reLAKSation 332. Callander McDowell
Cycling on: In the last issue of reLAKSation, we discussed why we were not surprised that industry consolidation has failed to dampen fluctuations in the price of salmon as advocated by Aslak Berge of First Securities. Now others have waded into the debate with differing solutions to the problem of fluctuating prices. An IntraFish editorial believes that the answer may be found in the negotiation of long-term contracts. By comparison, Professor Frank Asche of Stavanger University told IntraFish that the only effective way to stop the cyclical trend is the futures market.
In many ways the futures market and long-term contracts operate in a similar way based on a commitment to the longer term. This approach may, or may not, benefit the individual farmer but neither will stop the price from fluctuating and both may even exacerbate the fluctuations. This is because as salmon is taken out of the market to meet long-term contracts, that which remains could be exposed to even greater supply and demand pressures.
IntraFish’s editor suggests that the spot market is akin to either gambling or lottery fever as those selling negotiate to get the maximum possible for their fish. However, long-term contracts and the futures market are just as much a gamble as playing the spot market. No one can guarantee what prices will be in the months ahead and thus there is a risk that those selling their fish may find that they are being paid a lot less than those risking the spot market. Equally, they could find that they are being paid more. It is a risk although those engaging in the longer term view should have calculated that they will be profitable from whatever agreement they subscribe to.
The spot market will always exist and thus there will always be an indicator of current salmon prices. What really needs to change is not so much the method of selling but the incessant focus on prices and especially the relationship to industry performance. The salmon price index has become a mirror of the stock exchange with rising prices perceived to be good whilst those that fall are seen as bad. We, at Callander McDowell, would argue that high prices are actually bad for the industry since they stifle demand. By comparison, consumption is actually stimulated as prices fall. The question is whether it is better to sell fewer fish at a high price or more fish when prices are low?
Unfortunately, prices are seen as the best indication of industry performance by the analysts and thus the focus on prices remains. It is a shame that these analysts cannot dig deeper into industry strategy and see the longer term perspective. For example, seafoodintelligence.com have reported that Marine Harvest shares have fallen again on publication of the latest results making it one of the worst seafood performers on the Norwegian stock exchange. Sadly this ignores the reality that Marine Harvest are also one of the most progressive salmon farming companies in terms of future plans leaving the company’s current performance to be measured by a difficult market with low prices. This is not surprising since the high prices of 2006/7 could never be sustained reducing the likelihood that previous highs could be repeated. Inevitably previous high prices deterred consumers, leaving them seeking alternative fish species offering better value for money.
Whilst longer-term contracts and the futures market may help individual sellers, neither will stop prices fluctuating. Instead, the industry needs to show analysts that price is not the ‘be all and end all’ to industry profitability. As a first step, price fluctuations can be dampened by ensuring that demand remains strong. There is little evidence to show that either the industry or individual companies are really investing in marketing and market development. Production continues to rise so it is inevitable that there will be a growing imbalance between supply and demand unless both are stimulated together. If not, then prices are bound to continue fluctuating. Ultimately, this question of price fluctuations reflects on what type of salmon industry we want for the future?
Way off b(r )eam!: The Aegean Aqua Products Exporters Association has told IntraFish that they want the European Commission to avert a crisis in the sea bream farming industry by temporarily suspending financial aid to producers in Spain, Greece and Turkey. This is because prices have fallen to below €3/kg over the last three months. Sinan Kiziltan, chairman of the AAPEA has said that this is due to over-production, particularly in Spain. This is why he and his colleagues at the AAPEA want further production to be curtailed. Instead, he would like to see EU funding redirected to newer species such as turbot, bass and grouper for at least the next two years instead of being used to further develop sea bream farming.
We, at Callander McDowell are not surprised by Mr Kiziltan’s request. It is exactly in line with the typical production-led approach that still dominates the aquaculture industry today. This is that falling prices are the result of over-production (especially by someone else). The reality is that falling prices are more due to an imbalance between supply and demand and whilst Mr Kiziltan is keen to pursue a similar strategy to his colleagues in the Scottish salmon industry and seek production controls, he may as an alternative wish to look at the other side of the equation instead. If he did, he might see that the problem may not be over-production but rather the result of under-marketing.
Mr Kiziltan says that sea bream sales are showing significant growth in the Northern European markets such as the UK though not to the same extent as sea bass. He added that sea bream has proved particularly popular when subject to promotion.
We, at Callander McDowell, monitor sea bream as part of our retail surveys and we can attest that it has certainly become more prevalent in the UK market in recent years. British consumers are more conservative in relation to fish consumption than their neighbours and this is reflected in the fact that sea bream alongside bass, have been subject to product innovation in an attempt to attract the eye of consumers. Such development is much more apparent than in the French market, which is still very traditional.
Mr Kiziltan may be enthusiastic about the UK market but it is a very difficult market to crack with two major obstacles for sea bream producers to overcome. The first is that sea bream are traditionally sold as whole fish, something that British consumers generally find undesirable. Instead, most fish bought in the UK are sold as boneless fillets. This is a long way from whole fish.
