27/7/2007 - The price of seafood – a guide to low-cost processing

It may seem ironic, but Norwegian salmon is cheaper for Bulgarian consumers than for Norewgian consumers. (Photo: FIS)

WEEKEND FEATURE: The price of seafood – a guide to low-cost processing

EUROPEAN UNION
Friday, July 27, 2007, 23:50 (GMT + 9)


It is no problem for most of us to understand why Swiss people have to pay 42 per cent more than the average price paid by Europeans for their seafood. The country is landlocked. All seafood has to be shipped by air or land transport, in contrast to countries like the Netherlands and the United Kingdom, which receive seafood from their own fishery fleet, or import seafood and have it landed in large quantities from reefers and other cargo vessels on their coastlines.

If you love eating seafood, and are willing to forget for a moment your preferences with regards to local culinary traditions, your budget will last longest in Lithuania. The price there is only 57 per cent of the European average. The second cheapest country is Bulgaria at 62 per cent, Turkey at 64 per cent, Bosnia Herzegovina at 65 per cent, and Poland at 67 per cent. These numbers, recently published by Eurostat, clearly tells one fact: a low level local seafood production does not result in higher prices.

Five lowest priced seafood producing countries Lithuania
57

Bulgaria
62

Turkey
64

Bosnia Herzegovina
65

Poland
67



Europe average =100
So, the most expensive seafood is found in Switzerland. Logistics cost money, so does allowing expensive Swiss labor handle seafood. However, surprisingly, Switzerland is joined by Cyprus, an island surrounded by water, in being the most expensive place to enjoy a seafood meal. Cyprus has a very small local fishery fleet. The waters around the islands are over-exploited and catches are low. In addition the fast growing tourist industry has increased the cost of operating the fishing fleet, and has pushed local retail prices up.

Highest production – highest prices

It is more surprising to find countries like Denmark and Norway being among the most costly countries in Europe to enjoy a seafood meal. Norway, being the world's second largest seafood exporter, landing enormous volumes from wild fisheries, in addition to being the leading supplier of farmed salmon in the world, should by all means be the country for seafood lovers to have the cheapest meal. However, it is not so.


Five highest priced seafood producing countries Cyprus
142

Switzerland
142

Denmark
138

Belgium
128

Norway
128



Europe average = 100

Using Norway as an example can also explain the cost structure making seafood cheap in places like Bosnia Herzegovina. To make it easy we use Norwegian salmon and Norwegian herring as two species, and follow them from vessel or farm all the way to consumer. We do not add value added tax or any sales tax in this sample.

Salmon to Norwegian consumer
EUR/KG

Delivered to slaughterhouse:
3.16

Wholesalers profit
0.76

Packaging transport to shop:
0.76

Mark up in retail shop
4.68

Total cost to consumer
11 .34




Salmon to Bulgarian consumer


Delivered to slaughterhouse:
3.16

Packaging transport to Thailand:
0.50

Transport to Thailand
0.25

Importer – wholesaler profit:
0.65

Local distribution cost
0.25

Mark up in shop
0.70

Total cost to consumer
5.51




Herring to Norwegian consumer


Price ex. vessel
0.50

Packaging/processing
0.50

Wholesalers profit
0.65

Mark up in shop
2.50

Total cost to consumer
4.15




Herring to Bulgarian consumer


Price ex. Norwegian vessel
0.50

Packaging/processing
0.50

Transport to Bulgaria
0.50

Wholesalers profit
0.20

Mark up in shop
0.60

Total cost to consumer
2.30




Source: Fis.com
The numbers above are estimates and meant to show the main factor establishing prices for seafood products in a given market. In addition fluctuations due to seasonal variations, campaigns and over and under supply will also influence prices.

No difference for primary producer

The interesting thing is, that the more expensive seafood is, the less is the share of the retail value kept by the primary producer, the fisher, or the farmer. A Norwegian purse seiner makes the same per kilo of herring sold in Norway, as it would for the salmon sold at a much lower price in a country like Bulgaria. The reason is mainly the markup in the wholesale and retail part of the line of transactions.

