Analysis
of the situation of the Community Producers.
The
Complainants state that the information they provide demonstrates that:
1. The
Complainants state that following a market collapse in September 2001,
considerable losses have been incurred and those loses have increased in Q1
2004. Whilst it is clear that prices did plunge in autumn 2001, they
subsequently recovered in spring 2002. They fell again in summer 2003 as a
result of the removal of the artificial controls put in place by the salmon
agreement, but after a short period of readjustment, the market recovered and
has been buoyant ever since. Prices during 2004 remained relatively high, which
does not support the claim that losses have increased in the period prior to the
submission. Any losses incurred by the complainants can be better subscribed to
poor management rather than the effects of dumping. This is because one of the
complainants, Loch Duart Salmon, publish an article on their website (www.lochduart.com
) from the Financial Times dated 4th May 2004. This article entitled
‘How greener methods reeled in the profits’ states ‘Even
some of the Norwegian- and Dutch-owned multinationals operating in Scottish
lochs are selling salmon below the cost of rearing them, according to industry
insiders. That makes Loch Duart's tale of expansion the more remarkable.
But two
factors make the expansion unique. One is that Loch Duart is profitable.
According to Nick Joy, managing director and one of three owner-managers, the £4.5
million turnover company has made profits in four of the five years since the
trio bought it’.
2.
The complainants state that there was a further collapse in market prices in
June 2003. As already stated, this was due to the removal of the salmon
agreement. The withdrawal of this artificial barrier in the marketplace meant a
period of readjustment was necessary. Prices had recovered by Autumn 2003.
3.
The complainants claim that prices in Q1 2004 are at an all time low. Reference
to the price graph, taken from the Intrafish website (www.intrafish.com)
shows that this is simply untrue. Prices remained above NOK 20/kg for nearly all
of the year, dipping below the NOK 20/kg level for two or three week in the
autumn as farms harvested to meet demand from smokers for product for Christmas.
4.
The complainants state that their costs of production have reduced since 2002.
Whilst the Norwegian Department of Fisheries publish cost of production data on
an annual basis, Scottish members of the EUSPG have consistently refused to
release such information. This even predates the formation of the EUSPG. As long
ago as 1992/3, the then Scottish Salmon Growers Association of which Mr Morgan
was a dominant member commissioned the Scottish Agricultural College to produce
comparative data on the cost of production in Scotland and Norway. The intention
was to show that Scottish producers were disadvantaged. However, when the
results were released, they actually showed that Scotland had lower production
costs than Norway. Since then the Scottish industry has refused to participate
in any survey of costs. In 1995, the then UK Parliamentary Scottish Affairs
Committee told the Scottish Salmon Growers Association that before submitting
any further dumping complaints to Brussels, they should produce cost data. They
ignored this advice and did submit a further complaint in 1996 without this
supportive data.
In
2001, the Scottish Executive announced a strategic framework for Scottish
aquaculture, included in which was the intention to conduct a full survey of
Scottish cost data by 2003. Yet by 2003, the survey had not even been
commissioned and still has yet to get underway. If Scottish production costs
have been falling since 2002, then it is simply a case of ‘better late than
never’. The need for lower costs has been apparent since 1989.
5.
The complainants suggest that stock levels, employment, utilisation of capacity
and capital investment are all reducing as businesses contract. The main
intention of these claims is to show that the Scottish industry is contracting
as a result of Norwegian imports. However, the Complainants fail to demonstrate
this fact.
Stock
levels and utilisation of capacity are related. In Annex 13, the Complainants
show that capacity utilisation has decreased from 77% to 54% between 2001 and
2004 and they claim that closing stocks have similarly declined underlining the
injury in closing stocks indicating a decrease in the quantity of live fish
being on grown for harvesting. The data in Annex13 supporting this claim comes
from a representative sample of about 30% of Community producers. Whilst they
suggest this data may be representative, the source of the data is actually
critical. Three of the largest of the Complainant companies have adopted a more
‘sustainable’ approach to farming through either organic or RSPCA (Royal
Society for the Prevention of Cruelty to Animals) Freedom Foods label. Both
involve a reduction in the stocking rate. The Financial Times article report
that whilst Loch Duart have a capacity of well over 3000 tonnes, the farms ethos
is to farm well below capacity giving them a production output of between
1500-1800 tonnes. The company also farms at a ratio of 98.5% water to 1.5% fish;
about 25% below the industry average. West Minch Salmon has just converted to
organic production with a much lower stocking rate. Wester Ross Salmon are also
producing salmon under the Freedom Foods label. They also have converted some of
their capacity to cod production. It is clear that any decline in stocks or
capacity is due to a deliberate decision by these salmon companies to adopt a
strategy to do so, not because of any effect of increased imports.
