SALMARResults of the Finnish

case study

Jari Setälä, Kaija Saarni, Asmo Honkanen and Jarno Virtanen

Salmarmeeting in Turku 13.6.2002

The Finnish case of salmon and salmon trout

Growing demand for salmonids

Development of fish markets

0

20

40

60

80

100

81 83 85 87 89 91 93 95 97 99

1 00

0 to

nn

es

Salmon and salmon trout Baltic Herring

Other Fisheries Other import

Imported salmon replaces domestic salmon trout

Development of salmon and salmon trout market

0

5

10

15

20

25

30

78 80 82 84 86 88 90 92 94 96 98 2000

1 0

00

to

nn

es

Salmon trout Salmon landings

Imported salmon Imported salmon trout

Per capita consumption of salmon in Finland (salmon + salmon trout), France, UK and Portugal

0

1

2

3

4

5

75 77 79 81 83 85 87 89 91 93 95 97 99

Co

nsu

mp

tio

n, k

g/p

er

cap

ita

Finland UK France Portugal

Growing demand for salmon

Seasonal supply of salmon trout

0

500

1000

1500

2000

2500

1992-1

1992-5

1992-9

1993-1

1993-5

1993-9

1994-1

1994-5

1994-9

1995-1

1995-5

1995-9

1996-1

1996-5

1996-9

1997-1

1997-5

1997-9

1998-1

1998-5

1998-9

1999-1

1999-5

1999-9

2000-1

2000-5

2000-9

2001-1

2001-5

2001-9

To

nn

es

Import of salmonSalmon trout production

Supply of salmon trout and salmon

Imported fish dominates in summer

Average 1997-2001

Time of import

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

1 2 3 4 5 6 7 8 9 10 11 12

Importedsalmontrout

Importedsalmon

Salmontrout

Salmon: availibility, quality and image Salmon trout: processing

-4 -3 -2 -1 0 1 2 3 4

Competitive advantage of SalmonCompetitive advantage of Salmon trout

Salmon has bypassed salmon trout in the fresh fish market

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Salmontrout

Salmon Salmontrout

Salmon Salmontrout

Salmon Salmontrout

Salmon

Whole gutted Fresh fillet Hot smoked Cold smoked Other product types

1993 1995 1997 1999Tonnes

The prices of salmonids converge

The development of salmon and salmon trout prices 1980-2001

0

20

40

60

80

100

80 82 84 86 88 90 92 94 96 98 20

Pri

ce,

mk/

kg

Imported salmon

Salmon landings

Salmon trout

A single salmon market in Europe

Salmon prices in Europe 1975-98

0

2

4

6

8

10

12

14

16

18

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

Pri

ce, €

/kg

Suomi

Ranska

Norja

Portugali

Iso-Britannia

Are salmon and salmon trout in the same market ?

Real prices of salmon and salmon trout 1992-2001

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,00

9,00

1992-1 1993-1 1994-1 1995-1 1996-1 1997-1 1998-1 1999-1 2000-1 2001-1

€/kg

Salmon

Salmon trout

Test Price 1 Price 2 Cointeg-ration

Proportio-nality

Trend - perfect price transmission

Exogenous price

Producers salmon trout Importers salmon Yes No Neither

Wholesalers salmon trout Wholesalers salmon Yes No Neither

Horizontal

analysis:

Salmon trout/

Salmon

Wholesalers salmon trout

fillets

Wholesalers salmon

fillets

Yes No Neither

Producers Wholesalers Yes Yes Wholesalers

Producers Wholesalers fillets Yes No Producers salmon

trout

Wholesalers Campaign prices Yes Yes Wholesalers

Vertical

analysis:

Salmon trout

Wholesalers Retailers Yes No Wholesalers

Producers Exporters Yes Yes Exporters

Exporters Importers Yes Yes Neither

Importers Wholesalers Yes Yes Importers

Vertical

analysis:

