Higher Norwegian salmon prices after 2014 Russian import ban reveal price-fixing collusion, lawsuit claims
Despite losing 10 percent of their market when Russia banned salmon imports from Norway in 2014, Norwegian salmon farmers somehow managed to earn higher prices for their salmon, a revised class-action lawsuit against several of Norway’s largest salmon companies claims.
The 19 August revision to the original suit, filed in April, cites a trove of circumstantial information to outline allegedly collusive practices amongst Mowi, SalMar, Lerøy Seafood, Grieg Seafood, Ocean Quality, and other salmon-farming companies based in Norway. Higher prices charged by those companies in 2015, following the closure of the Russian market, were the result of a conspiratorial agreement between them, the lawsuit claims.
“These sustained, historically unprecedented price increases can only be explained by collusion. Norwegian salmon farmers knew that a huge portion of demand and their export market had been eliminated and reacted by collusively raising prices,” the suit alleges. “The planning cycle for the production of Norwegian salmon in 2015 had been set three years earlier in 2012 (before the Russian ban), as Mowi’s 2018 Investor’s Handbook itself reflects. Yet despite this supply of salmon based on an overall market that no longer existed in 2015 and despite the fact that the ban had caused salmon prices to drop in 2014, defendants, by conspiring together, were able to raise prices substantially and keep prices at levels significantly above those experienced in 2014.”
Russia’s ban, which came on the heels of sanctions imposed by the United States, the European Union, Norway, and other countries after it annexed Crimea, cost Norway up to NOK 20 billion (USD 2.2 billion, EUR 2 billion), according to Asbjørn Warvik Rørtveit, director of market insight and market access at the Norwegian Seafood Council, the lawsuit states. And that market was not replaced, according to the lawsuit, citing Russian Ambassador to Norway Teimuraz Ramishvili.
“There were attempts from Oslo to find new markets, great hopes were associated with China, but the Russian market was not replaced,” Ramishvili told Russia Today, per the lawsuit.
Nor can rising costs in salmon product account for higher salmon pricing, according to the lawsuit. Data provided by Mowi showed its per-kilogram “cost-in-box” of salmon production rising by EUR 0.50 (USD 0.55) during the period of time for which the collusion is alleged – “far less than salmon,” according to the suit. But the cost of feed was either stable or dropped “significantly” during the time in question, the suit claims.
“Economic data compiled by the Federal Reserve Bank of St. Louis on global fish meal prices show that prices collapsed at the beginning of 2015, thus providing no cost justification for the price increases by farmed salmon producers that commenced later that year,” it reads. “The price increases for salmon in 2015 and following years, viewed in relation to production costs, represent a structural break from past practices. Indeed, in prior periods, the Norwegian farmed salmon industry had been accused of dumping their product overseas at unreasonably low prices.”
A number of other circumstantial factors are cited by the lawsuit as creating an environment susceptible to collusive practices. The suit categorizes several aspects of the global salmon industry as matching up with guidelines from the U.S. Department of Justice as indicators of markets more favorable to collusion, including markets with few sellers, standardization of salmon products available in global markets, and salmon’s uniqueness in the marketplace.
“The fewer the number of sellers, the easier it is for them to get together and agree on prices, bids, customers, or territories. Collusion may also occur when the number of firms is fairly large, but there is a small group of major sellers and the rest are ‘fringe’ sellers who control only a small fraction of the market,” the lawsuit states. “The probability of collusion [also] increases if other products cannot easily be substituted for the product in question or if there are restrictive specifications for the product being procured. [And the more standardized a product is, the easier it is for competing firms to reach agreement on a common price structure. It is much harder to agree on other forms of competition, such as design, features, quality, or service.”
Buyers making repetitive purchases may also increase the chance of collusion, “as the vendors may become familiar with other bidders and future contracts provide the opportunity for competitors to share the work,” according to the lawsuit.
High entrance barriers to new competitors are also cited, as is a highly concentrated market. Collusion is also made more likely by companies being clustered in a small geographic area, and if their leaders “know each other well through social connections, trade associations, legitimate business contacts, or shifting employment from one company to another.”
“All these factors are present here,” according to the lawsuit, in reference to the Norwegian salmon sector.
Trade association meetings and industry events, such as the North Atlantic Seafood Forum, and meetings of the Global Salmon Initiative, the Norwegian Seafood Council, the BC Salmon Farmers Association, and the International Salmon Farmers Association are all cited by the lawsuit.
“Defendants have also used events organized in part by third parties to communicate with each other on cooperative pricing arrangements for farmed salmon or products derived therefrom,” the lawsuit alleges.
The numerous industry events and initiatives are evidence that Norway’s salmon farmers have “switched from competition to cooperation,” the lawsuit claims. The Norwegian Seafood Council’s market database is one example of this, as it gives all NSC members access to “sensitive market statistics, including an overview of their own market shares and a comparison of their prices with those of competitors.
“This practice of providing horizontal competitors real-time ongoing price and market share data about each other – a practice to which these competitors obviously agreed—is a real cause for concern,” the suit said.
Regarding the Global Salmon Initiative, “If the defendants by mid-2013 were willing to engage explicitly in ‘precompetitive cooperation’ in order to eliminate individual environmental improvements as a competitive tool, it is entirely plausible that they would do likewise with respect to farmed salmon prices two years later, when the ban on Russian sales was disrupting their market and reducing their profits.”
Direct evidence of collusive practices is not provided in the lawsuit, which was filed months after the European Commission announced it was investigating potential price-fixing in European farmed salmon sector, and subsequently raided the Scottish and Dutch corporate offices of several Norwegian salmon-farming companies.
The European Commission has not issued any further public comment on its investigation, and numerous calls from SeafoodSource to the press office of the European Commission in recent months have gone unanswered.