reLAKSation 34.
Supply v Demand - A conflict waiting to happen:
According to IntraFish, Tim Seward, President of Chilefish SA, believes that there is an oversupply of Atlantic salmon, coho and trout of at least 35%. He points out that this is the result of over aggressive growth of up to 20% annually. He suggests that if everyone cut back production by 35% and destroyed excess fish, then the industry would revert to normal profits.
Mr Seward expressed the view that high cost producers such as those in Scotland and the US should cut back most as they will be unable to compete in a free market against producers in Norway, Chile and BC. He thinks that other producers will only survive if protected by antidumping measures and fixed agreements.
Certainly, there is a widely held view that such measures are necessary to ensure the long-term survival of many farms. Over the past month, three different approaches have been discussed in the press.
1. EU-Norway Salmon Agreement: The future of the salmon agreement is uncertain, but there is still a belief in Norway that the agreement will be renewed or renegotiated. Some of the largest farming companies have said that whilst they favour free trade, they recognise that some form of agreement is necessary. However, it is likely that this view has been expressed simply because these companies do not want to be perceived as trying to break the agreement.
The European farming industry has remained quiet about the deal. Probably, they do not want to force the issue until absolutely necessary. However, as much of the European industry is now in Norwegian ownership, they need to be seen as keeping an open mind.
Whilst there appears to be a general unwillingness to upset the status quo, the EU-Norway salmon agreement clearly serves little real purpose. Its intention was to protect European producers by placing import restrictions and minimum prices on salmon from Norway, but it has failed spectacularly. Salmon prices have continued to fall and imports have increased. This is because the agreement is aimed specifically at Norway and ignores salmon from other producing countries.
Some politicians have argued that Chile and other significant producers should be included in any future agreement, but the agreement was the EU's response to alleged dumping charges against Norway. Although a compromise deal, it has served its purpose in penalising Norwegian farmers and now that its life is coming to an end, it should be consigned to history.
2. Producer Organisations: William Crowe, General Secretary of the Scottish Salmon Producers Organisation has said that there are mechanisms to control growth on a global scale but they are not put into use. This is because, other than in Scotland, the idea of Producer Organisations has been rejected. The Norwegian research organisation ECON conducted an investigation into the feasibility of PO's and concluded that they were unworkable. This is a view, which we at Callander McDowell also share. In 1996, we produced a discussion document on PO's and this is now reproduced in the reports section of our web site.
The reality is that PO's will be a bureaucratic nightmare, which will be impossible to operate. The difficulty is that the fisheries PO's on which the proposed system is based, work with a finite quantity of product, which is shared out between the members. By comparison, members of farming PO's are able to regulate their own production. In addition, individual members who pursued their own market-led strategies will be heavily penalised by those who are unwilling to move forward.
PO's were originally conceived by Professor Chris Ritson of Newcastle University, who was commissioned by the Scottish industry to offer solutions to the 1989 price collapse. Unfortunately, the information on which he based his view was significantly flawed and thus his ensuing proposals were also flawed.
It is now a few years since PO's were actively discussed but interestingly Alte Guttormsen of the Agricultural University of Norway has looked at the idea again and concluded that PO's are not practicable.
3. OPEC style agreement: Per Dag Iversen of FNL told IntraFish that an alternative to the EU Norway salmon agreement would be an 'arrangement' so that EU farmers are happy, but that Norway can avoid further accusations of dumping.
One suggestion has been an OPEC style agreement, however any consideration of such an arrangement must be tempered by the latest events in OPEC itself. Global prices of oil are expected to fall if a stand-off between Russia and OPEC intensifies. OPEC would like Russia to cut back production to force prices back up, but Russia is hesitating. This example demonstrates that even the most organised arrangements can be easily undermined if there is no consensus of agreement. If an established industry such as that of oil producers is unable to agree, it is unlikely that a similar arrangement will work within the salmon industry.
One of the main reasons why some sections of the industry believe that such production controls are necessary is that since 1989, salmon prices have been consistently falling. Much of the blame has been levelled at over-production, particularly by Norway and Chile. This has led to repeated accusations of dumping, which continue even to this day. Latest news from IntraFish suggests that some Canadian farms have begun to lobby for an investigation into another dumping complaint against imports of low cost Chilean salmon.
Experience has shown that many of these dumping cases are unfounded. Whilst dumping margins have been discovered by investigators, they have always been low and as such, are just an artefact of the natural production cycle. It is more than likely that similar margins can be found in the complainant industries as well. Everyone has a different perception of production costs as illustrated by the attempt by First Securities to qualify if salmon is being sold below cost.
Unfortunately, there is a readiness to use trade legislation as a panacea to the problems of low prices. Sadly, this appears to be part of a blame culture, which has developed throughout the international salmon industry. For example, Irish Minister for the Marine, Frank Fahey expressed concern about the effect of Chilean salmon on the Irish industry. William Crowe of the Scottish Salmon Producers Organisation has called Chilean growth foolhardy even though the Scottish industry is expected to grow by 22% this year, despite protestations from Shetland that the figures are wrong. Whilst Chile appears to be the latest target for industry concerns, Norway has not been forgotten. The on-going efforts to renew the EU salmon agreement has prompted Tarald Sivertsen to suggest that continuing discrimination against the Norwegian industry must end.
For the last ten years, various sections of the industry have resorted to this culture of blame, when they could have been better served working towards improving their overall position in the marketplace. For every farmer who criticises other industries, there are many more that quietly get on with ensuring their business remains both competitive and viable.
Whilst production controls are not the answer, it would be easier to respect those who advocate such methods if they had tried to existing channels to persuade others to adopt a similar policy. For example, why have the many members of the International Salmon Farmers Association not simply requested for an industry wide 5% ceiling on growth, if that is what the industry believes is the solution to low prices?
The current low price has been forecasted to make a dramatic comeback. IntraFish have published a graph produced by First Securities showing a price rebound after times of very low prices. Unfortunately, none of the previous price comebacks have not been sustained and if the current low price does increase, it too, is unlikely to endure for long.
There is only one realistic answer to the current problems. This is to invest in marketing throughout the industry (as opposed to the idea of increased, but untargeted promotion).
Even though there has been a great deal of criticism over the last month, there has also been some really positive views expressed too.
According to a report in Fish Farming Today, Brian Simpson, Chief Executive of Scottish Quality Salmon told delegates at a recent aquaculture conference in Edinburgh that globally demand for farmed salmon outstrips supply.
Earlier this month, Tarald Sivertsen, Chairman of the Norwegian Fish Farmers Association told members at the AGM that demand for salmon is good.
These are the type of views upon which the international salmon industry needs to build its long term future.