This is not good news for the cod farming industry. Aquaculture analyst Klaus Hatlebrekke told IntraFish that warning lights are flashing from all directions with the market price well below the cost of production. Despite such problems, Mr Hatlebrekke believes that most cod farming companies will weather the storm. How true this will prove to be will ultimately depend on the actual cause of the storm. 

Mr Hatlebrekke is not pessimistic of the future of cod farming in the long term, a view that seems to imply that part of the problem at least, is of a current world picture painted in red. We, at Callander McDowell, are not so sure. Yes, the current economic climate is not making it any easier for cod farmers but when salmon farmers talk about their produce as recession proof, it would be thought that cod should be no different. After all, the food industry should be the last to suffer when money is tight because people still need to eat.

Our view is that the real problem for cod farmers, which would still be a problem irrespective of whether there’s a recession, or not, is the availability of wild cod.

Cod has always been popular with consumers. In Britain, it has been the mainstay of the fish and chip shop in most of the country (some areas prefer haddock) for as long as can be remembered. Cod would have been the ideal candidate species for intensive farming but was never really considered. Instead, the industry targeted salmon, then turbot and halibut before turning its attention to cod. The reason why is simple to understand. Stocks of wild fish were bountiful, meaning the fish was both widely available and cheap to buy so there was no commercial logic to farming cod.

However, all that changed when the environmental lobby warned that widespread over-fishing now meant that fish stocks were on the point of collapse and that cod was in danger of disappearing from the menu. Suddenly cod farming began to make sense. The collapse of wild stocks would make farmed cod not only desirable but also capable of producing the necessary price premium needed to offset the high cost of production. Cod farming suddenly boomed but just as commercial volumes have started to gain momentum, the realisation has hit home that cod stocks have not only not collapsed, but they are actually increasing.

In part, the recovery of stocks has been due to the substitution of cod with Alaskan pollock and Pacific cod, both MSC certified, in cheaper frozen products as well as reduced demand by some consumers who have heeded the warnings. Together, these have effectively reduced demand and relieved the fishing pressure. This has enabled wild cod stocks to show signs of recovery.

As more wild cod comes to market, then it is inevitable that prices will weaken. Even fishermen are now worried that too much fish on the market will continue to undermine prices. Scottish fishermen told IntraFish that they are concerned that growing imports, particularly from Iceland, will reduce the price of the fish they catch. If this is a problem for fishermen, what will it do to farmed cod prices?

The problem for the Norwegian cod farming industry is that the Norwegian Seafood Export Council which helps them promote their fish also actively promotes wild fish. Their solution is to promote both as ‘Norwegian Fresh Cod’ but this doesn’t really help the farmed cod sector since if the farming industry is to obtain sufficient return to offset the higher costs incurred producing their fish, then their fish must not only be differentiated from the wild fish but buyers must also recognise that they are worth the extra cost. This will require an urgent change in market strategy to that followed now.

Whether the industry will recognise the need for change is another question. The industry is fortunate that this current downturn coincides with the ‘Go for Cod’ meeting to be held in Bergen next week so will provide a ready forum to discuss the need for change. Unfortunately, the programme is mainly geared towards production issues, which may be important, but equally will pale into insignificance if the industry fails to survive the price downturn. However, some of the conference programme is devoted to market issues and hopefully these will be reported by the various news services for future comment.

One part of the market portion of the programme that caught our eye is the social event with tastings and presentations. This allows delegates to compare the taste of cod with competitive farmed species. The three species selected are sea bream, tilapia and pangasius.

There has been a great deal of conjecture within the industry about the market development of new species as an alternative to traditional white fish like cod. There has been a great deal of hype about these species and it does seem to us that some parts of the industry have reacted to this hype without due consideration of what is actually happening out in the marketplace.

It’s always been a puzzle as to why sea bream is considered an alternative to whitefish. Firstly, the flesh isn’t white but more importantly, it is not sold in the same format as most whitefish. Cod and other white fish are usually sold as large chunky fillets. By comparison, sea bream is usually sold as a whole portion sized fish. In the UK, consumer resistance to farmed sea bream is because it is a whole fish. When filleted, the fillets are small and portion sized. They are also expensive. Consumers looking for a cheap alternative to cod or something similarly priced will never look to sea bream. Sea bream is more typically served as a dinner party dish. It is never going to be used as a substitute in fish and chips. In the French market, sea bream is also usually sold whole although we are aware of one attempt to use it in a value added recipe dish there.