Salmon

Importers Wholesalers fillets Yes Yes Both

Salmon trout Salmon

Producer

Exporter

Producer

Wholesaler

Campaign

Retailer

Wholesaler

5%

9%

14%

Importer

56%

15%

20%

15%

Vertical co-integration:Salmon trout and salmon value chain in Finland

Direction of arrow =Exogenity 9% = Margin %15% = Price difference

Finland

Norway

Broken line = not proportional

Whole line = proportional

Declining salmon trout margins in the campaign sales

Difference between wholesale and campaign price (x=2,53 €/kg)

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

1995-1 1996-1 1997-1 1998-1 1999-1

Mar

gin

, €/

kg

Difference between margins (Salmon margin - Salmon trout margin)

-20,00 %

-10,00 %

0,00 %

10,00 %

20,00 %

30,00 %

1995 1996 1997 1998 1999

Dif

fere

nc

e in

pe

rce

nt

Wholesale margin of salmon higher than salmon trout margin

Concentration of value chain

Herfindalindex 1) , year 1999:

Producers 0,02 (competition)Wholesalers 0,04 (competition)Retail chains 0,26 (oligipoly)

1) H-index = sum(market share j)2

Conclusions

Salmon and salmon trout compete in the same market, but they are not perfect substitutes

The markets are competitive from producersto wholesalers

The role of salmonids for retailers is twofold: attractive campaign product/profitable business

Conclusions

Salmon margins higher than salmon trout margins

Wholesalers role is central

The price of salmon sold to Finnish marketis determined in the world market

SD-models

1. Analysis of salmon margins

2. Analysis of interaction between salmon and salmon trout

1. Salmon model

SFD Fresh Gutted WH Qty

SFD Frozen Gutted WH Qty

SFD Gutted Stock1 Qty

S F01 Qty

S F02 Qty

SFD Smoked Gutted Proc Qty

SFD Fresh Fillet Proc Qty

SFD Smoked Fillet Proc Qty

SFD Pickled Fillet Proc Qty

SFD Smoked Gutted WH Qty

SFD Fresh Fillet WH Qty

SFD Smoked Fillet WH Qty

SFD Pickled Fillet WH Qty

S F11 Qty

S F14 Qty

S F13 Qty

S F21 Qty

S F22 Qty

S F24 Qty

S F23 Qty

SFD Fresh Gutted Imp Qty

SFD Frozen Gutted Imp Qty

SFD Fresh Gutted Exp Qty

SFD Frozen Gutted Exp Qty

SFD Fresh Gutted Cons

Qty

SFD Fresh Fillet Exp Qty

SFD Smoked Fillet Exp Qty

SFD Pickled Fillet Cons Qty

SFD Smoked Fillet Cons Qty

SFD Fresh Fillet Cons Qty

SFD Smoked Gutted Cons Qty

SFD Smoked Fillet Imp Qty

SFD Fresh Fillet Imp Qty

S Smoked Fillet Waste Qty

S Pickled Fillet Waste Qty

S Fresh Fillet Waste Qty SFD Fresh Landings Qty

<Table S Smoked Gutted COEFF Qty Year> <Table S Smoked Fillet COEFF Qty Year> <Table S Pickled Fillet COEFF Qty Year>

S F12 Qty

Table K1

<Table S Fresh Fillet AverLife Qty>

Table S Smoked Fillet AverLife Qty

k

1. Salmon model

Annual average margins calculated using production cost data:

Margin = Real wholesale prices – calculated production costs

Raw material costs: Fresh fillet = 95 % of the total costsSmoked = 87 % Cold-smoked = 85 %Raw pickled = 84 %

