reLAKSation 376. Callander McDowell
Only opportunities!: Seafoodintelligence.com reports that scientists at Nofima Markets have said that long term success of the salmon farming industry can only be ensured if companies can utilise opportunities and handle threats. They say that this is especially important in the turbulent environment of salmon farming. Yet, whilst it seems that this industry is exposed to significance turbulence, the reality is that much of it is of its own making. This is apparent from the research conducted by Nofima Market when they sought to uncover what opportunities and threats now face the salmon industry.
The researchers interviewed two managers from each of seven companies on two separate occasions and arrived at 38 threats and 26 opportunities although Nofima Market have only identified the top three threats and the top three opportunities. The most mentioned threats were: Trade conflicts with the EU, Exclusion from a market and salmon diseases, whereas the opportunities were acquisition and growth, market access and branding strategies.
With the exception of salmon diseases, these threats and opportunities can be summed up by an industry still stuck in an outdated production-led strategy but yet reluctant to change to those strategies that are much more market-led. This reluctance to change is what has caused much of the turbulence experienced by the industry in the past. The problem is exacerbated because when times are good there has been a general unwillingness to invest to help overcome when times are bad, yet when the bad times do come together with belated recognition of the need for investment, then there is no money available.
The Nofima Market researchers suggest that because acquisition and growth is given such high prominence and that development and branding is not, is indication that the industry is still in its consolidation phase and has not yet become market oriented. They say that instead companies are still intent on becoming as big as possible, producing large volumes of standard products at the lowest possible cost. However because a couple of the companies identified branding as an opportunity then Nofima Market concludes that the industry is entering a new phase. We are not so sure.
Nofima Markets work is part of a larger project looking at value adding and differentiation. Regular readers of reLAKSation will know that we, at Callander McDowell, have argued since the first issue that the salmon industry must widen their activities to include further differentiation through added value. We have held this view ever since prices first dropped in 1989 and nothing yet has forced us to reconsider this position.
We have always said that the future direction of the salmon industry would be governed by one simple choice. Does the salmon industry want to be a small niche producer of high value, high quality salmon that commands a premium price or a producer of high volumes of salmon for everyday consumption? The choice was made in 1989 giving us the salmon industry that we have today. This is a salmon industry that is still in a developmental phase and still some way from reaching maturity.
The choice in 1989 meant that salmon production expanded so companies could benefit from the economies of scale reducing the overall cost of production. However, as volumes grew, then the price of salmon also declined. This scenario of falling prices matching a reduced cost of production or alternatively the pressure to reduce costs as prices fell is what we have today. However, the downward trend of costs and process has not been smooth, interrupted as it has by the various trade disputes initiated by those who disputed the choices made in 1989. Thus in 2006, prices peaked far beyond expectation producing handsome profits. Unfortunately, this could not be sustained and as the latest Norwegian profitability survey has shown, the profit per kilo has fallen from NOK 9.29/kg to just NOK 2.78/kg in 2007. This is not unexpected and is an indication of the kind of future profitability that might be available to farming companies.
As margins become further squeezed, then there will be increased pressure to regain some of this lost profit. However, as increased 2007 costs have shown, further reduction in production costs may not be an option. Instead, companies must look to regaining lost margin through added value. The poultry industry is one model of what might happen. The typical profitability of chicken production is around 2p (NOK 0.21) per bird not per kg. Poultry farmers have sought to improve this margin by further processing, initially by cutting up the chicken into pieces and then adding flavours and finally by processing into recipe solutions. Salmon farming will be no different evolving from being a primary producer into a food business.
Salmon farmers can always find potential threats to their business but much of the industry appears reluctant to take a real look at the possible opportunities that lay ahead.
Bream there again: In reLAKSation 374, we discussed the problems of the sea bream industry which is currently suffering from low prices due to claims of over-production (or more likely under-marketing). We previously suggested that there were many parallels with the salmon industry but unlike the salmon trade dispute, European sea bream farmers did not have someone else to blame for their dilemma as all sea bream production originated from within the EU. By comparison, European salmon farmers laid the blame for their ills at Norway’s door. However, we ‘spoke’ too soon. Italian sea bream farmers are blaming their Greek counterparts for the current troubles, a claim vehemently denied by the Greek mariculture industry.
Massino Caggiano of one of Italy’s largest hatchery, farming and processing groups, Panittica Pugliese told Fish Farming International that the problems cannot be blamed on the current financial situation but instead are the fault of bad management on the part of the Greeks. He said that sea bass and sea bream used to be expensive fish in Italy but low cost farming in Greece has meant that even the average person can now afford to buy such fresh fish. He added that the Italian industry was holding its breath to see what the Greeks would do next.
At the same time, Max Palladin of Aquanord, one of France’s largest fish farms has said that more control is needed to prevent any further reoccurrence. He said that production quotas should be introduced to allow farmers to anticipate demand. Mr Palladin says that the simple solution would be to open up the cages and release the fish into the Mediterranean for the fishermen to catch.
Mr Caggianno hopes that the EU will follow the Federation of European Aquaculture Producer’s suggestion and buying the 20,000 tonnes of surplus Greek fish to avoid further flooding of the market.
