reLAKSation 5.
Dumped or under the MIP?: As predicted previously, the price of salmon has weakened. This is not at all surprising since low prices prior to Christmas encouraged some farmers to hold onto their stock, adding to an expected downward pressure on prices.
The Norwegian industry has reacted angrily to falling prices claiming that the Scots are dumping their fish too cheaply into the European market. There is even a suggestion that the price of salmon is now lower than when the Scots brought their 1996 dumping action against Norway.
Intrafish report that Scottish salmon is selling as low as 16 NOK/kg, which is approximately 10 NOK/kg less than the EU minimum import price for Norwegian salmon. Such low prices, together with the Norwegian accusations, raises three key issues for consideration:-
1. Dumping.
Dumping occurs when salmon is sold at below the cost of production. This is what happened in 1996, when the Scottish industry last accused Norway of dumping. The complaint was subsequently proven by the European Commissions' DG1 following a short investigation.
DG1 investigate many dumping cases covering a wide range of manufactured products. Yet, whilst they were happy to treat salmon in exactly the same way as their other investigations, the reality was, and still is, that a traditional spot investigation for salmon will always uncover some evidence of dumping, irrespective of whether dumping actually occurs. This is because salmon production is not a simple manufacturing process, but rather a two to three year long cycle. Any spot investigation, such as that conducted by DG1, can only snatch a relatively short snapshot of the production process. It is therefore possible that the investigators will fail to pick up on all the major influences, which might affect the calculation of the cost of production. For example, young fish are stocked at a higher density than larger fish. These need to be thinned out as the fish grow. Some of these fish may mature early as grilse, which then need to be sold off, even though they are not at the most economical stage in the production cycle. Grilse and other fish sold early during grading could well receive a price below the cost of production. However, if they were considered as part of the whole production process, then any dumping margin is likely to disappear. If the investigators use such sales as the measure of dumping margin, then they will surely find dumping to have occurred, even though it clearly has not.
During the last decade, there have been four dumping actions submitted against the international salmon farming industry. Two of these were lodged by Scottish producers against those in Norway, whilst the other two were lodged in the US. One of these was aimed at Norway and the other, Chile. In all four cases, investigators' uncovered dumping margins, a hit rate of 100%. Either, farmers were all actively dumping as accused or the investigators have got it very wrong. In each of the 4 actions, the dumping margins found were all marginal and in three of the four cases, the restitution was minimal. This simply confirms the view that the dumping actions were all unfounded.
Against this background, are the Norwegian industry justified in their claim that Scottish producers are dumping salmon? The answer is probably not, although it would require a full investigation to actually determine the truth. As has been already discussed, in order to demonstrate that dumping has occurred, salmon must be sold at below the cost of production. The key question is what is the actual cost of production? Whilst the Norwegian authorities publish industry cost of production figures annually, the Scottish industry have been reluctant to divulge such information so comparisons are difficult to make. The Scottish industry have always claimed that their costs are higher than those in Norway, even though the cost of living is higher and water temperatures and thus, growth rates are lower. The only comparative figures were presented at a meeting in Scotland by the Scottish Agricultural College as long ago as 1994. This showed that whilst Scottish production cost £2.86/kg, those in Norway were £3.03/kg. Companies operating sites in both countries confirmed this differential, when consulted off the record. There is no reason to believe that this differential is any different today, especially since Norwegian farmers have been subjected to their feed quotas. If the cost of production is lower in Scotland, then Scottish producers can quite realistically sell their fish at a lower price than their Norwegian counterparts. Thus, the likelihood of dumping actually happening now is quite remote.
2. The EU salmon agreement and the Minimum Import Price (MIP).
According to Intrafish, Per Dag Iversen of FHL has said that it is 'deplorable' and 'incomprehensible' that Scottish salmon is being sold into some EU markets at 10 NOK/kg below the minimum import price. He asked why can't Norway accuse the Scots of dumping in the same was that the Scots have previously accused the Norwegians.
