reLAKSation 322. Callander McDowell
Just wrong!: The Norwegian Seafood Federation has appealed for an agreement on the exchange of salmon production between Norway and Chile to be revived. Under the agreement, Chile has promised to supply detailed information but such data has not really been forthcoming. The Norwegians believe that this is not due to the lack of enthusiasm for the agreement in Chile, but rather the absence of data programmes and information systems.
Although the failure of this agreement has been attributed on poor data collection methods, Norway seems to be calling on the highest level of Government to breathe new life into it. Vidar Ulriksen of the Norwegian Ministry of Fisheries will raise the issue when he accompanies Norway’s Prince Haakon on a state visit to Chile in January. This might be explained by an IntraFish article which concludes that the agreement aims to provide a fuller indication of the extent of over-production in both Norway and Chile.
We, at Callander McDowell, believe that if this is the true reason for reviving the agreement, then to us, it is indicative of everything that is wrong with the modern salmon industry. Our concerns appear to be confirmed by Magnor Nerheim of the Ministry of Fisheries who said that the Norwegian industry says it needs to know how biomass is developing in Chile during the year, not at the year end, which is too late.
Why? What does it really matter?
Clearly, the timing of this request to reinstate the agreement follows shortly after the recent falls in salmon price and the devaluation of much of the salmon industry in Norway but neither can be blamed on Chilean production. This is all very reminiscent of the conflict between Scotland and Norway during the early 1990’s where much of Scotland’s ills were being blamed on Norwegian production growth.
The reality is that the salmon industry is not over-producing nor is ever likely to do so. Global demand for fish will mean that aquaculture producers will never be able to produce enough fish and seafood to satisfy world demand. The problem is not over-production but, as we have said many times before, under-marketing. The salmon industry is still very poor at marketing (in the true sense of the word) itself.
By marketing, we don’t mean running a promotional or advertising campaign. What we mean is by looking at what consumers want and producing the right product accordingly and selling it at a price the market is prepared to pay.
Instead, the salmon industry is production-led and driven by price. When prices are high, producers appear to boost production to benefit from a higher income. Unfortunately, because this production is not targeted, it must compete in the wider salmon market with every other salmon. This effectively undermines prices. Would knowing that other farms, whether in Chile or Norway, are hoping to take advantage of high prices, stop farmers from putting more fish to sea? We doubt it, thus making knowledge of a developing biomass pointless other than for general interest.
Salmon farming is a competitive industry like any other form of business. Those that do well are those companies that can take advantage of a developing market whilst those who simply hope that the market will be in their favour when they come to harvest are those that will struggle. The more that the industry invests in market-led development the more likely it will be that the industry can secure a more stable future. The first step is to forget this out dated production-led approach to salmon farming and focus instead on how to get the best possible return from producing the exact fish that the market wants.
This agreement is not the solution nor will it provide any relevant answers. These are in the hands of individual producing companies.
The price is right: IntraFish records that Glitnir Bank’s Icelandic Market Daily Report is forecasting that salmon prices are expected to remain relatively stable next year. This prediction is based on the assumption that strong demand will push price upwards in coming weeks whilst the underlying European demand is high.
We, at Callander McDowell, believe that the one thing that is very apparent in the salmon industry is nothing can be assumed especially when it comes to price. Yet, it wasn’t always so. Salmon prices used to peak twice a year, once at Easter and again at Christmas as demand for salmon soared for the holiday periods. As salmon production has grown, so these peaks have diminished as the availability of greater volumes of salmon have increasingly satisfied market demand. Christmas is no longer a time of guaranteed high prices. In fact, high prices at this time of year now seemingly suppress demand. Glitnir report that companies like Alfresca are now buying large quantities of salmon due to pending Christmas sales. Alfresca companies transform this salmon into a glittering range of smoked salmon delicacies sold throughout many retail outlets. However, whilst Glitnir believe that the amount of salmon currently bought by Alfresca is encouraging, the picture at the retail end is not so rosy.
We, at Callander McDowell, monitor the range of salmon products coming into stores in the run up to Christmas and have done so for a number of years. Our view is that salmon is no longer the star of Christmas products it once used to be. In past years, every store group used to carry a huge range of variations of the smoked salmon theme from terrines to mousses and from canapés to roulades. In the past couple of years, these ranges have shrunk so that they now consist of just a few core products available. It could be that consumers have become bored with salmon and are looking for different alternatives but more likely is that salmon prices over the last couple of years have become a major deterrent to processing companies because the finished products are simply too expensive to put before consumers, even at Christmas time. Whilst there seems to be no abatement in consumer spending at Christmas, consumers are still looking for value for money. Both Tesco and Asda have already announced that they will be reducing or freezing the price of smoked salmon this year meaning that someone down the supply chain is likely to take a hit. Whilst most stores are now stocking up with Christmas lines, salmon products have so far to make an appearance. Whether this is indicative of further contraction of this sector or just a delay is not yet clear but we are not optimistic of seeing much in the way of new innovative products this year, rather just a few old favourites.
Whilst Glitnir consider that current prices are acceptable to the buyers, they believe that prices are rather low for many producers, which they report is the reason why the share prices of several salmon farming companies have tumbled in recent weeks. We have argued before that there is too much of a fixation on the price of salmon, especially amongst the industry analysts. It is likely to remain so whilst the industry continues to focus on production led strategies since this is the only measure of performance available. This will only change when companies adopt a more market-led approach and refocus performance on profitability. If they did, Glitnir’s price forecasts would become less relevant to what is actually happening in the industry.
2008 may bring more stable prices but then again, it may not. Biomass is not a real indicator of whether prices will go up, down or remain the same since it is the rate of harvest which exerts more influence. If demand is strong as fish are harvested then the industry can remain positive about prices, if not, then it is a different story altogether. They key is making sure that demand remains strong and that is ultimately in the hands of the industry!
Well informed?: This week saw the launch of the Aquaculture Information Bureau which aims to become a source of reliable and easily accessible information about aquaculture production in Scotland so that journalists are not dependent on industry critics for supposedly accurate details about the aquaculture industry. This must be a positive move since aquaculture remains an easy target for environmental groups. Only last week, a consortium of animal welfare groups called on British retailers to buy only seal friendly Scottish salmon yet no mention was made that salmon farmers take strenuous efforts to make sure that seals are kept away from salmon farms. The AIB is ideally placed to now redress the balance.
However, the AIB is also in a position to ensure that the media understand that aquaculture provides the only really sustainable option for British consumers. The Marine Stewardship Council has hijacked the sustainability issue but they refuse to include aquaculture production in their call to buy only sustainable fish. Consumers are being misled into accepting MSC approved fish as the only sustainable option even though most MSC products have to be shipped half way round the world. Scottish aquaculture produce is both sustainable and local but this message has not reaching the media. Hopefully this will change now that there is a reliable source of information to consult.