This all sounds so familiar. The European aquaculture industry has been through all this before with the salmon industry. They too recommended production quotas through Producer Organisations, removing fish from the market, accusations of over-production and even claims that the aim was to destroy small producers. None of this is new and what is clear, is that none of these ‘solutions’ will work. There is only one answer to the current problem and that is that the whole of the bass and bream industry needs to work out how to promote their production to consumers and create a demand that will encourage consumers to buy their fish.
We have argued many times before farmers, no matter what species they produce, cannot just produce fish and then expect the market to have a sudden demand. This demand has to be created and this will only happen with the implementation of strong market-led strategies producing what the consumer wants.
Sea bass and sea bream have made an impact on the UK market, at least in terms of decorating the fish counter. Retail sales of bass have amounted to about 1,400 tonnes over the last twelve months according to SeaFish/AC Nielsen, an increase of 7.3% on the previous year placing sea bass as the thirteenth most popular fish. Sea bream doesn’t even feature as sales total less than £5m. The problem is that both species are grown to a size to be sold as one portion whole fish whilst the majority of UK consumers are extremely traditional preferring to eat fish that looks as least like fish as possible. This means that there is a preference for fillets.
Sea bass are sold as fillets but because the fish are meant to be portion sized, the fillets are small. In addition, the fillets are greyish in colour whereas UK consumers like a nice white fillet. They are even reluctant to buy coley (saithe) because whilst the cooked flesh is white, uncooked it has a greyish colour.
Sea bass and sea bream farmers can do little to change the colour of the flesh but if they want more UK consumers to eat their fish then they need to do more to disguise the colour which is possible to achieve through value added processing (again the similarities with the salmon industry are clearly apparent).
The Federation of Greek Mariculture (FGM) has written to Fish Farming International responding to the accusations of over-production saying that all producers, irrespective of their country, are in the same crisis and that solutions will only be found by resolving the issues rather than focusing on ‘short-sighted allegations’. These are indeed wise words and we can only hope that they are put into practice and without resorting to seeking help from the EU. Certainly, if the example of the salmon industry is anything to go by will only prolong the agony.
Strategic Framework too: Scottish aquaculture is not the only industry that has been the subject of a new Strategic Framework consultation. Back in July, the Scottish Executive launched the Strategic Framework for Scottish Freshwater Fisheries. This is aimed at the interests of both anglers and commercial salmon fishermen and focuses on the future management of freshwater fisheries in Scotland. (See http://openscotland.gov.uk/Publications/2008/06/26110733/0).
There is one aspect of this framework document which has puzzled us at Callander McDowell and that is the Freshwater Fisheries Forum Steering Group (FFFSG) who have advised and will implant this Strategic Framework appears to have a direct interest in Scottish freshwater fisheries. Members of the FFFSG include the Salmon and Trout Association, The Scottish Campaign for Public Angling, Scottish Anglers National Association, The Association of Scottish Fishery Boards, The Scottish Federation for Coarse Angling and so on. Although there is representation from some other organisations, there does not appear to be any dissenting voices amongst the membership of the group. Everyone appears to be working together to achieve the same aims.
By comparison, the Strategic Framework for Scottish Aquaculture is not guided by a steering group. Instead it is managed by a Ministerial Working Group made up from a variety of organisations which either support or tolerate the Scottish aquaculture industry. Amongst the membership is the Association of Salmon Fishery Boards, the Royal Society for the Protection of Birds and the Marine Conservation Society. It is clear that such organisations are not totally supportive of the aquaculture industry. For example, it is well known that salmon anglers have always blame the salmon farming industry for the decline of wild salmon, even though this decline has affected some of the best known East coast salmon rivers, many miles from the salmon farming areas.
Of course we don’t doubt that anyone is entitled to express a view on the impact of Scottish aquaculture, but where we think that this involvement has been taken a step too far is with the inclusion of these organisations within the Ministerial Working Group. We argued when the original Strategic Framework was released that the direction of the industry should be guided by the industry itself and once a strategy had been agreed then it should be made available for consultation with other interested parties who could then help modify the strategy accordingly. Instead, representatives of the aquaculture industry hold a minority in the Ministerial Working Group and thus the strategy could be diluted by those whose aim is to reduce the presence of the aquaculture industry in Scotland.
The renewed Strategic Framework is to adopt a new approach in which this disproportionate Ministerial Working Group will drive progress rather than tracking it. The most crucial change is that each of the strategic themes will have a ‘champion’ who sits on the Ministerial Working Group and will have responsibility for ensuring any agreed actions are progressed. The problem with this new approach is that the ‘champion’ may guide the work on the theme towards their own interests. We would hope that this would not happen but we would be concerned if any member of the Ministerial Working Group who was not actually involved directly in the promotion of the aquaculture industry was appointed as a champion. It would be impossible to believe that they could adopt an open mind to the future development of the aquaculture when their own interests would appear to dictate the opposing view.
It does appear odd that the Scottish Government has recently released two Strategic Frameworks. One appears to be under the control of a very diverse group of interested parties whilst the other is managed by those with a common aim. We can only wonder why representatives from organisations who work actively against angling and cruelty to animals were never invited to join the Steering Group directing the Strategic Framework for Scottish Fisheries, whilst those who might criticise the aquaculture industry were asked to join the MWG for aquaculture. We have previously argued that the only way forward is to have a MWG that can develop a clearly directed Strategic Framework for aquaculture, which can then be sent out for consultation with these other interested parties. Otherwise the Scottish aquaculture industry will never be a competitive player in the supply of farmed fish and seafood.