reLAKSation
55.
Dumping
differentials? Accusations of dumping have continued to
dominate recent news. The latest developments suggest that the EU have decided
to investigate the possibility that the Faroese salmon industry have been
dumping salmon into the EU marketplace. Where will this all end?
Unlike Norway and Chile, the
Faroe Islands are a small producer with a total output of only 50,000 tonnes.
How much impact can Faroese salmon really have on a growing EU market? Are these
dumping accusations now getting out of hand?
The question, which should be
posed, is have those who wish to pursue the dumping route lost a realistic
perspective of the salmon market?
It was only recently that the
Scottish industry unveiled research to show that the 'Scottish' label on salmon
can add as much as 20% to a product’s value.
IntraFish reported that a study by the University of Stirling concluded
that a Scottish descriptor justifies a premium of 20% compared to products with
no such claim. This confirms a long time view that consumers are willing to pay
a premium price for Scottish salmon.
The concept of premium pricing
means that there must be a price differential between products which warrant a
price premium and those that do not. In this case, consumers are prepared to pay
a higher price for salmon with a Scottish label.
By comparison dumping means
that one product is being sold cheaply below the costs of another. This should
result in the emergence of a similar price differential to that when premium
pricing occurs.
Surely, consumers who are
willing to pay a premium price for Scottish salmon will continue to do so even
if cheaper imported salmon were to appear in the marketplace. Even if Chile or
the Faroes were to ‘dump’ cheap salmon into the EU market, this would have
little impact on EU producers, whose salmon consumers will actively select and
whose price will be unaffected because of its declared premium position.
It seems that some producers
want it all ways. Clearly, they believe that their salmon merits a premium
price, yet when consumers fail to be persuaded to pay this premium, then
imported salmon must be to blame.
Sadly some producers have
failed to learn the lessons of the past. Trade actions cannot force consumers to
buy their salmon. Instead, they must move away from the restrictive
production-led strategies to those, which are more market-led.
Putting it
together! There is a view that high value processing
produces the highest value returns, however a new Seafish report suggests that
this is not always the case. Fishupdate.com highlights the report “Costs and
earnings of the UK sea fish processing industry 2001”, which shows that
primary and mixed processing has produced better margins than those engaged in
secondary processing alone.
The news that mixed processing
can be more profitable than higher value secondary processing must be
encouraging to a salmon industry, whose future may rely on full integration. As
salmon prices close towards the cost of production, long-term profitability will
ultimately depend on the production of salmon as a raw material for in-house
added value processing. Removing some of the links in the supply chain will
reduce the number of different profit centres and increase overall
profitability.
The poultry industry has shown
the way forward and must be the model to which salmon producers must aspire. The
large, feed producing owned salmon companies now form the basis for a future and
profitable salmon industry.
Driving prices?:
Intrafish have asked the question as to when might be the best time to
buy shares in fish farming companies? This is because there is an expectation
that prices will rise this autumn and with this rise, there will be an
accompanying rise in share prices.
Whilst share prices will
probably rise if salmon prices do increase, we at Callander McDowell, are still
not convinced that there will be an autumn price rise. Certainly, if reference
is made to the graph of salmon prices on the Intrafish web site, the trend over
the last two autumn periods, prices have fallen. The only reason why prices
should rise, is if there is a shortage of available fish, but with supplies now
sourced from as far afield as Chile, it is unlikely that consumers will be
disappointed
The link between salmon prices
and the shares of fish farming companies is not one which will be beneficial to
the future success of the industry. This is because there is a danger that both
salmon and share prices can be hyped to the extent that they do not reflect the
actual viability of the industry. This is what happened in 2000 when prices went
on the boil, but without anything to underpin them except stock market hype,
prices eventually collapsed.
Those investing in the future success of the fish farming industry would be better served if they put their money into those companies who have a clear strategy to overcome future price falls. Those companies who can ride out, or even grow, during low prices are those, which will succeed in the long-term. By comparison, those who just wish to bet on a future price rise are not that interested in the industry’s future viability and might consider a punt on horseracing as a better gamble.