August 1, 2006

 

Pan Fish merger dear but necessary

 

 

Scottish company Highlands and Islands Enterprise (HIE) has told the Competition Commission it supports the proposed merger of three major salmon farming companies.

 

The merger of Pan Fish with Marine Harvest and Fjord Seafood has already been approved in Norway, Spain and in the United States. It is under investigation in France, and in the UK the Competition Commission has called for evidence with a report due out in September.

 

Industry groups have warned of the consequences for employment if the merger goes ahead.

 

In a letter to the Competition Commission, HIE chief executive Sandy Cumming acknowledged the importance of the industry to remote communities. HIE accepted that the merger would have an inevitable effect on jobs.

 

However, Cumming is resigned to the fact that jobs would continue to be lost due to the competitive nature of the industry, adding that the Scottish industry cannot be protected from free and fair market forces. As the industry recognised the importance of the salmon farming industry, it would have to accept job losses as a price to pay for the continuation of the industry and its remaining workforce.

 

It is important that Pan Fish, a company expected to control 30 percent of global production of farmed Atlantic salmon, had a presence in Scotland, Cumming said.

 

An operation of this scale would be able to bring a greater degree of market-led discipline to production, and reduce the cyclical nature of salmon production and pricing which have been weakening the industry.

 

The larger-scale operation would be in a better position to ride out the slumps in such cycles and to invest in research and market development, Cumming said.

 

Cumming said the merger would help the independent farming sector too.

 

On the brighter side, Panfish, being a global company, may not be interested in tackling the minority and niche markets which the independently owned salmon farms have been developing to avoid head-on competition against the volume operators. These independent firms produce around 15 percent of industry output and employ a slightly higher proportion of the total industry workforce, he wrote.

 

HIE admitted that not only would the deal place 60 percent of Scottish production in the hands of one company, it could reduce the goods and services bought by the new company from the independent sector.

 

There is also concern that the merger could set off more consolidation in the Scottish industry, which would reduce competition. HIE said that the premium price paid for Scottish salmon could also be affected as a global operator controlling half the Scottish industry's output might not be unduly concerned about the Scottish brand and its associated price premium, he said.

 

Councillor Michael Foxley, vice-convener of Highland Council has warned that salmon processing facilities are also under threat, calling for assurances from Pan Fish that existing facilities would not be closed once the merger occurs.

 

In the Western Isles, Councillor Angus Campbell, has asked for assurances from Pan Fish management about the future of Fjord Seafood's processing plant near Stornoway. The region has already seen the closure of two salmon processing factories. Marine Harvest closed one of its Stornoway factory in 2003, and then closed another in Scalpay in 2005, the latter of which had received around GBP7 million (US$13 million) in public funding.