Analysis of the Japanese Salmon
Market
Groningen, 27 September 2002
For:
Marine Harvest
Author:
J.B. van Dam
Guiding Professors:
Dr. T.J.B.M. Postma
Drs. R.A.W. Kok
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The author is responsible for the contents of this research
report; the author holds the copyright of this report. The author
will make the report available to Nutreco.
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The reason that Marine Harvest decided this research should be performed is that the knowledge level of the Japanese market within Marine Harvest and the sales office is not considered high enough to enable Marine Harvest to become more successful on the Japanese market. This was the primary input for the research goal that is the following:
“To provide Marine Harvest with insight into the Japanese salmon market in order to enable them to become more successful in this market.”
In order to become more successful market strategies have to be developed and the most appropriate strategy has to be selected. The inputs for this process are an internal analysis, performed by Marine Harvest, and an external analysis, provided by this research. The external analysis consists of an analysis of the environment, market, distribution channels, customers and competitors. It leads to the identification of opportunities and threats in the Japanese salmon market.
The Japanese salmon market is the biggest salmon market in the world. But the Japanese market is also, compared to other important markets, a very complex, mature, declining, market in which many species are sold in many product forms, through a lot off different long distribution chains to a host of customers.
The salmon market is a global market in which all species, fresh and frozen, wild and farmed are close substitutes. This means that developments of total global salmon supply will have a strong influence on the prices, and profitability, in Japan.
The dominant historical position of salmon as a product consumed at home has caused salmon to be perceived as a low-valued fish. This differentiates the Japanese market from other markets. The preferred salmon in Japan is a fatty red domestic wild salmon. Quality is defined as fresh, tasteful (fat content) and appearance (red, marbled, skin colour). There is little knowledge and preference of species or country of origin. It is a product competing on the basis of price.
Japan’s population is currently stable and will start declining in 2007; expenditure on seafood consumed at home in Japan is already declining. Japanese consumers are very keen on food safety. This is opportunity to Marine Harvest thanks Nutreco’s food-safety, supported by trace-ability.
The relative shares of different species have changed quite a lot in recent years. Sockeye imports have decreased and trout and Coho imports have replaced this. Currently most of the Sockeye has been replaced and there is some Sockeye specific demand. This implies that the demand for Coho and Trout cannot continue to grow like it has done in the past and that the profits of the last couple of years are not likely to re-occur.
Fresh Atlantic has been able to get a, decreasing, price premium over frozen products. The market for fresh Atlantic is however growing as long as the price premium stays within an increasingly close range to the frozen products, this leads to a continuously declining profitability. Contrary to some of the other main markets in the world, selling fresh Atlantic in the Japanese market is still profitable.
The traditionally long and complex Japanese distribution chains are shortening. Distribution in Japan can be grouped in two major categories: in-market routes and out-market routes. The costlier in-market routes distribute around 40% of all salmon, a relatively higher share of fresh.
The customers can be divided into four groups: retailers, food service, industrial and trading companies. The biggest growth is in retail. The main catalyst of this growth is the supermarket that can be supplied directly through stable priced high-volume contracts. The other three customer types are supplied through wholesalers, importers and trading companies. Most customers prefer a supplier with a broad product-line.
The closed nature of the industry and the absence of secondary sources led to a very marginal competitor analysis. Due to the current strategy of Marine Harvest all companies that supply salmon to Japan, in any stage of processing should be considered competitors. The salmon industry is characterised by a medium degree of concentration. It is difficult to differentiate in this market with high exit barriers. This leads to quite fierce price competition.
There are definitely opportunities for Marine Harvest in Japan. First of all the food-safety is probably, after price, the most important product attribute. Nutreco Aquaculture’s food safety capabilities through control of the chain and visibly supported by traceability should be emphasized in contacts with customers. Another opportunity is
The perception of salmon in Japan, the stage in the product life cycle, the lack of differentiation and the high exit barriers, will probably mean that the primary basis for competition will be price. The companies with the cheapest products, meeting up to minimum standards of course, will be the winners in the market. Due to their scale and know-how Marine Harvest should be able to produce at a low cost.
The main strategic uncertainties in the Japanese market consist of the market’s complexity and the fact that due to demographics and the stage in the product life cycle demand is declining. Marine Harvest is targeting several sub-markets at the same time. They are supplying fresh Atlantic and frozen Coho and Trout to the Japanese market to several layers of the distribution chain. This lack of focus leads to danger of cannibalisation as new customers are being targeted that already might be, indirect, customers.
In the fresh Atlantic market the supermarkets are the most promising customer group. In order to sell to supermarkets Marine Harvest must supply stable sizes of fresh, traceable, products from an extended product-line at a low price. If they succeed in doing this they might enter in possibly the last growing Japanese sub-market with a long-term volume contract. They might also consider selling Canadian fresh trout. Next to supplying supermarkets Marine Harvest should try to expand their business with Hasebe and supply the food service and the industrial users through Hasebe. To expand their business with Hasebe it is essential that stable sizes are supplied in a shorter delivery time all year round.
In the frozen market Marine Harvest Chile is currently selling their total production in the Japanese market. They should not increase production unless they accept head-on price competition. Unless they increase production in order to be able to supply the products to the same customer as the fresh products are sold to. These customers can be supermarkets, wholesalers and trading companies.
In order to sell directly to retailers local market presence, two or three people, is required.
P
REFACE
Nutreco Aquaculture is in the midst of integrating the companies it acquired in recent years. Salmon farming activities are grouped under a global name, Marine Harvest. As part of the integration, a global marketing and sales unit is being created, with the objective to better coordinate the sales-production planning and to be able to better serve global customers in retail, food service and processing. Direct representation in Japan has been established recently.
The Japanese market is, compared to other important markets, very complex, many species are sold in many product forms, through a lot off different long distribution chains to a host of customers. Knowledge of the Japanese market is insufficient at the moment. This research will provide insight into the market and give a description of the opportunities and threats, now and in the future. This insight serves as a basis for decision-making by Marine Harvest in order to become more successful in the Japanese market.
The functional research area of this thesis is strategic market management in an international context. The Japanese salmon market is analysed in order to provide Marine Harvest with a set of strategic alternatives with which they can develop a strategy to become more successful in this market.
This research, and therefore Nutreco, has provided me a wonderful opportunity to perform a research in a very interesting industry in a fascinating country. I would like to thank Nutreco for this wonderful possibility. Not only did I learn a great deal as a student of International Business of the faculty of Business Administration, I also had a wonderful time doing so and learned a lot about myself in the process.
