reLAKSation 95.
The
real world or just cloud cuckoo land?:
Intrafish
reports that the latest industry crisis is producing more and more constructive
initiatives to turn the market round. They say that the latest brainwave is to
withdraw sizeable volumes from the market. Arne Digermul of Albatross Invest has
suggested that the banks and feed companies should pay out NOK 600 to buy 30,000
tonnes of salmon, which should then be destroyed in order to re-establish a
balance in the marketplace.
We,
at Callander McDowell, are incredulous at such thinking, which we think is best
described as misplaced and at worst is another example of why the industry is
yet again in crisis. We will return later to Mr Digermul’s proposal.
The
current crisis is the result of falling salmon prices. Traditionally, prices
have always been lower in the summer months, following the Easter peak and prior
to the run up to Christmas. However, the widespread availability of low cost
salmon has meant that these peaks have been eroded to produce a more constant
lower price level throughout the whole year. However, prices have fallen further
than many have expected, resulting in a host of accusations and blame. The most
common of these are over-production in Norway and the Faeroes, although some
also blame Scottish producers. Others blame the withdrawal of the Salmon
Agreement and the ensuing rush to harvest fish, whilst yet others, lay the blame
with the banks.
Alte
Eide of Pan Fish told Intrafish that ‘We are now seeing that consequences of
uncontrolled growth’. We, at Callander McDowell, disagree. We believe that
what is happening is the consequences of under investment in market development.
The problem is not over-production, but under-marketing.
At
a time when stocks of commercially caught marine species are still under an
increasing threat of collapse, how can any farming industry be over-producing?
Consumer demand for fish and seafood products keeps on increasing, but supplies
of wild catch fish continue to decline. Wild catch fisheries are simply unable
to meet a growing consumer demand. This is why aquaculture has become so
important to the fish and seafood market. As pressure on fisheries persists,
more and more consumers are turning to farmed fish to satisfy their demand for
fish protein. This is one of the reasons why farmed salmon has become so widely
available.
Some
may argue that farmed salmon cannot supplant demand for marine species. They see
that consumers who want to buy cod or haddock will not want salmon instead.
Salmon is not perceived as a replacement for white fish, yet nothing could be
further from the truth. For example, cod is often perceived to be the fish of
choice for many British consumers, yet salmon now dominates the UK marketplace
accounting for 25% of fresh fish sales. By comparison, only 21% of sales are cod
and 18% are haddock. This change in consumer purchase is the result of salmon
farming and there is no reason to believe that salmon will not continue to claim
an increasing share of the market. With such a dramatic change in consumer
purchase of farmed salmon, how can any part of the aquaculture industry be
over-producing?
Equally,
if salmon prices are under too much pressure because too many farmers are
harvesting their fish in an attempt to help their cash flow, this is not a case
of over-production, but just an example of too many fish reaching the same
market at exactly the same time. These are not the same at all.
According
to Intrafish, Odd Kristian Stavaas, director of Nordea Bank, which now has a major interest in salmon
farming, has said that there have been many good suggestions as to how to
achieve balance in the market of which Mr Digermul’s is just one. Alte Eide of
Pan Fish has also put forward such a suggestion. He said that production must be
scaled down as soon as possible. He proposes that the feed quota be reduced by
100 tonnes per licence. He said that this would send a powerful message to the
market indicating that production is being cut back radically. He hopes that
this would then reduce the need for financing and that the reduced production
would help improve prices over coming years.
We
agree that such a proposal would send out a powerful message to the markets,
however we think that the message would encourage buyers to look elsewhere if
they want to buy value for money salmon. If we look at the UK alone, it has been
previously possible for consumers to buy fresh salmon from Scotland, Norway,
Ireland, the Faeroes, Chile and even Canada. If Norway cuts back production,
buyers will simply look elsewhere for their fish, especially if the price were
to rise as a consequence of reduced production. Now that consumers are used to
buying value for money fish, they are unwilling to pay the higher prices sought
by the industry.
We
are also not convinced that by the time that any reduction will have taken
effect, the market will not be totally different. This is just a knee jerk
response to a short term problem, when in reality, the industry should be
looking to a more sustainable way forward. The industry clearly needs to look to
the market for answers.
Unfortunately,
the marketplace cannot provide an instant fix, but the sooner that the industry
starts to address the issues of the marketplace, the sooner that the current
crisis and others like it, can be consigned to the history books.
Perhaps,
this allusion to the marketplace can be best illustrated by further
consideration of Mr Digermul’s proposal to remove 30,000 tonnes of Norwegian
salmon from the market and then destroy it. This proposal is very reminiscent of
the Norwegian salmon mountain which resulted from proposals to remove salmon
from the market in the early 1990’s and then freeze it. This action was
disastrous for the Norwegian industry, which is clearly still feeling the
consequences.
Whilst
paying to destroy salmon may not have such implications for the industry, it is
an expensive exercise even if the salmon goes to make fishmeal. More
importantly, there is no clear indication that such manipulation will actually
achieve anything.
We,
at Callander McDowell, have always argued that the salmon market is not just
about whole salmon. The salmon market is very diverse as salmon is presented to
consumers in many different ways. The modern consumer has a varied choice of
salmon and salmon products and the more that the industry capitalises on this
choice, the less pressure the salmon industry will suffer.
The
solution must be that the industry should divert salmon to different market
sectors so that they are not in direct competition. We certainly would not see
this as a solution to the current crisis, but if there is a real desire to
interfere with the harvest, then rather than destroy these fish, we suggest that
they be canned.
In
the UK, canned fish accounts for about 20% of the total fish market. The UK
imports about 25,000 tonnes of canned salmon from North America and also a small
volume from Norway, so the market for canned fish is not insignificant either in
terms of volume or income. The advantage of canned fish is that it has a very
long shelf life so that any production diverted into the cannery does not have
to be sold immediately as it will not deteriorate as the salmon mountain did.
Most importantly of all, this salmon will not compete in the fresh salmon market
and so could ease the pressure on prices whilst still satisfying consumer demand
for salmon.
However,
there is no reason why salmon should just be diverted into tins. There are
plenty of other added value products which could be developed in response to a
market for salmon, which is continually undergoing change. Every different
product containing salmon which appears in the marketplace further reduces the
pressure on the price of fresh salmon as well as improving the opportunities for
added margin. This is the real challenge for the salmon industry, not one which
aims to regulate production to meet an outdated perception as to how salmon
should be sold. The salmon industry needs to move into the real world.