The COVID-19 Pandemic and International Trade

Inquiry Response – Scottish Salmon Producers’ Organisation (SSPO)

April 2020

Scottish salmon is the largest food export from the UK[1] with exports of fresh and chilled product valued at £625 million in 2019[2]. The Scottish Salmon Producers Organisation (SSPO) represents Scottish salmon farmers which account for over 98% of all Atlantic salmon farmed and produced in the UK.

In 2019 over 175,000 tonnes of Scottish salmon was produced, maintaining Scotland as the third largest producer of Atlantic salmon globally. Serving the domestic market is a priority for the sector although the demand for Scottish salmon internationally has resulted in strong growth over several years leading to exports accounting for over 50 per cent of production in 2019. While Scottish salmon is available in many markets, a significant proportion is supplied to premium foodservice, restaurant and hospitality sectors which has been severely impacted by the spread of COVID-19.

The sector has adapted in many areas in order to navigate these challenges although many still exist and we foresee them remaining over the coming months which provides significant opportunity for support to help mitigate these issues.

  1. The Scottish salmon sector has been impacted since the start of 2020 as markets – such as China – dramatically reduced demand as foodservice (and more) outlets closed. The sector adapted through various measures such as diverting product to different countries/segments and also received support from governments and supply chains by keeping links to consumer markets open in order to reduce the negative impact on the sector. However, this has inevitably created inefficiencies within the supply chain. As the virus spread into Europe and the UK, the challenges have become more pronounced as more markets (and segments) have been impacted.
  2. Scottish salmon benefits from strong demand in premium food service/HORECA outlets globally and in the UK, either directly or via value-added channels. Therefore, as some of these markets shut in some countries, it has been necessary for the sector to establish new, or develop existing, supply routes into retail for consumers to purchase for home consumption.
  3. In the short-term, there is a lack of demand as many outlets which usually sell salmon are temporarily closed. This has led to a fall in producer prices and revenues. It also means that the production and harvesting functions of our members’ businesses are now assessing and implementing several costly production-related mitigation actions.
  4. The limited food service segment at present has led to a focus on retail markets in the short term. Pricing is challenging and is likely to become more so as more volume must be harvested increasing the supply to a reduced marketplace. Some salmon farmers will soon be trading at a loss as cost of production start to exceed sales values. The full implications depend on how long this over-supply lasts for.
  5. There are acute problems with logistics in accessing open markets, especially airfreight: there are limited flights available at present with prohibitive costs for freight (3 to 4 times the cost pre-pandemic in many instances). If this situation continues, it could lead to loss of market shares for Scottish salmon (for example, giving way in the Far East to frozen fish by sea from Chile and Canada and fresh fish from Australia).
  6. Scottish salmon exports to non-EU markets rely on making use of available space on passenger flights – providing valuable additional revenue for airlines and being able to reach markets efficiently and in good time so that the product is in pristine condition. Air travel is likely to impacted for the foreseeable future and the longer term volume of air travel is an unknown.
  7. The above highlights the impact on the demand side of the situation for our farmers. This has occurred to a product supply which is over two years in planning. So, while demand has shortened, supply is readily available as businesses have been looking after their fish without any commensurate reduction in overheads or costs.
  8. The potential medium and longer-term impact on foodservice domestically in the UK and overseas is perhaps more difficult to predict and model. This will depend on several factors which are complicated and may change over time and on a frequent basis. The impact of the crisis on social distancing rules in various jurisdictions, the consequences of the pandemic for businesses, the impacts on air travel, the impacts on tourism, the impact on the entertainment sector, employment levels in the aftermath of the crisis, the impact on disposable incomes, changing consumer buying (and cooking/dining) habits in light of socio-cultural changes brought about by the pandemic, and how long the pandemic lasts (and whether the world is reliant on a vaccine or mitigation measures) will all play a part in this. New equilibria are expected to be found rather than returning to pre-COVID-19 operations.
  9. One of our few, very broad predictions is that it will take a matter of years, not months, for “normal times” to resume in both the UK and non-UK food service sector. Indeed, the purchasing and trade patterns seen before COVID-19 may not return.
  10. Out with the Scottish salmon sector, there will be inevitable business failures globally and which may not be replaced for some time. Credit insurance premiums are likely to go up and we expect a reduction in credit limits, thus adding risk and cost to the exporting process.
  11. Our perspective and analysis are as much based on expert macro-economic forecasts on prospects for the global economy from institutions or bodies such as the IMF, OBR, UK Treasury, OECD, World Bank and, more locally, the Fraser of Allander Institute as our own assessments. There will be challenges in the short, medium and long-term for Scottish salmon producers and processors (and indeed many other UK seafood producers) for whom premium markets are relied upon for profitability/viability.
  12. It is expected that demand for Scottish salmon will return in the food service sector as “lockdown” measures are lifted and there is increased mobility. Like the UK retail market, we would hope and, to some extent, expect there to be continued demand for Scottish salmon in overseas retail. Especially so when there is an increase in flights to foreign destinations to and from UK airports, and more viable freight charges, to supply this demand.
  13. Ultimately, the impacts highlighted above have led to loss of revenues for Salmon producers. They have also resulted in lower throughput as farmers look after their fish for longer in order to try to find new or alternative markets. Broadly speaking, it can be expected that the above will lead to a reduced availability for investments in the future and possible impact to the productivity of the sector which operates in a wide ranging, coastal and largely rural part of Scotland.
  14. Overall, however, it is too early and indeed difficult to assess the full impact in the short-term so far, and to forecast with any certainty the full extent of the medium and long-term impacts.
