Callander McDowell
Callander McDowell
reLAKSation no 429
Chauffeur driven?: You don’t see many Corporate CEO’s driving round in a Fiat Panda, let alone being chauffeur driven. Fiat cars are probably not sufficiently prestigious for the Corporate CEO. Most companies would ensure that their top executives are provided with a top of the range BMW or Mercedes. These makes of car are the ones that are perceived to have the right image.
This was not always the case; most manufacturers produced a range of cars catering to all kinds of needs from the young single driver to the luxury option. However, as the Beamers and Mercs have seen a rise in their status, other manufacturers lost out. After-all, who wanted a large Ford when they could drive a BMW or Mercedes? This has meant that the mainstream manufacturers offer cars in the price range of about £8,000 to £25,000, whilst the luxury manufacturers prices start around £20,000 and go up to in excess of £100,000. The mainstream manufacturers have simply been unable to compete.
Last week, Terje Vassdal from the University of Tromso told the Havbruk Conference in Oslo that even if cod prices start to rise, it is now too late to rescue the cod farming industry. He said that not only are production costs too high but if prices go up, those consumers who have become used to paying a lower price for cod will simply opt for the cheaper alternatives such as pangasius. Cod farming companies will be unable to compete.
Professor Vassdal has a point. IntraFish has recently reported problems with some of the leading cod farming companies. Their future already looks bleak and he seems unable to offer any glimmer of hope.
We have written previously that the fundamental problem lies not with the price levels or production costs per se, but rather with the business plan. If there is to be any hope for cod farming then the solution is not about a price rise or a cut in production costs but rather that the business plan needs to be reconsidered.
The aquaculture industry had always discounted cod farming, not because it wasn’t possible to grow cod but because wild cod was abundantly available at relatively low cost. This changed when environmentalists warned of an impended collapse of cod stocks. They told consumers cod was off the menu. Suddenly, cod farming might be economically viable. A shortage of wild cod would mean that prices should soar to levels above the high cost of production. Cod farming quickly attracted inward investment and farms were quickly established. The business plan was simple; a shortage of wild cod meant farmed cod would now be cost effective.
Unfortunately, as quickly as the fledgling industry grew, the business plan then quickly began to unravel. The environmentalist’s warnings that had sparked the cod farming bonanza failed to materialise. Whilst some stocks were in danger of collapse, others continued to supply to cod to market. However, the warnings had encouraged consumers to stop buying cod and try other species so demand fell. This inevitably led to a fall in prices. Low prices and high production costs were a recipe for disaster which is exactly how cod farming is now best described.
Yet, there may be a solution, which will depend on a new business plan. The only way out for cod farming is to create a new market niche for which consumers are willing to pay a high premium price; well above the cost of production.
The difficulty will be creating this new market for farmed cod, however there may be a way and an illustration of what needs to be done can be found in the automotive industry. The creation of a new market image for farmed cod is exactly the same problem as the mainstream car manufacturers faced in trying to compete with BMW and Mercedes. Whilst other manufacturers have tried, it was the Japanese manufacturer Toyota who found the solution. They recognised that simply building a luxury model would not attract customers away from BMW and Mercedes. Potential buyers would not be willing to drive round in a high specification Toyota, Something else was needed.
What Toyota did was create a totally new brand, which they completely isolated from their existing range of cars. In fact, it was so different, customers didn’t even realise that the cars were made by Toyota. These cars were presented in a different way under a new brand and sold by a new chain of dealers. The car was a Lexus.
Everything about the car said Lexus and not Toyota. It was priced against BMW and Mercedes and despite its Toyota origins it has been a great success in the luxury marketplace.
Cod farming companies, if they are to have any chance of survival need to take a similar approach. Their cod needs to be given a completely new identity that says it is a premium product. The fact that there is still an abundant supply of wild cod available is irrelevant. Lexus owners could still buy a Fiat Panda or a Toyota but choose not to do so. Their choice is the premium option and cod buyers must think in the same way, even if it means that farming companies no longer talk about ‘cod’.
The choice is blunt; either cod farming can limp towards the scrapheap or be driven to the premium showroom. It is now all about survival, but who knows what may happen to wild stocks in years to come. Cod farming could still have a future.