reLAKSation 349. Callander McDowell
Cheap as (cod &) chips: British shoppers have been on to a real winner this weekend as one of the leading UK supermarkets has been selling fresh cod fillet for the bargain price of £4.35/kg (NOK 43.93/kg / € 5.51/kg). This is only a little higher than the price received by cod farmers for their fish (The week 21 price was NOK 38/kg / £3.72/kg / € 4.72/kg as listed by kyst.no) and well below the £6.49/kg (NOK66.20/kg / € 8.23/kg) that the same supermarket charges for fresh Pangasuis, a species cited as being a viable alternative to cod.
There is no doubt that £4.35/kg is extremely cheap for Atlantic cod fillet but why is it being sold so cheap?
We, at Callander McDowell, don’t think that there is a single reason why cod is being offered at such a low price, more a combination of factors that have conspired to force this supermarket to put cod on promotion.
Firstly, consumers have been repeatedly told that cod stocks are under threat and that they should buy alternative, more sustainable species instead. SeaFish have told IntraFish that cod sales have fallen by 10.1% over the last year which might suggest that some consumers have listened to this advice. However, whilst cod consumption may have fallen, supplies of cod to the retail sector seems to have been largely unaffected by the so-called threat to stocks. This view is based solely on our observations of the amount of cod in UK supermarkets, of which there seems to be plenty available.
It might be expected that sales of cod would fall if supplies of cod on the fish counter were poor, but when fish is piled high, then consumers might be expected to continuing buying the fish. This is not in line with the 10.1% fall in sales, which may be better explained by looking at the frozen section instead. Over the past year or so the leading suppliers of coated cod products, which account for a major chunk of cod sales, have been replacing their cod products with ones made from Alaskan Pollock. The reduced availability of coated cod products may be a better explanation why cod sales have fallen, than a specific desire by consumers to switch to other species.
On top of this, Seafish have identified that fish sales have flat-lined, suggesting that the market for fish has plateaued. Again, this would be in keeping with our observations in supermarkets. Even at times when supermarkets are extremely busy, the fish counters appear to be doing little business, other than on Fridays, when a small queue has been seen to form. For whatever reason, many consumers seem to have fallen out of love with fresh fish. However, we would stress this view is based on observations and not any specific data, although SeaFish’s reports suggest we may not be wrong.
So a combination of plentiful supplies of cod (at least in the retailers) and a weakening consumer demand may be the reason why this one supermarket has decided to slash the price of their cod fillet by half to £4.35/kg.
If cod stocks are in a healthier state than some of the environmental groups would have us believe, then the fledgling cod farming industry must be concerned. Whilst £4.35/kg is a short term promotion half price offer, the regular price is currently only £8.71/kg. This is still very cheap. Added to this, MSC certified Pacific cod is also being sold in the UK market at below £10/kg. So far, the limited supplies of farmed cod sold in the UK have been at a much higher price. As a result, farmed cod, with one exception, has largely disappeared from the UK market. This is not difficult to understand.
The environmental groups have continually harangued consumers that they should avoid farmed salmon in favour of ‘more sustainable’ MSC certified wild Alaskan fish. The message has been farmed is bad, (MSC) wild is good so when it comes to cod, consumers might be forgiven for thinking the same applies, i.e. that wild caught fish are better then farmed. Yet, at the same time, they are being told to avoid cod (at least North Sea cod) so it is not surprising if they are confused. However any confusion is resolved when they compare prices and find that farmed is more expensive than the wild.
It would make a lot more sense that farmed cod is offered as a more sustainable option than wild if the price of farmed cod was less than that for wild. Unfortunately, the cost of production for cod, as for all marine fish, is high; much higher than for salmon. This is because of the differing reproductive strategies for these fish which means that cod fry must be fed live food as they are not large enough to take dried food like salmon. This means that farmed cod will be expensive to produce and likely to be more costly than wild fish.
IntraFish report that cod farming has a long way to go before reaching profitability but that analysts are increasingly drawn to the potential of the maths. Aslak Berge, an analyst with First Securities says that costs could fall below NOK 20/kg with sales generating a ‘handsome’ NOK 40/kg. He said such maths is a huge interest to investors. However, we wonder whether such maths are just too simplistic.
Unlike smolt production, cod fry production will always be expensive so it is unlikely that the production cost for cod can be cut in the same way it has been for salmon. In addition, NOK 40/kg may be a bit optimistic. Cod farmers may be achieving around that price now but volumes are so low that they can be justified. Yet once volumes increase, the pressure on prices will increase and that’s ignoring the presence of wild cod in the market.
