Scotland: Improved market conditions

By Siri Elise Dybdal siri@fishfarmingxpert.com

The Scottish industry has not seen the same impact from Amoebic Gill Disease (AGD) in 2013 as the previous year, when it caused losses for many producers. Also, prices in the European market have been reported to be good and UK statistics on salmon consumption shows an increase in the fresh salmon market.

Unexpected factor On a global scale there was an unexpected factor in 2013 that influenced the salmon market says Gorjan Nikolik, associate director animal protein at Rabobank International. This was the increase in biological problems in Chile. “We did not expect this situation,” he says. Nikolik explains that Chile has seen problems with lice, which led to issues such as increased mortalities and reduced yield. This affected costs. He says Chile has not been making profit in the first three quarters and it is not even sure if they will in the fourth quarter.

“In Norway, however profits have reached record levels,” he says and points out that prices in Europe has remained good throughout the year, which will have benefited both Norwegian and Scottish producers. He says Chile also tried to export more to Europe, but it did not equalise the situation they were in.

However he does not predict the scenario to last: “Next year the situation will be the opposite,” Nikolik claims. He says it is hard to estimate, but it is believed that there will be a contraction or cero growth in production in Chile. He also says key markets for Chile such as Japan, Brazil and North-America will be tighter, but prices in these markets will be strong. New regulations with regards to biological control are being implemented in Chile and if the biological stress is reduced which will cause costs to go down, the strong prices in these markets could be a double gain for Chile. But it will depend on how much Norway export to Japan and the US - if there will be good supply, Nikolik adds. Norway is expected to grow 5-7 per cent in 2014. This will reverse the situation next year and the prices are expected to be weaker in Europe which will affect Scotland too, he says.

UK market In the UK, the market have been somewhat challenging for seafood as a whole in 2013, according Karen Galloway, head of marketing at Seafish Industry Authority. She points out that total volumes for seafood are down slightly. “What we see is that there has been a decline in the frozen segment. However, there has been a volume growth in sales of fresh fish, including salmon. The total fresh value change is up by 6 per cent,” Galloway reveals.

In the UK market, the general feeling at the start of the year was that retail-wise, 2013 would be the hangover year after a very busy year in 2012 with good sales connected to the Royal wedding and the Olympics. This year, there were no such events that the retailers could get behind with promotions. “Then in the second week of January we had ‘horsegate’. That meant six weeks with front pages with new revelations involving different meat based products and retailers. It brought the supply chain under scrutiny and there were more questions about where our food came from,” says Galloway. In the spring, Seafish conducted consumer study which asked some questions connected to the horse meat scandal. They found that what had upset people the most with ‘horsegate’ had not been that normal meat had been replaced with horse meat, but that they had been ripped of; that someone was making money on their expense. However, the survey showed that this interestingly did not transfer to fish: “In essence, it is a different issue with fish. It doesn’t matter if it is pangasius instead of cod. There is a lack of understanding of the different species.” Galloway thinks the underlying message is that consumers are disengaged. It doesn’t matter if the fish is farmed or wild caught. The consumer will acknowledge that the salmon is farmed, but they find it very hard to link it back to the process, compared to with four-legged protein, she explains. However, Galloway says the interest in the supply chain did increase as a result of the scandal and was mainly retailer driven, as they are keen to assure that everything is correct and that they can show they are responsible. This also meant that quality became a selling point. Tesco, for example, brought back their Finest range and Sainsbury’s stepped up their food credentials in their advertising strategy.

More people buying salmon But the economy is still to lift in the UK, and price remains a key for shoppers Galloway emphasises. “In this environment you would expect the chilled segment to be shrinking. But according to our figures, the total value for fresh fish has increased by three per cent. The volume is down two per cent. The growth in the chilled market shows the complexity in consumer behaviour.” She explains that fish price inflation is ahead of the total food inflation: “This is partly driven by the increase in prices in the ambient market with tuna and pink salmon,” she says, and points out that that the market is shrinking as a result. If this performance continues “there will be no market in eight years’ time,” Galloway claims. As for salmon, figures from Nielsen (GB Coverage Data to 12/10/13) courtesy of Seafish show that salmon had grown 2.8 per cent in volume and 8 per cent in value in the period. It remains a key line in the seafood category: “Retailers use salmon as their ‘hero product’. And consumers look to salmon. Salmon remain the biggest species in the UK.”

