Happy Festivities: This is the last reLAKSation before the festivities begin but we’ll try and send out a holiday issue between Christmas and New Year which will include some of our observations of the retail market.
We had recently suggested that whilst Norwegian spot prices are on the rise, we expect to see salmon selling for £4/kg in the UK before Christmas. This week, we saw salmon selling at £4.50/kg so we are getting nearer with over a week to go. We’ll let you know how our forecast matches the reality.
We have recently come across a number of stories and articles that have grabbed our attention. We have decided to extend this week’s commentary to include these and provide a more extensive read for over the holiday period.
Meanwhile, we would like to wish all our readers a very happy festive period and thank everyone for their continued interest and support.
What’s normal?: IntraFish have highlighted some of the presentations given during their Investor Forum recently held in London. Dag Sletmo from DNB argued that high salmon prices are now the new normal? We may further discuss this question in a future issue of reLAKSation but in the run up to Christmas we were more intrigued by Mr Sletmo’s view of the way that salmon is changing its position in the market place.
Under a headline, Mr Sletmo writes that different marketing tools for different times will meet different consumer needs. He said that the past was all about a bulk market for salmon supported by generic marketing (represented by the Norwegian Seafood Council logo) whereas the future will focus on VAP and company specific marketing producing specific branded products (as represented by a Harbour Salmon Company pack of two flavoured salmon fillets).
This may be Mr Sletmo’s view of the future but for us it is very much one of both the past and the now. The way that export companies and other intermediaries operate in Norway may place the focus on bulk purchase of whole fish, but outside Norway, VAP and the production of consumer packs, and much more, is relatively commonplace.
This is nothing new. We wrote in a report in 1991 that our view of the salmon industry was of a fully integrated industry producing consumer ready products. Certainly, that view materialised during the 1990’s albeit on a small scale but has since gathered pace.
However, in recent years, move towards VAP has lost its way and for one very simple reason and that is Mr Sletmo’s new normal. He may think that the future is in VAP and branded products but whilst prices are high, VAP is fading into a distant memory. As European smokers are now finding to their cost, high raw material costs added to processing costs and margin do not make a winning formula simply because the final price of the value added product, whether flavoured fillets or smoked salmon, makes for a price point that consumers are unwilling to meet.
When we first discussed VAP nearly thirty years ago, our vision was based on high volume, low margin production with margin being gained from the value added during processing. Mr Sletmo’s new normal includes the margin in the primary production. This simply does not add up for added value. We can have the new normal or VAP but will struggle to attain success with both.
Vote for common sense: At last, common sense has prevailed. According to Fish Farming Expert, a Bill debated in the Canadian Parliament to have the entire salmon farming industry move from ocean pens to land based closed containment farms was defeated by 215 votes to 80. The proposed Bill would have amended the Fisheries Act requiring fin fish aquaculture for commercial purposes in Canadian waters along the Pacific coast be carried out in closed containment. It also required that the Fisheries Minister implement a plan to allow the transition to closed containment whilst protecting the jobs and financial security of those already working in the sector.
The private member’s bill was introduced back in February by the MP Fin Donnelly. He says that BC’s wild salmon are under threat and by moving farms to closed containment, wild salmon can be protected from sea lice, pollutants and other harmful substances that come from open pen farms. He said that the future of BC salmon farming is in closed containment and that the technology already exists and is economically feasible. He says that Canada can become a world leader in closed containment for salmon farming. However, it seems that many of his fellow MP’s did not agree. Fin Donnelly has been fighting to save wild salmon for over twenty-five years and clearly, he must have been having some success since this year’s run of Chum salmon was one of the biggest on record. With such success, perhaps his fellow MP’s thought a move to closed containment was unnecessary.