I would like to take this opportunity to thank a number of people. First of all I would like to thank the entire staff of Yamaha Nutreco Aquaculture (YNA) who were so kind to make sure I had an office and a house in Japan, and more importantly make me feel at home. A special word of thanks goes out to Joep Kleine Staarman who was able to make the most complex problems look very simple. Furthermore I would like to thank my ‘okans’, Chieko, Noriko, Yukie, Yumie and Yoshiko for all the help and friendship they gave me.
Furthermore I would like to thank Mr. Theo Postma and Mr. Robert Kok of the University of Groningen for their clarifying insights and, not to forget, patience. Finally I would like to thank Mr. Moerman for his aid in the sometimes mysterious world of computers, my parents for being my parents and anyone who assisted me in any way during this research.
Jeroen van Dam Groningen, July 03
C
ONTENTS
EEXXEECCUUTTIIVVEESSUUMMMMAARRYY II
PREFACE IV CONTENTS V
PART I RESEARCH PLAN 1
1 PROBLEM STATEMENT 2 1.1 PROBLEM BACKGROUND 2 1.2 PROBLEM STATEMENT 6 1.2.1 RESEARCH GOAL 6 1.2.2 RESEARCH QUESTION 6 1.3 RESEARCH BOUNDARIES 8 1.4 TIME SCHEDULE 9
2 CONCEPTUALISATION AND OPERATIONALISATION 10
2.1 TYPE OF RESEARCH 10
2.1.1 RESEARCH APPROACH 10
2.1.2 TYPE OF KNOWLEDGE PRODUCT 11
2.1.3 FUNCTIONAL RESEARCH AREA 12
2.2 OPERATIONALISATION 12
2.2.1 SUB-QUESTIONS 12
2.2.2 SUB-QUESTION DEFINITIONS 14
2.2.3 THEORIES AND DATA COLLECTION METHODS 15
2.3 CONCEPTUALISATION 16
2.3.1 INTRODUCTION 16
2.3.2 CONCEPTUAL MODEL 16
PART II RESEARCH FINDINGS 20
3 ENVIRONMENTAL ANALYSIS 21
3.1 INTRODUCTION 21
3.2 WORLD SALMON INDUSTRY 21
3.2.1 SALMON SUPPLY 21
3.2.5 SUPPLY AND PRICE DEVELOPMENTS IN THE WORLD MARKET 25
3.3 ECONOMETRIC ANALYSIS OF THE WORLD SALMON MARKET 28
3.4 MACRO ECONOMIC- AND DEMOGRAPHICS INFLUENCES 31
3.5 LAWS AND REGULATIONS 34
3.6 FOOD-SAFETY ATTITUDE 36
3.7 JAPANESE SALMON PERCEPTION 37
3.8 SUMMARY 40
4 MARKET ANALYSIS 42
4.1 INTRODUCTION 42
4.2 SALMON SUPPLY TO JAPAN 42
4.2.1 DOMESTIC SUPPLY 43
4.2.2 IMPORTED SALMON 44
4.2.3 IMPORTS BY COUNTRY 46
4.3 SUPPLY AND PRICE DEVELOPMENTS 49
4.4 JAPANESE SALMON EXPORTS 58
4.5 JAPANESE SALMON COLD STORAGE 58
4.6 JAPANESE SALMON CONSUMPTION 60
4.7 SUMMARY 67
5 CUSTOMER AND DISTRIBUTION ANALYSIS 69
5.1 INTRODUCTION 69
5.2 SEAFOOD DISTRIBUTION IN JAPAN 69
5.2.1 IN-MARKET ROUTES 70 5.2.2 OUT-MARKET ROUTES 70 5.2.3 DISTRIBUTION STRUCTURE 71 5.2.4 DISTRIBUTION COST 71 5.3 CUSTOMERS 72 5.3.1 CUSTOMER PREFERENCES 73 5.3.2 RETAIL CUSTOMERS 75
5.3.3 FOOD SERVICE CUSTOMERS 79
5.3.4 INDUSTRIAL USE CUSTOMERS 82 5.3.5 TRADING COMPANIES 83 5.4 SUMMARY 85 6 COMPETITOR ANALYSIS 87 6.1 INTRODUCTION 87 6.2 COMPETITIVE OUTLOOK 87
6.3 PROBLEMS WITH THE COMPETITOR ANALYSIS 88
6.4 MAJOR PLAYERS IN SALMON FARMING 89
6.5 COMPETITION IN JAPAN 92
PART III CONCLUSIONS AND RECOMMENDATIONS 94
7 CONCLUSIONS AND RECOMMENDATIONS 95
7.1 INTRODUCTION 95
7.2 RESEARCH LIMITATIONS 95
7.3 TRENDS, THREATS, UNCERTAINTIES AND OPPORTUNITIES 95
7.4 COMPETITIVE ADVANTAGE 98
7.5 RECOMMENDATIONS 98
REFERENCES 100 CONTINUOUS INFORMATION SOURCES 102
APPENDICES ERROR! BOOKMARK NOT DEFINED.
APPENDIX 1: VISITED COMPANY LIST ERROR! BOOKMARK NOT DEFINED. APPENDIX 2: PRODUCT WEIGHT AND CONVERTING FACTORS ERROR! BOOKMARK NOT DEFINED.
P
ART
I R
ESEARCH
P
LAN
The first part of this report contains the research plan, it defines the goal of the research and the conceptualisations and the operationalisations used to guide the research to its goal.
The result of the research plan will be a clearly defined research goal and research question. These will be anchored in theories through conceptualisation and anchored in the reality of the Japanese market through operationalisations. Both serving as the input for a framework that guides the research to the achievement of the research goal. This part of the report starts with a section on problem identification. This section identifies the problem that made Marine Harvest decide
that a research into the Japanese market was required. It serves as input for the research goal and the research question that are presented in the second and third section. The second chapter starts with the presentation of the conceptual model. The information needs of the different elements of the conceptual model are operationalised through the drafting of sub-questions. Subsequently for each sub-questions the methods of data-collection will be described.
The development of a research goal that links the research to decision-making, and the formulation of a research question that serves to guide the research, are unquestionably the most important steps in the research process.
1 P
ROBLEM
S
TATEMENT
In this first chapter the goal is to identify the problem that made Marine Harvest decide that a research of the Japanese salmon market is desirable. The problem identification has been used as input for formulating the research goal, research question and sub-questions. The research goal serves as a way to communicate with Marine Harvest to come to the desired knowledge product as well as giving internal guidance to the research. The research question links the research goal to the research process; it states what has to be done to achieve the research goal.
1.1 PROBLEM BACKGROUND
The customer for this research is the marketing and sales business unit of Marine Harvest (MH). More specifically, Mrs. Yoshiko Kida the sales representative in Japan and Mr. Scott Robertson responsible for salmon sales in Japan from the MH headquarters in Bergen Norway.
