reLAKSation 359. Callander McDowell
Soggy?: The latest issue of Fish Farming Xpert takes a long hard look at cod farming and suggests that last year’s 60,000 tonne cut back in Icelandic fish quota should help pave the way to a successful cod-farming industry. This shortfall should be close to being matched by 2009 when it is estimated that the Norwegian cod industry will produce at least 45,000 tonnes of round weight cod, four times the total 2007 harvest.
Despite such opportunities, Karl Petter Myklebust of Nærøysund AS warns against excessive optimism because whilst prices have been good this year, the margins are not. He suggests that the main problem with margins is that the cost of production is not dropping quickly enough. This is not surprising to us, at Callander McDowell, since we asked whether cod farmers could reduce costs enough to maintain a reasonable margin as along ago as reLAKSation no 27 given that there is already a thriving market for cod driven by the wild cod sector.
The need to resolve questions over margins and costs in cod farming can be seen in the Q2 results from Norwegian cod farming company, Cod Farmers. These show a loss of NOK 34 million, some of which can be attributed to extraordinary write downs but the company also blames a tepid market for farmed cod.
According to IntraFish, the company’s weak showing is due to soggy demand for farmed cod. They say that erratic swings in demand contributed to a somewhat sluggish market for their fish. We, at Callander McDowell, can only wonder that if a company like Cod Farmers reports that the market for farmed cod is soggy now, then what will it be like in coming years when significant volumes of fish start to reach the market?
One influence on the market, that won’t occur next year, but which Cod Farmers also blame for their poor results has been the ongoing clearance of stock from the collapse of Shetland cod farming company ‘No Catch’. They say that this put pressure on spot prices for farmed cod, but we are not so convinced. Kyst.no has produced a graph of farmed cod prices for the early part of the year. This shows that the price of farmed cod did drop around week 11 (April) but subsequently recovered. However, it was not until week 23 that cheap farmed cod started to appear in Grimsby fish market. This is not a location where buyers would normally expect to source farmed cod and thus it is probable that any farmed cod sold there would be as an act of desperation as would happen once a company goes bankrupt. The appearance of farmed cod in Grimsby lasted about a week and has not been repeated since then.
Grimsby cod prices beginning of June 2008
Large £3.30-£3.60/kg.
Lge/Med £2.90-£3.20/kg.
Medium£2.70-£3.00/kg.
Small/Med £2.50-£2.80/kg.
Small £1.60-£2.00/kg.
Farmed £0.75-£1.00/kg
As can be seen, some farmed cod was sold off cheaply and we suspect it did come from ‘No Catch’ but it doesn’t seem to have had any effect on the wider market. We therefore don’t think that it has had a contributory effect on the market for farmed cod produced in Norway.
The real problem is not a soggy market but rather the perception of farmed cod and its position in the wider marketplace. Writing in Fish Farming Xpert, Stein-Ove Hansen, a fish farming analyst, argues that the existing market for wild cod has paved the way to market for cod farmers. He said that only have to fill the existing demand with high quality products. He compares this with the experience of salmon farmers who had to effectively create a new market for their fish.
If only it were so easy!
In so few words, Mr Hansen has raised a number of fundamental issues regarding the cod market. He is totally correct in his assumption the existing market for cod has opened the door for cod farmers. There is already a huge market for cod, although the continued reports that supplies are threatened have caused some to consider replacing cod with other fish. Some consumers may be willing to try alternative species but companies like Young’s and Birds Eye have now replaced cod in many products with Alaskan pollock. This must have had an effect on demand. Yet, notwithstanding any moves to reduce consumption of cod, there is still significant demand for the fish, a market which is accessible to farmed cod.
What is unclear is whether this market for cod is sufficiently differentiated that cod farmers are able to obtain a higher price to help overcome the high cost of production or is it not differentiated at all and farmed cod is just perceived as being the same cod as wild cod. Mr Hansen suggests that farmed cod will fill the gap left by reduced supplies of wild cod but if this is what will happen then surely buyers will be looking for cod which is identical to wild fish, not one that is differentiated and more expensive to buy.
In reLAKSation no 354, we discussed how Henrik Vikjaer Andersen of Cod Farmers had said that there is no doubt that the market is paying more for farmed cod because of higher quality and better yields. We suggested that this may be the case now but as more farmed cod comes on line, there is no doubt that it will be extremely difficult to maintain this premium. The reality is that the wild cod catch currently drives cod prices but as more farmed cod comes to market, the position will be reversed and prices will weaken. Farmed cod may generate a premium now but as the supply increases, it is likely that this premium will transfer to wild fish instead.
Mr Hansen says that the pioneering salmon farmers were faced with the prospect of establishing a new market for salmon, something cod farmers will not have to do. However, Mr Hansen is completely wrong. If salmon farmers needed to invest in market development then cod farmers need to do so twice as much, if not more. This is because salmon farmers did not have to compete against an established market whilst cod farmers do.
Cod farming has many more obstacles to overcome than salmon farmers ever had. The difficulties in rearing a marine fish are many times greater than those faced by salmon farmers and in addition they face direct competition from the existing market for cod. This has been made harder still by the fact that the wild catch has not diminished as much as predicted. There still seems to be plenty of cod in the sea, although whether supplies will be sustained remains to be seen.
Amund Pedersen of Fjordlaks Marine told Fish Farming Xpert that there are still a lot of pieces that that still need to fall into place within the cod farming industry and that the main challenges for cod aquaculture lie in the on-growing stages at sea, but that at least the marketing potential is good. We disagree. The real challenge is the marketing because the practicalities of farming will be resolved. Whether the marketing will is still very much open to question.