  1. The Scottish salmon sector has continued to supply a fresh, healthy product to consumers domestically and internationally during a period of extreme disruption. While business costs have remained high, the demand in regular markets has dropped significantly resulting in inevitable inefficiencies for businesses.
  2. The UK Government has coordinated well with foreign counterparts to keep cross-border trade flowing during the pandemic, albeit with inevitable restrictions. Where there are international markets open for fresh Scottish salmon, available airfreight charges have been uneconomic to service demand and support in accessing markets would be welcome.
  3. However, while the development of facilities to offer businesses financial support is broadly welcomed, the reality of accessing support has been difficult and the challenges being faced by the sector are being overcome through resourcefulness and adaptability within the sector.
  4. The publication of an “exit strategy” following the national lockdown which began on 23rd March and the expected continued social distancing measures and other restrictions which are dramatically reducing business activity, would greatly assist business planning in our sector. This is particularly so with regard to airline activity and restrictions relating to HORECA/food service activity. We are also awaiting the unveiling of such strategies in some of our key export markets.
  5. As a critical part of the food and drink sector, and therefore a crucial part of continuing to feed the nation during this crisis, our sector’s operations have continued, and they are busy. This has been a challenge for several reasons, but our member companies continue to cope and adapt in this key role and at the same time are ensuring social distancing and other government guidelines are adhered to by a committed workforce.
  6. However, the sector feels that more could and should be done to support the sector financially at what is still a very difficult time. In “normal” times, around half of the Scottish salmon produced per annum would be exported from the UK to over 50 overseas markets. The prices achieved for Scottish salmon abroad are often at a premium to that sold in the UK retail market. There are now severe restrictions on cross-border travel across the globe, hampering global trade. This, plus the collapse of the foodservice market in the UK has led to inevitable negative financial implications for the sector.
  7. The sector would support additional taxation holidays or deferrals (for example on National Insurance Contributions) to assist in reducing cashflow problems until the global situation improves as well as coordinated access to international flights where hold space can be utilised for fresh produce.
  1. Much of this has been outlined above. We can expect to see business failure/closures in the HORECA/food service sector, lower disposable incomes and less propensity to eat out unless there is a quick recovery. This could be seen on a global scale.
  2. The Government could help to mitigate this and give our sector the best chance of damage limitation by working with our sector on marketing campaigns both domestically (e.g. “buy local”) and internationally (e.g. stressing the quality of Scottish/British provenance).
  3. The opportunity to establish efficient and effective fresh produce supply chains in an environment where less air travel is likely to continue for some time would be welcome so that consumers can access such product from the UK.
  1. The Scottish salmon sector has experienced, and continues to experience, a collapse in the food service market both in many markets. Having a wide range of markets to supply has been a great success story for the Scottish salmon sector and maintaining exposure to over fifty markets is important in spreading risk when producing a globally demanded product.
  2. Preparedness and an ability to access markets quickly and efficiently when they become available is important so that UK products which continue to be demanded internationally maintain market share during and after the effects of the pandemic.
  3. However, in the UK, some practices could be changed to encourage consumption of local produce while remaining compliant with State Aid, WTO or FTA rules and not entering into anti-competitive trade practices.
  4. One policy suggestion put forward by some in our membership is for country of origin labelling currently applicable to products sold to consumers in retail premises to apply also to that sold in food service premises. In other words, there would be a standardisation of country of origin labelling regulations and enforcement across all principal consumer markets within the UK. This would create opportunities for both UK restaurants to promote local produce to consumers who are demonstrating an increasing awareness of, and emphasis on provenance and seasonal produce, along with environmental concerns about “food miles”, and for UK producers to tailor and target their offer to food service outlets as a result.
  5. Government assistance would be beneficial to support marketing efforts both domestically and in export markets. It would be useful for our sector, with Government support, to develop the Scottish/British provenance domestically and internationally, particularly when food service/HORECA trade starts up again. The Label Rouge[3] section of the market may need increased focus internationally. Allied to these efforts are the potential opportunities for product development and diversification and Government may be called upon to support these efforts in due course as well.
  6. Additionally, ahead of HORECA/food service outlets opening fully to customers to dine in, such businesses might be advised to operate takeaway and/or delivery services where this is profitable, feasible and, most importantly, safe to do so.
  1. he UK Government could engage with freight forwarders and airlines to facilitate airfreight at a more affordable cost during the pandemic crisis. The Government could intervene to help in funding the increased cost of air freight until the situation stabilises.
  2. Prioritising key transport routes between production and processing facilities, distribution hubs, wholesale markets and ports of departure/international crossings would help to facilitate trade. Minimising the bureaucracy of trade, customs and international borders would also help.
  3. At the same time, and possibly viewed as a long term measure, we would encourage the UK Government to engage with their overseas counterparts and trade partners, in conjunction with, and in adherence to the rules of the WTO, to lift or reduce trade tariffs (for example, to China) to enable Scottish salmon exports to compete with other salmon producing nations.
  1. Open and clear channels of communication across various levels of government and a spirit of cooperation to maximise the impact of mitigation and support measures. Regular, joined-up dialogue across the levels of government and with business groups should be encouraged.