MH is a part of Nutreco, which was established in September 1994 as a Management Buy-out from British Petroleum and has been listed on the official segment of the stock market of Euronext in Amsterdam since June 1997. Since February 1999, Nutreco has also been part of the Amsterdam Midcap. Nutreco has approximately 11,000 employees. Turnover amounted in 2000 to EUR 3,126 million.
Nutreco is divided into Nutreco Aquaculture and Nutreco Agriculture, with a small head office and decentralised organisation. Nutreco is present in three production chains: fish, poultry and pigs. Their main activities are:
1. The production of compound feed for pigs, poultry and salmonid fish 2. Salmon farming
3. Processing and marketing high-quality salmon products
Other Nutreco activities include the production of premixes and specialty feed, poultry and pig processing and salmon, pig and poultry breeding.
During the year 2000, Nutreco grew significantly, with several acquisitions, the largest of which was the fish farming, processing and sales and marketing interests of Hydro Seafood in Norway, Ireland and France. Nutreco Aquaculture has around 5,100 employees and is divided into two Business Groups: Business Group Fish Feed and Business Group Salmon.
Business Group Fish Feed
Business Group Fish Feed incorporates all fish feed production activities The Fish Feed Business Group manufactured approximately 912,000 tonnes of fish feed in 2000.
Business Group Salmon
Business Group Salmon also encompasses all processing plants in Norway, Chile, Scotland, Ireland and France, and the marketing and sales activities, which operate under the single identity of Marine Harvest. It is divided into three Business Units. These are Marine Harvest Norway, Marine Harvest Chile and Marine Harvest Scotland. Marine Harvest Canada and Marine Harvest Ireland are Operating Companies.
Nutreco is active in the entire chain of fish farming. The Business Group fish feed produces feed and feed management regimes for production of fish. Nutreco Aquaculture also has continuing breeding programmes aimed at producing farmed fish. In Chile, Nutreco Aquaculture has more than a dozen hatcheries and freshwater sites and over twenty-five seawater sites. In Scotland, Marine Harvest Scotland operates twenty hatcheries and freshwater units together with nearly forty seawater sites. The Marine Harvest salmon farming activities make Marine Harvest the world’s largest salmon farmer, with a production of approximately 184,000 tons of round fish in 2001. The entire output is processed in wholly owned processing plants or in plants working to Marine Harvest specifications. Marine Harvest sales and marketing operates as a global team. It has sales offices and activities worldwide. Marine Harvest is a major supplier of farmed salmonids and value added products for consumers in Europe, North America, Japan, China and elsewhere in Asia.
Marine Harvest Scotland
Marine Harvest was founded approximately 30 years ago. In the early 1970s the Anglo-Dutch company Unilever entered the young fish farming industry with a fish farm at Loch Ailort near Fort William. That company was given the name Marine Harvest. In 1999 Nutreco Aquaculture bought Marine Harvest McConnell and changed its name to Marine Harvest Scotland ltd. The farms are concentrated mainly along the west coast, south and north of Fort William and on the Hebrides. In 1986 Marine Harvest started its own business in Chile and pioneered the production of Atlantic salmon in South America. When Nutreco bought Marine Harvest in 1999 the acquisition also included the operations in Chile.
Marine Harvest Ireland
Fish farming company Fanad Fisheries was founded in 1979. Fanad Fisheries formed a joint venture with Mowi in 1981, 25/75 structure in ’85 and 100% by Hydro Seafood in 1994. The operations include fish farming of Atlantic salmon, smolt production, breeding activities, work with brood stock and production of eggs for export.
Marine Harvest Canada
In 1988 BP Nutrition bought the fish farming company Paradise Seafarms in the state of Washington. In 1991 Paradise Seafarms was established in Campbell River on Vancouver Island in British Columbia, Canada. In 1994 the company
became a part of Nutreco Aquaculture, becoming Marine Harvest Canada as of 1999. A new sales office was established in 1998.
Marine Harvest Norway
In 1969 Norsk Hydro invested 50% of the initial capital of AS Mowi. In 1981 Mowi bought Fanad Fisheries of Ireland. From 1985 Norsk Hydro took over 100% of AS Mowi. In the 1990s Hydro’s fish farming operations expanded with several acquisitions in Norway and Shetland. Hydro Seafood was formed as Hydro’s holding company for aquaculture in 1990. Hydro Seafood was sold to Nutreco in 2000 apart from the activities in Scotland/ Shetland.
Marine Harvest Chile
In 1988 BP Nutrition bought the Chilean fish farming company Mares Australes (originally Coho and trout). That company became part of Nutreco in 1994. In 1986 Marine Harvest began salmon farming in Chile, becoming the first company to farm Atlantic salmon. That operation was merged with the Nutreco-owned Mares Australes when Nutreco bought Marine Harvest in 1999.
The main reason for ordering a research of the Japanese market is that MH lacks knowledge of the Japanese market to reach full potential.
MH is active in the Japanese market through supplies of salmon by MH Canada, Norway and Chile. The total MH exports to Japan in 2000 amounted to 20,190 tons. This is equal to 7.2% of the total Japanese farmed salmon imports; Marine Harvest produces 20% of the farmed salmon supply worldwide. After the sales offices in the US, Canada, France, Russia and China, a sales representation has been established in Japan in mid 2000. The sales representative is responsible for selling Salmon, Trout, Hamachi and Buri. The latter two are yellowtail species farmed and traded by Yamaha Nutreco Aquatech Ltd. Species can be added to the current portfolio when they come available within Nutreco Aquaculture. In order for the sales office to operate effectively knowledge of the market is essential.
Fish is an important part of the Japanese diet. In terms of quantity salmon traditionally takes an important place in total fish consumption. In the year 2000 Japan imported 228,220 tons of salmon (wild and farmed). This makes Japan the biggest salmon importer in the world. However, the trend in Japan up to 2000 was that less and less salmon is consumed! Consumption development is therefore very different from the two other main markets, the EU and the US. Total salmon consumption consists of decreasing supply from domestic wild catches and stable salmon imports. The low prices in 2001 have changed the decreasing consumption. In terms of quality in Japan salmon is not viewed as it is in the EU or the United States where it is perceived as high quality fish. In Japan salmon is among the cheaper fish species and lacks a high status image.
MH’s strategy focuses on growth; they are, as the whole industry is, highly capable of increasing their total production of salmon. However, as production of farmed salmon in general has seen incredible growth ever since the early 1980’s, it may therefore not be a surprise that prices are and will be under pressure. Due to the nature of the industry it can be expected that global production will continue to increase, it is likely that demand will not grow enough to let prices recover to the level of a couple of years ago. A stronger customer and consumer orientation is one of the ways in which the profitability can be increased. A customer-oriented approach requires knowledge of customers’ needs and requirements. Currently MH does not know enough about customers in the Japanese market.