The problem with whole fish in the UK market can be illustrated with reference to New Forest Barramundi. This company, growing a non native species in the UK has been in the news because it is struggling to find working capital when sales did not live up to expectation. Yet whatever its’ potential, the British consumer is reluctant to buy whole fish, especially of an unfamiliar species. New Forest Barramundi are currently launching fillets but it maybe too late for them.
The second obstacle is price. Sea bream prices may be as low as €3/kg but when the fish is offered in store, the price rises to about €18/kg which is high for whole fish, especially as sea bream often sells in comparable French supermarkets for less than €8/kg. A couple of British stores sell sea bream fillets in prepacks for about €33/kg but this should be compared with cod fillets at €12/kg.
It’s unlikely that British consumers are really going to take to sea bream in a big way unless fish are in a form they want and at a price they want to pay. It may take a great deal of promotion to persuade them otherwise. The sea bream must invest in market development and marketing if it really wants to exploit these new markets. Perhaps, what is really needed is for sea bream producers to persuade the European Commission that funding is needed by the industry, not for further development, but for marketing.
The sea bream industry is no different from the salmon industry in that it is likely to experience the same sorts of problems. The main problem is to get consumers to try the fish as they will undoubtedly need some encouragement to do so.
The EEPEA needs to look to the market rather than production as the root of their problems. Until they do, they will be way off beam!
About turn!!: It’s taken ten years but at last the Marine Stewardship Council has realised that it cannot discriminate between wild caught fish and those produced by aquaculture. Until now, they have vigorously maintained that their remit meant that they should focus on certification of wild capture fisheries only. However, they are not an environmental group seeking protection of the seas but a certifier of commercial products which are bought and sold. Fish buying consumers do not distinguish between farmed and wild and neither can the MSC.
It is worth remembering that whilst the MSC is a charity, its formation was motivated by commercial pressures. Birds Eye (Unilever) had taken a commercial decision to use only wild caught fish in their products and a certification system that would promote these as sustainable was perceived to give them a commercial advantage. (Whether this strategy has worked is another question?).
Birds Eye linked up with the WWF to give the MSC its’ environmental credibility and also because the WWF were very much an anti-farming lobby, which suited Birds Eye. The result was a new organisation that was not prepared to even consider farming, either as an alternative sustainable source of fish or as a management tool for the protection of wild catch fisheries.
The concept of protecting threatened fisheries by encouraging consumers to buy fish from aquaculture was put to the two founding partners even before the official launch of the MSC and both rejected the idea outright without discussion. The MSC has not forgotten its founders and has maintained the same stance until now.
Commercial pressure ensured the founding of the MSC and commercial pressure will ensure that it will encompass aquaculture. According to IntraFish, the Metro Group revealed that it is in discussion with the MSC about the introduction of a MSC label for farmed seafood.
IntraFish reported that MSC CEO Rupert Howes seemed embarrassed that the discussions had been publicised and so he should have been. He later suggested that aquaculture certification was very much in their long term plans and it was just a resource issue since they only have 50 staff.
Yes really!! Perhaps if they had already appointed just one person to investigate the possibilities, Mr Howes’ statement might have been more believable.
The simple fact is that farmed fish and seafood dominates the marketplace. By how much was only too apparent when UK’s Morrisons stores withdrew salmon from its fish counters due to a handling problem. The fish counter was almost bereft of fish leaving a counter dominated by ice. Its only when it’s not there is it really apparent how important farmed fish has become?
When stocked normally, wild caught and farmed fish are mixed together on the fish counters so consumers cannot tell which is which unless they read the labels. It is unlikely that many consumers will select their fish purchases based on whether it is wild or farmed and thus all fish should be considered for certification whatever their origin.
The problem for the MSC is that if they dig in their heels and refuse to certify farmed fish, there are others that will and such certifiers are equally prepared to certify wild catch fisheries too which could undermine the MSC’s current position as market leader.
However, whilst the MSC’s leadership might now recognise the commercial pressures of the real world, there are others who do not. Seafood.com raises the question of the Alaska fisheries currently certified by the MSC. These fisheries account for much of the fish currently with MSC certification but the Alaskans confidence in the certification process has already been undermined by the recertification process. Last year there were murmurs of dissent in Alaska, so much so that Rupert Howes had to write to them to allay concerns, a letter that was leaked to the press.
The Alaskans are known to be set against aquaculture developments and would argue that certifying farmed fish would defeat their marketing strengths. If certification eventually goes ahead then Alaskan fisheries may pull out of the MSC and develop their own label. This would be a total disaster for the MSC and would threaten its very viability.
Of course, any threat by Alaska would be a load of nonsense because despite their refusal to accept aquaculture, the reality is that much of their salmon is farmed for the early part of their lifecycle. Under current certification constraints, Alaskan salmon should have never received MSC certification because it is not a true wild catch fishery but one that is artificially replenished.
It will be a matter of wait and see with regard to which commercial interests can exert the greatest pressure. The Alaskan case may already be weakening. Gunnar Knapp, professor of economics at the University of Alaska recently told that World Aquaculture Society’s US conference that world catch fisheries will take a diminishing role in the supply of fish and seafood as aquaculture has potential for significant demand driven growth. He too has made a clear about turn in his views. Maybe there is yet hope for MSC aquaculture certification.