reLAKSation 452
Quickly forgotten: The letters page of IntraFish.com has become the unlikely battleground between the independent Scottish salmon industry and some of their smaller customers. The spat developed after the boss of a salmon smoking company suggested that Scottish farmers were showing no loyalty to established domestic customers in favour of selling to the United States at a higher price. Farmers have responded with claims that the ‘vitriolic outburst’ is’ outrageous’ and has been promoted by ‘ignorance’ tinged with ‘hypocrisy’.
The rapid exchange of letters centred on the increasing volume of Scottish exports to the USA arising from Chile’s inability to supply the market there. However, these efforts to service the American market have led to a shortage of fish in the UK market and consequently higher prices, a combination that is starting to cripple the UK processing industry. The farmers maintain that they continue to supply their long-standing customers but the implication is that these customers have some contractual arrangement. By comparison, smaller businesses that are not large enough to engage in a contract have always relied on the spot market buying what they need when they need it. These companies now find that they are exposed to the volatility of the spot market despite being loyal customers over many years. Spot prices are currently around £5.50/kg (NOK 51.31/kg) delivered London, having risen by around 40% over the past couple of months. Such large rises are having an inevitable effect on the processing sector. For example, Shetland News report that 60 jobs are at risk at a Shetland processing plant that has had to close temporarily due the lack of affordable fish whilst the BBC indicate that 50 jobs could go at Pinney’s of Scotland because the business is not profitable. These jobs could be just the start of a wave of closures and job losses.
Whilst Scottish producers look to the short-term gains from supplying the US market, the Scottish industry has not expanded to produce any extra fish. This means that the shortage in the US has simply transferred to the UK. Companies like the smoker, who raised this issue, feel that their long-term commitment to the Scottish industry has been cast aside. Inevitably, the search for new markets in the US will probably backfire on Scottish producers as increased Chilean supplies and the lack of market development will eventually make the US ultra competitive. The future problem for the Scottish industry could be that as the US becomes less attractive, they may find that many of their UK customers are no longer in business.
We, at Callander McDowell, are surprised by the venom that is being cast about regarding this issue. One farmer wrote that when adverse market conditions develop, there are some who shout loudly about how unfair it all is. Well, if anyone should know, it is the independent Scottish salmon farmers. It’s easy to forget that not so long ago it was they that were screaming about the unfairness of having to compete with other producers. They claimed that they needed protection from the European Community and that without it, the industry would disappear. They demanded a safety net and as a result of their constant bleating, the European Commission imposed price protection through the introduction of the ‘Minimum Import Price’. This was despite the fact that it was patently clear that their accusations were unmerited. The imposition of the MIP effectively destabilised the salmon market for a number of subsequent years affecting their customers who remained loyal without complaint.
It is a totally different story now that the shoe is on the other foot. Whilst the independent farmers were quick to complain about unfair competition, their customers are now expected to put up and shut up. How easy it is to forget!!
Consumers have their say: Analysts have predicted that salmon prices will hit NOK 50/kg (£5.45/kg) this year but they do not say whether the market will be prepared to pay this price? So far, the rising price has not been reflected in the cost of salmon to the consumer. Retailers have benefited from longer-term contracts and thus have been able to protect their customers from the rising prices. They have also recognised that salmon is now such an important part of their customers shopping basket that they have been willing to offer salmon at discount prices, well below the current spot market price. Although the retailers have been willing to protect their customers, one or two have attempted to increase prices but these have made little impact due to the competitive pressure between the retail groups.
Recently a leading UK supermarket fired the first real shot in pushing up the retail price of salmon to make it more in line with the marketplace. The key increases equate to about 42%.
Whole salmon £10.00/kg (NOK 91.58/kg) - Up £3.00/kg (NOK 27.47/kg)
Salmon side £17.00/kg (NOK 155.73/kg) - Up £5.00/kg (NOK 45.81/kg)
Salmon fillet £12.00/kg (NOK 109.96/kg) - Up £3.60/kg (NOK 33.01/kg)
Salmon steak £14.28/kg (NOK 130.92/kg) - Up £5.77/kg (NOK 52.89/kg)
The increases related only to fresh salmon sold over the fish counter. Chilled prepacked salmon remained unchanged.
There were two possible scenarios as to what could have happened in response to these increases. The first was that the supermarkets customers accepted the increase and continued to buy salmon regardless. If this were to happen, then the other retailers would have probably increased their prices too. The second scenario would be that customers rejected the higher prices and chose not to buy salmon opting for a cheaper species instead, or not to buy fish at all.
In fact the uncertainty as to what might happen didn’t last for long. It took only five days for the supermarket to reduce prices back to their former level. Clearly, their customers showed that they were not prepared to pay the higher price and sales suffered as a result.
Some commentators attending the Brussels show said that higher retail prices would not be a bad thing as it would free up salmon for other markets. However, if UK consumers refuse to pay the higher price for salmon, why would consumers in other markets either?