The simple fact is that should Scottish farmers sell their salmon at below the MIP, it does not constitute dumping. Instead, this is a simple case of selling at below the MIP, which is exactly what Scottish farmers are entitled to do. If Mr Iversen and his colleagues think that the MIP is a recommended European price for salmon, below which salmon should not be sold irrespective of where it was produced, they are very much mistaken. The MIP is specifically aimed at the Norwegian industry and should be seen as punishment for their inability to provide an adequate defence to the Scottish dumping complaint. At the time, the EU salmon agreement and the MIP was seen as being preferable to the imposition of specific tariffs.
When it was first signed, the EU salmon agreement was hailed as a great success for the Norwegian industry, primarily because they had avoided tariffs, but the real implications of the agreement were then never really appreciated. The agreement held a real potential for bringing inextricable damage to the Norwegian industry. All that is necessary is for other producers to sell their fish at below the minimum price for the Norwegian industry to be effectively excluded from access to the European market. Alternatively, they risk suffering the consequences of breaking the terms of the agreement.
It was thought that Chilean salmon posed the greatest threat, especially after the US industry followed the Scottish example and submitted a dumping case against Chilean producers. Had tariffs been imposed against Chilean salmon, it would have cost too much for US consumers, leaving Chile with a significant unsold harvest. Chilean producers would have looked for an alternative market place and Europe would have been the obvious choice. Chile could have gained an immediate foothold in Europe by selling their fish cheaply, below the MIP. The Norwegian industry would have been powerless to react. Fortunately, common sense prevailed and Chile has been allowed to continue exporting salmon to the US, removing any immediate threat to Norwegian producers.
It has been claimed that the EU salmon agreement has brought stability to the European industry, but actually this is far from the truth. This perceived stability is the result of an almost total absence of warnings of doom and gloom from the marketplace. Prior to the salmon agreement, these issued with alarming regularity, but the demise of the SSGA has brought them to an end. This in turn has reduced the recurring market disruption, which affected the market place.
The fact that the salmon agreement has not been responsible for this stability can be seen from the current difficulties. As soon as prices have fallen below this arbitrary (and unnecessary) price floor, the Norwegian industry has found itself with a real problem as it is unable to respond, without compromising its' position in relation to the agreement. The MIP is now acting as was intended, preventing the Norwegian industry from selling their fish at below the agreed level, irrespective of what anyone else is doing.
Some commentators have suggested that the salmon agreement has been good for Norway and as a result it should be extended. This is nothing but a blinkered view. The reality is that Norway has simply been lucky to avoid the worst of the agreement. Perhaps, the current low prices should be a warning as to the potential damage that renewal of this agreement could bring.
3. The market.
Rather then focus on the outcome of the low prices, the salmon industry should perhaps consider why the price for large salmon has fallen as it has? There is no doubt that it makes economic sense for many farmers to grow large salmon. The return on these fish is much greater proportionally than it is for much smaller salmon. Equally, there is a significant market demand for larger fish by salmon smokers in the run up to Christmas. However, after the festive season, demand starts to decrease as consumer appetite for smoked salmon begins to wane.
This year, the low prices prior to Christmas, encouraged some farmers to hold back their harvests until after the holidays in the hope that prices might start to recover. Despite optimism from some commentators this was a forlorn hope, since demand for these fish was bound to dwindle.
Simply, farmers have ignored the basic rules of marketing and have produced the wrong fish for the current market demand. Large fish may be ideal for smoking, but they are too big for cutting up into steaks and fillets for the retail market. The resulting portions are either too large or too unappealing for most consumers, who prefer cuts from smaller fish.
Clearly, farmers who opt to grow large salmon need to consider ways in which they can develop market demand for these fish. This would involve a change in strategy from the current production led ideas to those, which are more market led. Farmers need to consider putting these salmon into the modern innovative products, which consumers actually want. This is the challenge now facing the salmon industry. Unfortunately, market development is not the simplest option, especially when it is easier to protest and complain about so called dumping and unfair competition.