reLAKSation
64.
NOK26.14/kg: Back at the beginning
of July, Norsk Fiskerinaering reported that the leaders of
Norway Royal Salmon, Panfish, Fjord Seafood and Marine Harvest had tipped prices
to rise strongly in the third and fourth quarters of 2002. They forecasted that
prices would rise to NOK 26.14 and NOK 27.16 respectively.
At the time, we, at
Callander McDowell expressed uncertainty that prices could rise to such levels
particularly in the run up to Christmas. Past experience has suggested that the
competition between producers to meet the Christmas demand actually forces the
price down. However, only a few years’ results, does not guarantee that a
fixed trend exists, as this year has demonstrated. Prices have risen in the
third quarter but have fallen well short of the levels predicted by the Captains
of industry. Whilst prices did actually rise in the second half of the year, the
price rise has not been sustained. Instead, prices have roller coasted between
NOK 20 and 22/kg until now.
What is uncertain is
whether the small price rise is a true reflection of market demand or whether it
is the result of market hype? The fact that the rise was not sustained would
suggest the latter, despite a return to the higher level. Despite this
uncertainty, there is still optimism that prices will rise further.
Odd Steinsbo Of Norway
Royal Salmon had hoped that the initial rise was the beginning of a sustained
upturn, but according to IntraFish he was disappointed when the setback
occurred. He still hopes that prices will improve before Christmas, although he
does not expect a miracle.
In the wider market, the
new General Manager of Rabobank in Chile believes that the price rise is due to
increased discipline and the ability to adjust supply so that it does not
surpass demand. Thos Gieskes hopes that this trend will continue next year.
Stolt Sea Farm Chief
Executive James S. Lorentzen also believes that there will be upward pressure on
prices next year. He believes that whilst volumes will grow, so will demand and
this will bring about higher prices.
Is this optimism just more
market hype with the hope for a resulting boost in price or does it have any
real basis? Unfortunately, there is no clear answer.
One way in which such price
expectation is measured is the biomass of salmon in the water. If the biomass is
high, then prices are expected to fall. By comparison, a low biomass should
result in a price rise.
Kontali Analyse have
recently released the results of their last study of the biomass in European
waters. According to IntraFish, the total biomass is now lower than that of
either 2000 or 2001. At the same time, they found slaughter volumes to have
increased.
Interviewed
by financial newspaper Finansavisen, Kontali MD, Lars Liabo has said that he
expects salmon prices to rise due to the low biomass. At the end of August, this
amounted to about 11,000 tonnes less than in 2001. Yet, such expectation can be
misleading.
Eleven
thousand tonnes may seem a lot of salmon, but if this is divided by every
week of the year, then it amounts to only just over 200 tonnes per week. This is
not such a massive shortfall and one, which could be satisfied by other
producers. This illustrates why biomass is not such a good indicator of price.
The reality is that even large increases in biomass do not necessarily have to
be reflected in the price. For example, an unexpected increase of 10,000 tonnes
would only have a negative effect on prices if it were all to enter the market
at the same time, such as happens at Christmas. If instead, it was divided
equally throughout the year, then this extra tonnage might well be absorbed
without influencing the price.
This is one of the reasons
why advocates of Producer Organisations and production control are mistaken. It
is not the total tonnage produced, which is of paramount importance, but rather
how it is distributed to market. A network of Producer Organisations may decide
to reduce production, but if all the producers were then to target the same
markets, then they would be exposed to the same uncertainty as they experience
now. At the same time, consumers used to lower prices may not so willing to buy
a more costly salmon and may instead look for a cheaper alternative
We have yet to see whether
the optimism for rising prices will be justified. It will not be until the end
of the year until we can see whether fourth quarter prices actually reach the
forecasted NOK 27.16. The results from the third quarter give little
encouragement!
Freedom?: Loch
Duart Salmon are to be congratulated for gaining the RSPCA’s Freedom Food
accreditation. This is the first time a salmon company has been awarded this
animal welfare mark.
According to IntraFish,
Freedom Food is one of the most highly recognised labels in the UK. Yet despite
this high recognition, the Freedom Food label does not have a major presence in
British supermarkets. Tesco is the main supplier of meat under this label, but
it is only present on its loose meat. Packs of meat, which account for the bulk
of meat sales, are not labeled as Freedom Food. This suggests that at a time
when many consumers express concern about animal welfare standards, most are not
prepared to put their money where their mouth is.
Loch Duart has always sold
their salmon at the premium end of the market, as confirmed by sales on Concorde
flights. Whilst we do believe that every company should try to find their own
unique selling point, we are not sure how much extra benefit the Freedom Food
label will bring, especially when critics have tarred all farmed salmon with the
same brush?