Tilapia is another species that is hailed as an alternative to cod, but is not. The fillets are whiter than sea bream but like sea bream, they are not cheap. In those stores that sell tilapia fillets, cod fillet is cheaper. Like sea bream, tilapia is usually sold whole but this is for the ethnic market. This is the primary market in the UK for tilapia and whilst it would serve the same market in France, it is replaced by Nile Perch there.

Of these three species, pangasius is the most likely to be substituted for cod. It is a white fillet although nowhere near as chunky. It has made slow progress in the UK market due to its competitive pricing but whilst the Daily Telegraph recently reported that pangasius sales have grown by 60% over the last few months in Tesco and now outsells lemon sole by three to one. Whilst this sounds impressive, lemon sole sales are not really that significant. It would be a different story is the fish outsold cod by the same amount, but it doesn’t.

In both the fresh and frozen sections, attempts have been made to substitute pangasius for cod in coated products. Whilst these are tasty, they only sell well when on a promotional offers like half price or buy one get one free. It is very difficult to find pangasius as a standard coated product. It seems to us that it may get even harder to do so if wild cod begins to find its way back into more coated products. There is a still a very clear preference for cod to other species. This can be seen by one fishcake product which was initially promoted as being made from sustainable Pacific cod. The latest version of this product now contains Atlantic cod and is no longer promoted as being sustainable (more about this next time).

Uptake of pangasius is greater in some countries than others. It is popular in Spain and also Holland. In the case of the Dutch market, it is the ethnic community that have helped boost sales. It remains to be seen whether it really takes off in Europe. Most commentators look to the way that the US market for pangasius has grown but it is a market that has been helped by an existing demand for locally farmed Channel catfish.

Interestingly, IntraFish have just related the results of a similar white fish tasting held by the Albany Times Union in the United States. They taste tested a number of species including Swai (pangasius), tilapia, Channel catfish, Orange roughy, haddock and South African Cape Hake believing that all were interchangeable.

They found that all the fish were mild tasting and not that different. They thought that if the fish were served battered or covered with a sauce then they wouldn’t be able to tell any difference. However, when served plain they found that wild caught cod at $9.99/lb were flavourful, moist, buttery and soft. But they preferred Channel catfish at $5.99/lb for being sweet, smooth and excellent overall. Swai at $3.99/lb also did pretty well though some tasters found the fish had a fishier flavour. Tilapia was considered to be the meatiest. The remaining fish drew no strong reactions except haddock which was panned by everyone.

The final conclusion was that for a flavourful piece of white fish that will be the star of the plate then choose cod or Channel catfish but if the fish is to be spiced or cooked in sauce then at $3.99/lb choose Swai. If you take into account the US’s affinity to catfish, then the clear winner is cod.

However, any discussion of alternative species is just a distraction to the central issue. The main competitor to farmed cod is wild cod. The cod farming industry needs to position itself against the wild fish, not alongside it. Unless it does, farmed cod will continue to be viewed in that same way as wild cod and probably priced the same too.

The main advantages promoted for farmed cod over wild appears to be its freshness and its eventual year round supply. The problem with promoting the freshness of farmed cod is that most consumers believe that the fish they buy to be fresh. Saying to consumers that farmed cod is really fresh seems to imply that other fish are not. It is unlikely that retailers will be willing to adopt this approach since it brings the freshness of all their fish into question.

Year round supplies would appear to be a major selling point but suppliers and retailers seem to be able to get around this by selling fish which have been previously frozen. This does not seem to deter consumers who readily buy all sorts of species in this way. It is not a key advantage especially as many retailers are now keen to promote seasonality of fresh produce. One store group that is currently selling farmed cod is actually promoting it as being in season.

Perhaps if farmers were now looking at new species to farm, they may not consider cod as a candidate species. Yet, the reality is that cod are now being farmed. The question is how this farming industry can now become profitable? One way is to reduce production costs to below the selling price but as the price continues its downward plunge, the goal posts keep being moved. Costs may eventually be cut dramatically but the problem is that we will never know if it will be enough to keep track of prices. The salmon industry has ably demonstrated that prices will never remain stable, there will always be some movement one way or another. Clearly every kroner saved will help towards achieving profitability but the industry will never be able to depend on cost reduction alone. 

The use of a well defined market-led strategy to help boost prices is of paramount importance. Aquaculture producers have consistently being reluctant to look at marketing as a solution to issues of profitability but it is really the only solution. The industry needs to open its eyes to this. Hopefully, the ‘Go for Cod’ meeting will be the catalyst to initiate the necessary changes. However, we won’t be holding our breath.