It is the fresh salmon market which has had the biggest boost. In the fresh fish segment, salmon has seen a volume growth of 8.2 per cent and a value growth of 9.5 per cent in the last year, and is the most popular fresh fish sold in the UK. “When looking at the fresh/chilled salmon market increase, it is important to look at whether the consumer base is growing. According to figures on ‘basket spend’, we are seeing a little increase in market penetration - there are more people buying salmon and they are buying it more frequently,” say says. The figures show that the frequency that a consumer buys salmon has gone up from seven times a year to seven and a quarter. “It may sound little, but it adds £16 million to the salmon market,” Galloway highlights. “But in the frozen market, salmon does not have as strong role, Galloways says and points out that this segment is driven by products such as fish fingers and breaded fish. In the frozen segment, salmon is only the seventh most popular species and there was a decline in volume by 0.8 per cent and in value by 3.9 per cent Within the ten biggest species in the frozen segment it is only basa (pangasius) (number eight on the list behind salmon) that had a large increase in value and volume in the British marketplace so far this year. However, Galloways says this is still a small amount in the bigger picture. The difference is big for sales of frozen salmon with 4500 tonnes sold, compared to basa with 1600 tonnes.

Record profit In general, companies have also been reporting good market conditions. Marine Harvest Scotland said it had record high profit for salmon of Scottish origin in the third quarter of 2013, although they also experienced contract prices below the spot price. The Scottish Salmon Company Ltd (SSC) said its stock was affected by last year’s incidence of AGD in Q3, but also pointed out that the market prices have remained strong and revealed that contracts renegotiated in June 2013 secured improved revenues, which partially offset the increased costs in the third quarter.

Commenting on the results, Craig Anderson, managing director of the SSC said: “The global outlook for salmon remains positive. There continues to be strong demand and the expectation is that prices will remain firm. Analysts continue to forecast strong demand for fresh salmon boosting price expectations over the next couple of years. Reports continue to show increased consumption with the global traded price for salmon anticipated to remain firm.” “As a niche salmon producer, we are concentrating on reducing costs to market, while focusing on its strengths of provenance and sustainability,” he added.

Grieg Seafood also said the salmon market was strong in the third quarter, driven by good demand and stable supply, compared with the corresponding period in 2012. However Grieg Seafood Hjaltland was still affected by biological events in previous periods as well as abnormally high costs and lower underlying production.

Capital investment is still high. In August, the Norwegian companies that own Scottish Sea Farms, SalMar and Leroy, announced that they are committed to investing £37 million in Scotland over the next two years. £12 million of this will be spent on the subsidiary company’s freshwater operations and a further £25 million in new farming sites..

US still main export market Europe is an important export market for Scottish producers, but according to export figures from Business & Trade Statistics Limited courtesy of Seafish cumulative to September 2013, the most important single export market for UK salmon was still the US by far with 29,408,386 tonnes exported in the period, followed by France (14,346,123 tonnes), China (7,305,096tonnes), Ireland (5,322,711 tonnes) and Poland (4,404,381 tonnes).

Farmed salmon is Scotland’s largest food export. The industry has been awarded Protected Geographical Indication status by the European Commission and 60-70% of its salmon are covered by Freedom Food, the RSPCA’s animal welfare and food labelling scheme. Its reputation – built around provenance - has always been strong, especially in the UK and EU markets and in the US. In the last couple of years the industry has also seen a significantly improved export to new markets in the Middle and the Far East. In a recently released Scottish Salmon Farming Economic Report October 2013 from the Scottish Salmon Producers’ Organisation (SSPO), Fraser Grieve, Highlands & Islands manager for the Scottish Council for Development and Industry (SCDI) said the SCDI set out in its Blueprint for Scotland an ambition of doubling Scotland’s exports by 2020. He also believes the Scottish industry is on course to achieve the national target of a salmon farming production of 220,000 tonnes by 2020:

“With consumer demand at home and abroad for higher welfare products growing and global demand for aquaculture increasing strongly, the industry has successfully entered new markets in recent years. We have seen major investment going into new production facilities, with some £62m being invested last year, which will put the industry on course to achieve the target of 220,000 tonnes by 2020, identified as a key target in Scotland’s draft National Marine Plan. Taking efficiencies into account we estimate that the industry will need to employ some 30-35% more than it does today to reach that target,” he says.

Scottish provenance Looking a bit closer into the future, 2014 looks set to be a “tartan year” in the UK according to Galloway, as both the Ryder Cup and the Commonwealth games are held in Scotland next year and there will be a referendum about Scottish independence in September. “Scotland will be very present in the press and media,” she says, but points out that how this will play out with regards to selling more Scottish products and Scottish provenance is hard to predict. “It will be an interesting scenario to watch.”

However, Galloway points out that in their consumer survey, seafood consumers are more interested in the supply chain than provenance. With beef they are often looking for a special breed or provenance, but with seafood consumers are interested in sustainability over provenance, she reveals. This makes it difficult to predict what kind of impact these events will have, she says.