Too much of a good thing?: In an IntraFish editorial, John Fiorillo wrote that not so long ago the Marine Stewardship Council was criticised because there were insufficient fisheries certified to satisfy the buyers. Now, he says, that it seems that a new fishery is certified every second.
This flood of certification has promoted Mr Fiorillo to ask whether every fishery meets MSC criteria since the MSC has not yet publicly rejected any. He accepts that the pre-assessment process will probably weed out any fisheries that won’t meet the criteria but he wonders how long it will be before every fishery is approved by the MSC.
Mr Fiorillo asks whether the worlds’ fish stocks can be in such a good shape or are they?
Although it seems that Mr Fiorillo is trying to undermine the MSC, he is right to pose such questions. After a very slow start, the MSC has recently gained international credibility and is now seen as the only arbitrator of fish stock sustainability. The MSC seal of approval is recognised by a number of major retailers and they accept the MSC badge as a guarantee of sustainability. The problem is that no-one appears to be arbitrating the arbitrators and thus there is no way of ensuring whether certified fish stocks are truly sustainable or not.
It is only with the progression of time that it is possible for any fishery to be gauged as to its sustainability but some fisheries have already been certified for some time. The Alaskan salmon fishery has been certified since 2000 and was recertified last year. New Zealand hoki was certified in 2001, the Alaskan Pollock fisheries in 2005 and the black cod fishery in 2006.
This year the Alaskan salmon season has been poor with a much reduced catch. This has been blamed on a number of factors but all mask the reality that Alaskan salmon fisheries cannot be sustainable if they do not provide a consistent harvest. In the case of this fishery, the situation is even worse than figures suggest because the fishery is artificially enhanced from hatcheries thus supposedly ensuring that stock levels are maintained. This year could be written off as an unusually bad year but what if harvests are down next year and then next. When is this sustainable fishery judged to be unsustainable.
Question marks also hang over the Alaskan Pollock fishery. Alaskan pollock is seen as a viable alternative to cod and is now found in many European markets, yet although the fishery is certified as sustainable, there has been a public outcry about the massive by-catch of Chinook salmon. This is due to the method of fishing employed – trawling which scoops up all that swims before it. Trawling has been criticized by most environmental groups as being indiscriminate in its catch and destructive to the seabed. It makes no sense that a trawl fishery can be judged to be sustainable. UK retailer Sainsbury’s has banned the sale of trawled cod and now only sells long line caught fish (although they are happy to sell MSC certified trawled Alaskan Pollock because the MSC have deemed this fishery to be sustainable.) Increasing demand for Alaskan Pollock has put pressure on the fishery and as a result, reductions in quotas are possible, which confirms that this fishery may not be as sustainable as suggested. Hoki is another trawled fishery that is also being subjected to cuts in quota.
However it is not just trawled certified fisheries that are suffering from falling catches. Seafood.com recently reported that catches of sablefish (black cod) caught by long lining were showing a distinct downturn of between 20-64% from the preceding month. It is not clear why but as a certified fishery, catches should be sustainable.
Clearly, there is a difference of opinion as to what constitutes a sustainable fishery and what does not. We firmly believe that the harvest from sustainable fisheries should match its recruitment so that catches remain consistent in future years.
Of course it is worth remembering that the MSC do not actually certify fisheries themselves. This is left to independent certification companies who unlike the MSC are not registered charities but commercial businesses for which the certification process could prove to be very rewarding especially as the process itself is effectively a paper exercise. Whether this reflects what is actually going on in each fishery remains to be seen.
John Fiorillo asks how are we to measure whether the MSC programme is having a positive impact on the health of fish stocks? The answer is that we are unlikely to ever know. Sadly, it is only if things go wrong that we will begin to know whether MSC certification is really up to the job.
What if?: Frank Asche of the University of Stavanger told IntraFish that if the State of Alaska were to change its mind and allow salmon farming, it could prove devastating to Norway and even more so to Chile. He added that production growth would be hit in both countries and there would be far more pressure on prices.
This is nonsense.
Mr Asche seems to assume that the salmon market is saturated and there is no scope for market development. He seems to be looking at this scenario from an outdated production-led perspective in which prices can only be safeguarded by production control instead of considering that further production growth can be offset by market expansion. We discussed only two weeks ago in reLAKSation no 357 how the typical US consumer eats salmon only once every six weeks. If this was cut to once every three weeks, salmon consumption could be doubled and this is just in the US market.
There is still huge scope for the development of the salmon market. The salmon industry invests very little in marketing its products and until it does so, it will always be susceptible to competition and price fluctuations. It just shows that the industry has learnt little from many years of trade disputes.
Of course there is one aspect of this scenario that Mr Asche has failed to consider. If Alaska were to ever allow salmon farming, there is one factor that will be a cast iron certainty. They will not be farming Atlantic salmon. This is because there would be a huge public outcry about introducing a non native species to an environment which is rich in Pacific salmon but also because they already rear huge quantities of Pacific salmon for release to enhance the wild catch fisheries. Farming, if it were allowed, would be of Pacific salmon species and this would not automatically undermine the market for Atlantic salmon.
Clearly, Atlantic salmon producers would need to develop a better strategy to compete against Pacific salmon in the US market but there is certainly scope to do so. What is unlikely is that salmon farming in Alaska would have an immediate detrimental effect on salmon producers elsewhere.
However, although they already farm salmon in Alaska, it is unlikely to be extended beyond its current remit at least not whilst the wild salmon industry remains so important. As wild salmon is certified by the MSC as sustainable, this should continue as such for many years to come………..