The Japanese market is highly fragmented in terms of the number of companies that are active and their size. There are regional differences in the way the products are distributed through the different channels like supermarkets, sushi chains and hotels and restaurants. Also each of these channels poses different demands on their suppliers. The volume of wild catches can put a lot of pressure on the prices of farmed salmon in Japan adding to the volatility of the market. At this moment MH knows too little of the Japanese salmon distribution chains to be very successful in increasing sales.
MH does not have a whole lot of knowledge of the competitors on the Japanese salmon market. Many market-parties in Japan are only active in Japan. And the competitors known to MH may operate in a different way than they do in other parts of the world due to the unique needs of the Japanese salmon market.
Concluding, in order to increase sales and profitability in Japan sales representation has been established in the year 2000. To operate successfully knowledge of the market is essential. There are a number of key-points that made a research desirable:
Consumption of salmon has been decreasing from 1996 to 2000 in Japan. The increase in global production in 2001 has lowered prices, thereby increasing demand and consumption in Japan so that the trend of decreasing consumption has been halted.
Salmon is not considered a high-quality fish in Japan.
Marine Harvest, and the sales office, lack knowledge of the customers in the Japanese market.
Marine Harvest, and the sales office, lack knowledge of the Japanese distribution chains.
Marine Harvest, and the sales office, lack knowledge of the competition in the Japanese market.
Summing up, the problem is that the knowledge level of the Japanese market within Marine Harvest and the sales office is not considered high enough to enable Marine Harvest to become more successful on the Japanese market. This
research should increase knowledge of the market in order to provide the basis for solid decision-making on a strategic level.
1.2 PROBLEM STATEMENT
The objective of this section is to present the problem statement that will serve as the framework for the entire research. This includes the research goal, research question and research boundaries. The development of a research goal that links the research to decision-making, and the formulation of a research question that serves to guide the research, are unquestionably the most important steps in the research process.
1.2.1 Research Goal
The methodological question that leads to the research goal is: why should the research be done? What decisions about the things to do have to be taken by the marketing and sales people and the sales representative? In this case MH has to decide what strategy has to be implemented to become more successful on the Japanese market. Given the market’s specific demands and MH’s own capabilities what strategy should be implemented? Based on this and the problem identification the research goal is:
“T
O PROVIDEM
ARINEH
ARVEST WITH INSIGHT INTO THEJ
APANESE SALMONMARKET IN ORDER TO ENABLE THEM TO BECOME MORE SUCCESSFUL IN THIS
MARKET
.”
Research Goal Definitions
Marine Harvest: (In this case) the business unit sales and marketing department
of Marine Harvest and Mrs. Kida as sales representative.
Japanese Salmon market: The total of supply and demand forces1 and the characteristics of salmon and salmon Value Added Products in any stage of the Japanese market between importer and end-consumer.
More successful: Leading to an increase in profitability in the medium to long
term.
1.2.2 Research Question
The answer to the research question should allow the decision-makers to make the right decisions in order to become more successful. So, the methodological question that leads to the research goal is, what should be researched?
As will be described in the next chapter this is an explorative management-supporting research. Therefore the output of the research is not a clear design, strategy or policy enabling MH to become more successful but a set of recommendations, which, combined, with more accurate knowledge of the company itself, supports the development of a strategy for the Japanese market. The research goal is to provide MH with a set of recommendations that supports them in becoming more successful in the Japanese salmon market. In the following chapter the conceptual model to achieve this is presented. The model implies that information on the organisation itself and on the environment it has to operate in is needed to develop a strategy to become more successful. The internal analysis consists of an overview of the strengths and weaknesses of MH and will not be part of the research for a number of reasons. First of all MH is in the midst of integrating all the companies they acquired over the last couple of years. As a consequence the internal organisation is very dynamic and strengths and weaknesses will become clearer as time progresses. Second, I will be performing my research in Japan far from any part of the MH organisation this makes it very difficult to, accurately, describe the strengths and weaknesses of MH. As a consequence the managers of MH will be better equipped to make an assessment of the strengths and weaknesses of MH. The research focuses on the Japanese context in which MH has to operate. The research question is:
“
W
HAT ARE THE OPPORTUNITIES AND THREATS FORM
ARINEH
ARVEST INTHE
J
APANESE SALMON INDUSTRY AND SPECIFICALLY IN THE AREAS OFCOMPETITION
,
THE CUSTOMERS AND DISTRIBUTIUON?”
Research Question Definitions
Opportunities: An opportunity is a trend or event that could lead to significant
upward change in sales and profit patterns –given the right strategic response2.
Threats: A threat is a trend or event that will result, in the absence of a strategic
response, in a significant downward departure from current sales and profit patterns for MH2.
Japanese salmon industry: The total of supply and demand forces and the
characteristics of salmon and salmon Value Added Products in any stage of the Japanese market between importer and end-consumer.
Competition: The total set of companies in the Japanese salmon market that
are active in segments in which MH is, or might become, active.
Customers: Companies that are currently buying salmon or salmon value added
products from MH or MH competitors
2
Distribution: The process through which the products go from producer or
exporter to the end-consumer.
1.3 RESEARCH BOUNDARIES
In this section the boundaries of the research will be presented. They are determined by the limitations in time, and aimed at maximising the added value from the decision made on the basis of this research.
The findings of this research are confidential.
Worldwide, there are many varieties (or species) of salmon. Salmon quality varies substantially among species. Table 1.1 lists the various species, their sources and the innate quality associated with each.
Table 1.1: Availability and quality of salmon species Species Common Name Available From
Wild Harvest Available From Farmed Harvest Innate Quality (Before Handling)
King or Chinook Yes Yes High
Coho or Silver Yes Yes High
Sockeye or Red Yes No High
Chum or Silverbright Yes No Low
Pink or Humpback Yes No Low
Steelhead or Rainbow Very limited Yes High Atlantic Salmon Very limited Yes High
Source: Salmon Buyers’ guide3
This research will not put emphasis on the two salmon species that are of low innate quality even though these are caught in the wild in the Japanese market. The reason for this is that, compared to the Marine Harvest products, these salmon-products are sold through different channels to different end-users for different end uses.
This research is targeted at the Japanese salmon market. All salmon products (excluding the before mentioned two species) will be taken into account, this includes processed products. Therefore, all demand and supply of high quality salmon within the geographical boundaries of Japan will be included in this study. The period of field research will be from early October 2001 until the end of February 2002. In that period at various stages a progress report has been presented to several stakeholders within MH. At the end of the field research
period a presentation with the research findings is presented to the research-customers.
1.4 TIME SCHEDULE
This section gives insight into the planning of the activities.
