reLAKSation 35.
£450,000 support: Highlands & Islands Enterprise, the regional development authority, is providing support worth £450,000 to the Scottish salmon farming industry. This contribution, which represents nearly 20% of the total project costs, is intended to boost the marketing and image of Scottish salmon. According to IntraFish, the aim of the three-year project is to increase exports from 45% of total production to 50% and also to achieve a retail price premium of 10% over competitors salmon.
This project has admirable and well-intentioned aims, but at the same time, raises a number of fundamental market related questions.
Some commentators have described the salmon industry as being a roller coaster ride with large swings in prices, although these are mostly in a downward direction. There have been a number of proposals with regard to stabilising these fluctuating prices but none are likely to work. This is because the industry is still firmly stuck following well-established production-led strategies, when they need to be investing in those strategies, which are more market-led.
This latest HIE part funded project might be perceived as a move in the right direction with this additional investment in industry marketing. However, this is not the case. This is because the aims of the project appear to be just a function of existing production-led strategies. These are about what the producer wants and not the market.
Marketing is about producing what the market wants and currently this would seem to be affordable, value for money salmon. By comparison, the market is much less interested in the origin of the salmon or whether it merits a price premium. These are parameters which producers want the market to want.
In the case of this current project, the producers want to increase their exports to 50% of total production. This would mean an increase of about 6,500 tonnes a year, which is not a particularly significant volume. Currently, exports account for just under 60,000 tonnes a year, with about half destined for France.
France is viewed by the European salmon industry as the most important market for their products. It is therefore extremely competitive. However, Scottish producers have a crucial advantage in the market place. Since 1992, Scottish salmon has been accredited by the French National Commission for Labels and Certification of Agricultural Food Products for the certification under the prestigious Label Rouge award.
According to the SQS website, Scottish salmon was the first non-French product to achieve this status. This must enhance the prominence of Scottish salmon in the French marketplace. Yet, Brian Simpson, Chief Executive of Scottish Quality Salmon told IntraFish that only 3,500 tonnes of salmon exported to France is of Label Rouge quality. This represents about 10% of salmon exports to France, 5% of total exports and 2.5% of total Scottish salmon production.
Considering all the hype about the accolade of Label Rouge, it is really surprising that it benefits such a small percentage of Scottish production. Either the French public have little regard for the award or the industry have not developed it to its' advantage. The answer is probably a little of both.
Delegates at a recent seminar in Biarritz heard that following a number of food scares; awareness of Label Rouge has increased from 30% to 89%. This is something on which the industry could, and should capitalise.
However, the real problem is something, which Mr Simpson has already identified. Only 10% of Scottish salmon exported to France are of Label Rouge standard. If will matter little if more consumers are aware of the award if the Scottish industry can only produce 3,500 tonnes of fish to the right quality.
The emphasis must therefore be on the production of fish to these exacting standards rather than attempt to boost sales through increased promotion. Marketing is about getting the right product to the right market. Clearly, this is not happening. If sufficient salmon is produced to the right quality, then the target growth should be more easily achieved.
The second target is to increase the price premium for Scottish salmon to 10% over competitors product. This should not be a problem since previous market research has shown that consumers are more than willing to pay a premium price for Scottish salmon. AGB/GFK (independent research) working for the now defunct Scottish Salmon Board found that 76% of consumers prefer Scottish salmon to any other origin and, more importantly, 72% are willing to pay more for it.
Leading supermarket company, Tesco, also found that 69% of customers would buy Scottish (rather than imported) salmon even if it was more expensive. However, Tesco expressed concern that whilst their customers were willing to pay more for Scottish salmon, when actually faced with a choice, they would probably respond better to lower prices. Observations of supermarket shoppers confirm that this is probably what does happen.
Yet, it is not so clear cut, because most consumers do not have any choice at all. This is because most retailers contract to obtain their salmon from one source. This means that it is extremely rare to see fresh salmon with differing countries of origin within the same supermarket at the same time. However, there are exceptions. Currently, one UK supermarket is offering identical pre-packs of 4 salmon fillets, weight 500g, on the same shelf. Only the labelling is different. One pack, which also carries the Tartan Quality Mark, is labelled as 'Scottish salmon fillet'. The other pack lacks the mark and is labelled simply 'salmon fillet'.
There is also another difference; the price. The Scottish packs are priced at £5.99, whereas the other, which actually lacks any indication of country of origin, is priced at £4.99, a difference of £1.00 or 20%. This is well above the 10% target sought by the Scottish industry. As few other comparisons exist, this must be taken as being representative.
Is this new marketing initiative therefore really necessary?
'Blowing in the wind': Following some months of silence, there has been a sudden spate of predictions in IntraFish, concerning possible future price movements for salmon. In line with the cheer of the festive season, these offer optimism for 2002 with prices expected to rise.
Our own crystal ball is still well and truly misted over and therefore we, at Callander McDowell, are unable to yet concur with any of these forecasts.
The various commentators appear to have different reasons for their optimism. Paul Birger Torgnes of Fjord Seafood believes prices will rise because up to 60 million fish have been destroyed in Chile. This corresponds to a loss of about 180,000 tonnes of production over the next few years and it is hoped that this reduction will remove some of the pressure on prices in the world market.
Rodrigo Infante, General Manager of the Association of Chilean Salmon Farmers also hopes that prices will rise due to self-imposed constraints on exports to Japan. The large volumes previously exported have forced down prices and it is hoped that as a result of these reduced exports, prices will rise during 2002.
Arne Nore of Pan Fish believes that there will be an upturn in prices in the spring. He expects that an imbalance between large and small fish in the Norwegian biomass will bring about a shortage in the desirable smaller sizes and as a result, the price of these fish will rise.
By comparison, industry commentator, Lars Liabo of Kontali reports that no-one has any real grasp of the current biomass and any forecast is just like 'blowing in the wind'.
Our position is that none of these observations would induce us to change our view that in the long term, salmon prices will remain low. There may well be upturns in the price, but these will be short-lived.
The reality is that these low prices which have stimulated past market growth and will continue to do so, something which some commentators have now begun to recognise.
According to Kontali, the US market is expected to row by 30%, Europe by 10% and Japan by 12%, a view shared by Charlotte Hartvigsen of Fjord Seafood in an interview with website, Nettavisen. Yet, if the market is to continue growing, then prices must remain low.
The underlying problem as ever is the lack of focus on the market place itself. It was clear as long ago as 1989, when prices first took a downward swing that lower prices have stimulated consumer demand. It was more understandable then that the industry was unwilling to accept this relationship since they still believed that they had a market image to maintain. However, over ten years have passed by and consumers now see salmon as a 'value for money' fish rather than as a luxury food. However, 'value for money' is just another way of saying 'low cost' and this is clearly what consumers want.
If low prices are what the consumers want, then the salmon industry is fighting for a lost cause. There is little point in trying to force prices upwards, if this is not what the consumer wants.
In much the same way, if the market for salmon is for small fish, as Arne Nore of Pan Fish has suggested, then there is little point in producing the large salmon, which currently make up much of the Norwegian biomass. However, there must be some sympathy for Norwegian producers, whose hands are tied by the constraints of the EU salmon agreement.
Returning to the question of prices, Lars Liabo believes that the current low prices cannot continue as only a few companies are making a profit at the present levels. Yet, clearly some companies are making a profit and this is the aim to which others should aspire, irrespective of the market price.
Our hope for 2002 would be the widespread introduction of more market-led strategies. After all, the aim of marketing is to produce the right product, at the right price, at the right time, for the right market and most importantly to do so at a PROFIT.