reLAKSation 8.
Chilean growth to fall: According to Intrafish, José Ramón Gutiérrez, Chairman of Multiexport, Chile's third largest aquaculture company and a Board Member of the Chilean Salmon Farmers Association, has predicted that production growth of Chilean salmon will fall by 20% during 2001.
Mr Gutiérrez cites the reason for this reduced growth as being due to supply now exceeding demand on the global market. He does not use the term over-production, but rather suggests that it will be impossible to sustain the level of growth experienced last year. This was because it was so exceptional.
It is quite possible that Chilean growth will not be as great this year, but this will not be due to supply exceeding demand. Demand for salmon continues to grow, especially as the price becomes ever more attractive to the consumer.
As the price of other fish species rises due to shortages of commercial fish stocks, many new consumers are, and will be, attracted to buy salmon. These new consumers recognise that salmon represents real value for money and is a realistic every day meal option.
It is possible to further expand the market through innovative product development, aiming salmon at consumers, who have never even considered buying fresh fish. The possibilities are enormous.
The Chilean industry has grown rapidly and will probably continue to do so. However, if such growth is to be sustained, then the industry does need to invest in those market strategies, which stimulate consumer demand. It is all too easy to perceive the industry for over-producing; when in reality it is not over-production, but under-marketing, which is the issue which really needs to be addressed.
Mr Gutiérrez recognises that there is a need for market stimulation, but associates the failure to grow market demand with the simultaneous fall in the price of salmon. This has fallen from $5/kg to $3/kg over the last 12 months. However, such market stimulation will not guarantee a return to high price levels. It is clear that there is a direct relationship between volume production and price. As production has increased, the price has fallen. This is exactly what has occurred, not just in Chile, but throughout the international salmon farming industry.
As long as the cost of production continues to fall, some margin can be maintained. However, when the cost of production approaches the selling price on a prolonged basis, then more consideration must be given to market development and sustainable margins, for the reality is that market development is likely to be the only way to sustain future margins.
Those farmers, who are unable to adapt to such market led strategies, will probably be unable to survive. This does not mean that salmon farming will falter. The reverse is more likely to occur with a bigger and stronger integrated approach to salmon farming in the future.
The writing is very much on the wall. Market development is the key to the future viability of salmon farming, irrespective of wherever it occurs.
Vague Limits: The Norwegian Ministry of Fisheries have announced proposals to restrict any single company from ownership of no more than 20% of total Norwegian salmon production. This has come about as a result of new regulations regarding governmental control of company ownership.
Whilst it is in part understandable that the government should be concerned about ownership of the Norwegian salmon industry, such controls could be extremely damaging for all farming companies. This is irrespective of whether they own 20% or just the smallest fraction. This is because it is clear that as salmon prices continue to fall, farmers will be faced with tough decisions about how to ensure that they maintain their profit margins.
Margins are only possible if production costs remain lower than the price of salmon. The experience of the last ten years has shown that the most effective way of retaining margin is to expand so benefiting from the economies of scale. This is why the large companies have grown larger, either through acquisition or organic growth. However, by placing limits on ownership, the Norwegian government may prevent farmers from maintaining the differential between cost of production and the price of salmon, whilst those in other production areas are able to do so.
This will clearly put Norwegian producers at a disadvantage in the global market place. Smaller farms will be at an even greater disadvantage because they will find it even harder to compete as the price tracks downwards. Yet, should these farmers decide they would wish to leave the industry, their options will be restricted. Many potential buyers will be prevented from making the acquisition due to these new governmental limitations. This could mean that farmers would find their assets dwindling away with buyers willing but unable to act.
The inevitable outcome may be that the government may be forced to step in to provide aid and assistance to help these farms maintain their viability. The Norwegian government could then be open to accusations of illegal subsidies.
There are possible ways which the industry could overcome these restrictions. Larger farming companies could enter into contract growing arrangements with other producers. In this way, the largest producers could continue to grow without breaking these new ownership rules. Equally, the smaller farms could benefit through co-operation either with other small farms or by contract growing for large producers.
This new legislation is simply placing more unnecessary bureaucracy in front of farmers who will be faced with many other increasingly difficult times ahead. The recent competition enquiry in Scotland shows that such interference in company ownership benefits no one at all.
Low Prices. Marc Durant of leading supermarket chain Carrefour has predicted that the price of salmon will fall. He believes that the general economic climate in Japan has resulted in weakened prices, which will have a knock-on effect in both the US and European markets.
Salmon has become much more of a global product so that when one market is affected by a downturn, the effects are felt everywhere.
Lower prices are a two edged sword since producers will become under pressure to maintain margins, yet at the same time, low prices will stimulate market growth as consumers increasingly perceive salmon as a value for money meal option.
As more and more salmon is produced, there will be increasing calls to limit production to force prices upward. Yet, the markets are actually so diverse that if salmon producers began to further diversify their production, then the potential exists to continue pursuing growth in both production and the markets. More importantly, it should be possible to achieve this growth whilst maintaining a profit margin.