The
Complainants suggest that employment has fallen but the figures provided in
Annex 13 do not support this claim. The very small decline in numbers between
2001-2003 and 2004 can be accounted for by the merger of Ardvar Salmon and Loch
Duart which would have left some duplicated positions.
The
Complainants suggest that investment in the industry has declined as a result of
increasing Norwegian imports. This claim is misleading. Investment has continued
throughout the period highlighted by the complainants, however it has been much
more selective as a result of the increased complaints from the EUSPG. No one is
going to invest in an industry against a background of increasing reports of
over-production, unfair competition and the possibility of trade sanctions. Yet,
when companies have a specific plan to take them forward, investment has been
forthcoming. This is confirmed in a statement from Shetlands Island Council
which appeared in IntraFish.
Loch
Duart Salmon received £182,400 to help in the purchase of Ardvar Salmon
Loch
Duart Salmon recieved £60,600 to help further develop its own sites
AquaFarm
received £200,000 from the Shetland Islands Council
Sunbeam
Aquaculture received £50,000 form Lochaber Enterprise to establish a new
hatchery to produce 100 tonnes of smolts
Any
reduction in investment in salmon farming has been assisted by a EU decision to
halt investment through FIFG programmes and instead divert funding to other
developing species.
6.
The Complainants suggest that increasing loses are as a direct result of reduced
market prices. This is not wholly true. Since 1989, industry commentators have
predicted a continuing fall in salmon prices in line with expanding production,
not just in Norway but also in every producing country. Any loses incurred are
the result of the refusal to adapt to changing marketing conditions.
The
complainants suggest that their analysis of Norwegian prices demonstrates the
magnitude of the fall in market prices since 2002 and details more recent price
collapse in prices since mid April 2004, which they suggest is in the region of
15%. The complainants’ analysis in Annex 8 is limited access supposedly
because its disclosure may have an adverse effect on the person supplying the
information. However there are a number of sources of price information
emanating from Norway and these do clearly show the price falls. The IntraFish
price graph shows that that whilst there have been some points when prices are
low, most of the time, prices fall within a reasonably high price banding.
Similar
data is available from FHL. This show that the highest price during 2004 was in
week 17 at NOK 24.88/kg. The lowest was in week 45 at NOK 18.29 /kg; decrease of
26%. However, this fall cannot be considered to be damaging because it is part
of the natural cycle of demand. Prices usually fall in the run up to Christmas
as more farmers try to benefit from a Christmas boost.
The
complainants state that in July 2004, the Commission published an information
document relating to the safeguard case. This contained a detailed analysis o
the situation of Community producers based on companies representing over 85,000
tonnes of production; about 47% of Community production. The complainants state
that the situation described in this information document together with their
industry specific data contained in Annex 9 accurately reflects the situation of
the Community industry.
The
data in Annex 9 is restricted but does contain data from the complainant
companies, i.e. a Community industry of 30,000 tonnes. Yet, at the same time,
the complainant refer to a Commission document relating to the Community
industry of
181,000
tonnes. It appears that the Complainants are happy to include the wider
Community industry when it suits their case but not to include them when it
doesn’t. If the Complainants argue that the Community industry is only 30,000
tonnes in size then they should not be permitted to base their case on a
Community industry of 181,000 tonnes. Equally, the safeguard case is a totally
separate case to that relating to anti-dumping and the Complainants should
restrict their comments to the anti-dumping case.
Injurious
effects of dumped imports.
The
Complainants state that farmed salmon is essentially a commodity product and
domestically produced and imported salmon compete mainly on price. If Norwegian
producers had made this statement, it would be true. However, the ‘Scottish’
industry, as in the independent producers who make up the EUSPG, have always
maintained that their salmon is superior to any other and merits a premium
price. This position can be illustrated with a statement made by Angus Morgan of
the EUSPG following the announcement of the introduction of anti-dumping duties.
He told seafoodintelligence.com that they would now be in a position to supply
consumers in the UK and Europe with what they most prize – Irish and
Scottish salmon. It is this difference in perception which actually forms the
basis of this anti-dumping case.