Equally, they may have read Mr Donnelly’s website and seen his link to the background paper written by Andrew Wright and Nasim Arianpoo entitled ‘Technologies for closed containment: An examination of land based closed containment aquaculture.’ What is surprising about this review paper is that it is hosted on the website ‘Farmed and Dangerous’. The website belongs to CAAR – Coastal Alliance for Aquaculture Reform. This organisation was set up in 2001 about the time that the large charitable foundations began their campaign to discredit farmed salmon with a view to protecting wild salmon, mainly in Alaska but also along the Pacific coast.
Fortunately, the public ignored the demarketing campaign during the 2000s and now MPs in Canada have done the same. Common sense has certainly prevailed.
Squids in: It must have been a slow news day when the BBC and most other news services in the UK reported that squid may one day replace cod in fish and chips, the favourite meal of British consumers. This is because the seas around the UK are growing warmer and traditional species are moving north and being replaced by those more suited to the warmer temperatures like squid.
Dr John Pinnegar of CEFAS – Centre for Environment, Fisheries and Aquaculture Science told the BBC that by 2025 the water temperature may be more conducive for species that are more used to the waters around Portugal such as anchovies, mullet, John Dory and squid. He said that these are species that the British consumer might be more used to eating whilst on a Mediterranean holiday. Dr Pinnegar said that British consumers might like to start eating some of these species now that they are found more regularly in British waters rather than importing cod. He said that UK onsurers enjoy eating quite a limited range of seafood but in the long term we will need to adapt our diets.
Dr Pinnegar was in Liverpool to present his findings at the conference of the British Ecological Society. However, the BBC had taken him down to the small fish market to discuss whether squid would be replacing cod in fish and chips. Dr Pinnegar looked uncomfortable on the TV which in our opinion may have been due to the realisation that what might be said to the British Ecological Society might be somewhat different to what was expected to be said by a BBC Breakfast News reporter.
The idea that squid and chips would ever be a viable replacement for cod and chips was always going to be a non-starter. Squid is nothing like cod and whilst we do eat squid, it is usually in small portions and rings and not a huge piece of battered flesh. There are plenty of other species of fish that could be used instead including red mullet but even this is unlikely.
The reality is that most of our cod and haddock is imported from Norway and Iceland and it is unclear why this would change just because our seas are getting warmers. However even if we needed to rely on our own resources, we are more than capable of producing our own cod replacement. Dr Pinnegar works for CEFAS and clearly has forgotten that the ‘A’ in CEFAS doesn’t stand for ‘A Squid’ but rather for ‘Aquaculture’.
Unfortunately, Dr Pinnegar is not alone. There is often a massive disconnect between fisheries science and aquaculture which hopefully one day will be resolved. Until then we will just have to suffer the slow news day stories that promote ideas that will never happen. We Brits may eat more squid but it won’t be as a replacement for fish and chips.
No go logo: According to SeafoodNews.com, Swiss retailer, Coop, has said it will now only sell fish in its stores which has been approved by the WWF. All Coop products will now carry WWF certification which highlights whether the fish is ‘recommended’ or ‘satisfactory’ with regard to sustainability standards. This will apply to all fish sold, whether chilled, ambient or frozen. The WWF’s Managing Director for Switzerland said that this is an important milestone and it just goes to show what is possible in terms of sustainability.
In our opinion, what it shows in terms of sustainability is that the fish and seafood industry, whether wild caught or farmed, has simply been hoodwinked. All the time and money invested in demonstrating sustainability has been wasted because if the Coops example is followed, all that any retailer needs to ascertain that the fish they sell is approved is to ask the WWF and their view will prevail. There is no need for any other logo because the WWF recommended or satisfactory rating will cover all. If the fish or fishery does not meet the WWF’s approval, the respective store will simply not sell it.
Given all the recent debate over the WWF’s view on MSC tuna and ASC salmon, it seems that WWF are now laying down their own rules. If other organisations wont toe the line, then WWF can offer their own alternative.
Long legs: The Scotsman newspaper reports that plans to decommission three North Sea oil platform in the Brent oil field that are considered no longer economically viable include a request to seek exemption that will leave platform legs, said to weigh about 300,000 tonnes, in situ on the grounds of health and safety.