From the 14th of September 2001 to the 21st of September 2001 visit to MH headquarters in Bergen Norway. Collecting information about the:
• the research goals of MH,
• activities of Marine Harvest (especially in Japan),
• responsibilities for, and knowledge of, the Japanese market,
• the production process of farmed salmon,
• basis of competition in the salmon market (especially in Japan),
From the 24th of September 2001 to the 10th of October 2001, pre-research period in the Netherlands:
• Underpinning the proposal with literature,
• Receive feedback from the professors,
• Literature study of the product, the country and the market,
• Working out exactly what information has to be found during the period of field study.
From the 12th of October 2001 to the end of December 2001 the initial field research period in Japan:
• Answering the first sub-question
• Starting on the 2nd, 3rd and 4th sub-question
• Preparing and presenting the progress report Beginning of January 2002 to the 28th of February 2002: Second field research period in Japan.
• Adapt the research to feedback received on the progress report
• Collect information to answer 2nd, 3rd, 4th and 5th sub-question Beginning of March 2002 to the end of April 2002:
• Preparing the final report
2 C
ONCEPTUALISATION AND OPERATIONALISATION
In the previous chapter the problem statement was presented. In this chapter the problem statement will be anchored to, on the one hand, the theories of management and organisation through conceptualisation and, on the other hand, to the Japanese salmon market reality through operationalisation. The goal of this step is to ensure that the research will provide the decision-makers with reliable, valid and relevant information. And to provide the researcher a blueprint that can be used to guide the research towards the research goal.
This chapter starts with a description of the type of research, in terms of the research approach, the sort of research product and the functional research area. In the next section the problem statement will be operationalised. The operationalisation of the problem statement leads to the drafting of a number of sub-questions and looks at the data-gathering methods. The last section of this chapter is the conceptualisation. The conceptual model provides the researcher and the research-customer with a way of seeing the reality.
2.1 TYPE OF RESEARCH
2.1.1 Research Approach
All research problems require their own special emphases and approaches. Since every research problem is unique in some ways, the research procedure is typically custom tailored. Nonetheless, there is a sequence of steps, called the research design process (see Figure 2-1) that should be followed when designing the research project in order to ensure validity, relevance and reliability.
The research process provides a systematic planned approach to the research project and ensures that all aspects of the research project are consistent with each other. It is especially important that the research design is consistent with the research goal and the research question. Research studies evolve through a series of steps, each corresponding to a part of Figure 2-1.
In this phase of the research we are looking at finding the best research design. How should the research be designed to obtain an answer to the research question? Design issues include questions like the choice of research approach, reliance on secondary data versus conducting a survey or an experiment, and the specifics of how to collect the data.
All research approaches can be classified into one of three general categories of research exploratory, descriptive and causal4. These categories differ in terms of research purpose, research objectives, the precision of possible hypotheses that are formed and the data collection methods that are used.
Figure 2-1: The Research Design Process
Source: “Marketing Research”, Aaker, Kumar, Day, fifth edition, 1995, p. 3
Due to the lack of knowledge of Marine Harvest about the Japanese market and the lack of accessible sources of secondary information this research is explorative of nature. Explorative research is used when one is seeking insight into the general nature of a problem. Typically there is little prior knowledge on which to build. The research methods are highly flexible, unstructured and qualitative because the researcher begins without a firm preconception of what will be found. This method will be used to, for example, to find out what the criteria are that customers use in selecting their suppliers.
2.1.2 Type of Knowledge Product
A second classification of the research is in terms of the type of knowledge product provided to the company. Will the research solve a specific problem, will it design a tool for the company or will it supply the information that supports management decisions5.
In this case the research supports management decisions. The choice for this type of research is based on the lack of knowledge of the Japanese market and the fact that the researcher will, due to the research location, not be able to gather sufficient information on the company. These two elements make it virtually impossible to develop a strategy for the Marine Harvest on the Japanese market.
5
de Leeuw, A.C.J. Prof. Dr. Ir., “Bedrijfskundige Methodologie, Management van Onderzoek”, Assen, van Gorcum, 1996
Research Question
Research Approach
Exploratory Descriptive Causal
Data Collection and Analysis
Conclusions and Recommendations Research Goal
Implementation Research Design
The choice for this type of research implies that the output of the research has to be the basis for the decision making process for MH.
2.1.3 Functional Research Area
The goal of this research is for MH to become more successful in the Japanese market. In order to do this the decision makers at MH need to combine information about the (opportunities and threats of the) market with information about the (weaknesses and strengths of the) organisation. This field of management and organisation research is known as Strategic Marketing Research, or, Strategic Market Management. Although this research only covers the market side of this field, I decided to use a model belonging to Strategic Market Management, because it provides MH with a clear picture of what their steps in the decision-making process ought to be.
In order to describe the Japanese salmon market I will perform marketing research. “Marketing Research is the function that links an organization to its market through information” (Fragment of official definition of Marketing Research, American Marketing Association); “it helps to improve management decision making by providing Relevant, Accurate and Timely (RAT) information”6. Every decision poses unique needs for information, and relevant strategies can be developed based on the information gathered through marketing research. Authors indicating this approach are among others Aaker and Alsem. Aaker states: “the term market in the phrase strategic market management emphasizes that strategy development needs to be driven by the market and its environment rather than by an internal orientation”. The models that Aaker and Alsem designed on this subject will be presented in the next section.
2.2 OPERATIONALISATION
In this section the problem statement will be operationalised. The operationalisation ensures the relevance of the research, the degree to which the knowledge product fits the knowledge need of the company. It also increases the reliability of the research through the choice of research methods and information sources.
This section leads to a list of sub-questions derived from the problem statement, to which the combined answers will provide MH an answer to the research question. It is followed by a list of definitions of terms used in the sub-questions. Subsequently for each of the sub-questions the methods for data-collection will be described.
The information needs of MH call for an explorative external analysis as was described in the beginning of this chapter. Therefore, the sub-questions will give more attention to specific parts of the Japanese market environment. These parts are environmental-, market-, customer- (including distribution analysis) and competitor-analysis. The fifth element that contributes to meeting the research goal is the opportunities, threats, trends and strategic uncertainties derived from the external analysis. This relates to the conceptual model that is presented in a later section of this chapter.
Below the sub-questions are presented.
1. What are the trends in the environment on the Japanese salmon
market and what is the influence on the opportunities and threats for Marine Harvest?
a. What are the trends in the world market in terms of supply and the price of salmon?
b. What are the econometric characteristics of the world salmon market?
c. To what degree are there substitutes for salmon and what is the substitutability between salmon species in the world market?
d. What is the influence of demographic and economic development on future demand for salmon in Japan?
e. What is the influence of exchange rates on the future demand for salmon in Japan?
f. Which laws, duties and regulations influence the market flow of salmon products in Japan?
g. What is the perception of salmon of Japanese customers and consumers and what is their attitude towards food-safety in particular for salmon?