0

10

20

30

40

50

1995 1996 1997 1998 1999Fresh gutted

Fresh fillet

%

0

20

40

60

80

100

120

1995 1996 1997 1998 1999Smoked guttedSmoked filletPickled fillet

%

Declining margins for fresh salmon products

2. Integrated model

Demand for SalmonDifference in

theInventories S

Desired Inventory Level S

Real Inventory Level S

Demand forSalmon to

Fresh Market

Demand forSalmon toProcessing

Global Demandin the Fresh

Market

GlobalDemand in the

ProcessingMarket

+

+-

+ +

Demand for Salmon Trout

Difference inthe Inventories

ST

Desired Inventory Level STReal Inventory Level ST

Demand forSalmon Trout

to FreshMarket

Demand forSalmonTrout to

Processing

+

+

-

+ +

+

+

-

AtractivitySalmonversus

Salmon Trout

+

Price of Salmon

Price of Salmon Trout

-

+

-

+

+

Imports of Salmon

Production ofSalmon Trout

Imports of Salmon Trout

+

+

+

Production rate

Capacity of SalmonTrout Farms

Adjustment Time+

+

+

+

+

+

+

++

Statistical analysis of elasticities

1) Ln Pstwh = 2.009 + 0.717 ln Pswh – 1.181 ln Qstprod

2) Ln Qscons = 9.709 – 2.725 ln Pswh + 1.891 ln Pstwh

3) Ln Qsproc = 5.004 – 1,272 ln Simp + 0.522 ln Qstprod + seasonal dummies

4) Ln Qstproc = 10.313 – 0.533 ln Psimp – 0.875 ln Pstprod + seasonal dummies

5) Ln Qsimp = 5.229 – 2.516 ln Psimp + 2.374 ln Pstprod

Salmon price is an external variable (determined in the world market)

Total market of fresh salmon and salmont trout stable

0

2000

4000

6000

8000

10000

12000

1995 1996 1997 1998 1999

Tonn

es (l

we)

Salmon fresh guttedSalmon Trout fresh guttedTotal fresh gutted consumption

The model works well, except 1999

-95 -97-96 -98 -99

Fresh Salmon for Consumption - Model and Real

800 Tonnes

625

450

275

100 0 9 18 27 36 45 54

Salmon Real RReal Real

Salmon Model

Fresh Salmon for Processing - Model and Real

500 Tonnes

375

250

125

0

0 9 18 27 36 45 54

Salmon Real

Salmon Model

-95 -97-96 -98 -99

The model works well, except 1999

-95 -97-96 -98 -99

Fresh Salmon Trout for Consumption - Model and Real

1,200 Tonnes

925

650

375

100 0 9 18 27 36 45 54

Salmon Trout Real

Salmon Trout Model

The model works well, except 1999

-95 -97-96 -98 -99

Salmon Trout Wholesale Prices – Real and Model 50 Markka

37.5

25

12.5

0 0 9 18 27 36 45 54

Salmon Trout Real Price

Salmon Trout Model Price

The model works well, except 1999

Conclusions

Aggregated demand of fresh salmon and salmon trout is stable

Salmon and salmon trout are competing products

In the fresh fish market consumer prefer salmon

In the growing market of processed products salmon trout has maintained its market share

Conclusions

The flows of salmon and salmon trout into Finnish market are determined by two main variables:

1) The price of imported salmon

2) The quantity of salmon trout production

World market prices fell in 2001

Price fall autumn 2001

0

500

1000

1500

2000

2500

3000

19

92

-1

19

93

-1

19

94

-1

19

95

-1

19

96

-1

19

97

-1

19

98

-1

19

99

-1

20

00

-1

20

01

-1

0,00

5,00

10,00

15,00

20,00

25,00

30,00

Import of salmon

Producer price of salmon trout

Salmon trout production

Development of salmon market in 1992-2001

Low world market prices

Price of salmon and salmon trout 2001

1,00

1,75

2,50

3,25

4,00

20

01

-1

20

01

-2

20

01

-3

20

01

-4

20

01

-5

20

01

-6

20

01

-7

20

01

-8

20

01

-9

20

01

-10

20

01

-11

20

01

-12

€/kg

Imported salmon

Salmon trout

Imported salmontrout

Import rose by 48 % in 2001

Import of salmon and salmon trout 1992-2001

0

2000

4000

6000

8000

10000

12000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Ton

nes

Salmon trout

Salmon

News in intrafish 9.4.2002

New market for fresh Norwegian sea-farmed trout emerging !

European fresh market is challenging Japan. Finland is hungry for Norwegian trout.

A six-fold increase in imports means that Finland is taking one third of the fresh trout being sent out from Norway.

Conclusion

Oversupply and low world market price ofsalmon combined with the minimum price led to import of low-priced salmon trout to Finland.