Happy Holidays? EU smoked salmon producers aren't so sure

High raw material costs look set to cause pressure well beyond Christmas.
There is a lot of uncertainty in the European smoked salmon market at the moment, with rocketing raw material prices hitting smokers and leaving many concerned about what 2017 will bring.
As smokers embark on their busiest period in the run-up to Christmas, they are still being battered by soaring raw material prices, despite retailers taking on some of the costs this year.
"There is lot of uncertainty in the market because of the high raw material prices, and nobody really knows what is going to happen,” Kurt Bouchier, commercial director at Sodial, told IntraFish.
Sales prices in the retail side are more or less on the same level as last year so this means the retailers are taking less margin, but there is a lot of uncertainty about what will happen with prices in the coming weeks.
“They are already very high and they’re expected to go higher even further, so this is going to be complicated for a lot of people,” said Bouchier.
“I don't think there is one single smoker in Europe that is making money and in fact a lot are losing a lot of money.”
Even when Christmas is over the situation is not expected to improve -- if anything it will get worse.
According to Bouchier, 2017 is already expected to be a difficult year because of limited biomass available, continued high demand, and everyone is expecting very high prices already in the first three months of the year.
“So I think it will be a difficult year again next year,” he said.
Take it or leave it
Pierre Commere, general secretary of France’s Association Des Entreprises de Produits Alimentaires Elabores (ADEPALE) has already warned of the soaring price of salmon and its impact on the sector.
In fact, facing a very tense economic situation since the beginning of 2016, French manufacturers of smoked salmon may be forced to suspend deliveries to some distributors.
The average price of fresh salmon from Norway, the main source selected by the French smokers, was already at a very high level, of around €5 ($5.36) per kilogram throughout but suddenly soared from December 2015 to more than €7 ($7.50) per kilo in March and May 2016, peaking at €8.60 ($9.22) per kilo in mid-May.
“The increase in salmon prices is due to the structural mismatch between low supply from producing countries and strong international market demand, driven by both traditional consumer markets and emerging markets,” said ADEPALE.
Peter Bamberger, chairman of the Danish Seafood Association, told IntraFish that while the prices have driven up costs for smokers, since it's the Christmas period, this year retailers have been taking on some of the costs.
“We are so close to Christmas and when I speak to the smokers, they are fully booked and they have presented the price level to their clients and told them you take it or leave it and I assume the clients have said we need the product for Christmas so they place orders,” he said.
The question is more about what will happen after the New Year, when he expects to see a “reaction” in the market.
There will be salmon for Christmas and there will be offers and promotions in the retailers, but after that, when the industry enters its weak period after New Year, and retailers will no longer be able to do promotions, the cost for the consumers will also increase, Bamberger said.
“I am afraid that when we get to January, February, March, we will still see high prices on the raw material, and for sure there will be a reaction and the cost will be passed through to the consumer," he said.
Bouchier agreed ultimately the price for smoked salmon will have to increase for consumers as raw material prices have risen so much it needs to be reflected in the end product sooner or later.
“I don’t see that in this year’s prices for the Christmas period but I’m quite sure at the beginning of next year prices for smoked salmon will go up in the retail as they have already in wholesale,” Bouchier said.
“I hear that sales on the wholesale side are already dropping, and I think it will have an overall impact on sales in the retail sector too.”
Kathrin Runge, marketing director German premium salmon smoker Gottfried Friedrichs, told IntraFish the high salmon prices are still a “tremendous challenge” for the whole industry, and especially for small companies “the situation is very critical."
In general, if prices of raw material remain high and get higher, the whole sector has to pass them on.
“As a result, there might be a risk of overrunning certain learned price limits -- especially for customers that are buying price-driven,” said Runge. “We expect a light decrease of sales long term in general, involved with a trend to premium products.”
“But in our view a consumer reticence will only start after Christmas. Because for Christmas people want to indulge themselves and the family with the best quality and are therefore willing to spend more money for good food. For our products in the premium sector we expect a good Christmas season."
What's the 'max market price'?
Michael Budtz Berthelsen, CEO at Denmark's Vega Sea, said the company was also expecting a good Christmas period, but conceded the situation is difficult with the high price levels.
Berthelsen said all customers believe the prices will have to go down, and this was giving some “slowness” in the market.
Vega Sea only sells back to back and as a value-added processor cannot absorb the major price fluctuations while customers believe that the prices are too high and have to come down, he told IntraFish.
“I believe there is a max price in the market for salmon -- if the prices continue to rise, we will see a drop in salmon sales and end users will most likely choose another food source," he said.
Unlike Vega Sea, however, Bamberger believes a lot of smokers “have been suffering a lot," as they have not been able to make back to back contracts.
“I think some of the smokers have been dreaming thinking that prices should come down, and this was not the reality, but on the contrary,” he said.
Checks and balances
According to Sodial's Bouchier, the market is no longer in balance that is the basic problem. “We need to talk some sense into the Scottish and Norwegian salmon farmers,” he said.
While acknowledging salmon producers face their own challenges as well with diseases and salmon lice and they’ve seen their own costs increase from around NOK 20 (€2.20/$2.40) to NOK 35 (€3.90/$4.20) per kilo in the last ten years, they are still making a healthy profit.
“When you’re selling at NOK 60 (€6.70/$7.10), NOK 70 (€7.80/$8.30), NOK 80 (€8.90/$9.50) and your cost price is NOK 35 (€3.90/$4.20), you can’t complain I think, and the market is no longer healthy because there are no checks and balances anymore,” Bouchier said.
“There has to be a correction at some point, but as long as the demand in Asia and South America is that high, it is going to be difficult.”
Lance Forman, president of London-based premium smoker H Forman & Son, also thinks the salmon farmers are to blame.
While H Forman & Son does not sell on price but rather quality and its consumers are willing to pay any price increases as a result, Forman believes the salmon farmers are behaving “like a cartel."
“Of course we have had to pass on the costs,” said Forman. “The salmon farms have been behaving like a cartel. They are short-termist and greedy and seem to have no concern for their long standing customers."
Higher prices will ultimately have an impact on consumers too, said Forman, but much more so at the cheaper end of the market when people only buy because they can afford to.
“Having said that, cheap smoked salmon is a very different product to the traditional artisan London cure which we produce, so not really a great concern for us,” he said.
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