It costs effectively EUR 30 – 35 per hour to have a shop assistant in Norway prepare fish for the display, packaging it ,and receiving payment. The price in Bulgaria would be less than EUR 3 per hour. Similarly, the owners of a business who expect the profitability to be around 10 per cent of turnover, demand a much higher amount per hour in a high cost country than in a low cost country like Bulgaria.

Lithuania
57

Bulgaria
62

Turkey
64

Bosnia Herzegovina
65

Poland
67

Slovakia
68

Montenegro
70

Latvia
71

Estonia
73

Germany
73

Hungary
75

Czech Rep.
76

Malta
82

Serbia
82

Croatia
84

Albania
85

Romania
85

Spain
89

United Kingdom
91

Greece
101

Slovenia
102

France
106

Sweden
109

Luxembourg
110

Austria
111

Finland
111

Iceland
112

Netherlands
115

Italy
122

Ireland
123

Belgium
128

Norway
128

Denmark
138

Cyprus
142

Switzerland
142



Europe average = 100. Source: Eurostat
Shipping heads and bones long distances

In seafood processing, countries like Norway and Denmark try to benefit from being close to the fishery grounds and farms were the fish is produced. But it still pays to send whole gutted salmon to Poland for processing.

The saving on using Polish manpower is much greater than the cost of sending heads and bones thousand of kilometres away. Even if the large Norwegian processors fillet herring, removing 50 per cent of the live weight of the fish, does not pay to put the herring into jars in Norway. Polish workers do this job for less than a quarter of the cost of a Norwegian worker. Not all the work can be replaced by robots and machinery.

In reality the most important message in the statistics presented by Eurostat, is not the advice on where to go if you like to eat inexpensive seafood. Much more important is the message to seafood processors.

Filleting herring is hightly automotised, with little manpower involved, but production of ready to cook meals and other convenience food, cured herring, smoked salmon and trout, marinated products and so on, all need a high degree of manual labour. Machinery can not do it. For this very reason small Atlantic cod finds its way to China for filleting.

Even for legally caught cod, it costs too much to adjust filleting machines and then fillet the small cod onboard a Norwegian factory trawler or a land-based processing facility. The extra cost of slowing down machinery and having employees adjust the machinery for the small cod is higher than the cost involved in sending the fish to China.

At least it will continue this way until the environmental cost is added bt way of duties on transport, as is the case in Europe. Until duties on emission of CO2 and NOx make it a lot more expensive to transport unprocessed fish, it will be cheaper to process seafood in those countries where it costs less.

Smoked salmon

The price examples shown above also demonstrate how the lack of competition in markets sets the price.

Smoked salmon costs an average EUR 16-18 per kilo in Norway for whole side and vacuum-packed. The cost of the salmon fillets is around EUR 6.30 per kilo. The rest is profit and value added tax.

Some months ago the German discount outlet, Lidl, sold Norwegian smoked salmon for EUR 6.10 per kilo. The colouring of this salmon indicated it was necessary to sell it. The salmon was not the best quality with regards to colour.

Lidl could sell it at price paid to the smoker. They did not lose, neither did they cut a profit off of it. So in theory smoked salmon can be produced in any other European country at this price.

Add EUR 0.50 in transport costs, and 20 per cent profits to the retailer and 13 per cent value added tax and the price is EUR 9.22. In other word, it is just a question of time before Norwegian processors will face competition in the smoked salmon market from those countries listed as the cheapest for seafood.

Poland is growing increasingly more important as a seafood processor for the European market.

Filleted pangasius is imported from Vietnam and repacked and distributed all over the EU.

Germans are increasing the imports of processed herring in jars and tins from Poland.

Danish smokers discovered the way to survive high labour costs a long time ago: by smoking in Poland.

The country is the fifth cheapest place to consume seafood in Europe. Not because of large domestic supply. Not because of long traditions in processing of seafood, but because of low labour costs.

By Terje Engoe
www.fis.com