2. What are the dynamics and what is the attractiveness of the
Japanese salmon market?
a. What is the size (in volume) of the Japanese market for salmon and what are the prospects for growth in quantity and type of salmon consumption in Japan?
b. How much of the salmon supply is stored and how much is in Japan?
c. What are the trends and developments in the Japanese salmon consumption?
3. Who are the customers in the Japanese salmon market and what are their needs?
a. Through which distribution channels do what salmon-products get to the end-consumers?
b. What is the distribution structure in the Japanese market and what is the cost of distribution for the different channels?
c. Who are the (potential) customers of MH and in what way can they be grouped?
d. How can the customer-groups be described in terms of volume of salmon sales, requirements and growth?
e. What are the customer-groups motivations and unmet needs? f. What are the critical success factors in the customer-groups of the
Japanese salmon market?
4. What is the competition in the channels of the Japanese salmon market for Marine Harvest?
a. Who are the main competitors for MH in the world market? b. Who are the major competitors in every customer-group?
c. What are the strengths and weaknesses for the competitors in every customer-group?
d. What are the exit barriers for competitors in every customer-group? e. What are the barriers to entry for new entrants in every
customer-group?
5. What strategic alternatives does Marine Harvest have to become more successful in the Japanese salmon market?
a. What are the trends and opportunities in the Japanese salmon market?
b. What product-market combinations hold opportunities for MH? c. How can MH create a competitive advantage in the Japanese
salmon market?
d. What are the strategic alternatives for MH in order to become more successful?
2.2.2 Sub-question Definitions
Environmental analysis: Part of the external analysis that studies trends and
events outside the market that have the potential to affect strategy7.
Japanese salmon market: The total force field of demand for- and supply of
salmon in Japan
Market Analysis: Part of the external analysis of which the goal is to determine
a (sub-) market’s attractiveness to current and potential participants8.
Customer(s): Current and potential buyers of salmon in the Japanese market. Customer-group(s): Several customers that share the same characteristics. Competitors: Companies that actively (attempt to) sell higher innate quality
salmon to customers in Japan.
Critical success factors: Organizational assets or competencies that are
essential in becoming successful.
Trends: Developments in the Japanese salmon market, these can be the basis
for threats and opportunities among other things.
Uncertainties: Developments and trends in the Japanese salmon market of
which the probability is unknown, these can be the basis for threats and opportunities among other things.
2.2.3 Theories and Data Collection Methods
This section will look at the methods for data collection and at additional theories. These theories are additions to the theoretical framework that will be presented in the next section.
During interviews I will present myself as a student doing research for MH. The topic of my research is the Japanese salmon market. The questionnaires function as guides during the interviews, they are based on the sub-questions. For the different market parties (for example importers, processors or supermarkets), different questionnaires will be used. During an interview there is always the possibility to divert from the standard-questionnaires.
First sub-question
The main source of information for the first sub-question will be secondary data. During interviews with market parties I will ask the opinion of the person being interviewed. This means only a small part of the total research population will be interviewed but this part is likely to have a good image of the perception of Japanese consumers on food-safety and even more so of the image of salmon. The people interviewed (see Appendix A) will hold key-positions in the businesses interviewed. Access to these people is made possible by the position of MH in the world salmon market and the recognition MH gets in Japan.
Second sub-question
The main source of information used for the second sub-question is secondary. The GIRA report will be used as well as import statistics and Internet sources focusing on the salmon business. If necessary this will be supplemented with information obtained from interviews during the research.
Theory on the Product Life Cycle has been used in this chapter. Partially on the basis of the stage in the PLC the Japanese salmon market is in, it can be seen what the key success factors are.
Third sub-question
The availability of secondary data for answering the third sub-question has been limited. Most information has to come from primary sources; I will mainly try to use current customers of MH in order to get the initial picture. Afterwards I will try to get appointments with important non-customers in the market. The companies interviewed should be a representative sample of the population of the different channels in the Japanese market. The persons interviewed should hold positions that give them insight into the strategic background of purchasing decisions but also purchasing on a day-to-day basis.
Fourth sub-question
The information for this sub-question will largely be supplied during the interviews with the customers. They will shed light on how their current suppliers are performing on the criteria identified by the customers. There is a risk that they will not be willing to provide this information. Back-up methods of information gathering are interviews (qualitative, in-depth) with competitors, interviews with third parties such as transportation companies and in-depth interviews with MH customers.
Fifth sub-question
The input for this question is gathered in the previous sub-questions. The information will therefore be taken from the previous chapters.
2.3 CONCEPTUALISATION
2.3.1 Introduction
As stated in the beginning of this chapter a research needs to be anchored in the reality and in the world of theory. In this section the research is linked to a theory in order to better grasp the problem situation. This is done to ensure that the appropriate parts of the Japanese market are being researched and that the research outcome is reliable. The input for the conceptual model is derived from insights from the decision makers and documents on the subject.
2.3.2 Conceptual Model
As described in the previous paragraphs this is an explorative, management supporting research in the field of strategic market management. The most appropriate conceptualisation for this research is the conceptual model. In this paragraph the conceptual model will be presented.
MH decided to have this research performed in order to become more successful in the Japanese salmon market. At that time MH did not have a firm preconception of the problem situation in the Japanese market. There was a lack of information in virtually all the area’s required for making sound decisions on how to become more successful. These areas’s included market structures, distribution channels, build up of the different segments, the state of the competition, consumer demands, end-user demands and so on. Within MH some information was available but not centralized and with the people who need it most. In order to develop a strategy, information was needed on all of these areas.
Several authors have presented a model or framework that presents an outline for strategic market analysis. According to Alsem the strategic planning process essentially consists of two components, an external orientation and a long-term
focus9. Strategic marketing is focused on the strategy with respect to the market(s) of the company or business unit. Alsem’s model is presented in Figure 2.2.
Figure 2.2: Strategic Market Analysis
Source: Alsem, “Strategische Marketing Planning”, 1997
Aaker uses a similar, but not the same, approach. In his model, presented in Figure 2.3 an external and internal analysis are performed. The external analysis leads to the identification of opportunities and threats while the internal analysis leads to the identification of organizational strengths and weaknesses. The combination of the two leads to the identification of strategic alternatives and the selection of the most appropriate strategy.