 

  1. As the crisis develops, there may be an increased need for a dedicated “taskforce” within and across Government to address the economic fallout from the pandemic.

 

 

 

  1. We would encourage the limiting of punitive tariffs and other (technical/SPS/behind-the-border) barriers to trade for the duration of the pandemic. A coordinated global response aimed at preventing/limiting price gouging, particularly in the realm of freight charges, would also be welcome.

 

  1. Engaging with the European Union on lifting barriers which would in support of international distribution restarting would be welcome in addition to focussing on WTO bilateral discussions.
  1. It is difficult to make accurate assessments and forecasts at this relatively early stage.

 

  1. However, there is the possibility that the pandemic will discourage international travel (including but not limited to commercial airlines) which would likely limit international air cargo volumes as well. The pandemic could therefore impact international just-in-time supply chains for a longer period than when restrictions are lifted. It is therefore imperative that support is maintained beyond the lifting of domestic restrictions.

 

 

 

 

Further information on our sector’s response to COVID-19 can be found on our dedicated coronavirus page, which is updated regularly: https://www.scottishsalmon.co.uk/news/coronavirus

 

 

 

 

 

 

 

 

Edinburgh April 2020

 

[1]               Food Drink Federation - https://www.fdf.org.uk/exports-2019-q4.aspx (includes further processed product exports such as salmon sides, fillets and smoked salmon.)

[2]               HMRC UKTradeInfo or Scottish Salmon Producers Organisation

[3]               Scottish salmon was the first fish and first non-French product to be awarded the Label Rouge quality mark, the official endorsement by the French authorities of the superior quality of a food or farmed product, particularly with regard to taste.