reLAKSation
66.
Not
impressed!!: IntraFish
report that the financial community in Oslo is sick of vague promises that
salmon prices will climb. Predictions of soaring prices have appeared regularly
in the press but have failed to materialise. Investors are beginning to doubt
that any significant price rise is forthcoming.
We, at
Callander McDowell, are not surprised. We have previously suggested that many of
these predictions are simply market hype with the hope that buyers will be
seduced into paying above market prices. Whilst prices have shown some increase,
they have not been sustained. This is because there is little substance to these
expectations.
Some of
the price expectation is based on a lower biomass with the hope that any
perceived imbalance between supply and demand will be redressed. Less fish in
the marketplace should force prices upwards as demand cannot be satisfied.
However, total biomass, even when it is lower, is not a particularly good
indicator of what the price of salmon might be. Instead, harvest rates give a
better guide. The more fish that reach the market, the greater the chance that
prices will be under pressure. This can happen even when the biomass is low.
Investors have every right to be unimpressed.
Shareholders
usually want a return on their investment, yet past evidence has shown that
shares have generally risen in price only at times when prices are also high.
This means that shareholders have to rely on a sustained price rise to see their
investment pay dividends. This is a risky strategy, but reflects the industry
dependence on a commodity market.
Those
companies who want to put their future on the stock market need to move away
from this reliance on salmon prices and focus more on margins. It is possible to
buck these price trends through the development of more market-led strategies.
This would allow companies to satisfy the demands of the stock market even when
price expectation is not fulfilled. Investors are likely to be more impressed
than any wait for a future price rise.
Superfluous
to requirement?: The Norwegian daily newspaper Aftenposten has suggested
that the EU salmon agreement may become superfluous if the EU and Norway reach
agreement on the European Economic Area by March of next year. However, the
agreement is not a forgone conclusion.
According
to Intrafish, the Labour Party believe that the EAA agreement is not the
solution to Norway’s relationship with the EU because the cost may be too
high. They say that the 15% lost market share for salmon in the EU is just one
example of this cost.
The EAA
agreement might result in the EU salmon agreement becoming superfluous, but the
reality is that it is already superfluous, irrespective of whether Norway has
the EAA agreement or not. We, at Callander McDowell, have previously suggested
that the salmon agreement serves no real purpose and should have been scrapped
when it reached the end of its life. Instead, the agreement has been extended
whilst an alternative is sought.
We would
question why an alternative is necessary at all? The biomass is lower than would
have been expected so there is little risk that Norway might be accused of
dumping again. Salmon exports to the EU have decreased rather than increased and
prices are supposed to be rising. Therefore the imposition of export controls
and minimum import prices will have little impact on Norwegian producers.
At a time
when traditional wild caught marine fish species are anticipated to be in
decline, demand for ‘value for money’ farmed salmon should increase.
Certainly, consumption of salmon has risen as that of cod and haddock have
fallen and this should continue, especially as consumers begin to recognise
farmed fish as a more sustainable food source than that of wild caught
fisheries.
The EU
should be encouraging consumption of farmed fish, especially of those species
that can be farmed at realistic prices. They should not be placing obstacles,
such as the salmon agreement, in front of producers. After-all, the consumer
demand will not be the limiting factor to production, but rather the
availability of geographic locations. It is not as if the European Commission
can expand salmon production into other European waters. Yet, it must be
preferable to persuade consumers to eat more locally produced farmed salmon than
it is to have them buy Hoki airfreighted all the way from New Zealand.
Hopefully
the authorities will soon recognise that in the wider picture of fish supply,
the EU salmon agreement is already totally superfluous.
Over-production
= Under-marketing! A well-informed (but maybe misguided) source has told
Intrafish that Chilean producers may be tempted to spend profits from Coho and
trout production on putting more smolts to sea. This informant expects this to
create a new over-supply that will cause prices to dive in 2004.
Sadly,
the salmon industry suffers from a recurring problem. It views expansion as a
threat, talking in terms of over-production rather than seeing it as an
opportunity to develop the market place. The industry has fallen into the habit
of trying to control production, whether it is by the Salmon agreement, trade
legislation or Producer Organisations. Clearly, at a time when wild fisheries
are under an ever-greater pressure, such controls must be discarded in favour of
the opportunities of the market place. The industry reaction to expanding
production must be viewed in terms of under-marketing not over-production.