9
Alsem, “Strategische Marketing Planning”, Houten, Educatieve Partners Nederland BV, 1997 Mission and market definition
External analysis • Industry analysis • Customer analysis • Distribution analysis • Competitor analysis Internal analysis • Strategical analysis Organizational objectives and strategies
Marketing and –instrument objectives and strategies
Marketing plan and implementation
External analysis
• Environmental analysis
• Market analysis
• Competitor analysis
• Customer analysis
As stated earlier the two models are similar but not the same. First of all Alsem puts more emphasis on organizational strategy as an input for the development and implementation of a marketing plan. Aaker limits the input of organizational strategy into the process to an analysis of the determinants of strategic options. Aaker translates his internal analysis into the identification of strengths and weaknesses. On the external analysis side of the models, Aaker includes an environmental analysis, whereas Alsem doesn’t. Alsem includes a distribution analysis that isn’t incorporated in the model of Aaker.
Figure 2.3: Model for Strategic Analysis
Source: Aaker 1998
Given the differences between the models I have chosen a combination of the model of Aaker and the model of Alsem. The reasons for this choice are that Aaker’s model does not focus on organizational strategy as much as Alsem’s model. The organizational strategy would be difficult to include due to the fact that within Marine Harvest there is not a single implemented strategy in the countries that supply to Japan. Also for the reasons I mentioned in section 1.2.2 I will only perform the external analysis.
An element of Alsem’s external analysis has been incorporated into the model of Aaker, the distribution analysis. The reason for this is that the distribution of
Internal analysis • Performance analysis • Determinants of strategic options Strategic analysis
Opportunities, threats, trends and strategic uncertainties
Strategic strengths, weaknesses, problems, constraints and
uncertainties
Strategy identification and selection
• Identify strategic alternatives • Select strategy
• Implement the operating plan • Review strategies
secondly, the different value chains pose different demands on distribution. The distribution analysis is incorporated into the customer analysis because different customer-types use different distribution channels in the Japanese salmon market.
In order to enable MH to become more successful in Japan this research will provide MH with an analysis of the Japanese market (external analysis in terms of the model). This includes an environmental analysis, a market analysis, a competitor analysis and a customer analysis, which (from the model by Alsem) includes a distribution analysis. The identification of opportunities, threats, trends and strategic uncertainties is based on the before mentioned analyses.
P
ART
II R
ESEARCH
F
INDINGS
The first part of this report described why the research had to be done, what is researched, and how the research is designed. The second part of this report covers the findings of the research. The goal is to present the findings that are relevant for Marine Harvest (MH) in terms of the development of a strategy for the Japanese salmon market.
The first chapter of this part describes the influence of the
general environment on the Japanese salmon market. Subsequently a description of the market is given, in terms that allow for the discovery of general trends and uncertainties. After light has been shed on the market, attention shifts to the customers and the distribution channels. The last chapter of this part is concerned with the competitors for these customers.
3 E
NVIRONMENTAL
A
NALYSIS
3.1 INTRODUCTION
In this chapter the findings of the environmental analysis of the Japanese salmon market will be presented. The environmental analysis contains elements that influence the Japanese salmon market but are not directly a part of it. This analysis can yield insight into trends and uncertainties that might be opportunities and threats to Marine Harvest (MH).
This chapter starts with a description of the fundamentals of the world salmon market focusing on supply and price developments. Followed by an econometric analysis of this market including an analysis of substitutability, mainly based on literature. Subsequently attention will be given to the influence of macro-economic characteristics on demand for salmon in Japan. This will include exchange rates developments, foreign trade and GDP development. Followed by the laws, duties and regulations and, finally, the Japanese perception of salmon and attitude towards food-safety. The last section contains the conclusions of this chapter.
3.2 WORLD SALMON INDUSTRY
In this section of the research report the point is made that salmon is a world market and that there is a strong correlation between the volume of all species, wild catches, farmed Atlantic, farmed pacific and farmed trout, and the price developments. This implies, among other things, that the price development in the Japanese market, and hence profitability for MH in Japan, cannot be seen separately from developments in global salmon production and, to a lesser extent due to higher stability, salmon demand. Besides, when studying the possibilities of certain species in Japan the developments of the other species is highly relevant.
This section starts with a description of salmon supply, both wild and farmed. Followed by the most important markets in terms of consumption and ending with a description of supply and price developments.
3.2.1 Salmon Supply
Salmon supply refers to the supply of both wild catches of salmon and the harvest of farmed salmon. Salmon aquaculture became commercially interesting in the early 1980’s. From then on the availability of salmon increased substantially. In 1980 the total supply of salmon was about 500.000 tons, of which 13.000 tons were farmed. From 13.000 tons in 1980, farmed production has increased to over one million tons in 1999, making the total supply of salmon about 1.9 million tons, or almost a quadrupling since 1980.10 (For explanation of
10
weight classifications see appendix 2). As can been seen in figure 3.1 farmed salmon passed the share of wild catches in 1999.
Figure 3-1: Total global supply of salmon
0 200 400 600 800 1000 1200 1400 1600 1800 2000 1993 1994 1995 1996 1997 1998 1999 2000 2001 1000' s of tons WFE
Total Global supply of Salmon (Farmed and Wild)
Global supply of Farmed Atlantic and Pacific
Wild Catches (global)
Figures derived from Kontali, Monthly Salmon Report January 2002
3.2.2 Wild Catches
Only a few countries dominate the wild salmon harvesting market. The US has had the leading position, accounting for 45% of the total global catch, but declining to 35% in 1998. The US lost its leading position to Japan, which supplied 36% of the total wild catch in 1997. The two remaining players are Russia and Canada. Russia’s share has varied between 15% and 20% in most years considered, while Canada has supplied between 10% and 15% of the total quantities. 11
The importance of the different pacific salmon species differs among the countries catching wild salmon. The US catches mainly pink salmon (humpback) and sockeye (red salmon), but chum (Silverbright) has gained relative importance in the last years. In particular the quantities of sockeye have decreased. Over 80% of the Japanese catches are chum; the remainder is pink and small quantities of sockeye. Chum and Pink salmon are considered low quality salmon that get a very different price and are competing in a different market. Russia catches mostly pink salmon, while Canada lands mostly pink salmon and sockeye.12 When separating the low quality species from the high valued species, we get a total different picture, as can been seen in the table below. It has to be noted that the figures from the US and Russia are in 1000
11
Bjørndal, T., Tveterås, R., and Asche, F., The development of Salmon and Trout Aquaculture, 1999
metric tons round weight and the figures from Canada and Japan are in 1000 tons whole weight, so the volumes can not be compared in terms of percentages. However, it does give a trend over the last 10 years and shows that the US is far most the biggest supplier of wild caught salmon. The figures for 2001 are estimates. It is not expected that salmon wild-catches will increase in the future13. Figure 3-2: Wild catches of Coho and Sockeye per country
0 25 50 75 100 125 150 175 200 199 0 199 1 199 2 199 3 199 4 1995 199 6 199 7 199 8 199 9 200 0 2001 E
Wild catches in 1000 tons
USA
Russia
Japan
Canada
Figures derived from: Kontali, Red Salmon report, November 2000 and 2001
3.2.3 Farmed Salmon
Farmed salmon is produced in large quantities in only a few countries. The four main producing countries account for 90% of the total farmed salmon produced. In 1999 Norway took the largest share with 46%, Chile 20%, the UK 14% and Canada 8%14. Figure 3-3 presents the volumes of farmed Atlantic and pacific salmon.
