Background
Mussel farming has been the shellfish sector with the strongest growth in Scotland over the past 10 years, with production increasing from 1,400t in 1999 to 5,800t in 2008, largely as a result of a rapid increase in production in Shetland. Nevertheless production remains low relative to the rest of the European Union (EU) and there is thus substantial scope for increasing production without significantly impacting total market supply. Pricing will however need to be increasingly competitive if higher volumes are to be sold on the market.
UK market
Annual UK consumption of mussels is less than 0.3kg per capita compared with 2kg in France and 4-5kg in Belgium, and thus has significant potential for further growth. The UK market is divided approximately 80 per cent retail and 20 per cent foodservice.
The higher value retail sector presently accounts for 80-90 per cent of Scottish mussels, with volumes split 50/50 between live and cooked (vacuum packed) product. Retail sales have seen strong recent growth (+28 per cent 2008/09), but have been driven by price promotions and reduced unit prices.
Live retail sales are static and mostly to traditional consumers. Cooked sales are increasing, key attributes being convenience and shelf life, and thus most likely to attract new consumers. The cooked product offers the best immediate prospects for Scottish mussels.
The Scottish Shellfish Marketing Group (SSMG) is the main UK supplier to the retail sector and accounts for around 70 per cent of Scottish production. There is competition from other Scottish suppliers especially for live sales, and from overseas producers for cooked product.
A key strength of the SSMG is its proximity to market and ability to service customers quickly and efficiently with cooked and live product. Product from overseas e.g. Netherlands and Ireland has further to travel and thus limits competition mainly to the cooked sector, where however there are significant price pressures due to the lower raw material costs of such producers.
The foodservice sector is also growing but is of lower value compared with retail and is thus less attractive for Scottish suppliers, especially in the widely sold frozen format. Product from Shetland dominates the live wholesale sector, having economies of scale in serving markets and strong product attributes. Such dominance is however at the expense of smaller mainland producers who are not SSMG members.
Continental market
The continental market is considerably larger than in the UK (in excess of 500,000t) and is already well supplied despite the significant decline in domestic production over the past decade, which has been largely made up for by the rapid increase in Chilean imports.
The opportunities for Scottish suppliers are by no means clear, although there are indications of a swing towards more sustainable sourcing in Belgium, with rope grown mussels likely to be favoured over bottom grown.
The spring market (post bouchot) for bulk supplies from France is likely to remain an important although unpredictable and relatively low value outlet for some Scottish producers. Further information on continental markets is essential to highlight the opportunities for Scottish product.
Production capacity
Existing Marine Spatial Plans suggest there is limited scope for new development on inshore sites, especially for those of an economically viable scale. Offshore development is considered unlikely in the short term due to planning uncertainties, higher costs, and greater risks, although links with the offshore renewables sector may offer opportunities.
There have been few if any recent planning applications for new shellfish sites, suggesting that in any case at the present time there is no major demand for additional capacity. Growth in production in the short to medium term is considered most likely to come from existing sites, the average production of which in 2008 was the equivalent of only 9t/200m longline, compared with typical industry yields for active sites of around 40t/line.
This discrepancy is indicative of both unused capacity and poor production efficiency, both of which if addressed could lead to significant growth in production subject to market demand and other constraints.
Competitiveness
Any gains in market volume will depend on reduced production costs, which are relatively high in Scotland due to slower growth and higher labour costs. In addition, the production costs of rope culture are significantly greater than bottom culture as widely practised elsewhere in Europe.
The use of New Zealand (NZ) technology could reduce costs significantly, but has yet to be proven in Scottish conditions. Greater cooperation in the use of workboats and on-shore facilities and the harvesting and processing of product could also lead to cost reductions, as in geographically compact areas such as Shetland. However, it is likely that costs of production in Scotland will remain relatively high compared with other industries.
Finance and investment
The business poses significant barriers to new entrants, especially at a larger scale, being characterised by high capital costs and extended working capital requirements due to the three year production cycle.
Other difficulties include the lack of suitable assets to act as security for loan finance, and the questionable viability of stock insurance. With regard to regional variations, the investment climate in Shetland has been more favourable than in other areas of Scotland, partly due to the influence of oil funds, and this appears likely to continue.
The return on investment for a potential traditional new farm appears to be poor given the risks and uncertainties associated with production, and business plans are barely viable without EFF grant on capital expenditure.
The best prospects for improved viability lie with greater economies of scale, and the adoption of new technologies and production strategies to shorten production cycles and improve labour efficiency. With regard to future investment in the business, it is not thought to be attractive to salmon farming companies other than to gain multi-trophic benefits on certain sites.
Investment by Dutch mussel processors is also considered unlikely in the short term, despite their extensive ownership of production operations outwith the Netherlands. Such ownership is almost exclusively in bottom culture, which produces a more robust product than rope culture at lower cost, and is better suited to their highly mechanised processing operations.
The investment case for other large scale new entrants with no sector experience is also far from clear, and past cases of venture capital investment have met with limited success.
Future investors in the industry are thus considered most likely to be existing growers, especially those with proven business models and strong track records, and having the experience, site capacity, facilities, and market access. There is further scope for the optimisation of operations within specific regions through consolidation of smaller growers and/or the setting up of contract harvesting and marketing arrangements between larger and smaller farms.
The prospects for smaller growers outwith Shetland who do not belong to the SSMG appear to be poor, given their reliance on wholesale markets which are increasingly dominated by Shetland product.
Such growers will need to cooperate wherever possible in both production and marketing if they are to have any chance of surviving on an independent basis.
Regulation
Regulation of the industry is focussed on two main issues, site availability and water quality. As discussed, site availability is not considered a constraint in the short to medium term given the potential capacity of existing sites.
However, it will be essential for the industry to play a full part in the new marine planning process to ensure that new capacity of adequate scale is allocated in any new Marine Spatial Plans.
Existing plans, especially in Argyll and Highland, do not give grounds for optimism, with presumptions in favour of development, if at all, being mostly for small and medium scale sites. Visual impact remains a major issue.
With regard to water quality issues, the industry has major concerns regarding the interpretation and implementation of legislation by regulators, although they are mostly an irritation rather than an overriding constraint.
There is a need to achieve a balance acceptable to both industry and regulators, and to iron out anomalies between the UK and other countries on issues such as classification. The establishment of the Shellfish Forum has been a welcome development and there are encouraging signs of progress e.g. proposals for the Shellfish Hygiene System.
Summary of prospects
There is ample capacity for increased production from existing sites, and from potential new sites assuming favourable recognition in the planning process. Concentration of production is likely in areas with the best characteristics for viability, and it is probable that Shetland will continue to dominate production at least in the short to medium term.
The uncertainties of production however continue to be a major challenge, with irregular spatfall, tubeworm, predation, and water quality issues all posing significant threats. Prospects for the industry depend to a large extent on how growers are able to overcome such uncertainties, and to improve the consistency of production from year to year.
Development of production capacity will need to go hand in hand with market development, which is considered to offer good potential given the positive outlook for seafood consumption generally and the present low consumption of mussels in the UK.
Carefully targeted efforts will however be needed to continue to secure premium outlets matching the higher production cost and particular attributes of Scottish rope grown mussels. As production grows, further price erosion is likely and it will need an equivalent response in the reduction of the cost base, through consolidation, economies of scale, and the adoption of new production technologies. Improvements to the regulatory environment will also need to remain a top priority.
