reLAKSation 42.
Blinkered Vision: Dr Graeme Dear, MD of Marine Harvest (Scotland) has warned environmental campaigners that they appear to be more interested in destroying the salmon industry than preserving the environment.
According to IntraFish, the opinions of 'unqualified critics' such as Don Staniford and Alan Berry are based on questionable science and emotive argument, but now their arguments have been 'rumbled' by consumers.
Certainly, it does seem that rather than work constructively with the industry; these environmentalists will only be happy if the salmon farming industry can be eradicated.
Yet, Dr Dear's view on the environmental lobby appears to have parallels within the industry itself. In much the same way that the environmentalist lobby refuses to work with the industry, there seems a minority of producers and their representatives, who have been extremely vocal in trying to force others to accept their preconceptions of what salmon farming should be.
This minority believes that it has the right to supply fish into its home market to the exclusion of all others. In effect, it is committed to placing barriers to trade in an attempt to exclude competition from the marketplace. Yet, in doing so it also risks destroying the very industry of which it is part.
Through this minority, the salmon industry has developed a 'culture' of dumping actions and trade disputes. Rather than address the fundamental issues, there is too much of a readiness to blame others. Hence, if salmon prices fall, it must be someone else's fault.
This is why, at a time when the EU salmon agreement is coming to the end of its life there has been a sudden rush to convince the European Commission to continue imposing some form of trade restrictions on Norwegian producers. At the same time, efforts are being made to extend the restrictions to Chilean and Faroese salmon.
One suggestion has been to remove the Minimum Import Price for Norwegian salmon and introduce a punitive duty of about E0.40/kg on all salmon produced outside the EU. This is because it has been reported that Chilean and Faroese salmon is undercutting the price of salmon produced in the EU.
Yet, the evidence is very slim. Certainly in the retail sector, imported salmon is not forcing down the price of locally produced fish. We, at Callander McDowell have found Chilean salmon selling at over twice the price of Scottish fish. Perhaps, it is just some producers cannot stomach the fact that imported fish is being sold at a premium price.
If some salmon producers are convinced that the only way forward is to restrict competition then they risk permanently damaging the whole salmon industry. Restricting the market in the hope of forcing prices upwards will alienate the many new consumers on whom the industry now depends. We have suggested before that the industry, as a whole, must decide what they want the salmon industry to be. If they want to continue to grow to satisfy increasing market demand for fish, then further damaging trade disputes, will only harm the industry. Alternatively, if they want to focus on high value production, then they must reach a permanent agreement to restrict production.
If the salmon industry cannot agree on a strategic market-led plan, then the environmental lobby may well find that its destructive aspirations have been achieved by the industry itself.
Half a billion: The Norwegian aquaculture industry has offered half a billion NOK for a joint global marketing initiative in exchange for removal of the Minimum Import Price and the threat of punitive duties. According to IntraFish, this equates to a duty of 6% of the export value.
This offer, although rejected by the EU, raises some key issues. Firstly, there is the question as to whether Norway needs to negotiate for the removal of the MIP or fight against the threat of duties.
It should be remembered that the EU salmon agreement of which the MIP is part was imposed as a 'punishment' against so-called dumping allegations. Clearly, if Norway had been guilty of dumping, then the EU would have impos ed punitive or countervailing duties. The fact that they did not demonstrates that dumping did not occur. Instead, Norwegian exporters were selling fish in line with the continuing falling prices.
Unfortunately, the Norwegian industry was too quick to accept the agreement rather than fight the action. The result was a fudged deal.
However, as the agreement comes to an end, the question is whether Norway has served its punishment and should be released from the restrictions of the deal. There is clearly no reason, why Norwegian salmon should now be subjected to further punishments, even if the Norwegian authorities have put them forward. After all, Norwegian farmers cannot be dumping salmon since they are constrained by the terms of the agreement and cannot sell below the MIP.
It might be argued that this is a good reason why the salmon agreement should be extended. Yet, why should Norway be exposed to these restrictions simply because others believe that they should be protected from the realities of the commercial world.
Finally, whilst the Norwegian offer to contribute to a global marketing initiative is well intended, it is questionable as to whether a half a billion NOK promotional campaign would be money well spent. It may well be preferable that such funds be spent on marketing than filling up EU coffers, however unless the marketing has a real purpose the Norwegian industry may just as well give the money to the EU.
The joint generic promotional campaign funded through the salmon agreement has done little to help the salmon industry. At a time when salmon is being promoted in France, Germany and Spain, prices have fallen to record lows. Increased demand should have soaked up some of the growing salmon production and forced up prices, yet the reverse actually happened and prices fell. This is because the promotional campaign was more production-led rather than targeted towards the needs of the marketplace.
Half a billion NOK would be a welcome addition to an industry market strategy, however unless the money is targeted at developing a non-competitive market-led strategy, it will serve little real purpose.
Charging up!: Doctoral student Atle G Guttormsen has just defended his thesis "Essays on Aquaculture Economics & Management". He claims that using his model, it is now possible to predict prices for periods of 4 to 12 weeks. This must be a welcome development for many exporters, who should now be able to plan ahead in expectation of a stronger price for different size groups.
Although we, at Callander McDowell, would like to believe that this will help the industry, we remain a little sceptical. This is because producers work within a growing global industry and market in which local developments can be extremely difficult to predict.
This contrasts with the longer-term trends, which influence the industry. Mr Guttormsen suggests that the only time prices now rise is in the run up to Easter as the other traditional Christmas peak has now diminished. However, the reality is that as production has increased, even the Easter peak is becoming less conspicuous.
Mr Guttormsen has offered little hope to those who believe in any quick increase in prices, a view, which we have expressed several times previously. He suggests that the only way prices will ri se is if costs should also rise. However, this is not necessarily the case. This is because the market expectation is now for low cost salmon. Higher production costs will have to be absorbed by the producers or alternatively, they must accept lower margins.
The alternative is to seek extra margin elsewhere in the production change. This is the real challenge for farmers, but it is an opportunity, which is unlikely to be exploited until the industry recognises that low prices are here to stay.