Figure 3-3: Farmed salmon volumes per country
0 50 100 150 200 250 300 350 400 450 500 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 V o lu m es in 1000 t o n s W F E Norway Chile UK Canada
Figures derived from: Kontali, Monthly Salmon Report February 2002
13www.intrafish.com, news, 09-10-2001
14
It is not historical coincidences that have made Norway, Chile and the UK the major producers of salmon species. The first condition for large-scale production is a long coastline with plenty of sheltered locations in areas with limited competition from other user interests, but at the same time access to infrastructure.15 The largest salmon producing countries are said to have the capacity to further increase their production.
As can been seen from the table above, Chile has increased its production dramatically in the last years. This is largely due to the increase in Atlantic salmon. Trout was not included in the above table. The trout market is dominated by two of the four big players namely Chile and Norway. The farmed trout supplies of these countries are presented in Figure 3-4.
Figure 3-4: Farmed Trout production per country
0 20000 40000 60000 80000 100000 120000 140000 160000 180000 1993 1994 1995 1996 1997 1998 1999 2000 2001 v o lu mes i n tons r ound wei ght Chile Norway Total
Figures derived from: Kontali, special request September 2001
Concluding, the wild salmon catches (of quality species) are showing a decline over the last years, and is not expected to recover. This decline is more than compensated by an increase in the production of farmed salmon, especially in the last two years. Chile is production increase is the most rapid. Technically it is very possible that the farmed salmon increase will continue. Whether or not this will happen depends on the market prices. The relative share of farmed salmon opposed to wild salmon will continue to increase due to lower cost.
3.2.4 Salmon Markets
When looking at two of the three big markets, the US and Europe, Japan will be analysed in the rest of this report, each market has its principle foreign suppliers for salmon products. In the US these are Chile and Canada, and the domestic
aquaculture (farmed) production, with 23.000 tons WFE in 199916. The total imports were 136,000 tons in 2000. Chile’s supply is becoming increasingly important this can be mainly explained by the strong increase in the supply of fresh Atlantic salmon fillets.
Figure 3-5: European imports of all salmon products17
0 20000 40000 60000 80000 100000 120000 1993 1994 1995 1996 1997 1998 1999 2000
Imports in tons product weight
France Germany Spain Italy Netherlands Sweden Belgium + Luxembourg Switserland Portugal
Figures derived from: Kontali, Competitor Analysis Salmon Markets 2000
In Europe, the main countries importing salmon products are France, Germany and Spain as shown in the table above. The table does not include domestic production, which explains the absence of the UK and Norway in the overview, since they do not import significant volumes of salmon. When looking at the main markets within Europe, the main suppliers for both France and Germany are Norway, Denmark and the UK. Denmark has a large share in the production of salmon, especially smoked salmon, but does not farm salmon itself. They buy their salmon mainly from Norway and the Faeroe Islands.
3.2.5 Supply and Price Developments in the World Market
The total supply of salmon on a worldwide level can be a major influence at the prices of salmon in Japan. In this section it will be examined whether or not the salmon market is a world market. Secondly this section will examine whether there is a large degree of substitutability between the different salmon species. When analysing the global salmon market in order to shed light on the global nature of the industry the historical price developments of farmed salmon, presented in the figure below, will be a good starting point. The figure depicts the relation between global supply of farmed Atlantic and pacific salmon and the developments of the Norwegian inflated FOB export prices.
16 Kontali, Monthly Salmon Report, July 2001 17
Figure 3-6: Percentage growth farmed salmon supply and price -25,00% -15,00% -5,00% 5,00% 15,00% 25,00% 1994 1995 1996 1997 1998 1999 2000 2001 E
Growth percentage Farmed Atlantic and Pacific Growth Norwegian export prices inflated FOB
Figures derived from: Kontali, Monthly Salmon Report, and July 2001
Prices inflated by 3% a year, with index year 2001 Assuming that an increasing supply results in a decreasing price, the period 1996 to 2000 largely follows a logical price line based on this assumption. From this period, using these figures, we can roughly assume that with an increase of 7% in supply, the real price remained stable. In this line, the price decrease in 1995 is higher than expected. The year 2000 shows a stronger price increase than expected. For 2000 it could have been expected a price increase of around 3%, occurred but it was almost 10%. 1995 and the year 2001 showed a stronger price decrease than could be expected. When searching for explanations, the volumes of wild catches could have an impact. Exceptional years in the wild catches were 1995, 2000 and 2001. In 1995 and 2001 the wild catches were significantly higher than average and the opposite was the case in 2000 when the wild catches were all time low.
Figure 3-7: Growth of farmed Atlantic, Pacific and wild catches
-20,00% -15,00% -10,00% -5,00% 0,00% 5,00% 10,00% 15,00% 1994 1995 1996 1997 1998 1999 2000 2001 E
Growth Farmed Atlantic, Pacific and Wild Catches Growth Norwegian export prices inflated FOB
When the wild catches are added to figure 3.6 we get a graph that more clearly shows the correlation between price and world volume.
The price development of farmed salmon, the subject of this research, can therefore be explained better if the wild catches are included.
As for 2001, the price has decreased much more than we would have expected based on the trend line of 1996 to 2000. Over this year (up to June), the price has decreased more than 16% compared to last year. When looking at the trend line we would have expected a decrease of around 6%. Although the wild catches recovered again this year, it cannot explain the strong price decrease. A possible impact might have come from the increase in farmed trout supply.
As can be seen from Figure 3-4, the farmed trout has increased significantly over the years. It appears trout has contributed to the total growth in some periods. When looking at 2001, the increase in trout supply might for a part explain the drop in price. In order to gain more insight on this matter, the growth percentage of global wild and farmed salmon and trout and the Norwegian export prices have been put into Figure 3-8.
Figure 3-8: Growth of wild and farmed salmon and trout
-25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 1994 1995 1996 1997 1998 1999 2000 2001
percentage growth of supply of farmed and wild salmon and trout Percentage growth of Norwegian export prices FOB prices
Figures derived from: Kontali, Monthly Salmon Report, July 2001 and
Kontali, special request September 2001 From the figure above we see that the increase of trout supply in 2001 leads to a significantly higher growth of supply. Therefore including the trout volumes into the total supply figures seems to present a clearer explanation for the sharp decrease of the prices in 2001.
