1 Competitiveness of Salmon and Salmon Trout Markets Along the Value Chain in Finland By Jessica Hartmann, Jari Setala, Kaija Saarni, Asmo Honkanen and Jarno Virtanen Project funded by the European Commission CT ‘Margins along the European seafood value chain: Impact of the salmon industry on market structures’

2 Outline of presentation Purpose of this study Overview of the Finnish market for salmon and salmon trout The marketing chain for salmon and salmon trout Methodology Results Conclusions

3 Introduction The fish market in Finland has changed dramatically since the removal of trade barriers to the importation of fresh salmon in Imported salmon has rapidly captured markets from domestically produced salmon trout. There are fewer and larger firms at the wholesale and retail level along the fish marketing chain in Finland.

4 Purpose of the study 1. Investigate the relationship between salmon and salmon trout prices at different points along the fish marketing chain in Finland. 2. Determine how price information is transmitted through the fish marketing chain.

5 The Finnish market for salmon and salmon trout Finnish salmon market comprises two fish species: - domestically farmed salmon trout (rainbow trout of 1-3 kilos marketing size); and, - imported salmon from Norway. Imports of fresh salmon have grown to represent around a third of the total market for salmon and salmon trout in Finland.

6 Production and imports of salmon and salmon trout in Finland

7 The Finnish market for salmon and salmon trout Salmon trout (rainbow trout) is increasingly being substituted by salmon at the wholesale and retail level in Finland. It is almost impossible for consumers to tell salmon and salmon trout apart at the retail level.

8 Which one is salmon?

9 The marketing chain for salmon and salmon trout Fewer and larger operators are undertaking the delivery and marketing of salmon and salmon trout in Finland. This is due both to the increased dominance of supermarkets in retail sales, and also to innovations in processing, transports, distribution and logistics, that increase the efficient scale of operation.

10 The marketing chain for salmon and salmon trout The market share of the two biggest retail chains in Finland is 70 percent of total sales. The market share of the six biggest fish wholesale companies in Finland is over 50 percent of the total fish market. The large retailers trade predominately with the large fish wholesalers. The production sector for salmon trout in Finland has not concentrated as quickly.

11 The marketing chain for salmon and salmon trout Often, salmon and salmon trout sold at retail in Finland is sold through ‘retail campaigns’. Retail campaigns are one off sales campaigns whereby large quantities of salmon and salmon trout are sold at distinctly reduced prices in order to attract people into stores to buy normal priced consumer goods.

12 The marketing chain for salmon and salmon trout Production salmon Norway Exports salmon Imports salmonProduction salmon trout Wholesale salmon troutWholesale salmon Campaign salmon trout Retail salmon trout Finland

13 Methodology Cointegration techniques and the Law of One price are used to test for proportionally between prices along the marketing chain for salmon and salmon trout in Norway and Finland. Weak exogeneity tests are used to determine in which direction price information is transmitted through the marketing chain.

14 The Law of One Price can be expressed as: where p 1 and p 2 are the prices of goods 1 and 2 respectively. If a = 0 and b = 1, then the two prices are equal. If a  0 but b =1, the prices have a proportional relationship. If b  1, the prices are not proportional. Price proportionality

15 Price proportionality a b=1 prices are proportional lnp 2 lnp 1

16 Cointegration Usually price proportionality is tested for by running a simple regression. However, when the price series under observation are non-stationary, it is not possible to do this. Instead, one must use cointegration theory and the Johansen procedure. The Johansen procedure is useful because it allows us to conduct hypothesis testing on the coefficients in the cointegration vectors.

17 Data Prices used in this analysis are for whole fresh salmon sold at all points along the marketing chain between Norway and Finland, and for whole fresh salmon trout sold internally within the Finnish market. Data is monthly between 1995 and 1999.

18 The marketing chain: stages of analysis Production salmon Norway Exports salmon Imports salmonProduction salmon trout Wholesale salmon troutWholesale salmon Campaign salmon trout Retail salmon trout Finland Horizontal analysis: salmon and salmon trout

19 The marketing chain: stages of analysis Horizontal analysis: salmon and salmon trout

20 The marketing chain: stages of analysis Horizontal analysis: salmon and salmon trout

21 The marketing chain: stages of analysis Production salmon Norway Exports salmon Imports salmonProduction salmon trout Wholesale salmon troutWholesale salmon Campaign salmon trout Retail salmon trout Finland Vertical analysis: salmon trout

22 The marketing chain: stages of analysis Vertical analysis: salmon trout

23 The marketing chain: stages of analysis Vertical analysis: salmon trout

24 The marketing chain: stages of analysis Vertical analysis: salmon trout

25 The marketing chain: stages of analysis Production salmon Norway Exports salmon Imports salmonProduction salmon trout Wholesale salmon troutWholesale salmon Campaign salmon trout Retail salmon trout Finland Vertical analysis: salmon

26 The marketing chain: stages of analysis Vertical analysis: salmon

27 The marketing chain: stages of analysis Vertical analysis: salmon

28 The marketing chain: stages of analysis Vertical analysis: salmon

29 Results 1 Horizontal analysis: salmon and salmon trout Prices for salmon and salmon trout at the same point in the marketing chain are cointegrated This confirms that the two species compete in the same market and are substitutes. The price series are not proportional.

30 Results 1 Horizontal analysis: salmon and salmon trout Imports salmonProduction salmon trout Wholesale salmon troutWholesale salmon Finland cointegrated

31 Results 2 Vertical analysis: salmon trout Prices are cointegrated at all points along the marketing chain for salmon trout. Prices are proportional between production and wholesale. The wholesale price of salmon trout was found to be exogenous to both the retail and production price.

32 Results 2 Vertical analysis: salmon trout Production salmon trout Wholesale salmon trout Campaign salmon trout Retail salmon trout Finland proportional cointegrated Exogeneous price

33 Results 3 Vertical analysis: salmon Prices are cointegrated and proportional at all stages along the marketing chain for salmon. Export prices are exogeneous to production prices in Norway, while import prices are exogeneous to wholesale prices in Finland.

34 Results 3 Vertical analysis: salmon Production salmon Exports salmon Imports salmon Wholesale salmon Norway Finland proportional Exogeneous price

35 Conclusions Salmon and salmon trout markets are highly integrated. The marketing chains for both fish species are competitive from the production to the wholesale level. The role of fish wholesalers in Finland is central in the salmon trout marketing chain. They operate as auctioneers between producers and retailers. Wholesale prices are the leading prices in transmitting market information to other levels of the marketing chain for salmon trout.