The oil company, Shell, say that the safest and most responsible option is to leave the steel and concrete legs and oil storage cells in pace marked with navigation aids. A public consultation will start in the New Year. Meanwhile WWF Scotland believes that the legs will pose an environmental threat are left in place.
We, at Callander McDowell, would argue that if the legs are to be left in place, then why not the platform too and to consider using the platform as a base for marine aquaculture. Some of the huge sums of money involved in decommissioning should be used to investigate a second use for these redundant structures.
Some of the structures currently being built in Norway for off-shore farming are a variation on the theme of oil platforms, which demonstrate that they must have some viability. This is an area where Government should take the initiative to mediate a viable trial. We believe that such a project has the legs to run and run in to a long-term future.
No go Ocean: The move to ocean farming must be thought to be a positive move especially from those who regularly criticise the salmon farming industry for its locations near salmon rivers. Salmon farming company, Salmar, has chosen the ocean farming route as a way of developing its business. However, even though ocean farming has a positive image, the anglers’ organisation Norske Lakseelver is planning to object.
According to iLAKS, Norske Lakseelver say that Salmar’s ocean pen is just a different manifestation of traditional net pen farming with all the inherent problems. They argue that the large pens will become a huge reservoir of sea lice which will be released onto local wild salmon populations. They are also concerned about possible escapes. The total production from this system will be 6,240 tonnes representing about 1.6 million fish. They argue that if all these fish escaped, it would be the equivalent to 260 years of catch from the nearest river systems.
We, at Callander McDowell, are not surprised by this objection. Anglers’ representatives are very vocal about moving farms away from migrating salmon routes, yet whenever applications are submitted for new sites and new developments, the anglers are often first to object. The reality is that they simply don’t want salmon farming anywhere near salmon rivers, irrespective of whether there is an impact or not. The anglers simply believe that there is a threat to wild salmon populations which must be averted. However, their concern about the state of wild salmon populations does not seem to extend to their own activities. We recently discussed the significant high percentage of rod caught wild fish that are killed for sport. Why anglers cannot return all the fish they catch back into the river so that the breeding potential over every river is maximised is a complete mystery. After all, if rivers are so threatened, why make the situation worse?
Norwegian consumption: iLAKS highlight that over the last year, the price of salmon to Norwegian consumer has increased significantly from around NOK 40/kg to over NOK 60/kg. Inevitably, this has had a knock-on effect on consumption which has decreased by 7%.
Norwegian consumption of salmon is estimated to be around 9.8kg per capita which compares to over 50kg for all meat. Should salmon prices be characterised at a much higher level as Dag Sletmo suggested at the IntraFish Investment Forum then it is possible that consumption within Norway could drop even further.
We have often discussed that consumption elsewhere in Europe is also in decline. This is for a range of reasons other than price. However, price does affect consumption, which is why some retailers treat salmon as a loss leader. It is believed that if salmon is too expensive, they do not seek alternative cheaper species of fish to buy instead. If salmon prices are too high, consumers will turn to other proteins rather than buy a different specie so fish. Some retailers will therefore sell salmon below cost to keep consumers returning to the supermarket fish section. Salmon prices may be high, but this is why we expect to see the cost of whole salmon in at least one store fall to £4/kg.
Salmon is important to retailers, which is why the price consumers pay rarely reflects the spot price. This ensures that consumption remains healthy.
And finally: The January 2017 issue of ‘Trout and Salmon’ magazine is something of a landmark issue with the publication of an article in defence of the salmon farming industry.
One of the reasons that the angling fraternity has such a negative image of salmon farming is that the angling press has repeatedly blamed salmon farming for all manner of ills. The angling press has never printed any response from the salmon farming sector so inevitably anglers only read one side of the story.
The January 2017 issue of ‘Trout & Salmon’ includes an article written by our own Dr Martin Jaffa detailing some of the findings of his study about catch data. He hopes that this article in the first issue of the New Year represents a new realism in a dialogue with sports anglers about salmon farming