reLAKSation
46.
No peaking?:
Prices continue to creep slowly upwards, but we, at Callander
McDowell, cannot see this as part of a longer term price recovery. Although
prices rose in the run up to Easter, they are still a long way below that of the
2001 Easter peak and also of the year before that. The Easter price peak
continues to diminish, as salmon becomes a year round everyday meal choice,
rather than a dish for special occasions.
The change in salmon’s market
image is now increasingly reflected in the price. Consumers are looking for
consistently priced food and do not expect prices to rise and fall. This is in
part why supermarket prices do not mirror the changing farm gate price and
prefer to keep the retail price fixed. Consumers benefit from lower prices
through discounts and other special weekly offers.
Even though prices slowly
progress upwards, British supermarkets continue to offer significant discounts
on salmon. This may be a better guide to longer-term prices than the current
upturn.
Consolidate or
secure?: Arne Nore of Pan Fish thinks that the only solution to low
prices is to consolidate.
In an article in ‘Fish
Trader’, Mr Nore suggests that industry must consolidate to keep the margins
for healthy market growth to 10%, but that it has no money to participate in
such consolidation.
We, at Callander McDowell also
believe in consolidation, but unfortunately, Mr Nore’s view of industry
consolidation differs significantly from our own. It would seem that Mr Nore is
looking towards some form of limit on production to prevent future price falls.
This is a similar idea to that of producer organisations. Like PO’s
consolidating production will not work, not just because it will be difficult to
manage, but also because rising prices will deter many consumers and stifle
demand.
Consolidation is the way
forward, but our view of consolidation is one of co-operation, acquisition or
merger. The ability to produce salmon even more cheaply will stimulate market
demand and increased production. However, small to medium sized companies will
find it difficult to compete unless they operate within a small niche market.
Instead, such companies must co-operate to survive. Co-operation will enable
such small farms to benefit from greater economies of scale and other cost
savings.
More importantly, through
co-operation, mergers or acquisition, farmers will be able to regain lost margin
by adding extra value elsewhere in the supply chain. This is the type of
consolidation, which will be the real challenge for the modern salmon farming
industry.
Chickened out!: The
broiler industry could well be the model to which salmon farmers might turn if
they are looking for examples of successful consolidation.
Earlier this year, the
‘Grocer’ magazine asked the question whether salmon could be the new
poultry. Chicken was once a luxury food, but with improved production methods
and economies of scale, chicken became cheap and widely available and as a
result became a value for money everyday meal choice.
However as the market for fresh
chicken became saturated, broiler producers looked for ways of expanding their
markets. First they started to cut up chicken into portions and then into
flavoured portions. From portions, they began to produce ready meal dishes and
other ready to eat products. The product range is extremely diverse.
Salmon production in Scotland
is only a fraction of that of chicken, which is estimated at 1.72 million
tonnes, but global production is now approaching this figure.
Whilst many salmon farmers argue that the industry is over-producing, the reality is that the market is still in its infancy. Just because fresh salmon is now ubiquitous, it does not mean that there is no longer any potential to expand. Producers need to look to the market for inspiration as to how it can be diversified. The possibilities are endless.