reLAKSation
56.
Pressing up?:
There has been a great deal of speculation in the press concerning the state of
salmon prices. It is said that salmon prices are now unnaturally low, as
compared to that of previous years and certainly reference to the price graph on
the Intrafish website indicates that this may well be the case. Yet, but these
low prices are not unexpected.
We, at Callander
McDowell, have previously suggested that a better prediction of price future
movements can be determined if prices are plotted against production volume
rather than time. An example of such a graph can be found in reLAKSation no 21,
which can be found on our website. This shows a clear relationship between price
and production volume. As production volume has grown, prices have declined and
it is expected that this trend will continue until the production-led strategies
pursued by many branches of the salmon industry are relinquished in favour of
those, which are more market-led.
The relationship
between price and volume also works in reverse. This means that if volume can be
reduced, prices would be expected to rise. This is why a section of the Scottish
industry has been advocating the introduction of Producer Organisations, whose
sole purpose is to limit production with the aim of keeping prices high. It is
also why there has been a suggestion that Norwegian farmers should now postpone
the slaughter of their fish in the hope that less fish coming to market might
encourage a future price rise.
However, such a
recommendation should be accompanied by the equivalent of a health warning. This
is because past attempts to manipulate the salmon market have led to disaster.
It is now nearly a decade since FOS froze salmon to remove it from the market
and the effects of that strategy are still impacting on the Norwegian industry
through the EU salmon agreement. Other lesser attempts at tampering with the
market have similarly failed. This is because salmon buyers are aware that such
manipulation can only be short-term and the time will come when producers will
become desperate to off-load their stock. Buyers are often willing to sit it out
or seek alternative, more cooperative sources. Prices may temporarily recover,
but such recovery can be then followed with even greater price depression.
If we, at
Callander McDowell are wrong and prices can be raised, there is still no
guarantee that the salmon industry will see a return to good times. This is
because much of the past growth has been built on the lower price of salmon. The
original pioneers of salmon farming may well have been attracted to salmon due
to its’ previous luxury image. When salmon were only available as wild caught
fish, there was a certain rarity value, however this has now been devalued by
the very act of farming. It has proved impossible to maintain salmon as a luxury
product, when it has been produced in ever increasing volume. This has led to
the ongoing decline in price.
Yet, whilst some
farmers view the low price with horror, not only because it has undermined their
margins, but also because it has undermined their market perceptions of the fish
they produce, it has also stimulated the creation of a whole new market demand
for salmon. This has been aided by the decline in availability of traditional
wild caught species due to prolonged over-fishing, which has forced their price
upwards. Whilst consumers have a long association with species like cod and
haddock, there is a price above which they are unwilling to pay and hence they
look for cheaper and better value alternatives. Salmon is their obvious choice,
encouraged by the low price and widespread availability. Yet, if salmon prices
were to rise and supplies become limited, these new consumers are unlikely to
retain this preference. Instead, they will look for other cheap alternatives,
which may not be even fish. Salmon farmers may then find themselves with large
stocks of fish they cannot sell at the new higher prices.
So what is the
answer?
The solution is
that the international salmon industry still relies too heavily on salmon as a
raw fresh product and instead must find ways of diversifying the product range.
This will have the effect of taking salmon out of the marketplace, in much the
same way that FOS intended, but rather than just storing it, develop new
products which the consumer actually is prepared to buy.
One simple
example can be found on the shelves of at least one leading British supermarket
chain. This is a small can of skinless and boneless salmon fillet, which is
actually clearly labeled as Norwegian salmon. This has been available for some
years and has had no affect on sales of fresh salmon. Certainly, Scottish
producers have not complained about its presence, because, even if they are
aware of it, they do not perceive it as competitive to their own produce.
Consumers must be buying it otherwise it would not continue to be stocked.
Despite the huge array of other canned salmon products, this one has created its
own little market for which it commands a premium price.
However, such a
diversification process must be wide ranging otherwise there is a risk that any
new market can also be swamped, affecting prices. This has been seen to occur
with smoked salmon, much of which has seen a similar fall in prices to that of
fresh product.
There are still
many farmers who are looking to a price rise towards the end of this year and
into next. They may well be disappointed. Perhaps, the time has come to take
their destiny into their own hands rather than wait for the good times to just
come their way?
Misguided!:
One group of producers clearly not prepared to wait for the good times is the
obscure ‘European Producers Group’ who have managed to convince the European
Commission to investigate claims the Chilean and Faroese producers have been
dumping salmon into the EU market.
They clearly
blame the low price of salmon on cheap imports and believe that if they can
persuade the EU to slap high tariffs on imported salmon, in the same way that
they tried to do against Norway, then salmon prices can be forced upwards to
their own benefit. However, as we have already seen, consumers now see salmon as
a low cost, value for money everyday meal choice and they are unlikely to
respond to any significant price rise.
Dumping actions
have not yet worked for the salmon industry. They will not work now. These
producers would be better served by directing their efforts to market
development than market limitation!