Market not muscle

Nick wrote that I find no discomfort in the low-price periods that have afflicted our industry and caused the loss of most of the small independent producers in Scotland and elsewhere.  

I have decided to respond to Nick’s comments now, because while Norway has previously retained many of its small producers, it is now undergoing the changes that Scotland has experienced over many years. 

There are probably not that many readers of Fish Farmer who will remember the EU dumping case against Norway in the late 1980s. At the time, there were around 180 salmon farming companies operating in Scotland, mostly small in size, but let’s not forget that it was the Anglo-Dutch corporation Unilever that began to farm salmon in Scotland.

The small companies were attracted to salmon farming because of talk of high prices and rich rewards, and this was certainly true during the Margaret Thatcher years of high consumer spending. But as Mrs Thatcher came to the end of her reign, salmon farming began to undergo change.

From the Scottish perspective, the high price of salmon began to collapse, and, in searching for reasons why, the Scottish industry laid the blame on Norwegian salmon farmers, who the Scots claimed were dumping cheap salmon into the European market. 

It is often easy to find a scapegoat for an industry’s problems, but in this case, the focus on Norway was misplaced.

What actually happened was that the salmon farming sector evolved from an industry with low volumes and high margins to one of high volume and low margins.

This was inevitable as the industry expanded. I often use the example of the car industry to illustrate the change. Effectively, the salmon farmers were producing fish in small quantities that were being sold at a high price, much like a Rolls-Royce or Bentley. However, once the industry produced fish in much greater numbers, more like a mini, they could not expect consumers to continue paying Rolls-Royce prices.

Of course, expansion in Norway also played a part, as Scottish and Norwegian producers were competing for the same markets in Europe. Some would argue that Norway was over-producing, but the whole industry was instead under-marketing.

Farmers had two choices. One was to invest in marketing to explain to consumers why they should pay more for ‘Scottish’ salmon, or alternatively, they should adapt to the low prices by seeking expansion and added margin downstream.

Unfortunately, many consumers were unable to distinguish Scottish salmon from other salmon and thus were unwilling to pay a premium price. Small producers were faced with a choice – grow or else sell up. Some producers saw the opportunity to recoup margin by expanding volume and, as farmers willing to sell, the industry began a period of consolidation, which has left the Scottish sector with a handful of large farming groups.

My view at the time was that larger producers could remain profitable by selling more at a smaller margin, and in time they would follow the example of the chicken sector, which moved from whole chickens to selling breasts, legs and wings, adding further value with flavoured, breaded, and meal options. Although it took longer than I anticipated, it is only necessary to look at Mowi to see how the sector has developed.