store, tilapia is cheaper than cod).
Not surprisingly salmon, cod and haddock still dominate UK sales. Cod will remain popular whilst prices are held artificially low to attract customers but equally, new species will not attract buyers if they are presenting in forms that consumers do not want to buy as the barramundi farming company have found to their cost. Whole fish may look attractive on a fish counter but consumers want easy to cook fillets and increasingly, ready to cook meal options. This is where these new species offer the greatest potential. When more of these products start to appear there is a much greater chance that sales of these new species may actually catch fire.