Scottish
producers maintain that consumers prefer Scottish salmon to any other and that
they are prepared to pay more to buy it. However, despite the repeated claim
that Scottish salmon is superior, most consumers are unable to differentiate
between supposedly superior Scottish salmon and Norwegian commodity salmon. As a
result, most consumers are happy to buy whichever salmon they perceive to give
the best value for money. Billingsgate fish market lists salmon prices on their
website without differentiating the salmon by country of origin. The independent
Scottish industry, such as the Complainants, blame the presence of Norwegian
salmon in the European market for this inability to persuade consumers to pay a
premium for Scottish fish. This is why they have brought this anti-dumping case.
The
Complainants argue that Norwegian imports are the price setters. This is a
mistake. The price of salmon is actually dictated by the total volume of salmon
available, whether it is Norwegian, Scottish, Irish, Icelandic, or Chilean. The
Complainants also argue that because of the large volume of Norwegian salmon
produced, any undercutting of Scottish prices results in price depression of the
Community producers. Yet, the Scottish view is undermined by the simple fact
that if Scottish producers expect to sell their fish at a premium, then
Norwegian prices will inevitably be lower. Is this undercutting or price
differentiation? French consumers are still willing to differentiate between
Scottish and Norwegian salmon in terms of price, although the French market is
following the example of the UK and this differential is becoming smaller.
Prices currently at Paris Rungis market are Euro 4.40 for Scottish and Euro 3.90
for Norwegian. Is the Norwegian price undercutting the Scottish or is the
Scottish in receipt of a premium? The reality is that if the Scottish can
achieve a premium, as they believe, then the price of Norwegian salmon is
actually irrelevant. Consumers will choose whichever salmon they want.
The
Complainants argue that the main form of injury resulted from the price
undercutting by Norwegian imports. The truth is that any injury is
self-inflicted because the independent Scottish producers have failed to
persuade consumers to actively select Scottish salmon and more importantly, to
pay more for it. Rather than pursue anti-dumping complaints, the Complainants
may be better served by developing more market-led strategies, producing what
the consumers actually want.
Limited
access to Annex 12 means that it is impossible to comment on the undercutting.
However, whilst the Complainants suggest that their salmon is being undercut by
39%, they ignore the fact that they also claim to be able to generate a price
premium of 25% (see appendix 5e). Certainly, the Scottish industry claim that
French consumers are prepared to pay a premium for their Label Rouge salmon.
Currently, Scottish salmon is selling at the Paris Rungis market for Euro
4.40/kg which according to the Complainants is only just above their delivered
price.
By
comparison, Norwegian salmon is selling at Rungis for Euro 3.90/kg which
according to the Complainants calculation is at least Euro 0.52/kg above
Norwegian delivered price. This makes no sense. Why would French wholesalers be
prepared to sell Norwegian salmon for up to Euro1.72/kg above delivered price
and yet only Euro 0.05/kg above delivered price above Scottish. The answer is
that the Scottish delivered price claimed by the Complainants must be inflated,
as are most aspects of their complaint.
The
Complainants make a number of statements that suggest that the Community
industry is in dire straits, however the evidence does not support this. The
industry has become loss making because it continues to focus on the production
of products that consumers do not want, or at least are not willing to pay more
for. The production of more sustainable products incurs higher costs, such as
lower stocking densities, different feed, etc, which are not recouped at sale.
This can be seen from the retail price of Loch Duart salmon. The only retail
outlet for Loch Duart salmon in the UK is the Loch Fyne restaurant chain who
also sell fish from a fresh fish counter. Their price list shows that Loch Duart
salmon fillet sells for £8.62/kg. This compares with salmon sold in the
supermarket chain Sainsbury’s which sells at £9.99/kg.
Conclusion
The
Complainants suggest that the findings of the safeguard investigation had proven
that Community producers had suffered injury. If that is the case, why have the
Complainants submitted this ant-dumping complaint at all and not allowed the
safeguard case to reach its final conclusion.
The
Complainants suggest that the magnitude of the losses is unsustainable. They
claim that the injury has manifested itself with the receivership of five
companies. However, what they do not say is that three of these companies had
owners who also operated other salmon farms, which remain in business. At least
one of these farms was bought back by its owners and continues to operate. The
Complainants also refer to two farms taken over the their feed supplier, however
as the Complainants have excluded these farms from this investigation, they are
not in a position to state whether they are being wound down or not.