reLAKSation 83.

Anti-war or just anti: One unlikely question to ask the Minister of Defence would be whether he developed his policies on war in Iraq in consultation with the anti-war factions. At a time like this, such a question may appear distasteful, but it begs comparison with the latest strategic framework launched last Monday by the Minister for Aquaculture, Allan Wilson.

We, at Callander McDowell, had previously suggested that the make-up of the Ministerial Working Group, which formed the strategy was weighted heavily in favour of those who have demanded curbs on the further development of the fish farming industry. Although the Minister had asked that each interest group should try to put their demands to one side, the outcome of the final framework was inevitable.

The strategic framework is based on four guiding principles, economic, environmental, social and stewardship, however, whilst being the most important, the economic issues are clearly the weakest. Lord Jamie Lindsay, Chairman of Scottish Quality Salmon echoed our own view that if the industry is not competitive then it is not viable and if it’s not viable, then the rest of the strategic framework is largely irrelevant.

Yet, whilst the framework does consider some economic issues (see the Scottish Executive website to download the full document), the reality was clearly stated by the Minister during his presentation. The Governments role is to establish the conditions around which the industry works, but it is up to the industry itself to decide how to approach the market. In effect, the industry is responsible for making its own profitability and of course this is exactly how it should be. Thus, the strategic framework is unlikely to provide the industry with any real help at all. Instead, it will provide a platform for further regulation and further cost.

The Scottish industry already claim that they are burdened with more costly regulation than their international counterparts, which is why one outcome of the framework will be a study of Scottish production costs. Scottish producers have for several years claimed that such costs make Scottish salmon uncompetitive. A straw poll of the delegates at the conference launching the framework suggested that 41% felt that cheap imports were the major barrier to further development (although the majority of delegates at the conference were not farmers).

Yet, the question of low cost imports presents Scottish farmers with a real quandary. One of the objectives of the framework states that the industry is capable of achieving premium brands and that it should be able to further develop these brands through product differentiation. This implies that the price farmers receive should be higher than that received by their competitors. If it is higher than the competition, then clearly the competitive salmon must be cheaper. According to industry market research, consumers are willing to pay more for salmon from Scotland so the presence of cheap imports in the marketplace should really be irrelevant, as such imports are of little interest to consumers.

The Scottish industry have invested a great deal of time and effort in trying to persuade the EU that these cheap imports are damaging their market, a fact now rejected by the European Commission. Although the Minister has offered the industry little in the way of help, the strategic framework might start to focus attention towards the development of a wider market-led strategy. Sadly, the conference launching the strategic framework offered little encouragement. Speaker after speaker focussed on production and ignored the market altogether. Only Dr Sue Utting from Seafish spoke of the market at all and only she ascribed it with the importance it deserved. During the panel discussion at the end of the meeting, Mark Davies of ScotTrout summed up the lack of market focus by saying that he had only heard two references to the marketplace, which he though was pitiful.

The future of the Scottish industry lies in the marketplace and it is to the marketplace, not the stakeholders, that the industry should look.

Easter peaks: After a quiet start to the year, deliberation has started about salmon prices, especially in the run up to Easter, a time traditionally of higher prices. There appears to be some uncertainty about whether prices will rise this Easter. So far the indications are that they will not. In the past, prices have started to rise in the run up to April, but as yet, they have stayed around the same level as at the end of last year. It is unlikely that we will see any dramatic rise in the short period left until Easter.

We, at Callander McDowell, have repeatedly stressed the relationship between production volumes and prices. As volumes have risen, prices have declined. It is irrelevant whether the salmon originates from Scotland, Norway or Chile as it is the total volume that exerts the overall pressure on price.

As the volume has risen, salmon has become more widely available. Rather than being a seasonal fish, salmon is now obtainable every day. This means that seasonal peaks of availability have diminished and so has the price. It would be expected that the peaks will eventually disappear altogether leaving salmon prices to even out. Prices will still fluctuate, but they will do so around a specific level. This will produce the typical cyclical price movements. This will probably be lower than most farmers would expect, but the reality is that higher prices are simply not compatible with higher levels of production.

There is a belief that the industry should cut back production to force prices back up, but in doing so they will deter many of the new consumers who buy salmon simply because of the low prices. As volumes decrease, production cost will rise and consumer demand will shrink, despite a general shortage of fish. Consumers will instead turn away from fish and seafood to other foods, like pizza and curry. The inevitable outcome will be an industry still exposed to market disruption.

Unite or fight: Vigfus Johannsson, President of the International Salmon Farmers Association has suggested that disunity amongst the international industry contributed to many of last year’s problems. According to Intrafish, Mr Johnnasson said that many of the problems were not just due to prices and the market, but because the various parts of the industry did not work together. The various dumping complaints are cited as one example of the lack of cooperation.

Mr Johannsson said that he would like to see open and free markets with it’s inherent competition. He suggests that there is room for everyone to develop and compete to the best of it’s capabilities.

We, at Callander McDowell, endorse this view and hope that such common sense will prevail. For too long, certain sections of the industry have tried to impose their view of what they want the industry to be on everyone else, which has effectively disrupted the market. This in turn has fuelled further complaint, forcing the industry into a vicious circle of disruption. Meanwhile, the demands of the marketplace have largely been ignored.

As Mr Johannsson suggests, individual industries and companies need to capitalise on their own capabilities to the best of their abilities. For example, Scottish producers claim that their salmon are perceived to be at the premium end of the market. If this is the case, then they need to enhance this market image so that consumers can see the extra value for which they are expected to pay a higher price.

Mr Johannson also believes that the various industries should work closer together. This is a view also shared by others. Speaking at the strategy conference this week, Struan Stevenson, Chairman of the European Parliament’s Fisheries Committee believes that Scottish producers should sign up to the Biomass project with Chile and Norway. Intrafish report that this will lead to a better exchange of information, especially the number of mature fish reaching the market. He said that this would help the industry make better marketing decisions. We, at Callander McDowell, are not so convinced.

Our concern relates to the fact that the salmon market is now extremely complex and no longer relates to just whole salmon. A significant quantity of salmon is now sent for added value processing and is transformed into a different product, which is not competing for customers against the whole fish. As the salmon industry is still heavily production led, the focus remains on whole fish, whilst the market is diverse. Until this incompatibility of focus is addressed, it is unlikely that total biomass data will provide any real help in solving the issues of the marketplace.  

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