Aslak Berge told IntraFish that most cod farming companies are losing money at the moment. He said this is due to the crushingly high production costs and that the industry is still in its build up phase. The question is whether cod farming can overcome such obstacles and develop into a profitable industry?
Of all species, cod should show the greatest potential for farming. Cod is an extremely popular fish with a high market demand. When the pioneers of the new ‘intensive’ fish farming industry reviewed candidate species back in the 1960’s, salmon was selected in favour of cod for two key reasons. These were that the fish had a high market value and that demand appeared to exceed supply. By comparison, cod was cheap and widely available and was therefore not so commercially attractive.
Over the last decade, the picture has changed. Cod is supposed to be short supply whilst demand remains high. This makes cod farming a much more attractive proposition. However, the reality of the market has not lived up to expectation and as we discussed, supplies of wild caught fish seem to have remained strong. This may be part of a trend or just a short term blip. At the same time, the price of oil could completely change the balance as the high cost of each fishing trip pushes up the cost of wild caught fish.
We, at Callander McDowell, firmly believe that cod farming has a future but if the fledgling industry is to succeed then cod farming companies must give much more regard to the market than their salmon farming counterparts ever did. Salmon farming companies have been reliant on strategies that are production-led. This will not work for cod farming. Instead, the strategies must be much more market-led producing products that fill a specific market demand rather than just competing with wild caught fish.
Aslak Berge may think that farmed cod will sell for a ‘handsome’ NOK 40/kg but will such prices continue to be achieved whilst consumers can buy cod fillet for a much more attractive NOK 43/kg? Cod certainly seems as cheap as chips!!!
Salmon sustained: The Scotsman newspaper reported this week that the British supermarket group, Sainsbury’s, is to sell only sustainable salmon. From now, the supermarket will only source all of its farmed salmon from sustainable stocks in Scotland. This is great news for Scotland as it will secure many jobs in the salmon farming industry despite claims from the EUSPG that thousands of Scottish jobs are threatened.
However, what we find of most interest is that Sainsbury’s have declared farmed salmon to be sustainable even though much of the environmental lobby and even the Marine Stewardship Council don’t appear to share that view. So far, this latest news does not seem to have elicited any contrary response.
We have argued since before the inception of the MSC that not only are farmed fish sustainable but they are also the best management tool available to help safeguard stocks of wild fish. This is because the only way to protect fish stocks is to reduce the fishing pressure on them and this can only be achieved if the markets are able to source fish supplies from elsewhere. The only other available source of fresh fish is that from farming.
Sainsbury’s announcement should finally help put an end to the division between farmed and wild caught fish. The Marine Stewardship Council have steadfastly refused to include farmed fish in their remit for sustainable fish certification but most retailers make little attempt to distinguish between farmed and wild fish on their fish counters so both are displayed together. It makes much more sense if retailers are able to sell all their fish as sustainable.
Interestingly, there has been another sign that the barriers between farmed and wild fish are being broken down in relationship to their perceived sustainability. According to seafoodintelligence.com, Loch Fyne Restaurants have initiated a new report entitled ‘Turning the Tide on Sustainability’. Loch Fyne Managing Director, Mark Derry has brought together the views of the Scottish Fishing Federation and the Marine Stewardship Council to highlight how the industry can better ensure its long term sustainability. The report also includes views from eco-journalist Alex Renton and celebrity chef, Nick Nairn.
Mark Derry said that critics must accept that aquaculture is here to stay. He added that farmed fish, when done properly, is a real improvement to over-fishing. This is why the report recommends that aquaculture must be sustainably and economically viable. The fact that Rupert Howes of the Marine Stewardship Council has participated in this report must be a real step forward but then it is of no real surprise. After all, as the Loch Fyne report points out, much of the wild salmon, already certified by the MSC, is in fact farmed!!!
Cooperation: Scottish Minister for Aquaculture Michael Russell has been in Oslo to meet Norwegian Fisheries Minister, Helga Pedersen. According to a press release from his department, the purpose of Mr Russell’s visit was to discuss the re-introduction of beavers and sea eagles to Scotland. However, it does seem he found time to discuss strengthened and deepened cooperation between Scotland and Norway on aquaculture. He said that ‘it is vital that we do everything we can to ensure Scottish aquaculture remains prosperous’.
One of the issues of mutual interest discussed was regulations. Perhaps, Mr Russell has yet to realise that one of the biggest problems facing aquaculture in Scotland is the number of regulations that government imposes on the aquaculture industry. Perhaps if some of these local regulations were eased, then it may produce a faster return to prosperity than may result from any discussions in Norway.