Wednesday, March 28, 2012
Commodity vs. Niche Markets and the Debate over Salmon in Recirc
In my opinion, there are two major markets for any food product: a commodity market and a niche market. The overwhelming majority of food is sold on a commodity basis where consumers purchase products based on only one criterion: price. These consumers do not care how the food was produced or where it came from: their only concern is the buying power of their dollar. In contrast, niche markets comprise a much smaller portion of the total marketplace; consumers searching for niche products will concern themselves with factors other than price when selecting a product. These consumers will ask how the food was produced and where it came from, and the decision to purchase will only occur once the consumers’ sense of ethics and quality are satisfied. The important point here is that niche consumers are less concerned with price and would be willing to pay premium prices for what they value as premium products.
Like any other food, we can apply this model to farmed Atlantic salmon, which is very much a commodity product: it is comparable in price to terrestrial meats such as beef and poultry, and many consumers around the world are not concerned as to where the salmon came from or how it was produced. When purchasing farmed Atlantic salmon, most consumers select based on price and move on…
Growing salmon in on-land recirculation systems has been hotly debated recently, and several projects are currently underway to test the business viability of such a practice. However, by its very nature, recirculation systems are expensive to build and maintain, indicating that the species produced will need to be sold for a higher price. Higher prices can only be achieved in niche markets, and when coupled with the lowered environmental impact of recirculation systems, it would make sense for products grown in recirc systems to be destined for niche markets.
Now we have arrived at the challenge: if salmon is a commodity product, how can it be grown in recirculation systems and still be a commodity that is accessible to consumers who only want low prices? Once the salmon is grown in recirc systems, it must transform from a commodity product into a niche product to allow the farmer to recover his capital and operating costs. Therefore, salmon grown in recirc systems is going to be inherently more expensive than salmon grown in net pens: this is fine if the farmer is actively looking to target these niche markets. For example, Irish salmon has done a fantastic job at differentiating on the basis of ‘organic’, and consumers are paying a premium price for this niche product.
Many people mistakenly believe that if we take net-pens out of the ocean and begin farming salmon on-land, the price and availability of farmed salmon will not change. However, this is far from the expected outcome: by moving salmon farms on-land, the dynamics that currently dictate salmon markets will shift and a significant portion of the commodity market will be lost.
Until such time as the capital and operating costs of recirculation systems become more manageable, farmed Atlantic salmon will continue to be a commodity product produced in net pens. Rather than campaigning to remove net pens, we should be working together to tackle the challenges head-on and reform the industry for the benefit of future generations.