Substantial increase in cod and saithe for auction following introduction of the auction obligation

The partial auction obligation for cod and saithe was introduced due to the low proportion of frozen whitefish being sold at auction through the two largest sales organisations for frozen whitefish, Norges Råfisklag and Sunnmøre og Romsdal Fiskesalgslag (Surofi). 

Nofima’s evaluation of the scheme concludes that the auction obligation has worked as intended given that the proportion of frozen cod and saithe raw materials offered in auctions organised by Norges Råfisklag and Surofi increased significantly in 2022 and 2023 compared with previous years.

“The trial scheme commenced at the start of 2022 with the aim of ensuring as open competition as possible for raw materials, which includes making sure that the fish processing industry in Norway has sufficient access to raw materials for its activities. The evaluation is based on two full years – 2022 and 2023 – of the partial auction obligation, and we can now definitively state that the scheme has worked,” says Senior Scientist Geir Sogn-Grundvåg at Nofima. 

He has led the work on evaluating the trial scheme, in which the University of Stavanger has also been involved. The work is funded by the Norwegian Seafood Research Fund (FHF). 

As open competition as possible wanted for raw materials

From 2013 to 2017, the proportion of frozen whitefish sold at auction through Surofi dropped from 58% to 40%. Norges Råfisklag’s auction proportion for frozen cod dropped from 52% in 2009 to 31% in 2017.  This caused concern in the whitefish industry, which wanted measures to be taken to ensure the most open competition possible for the raw materials. 

“This included the fish processing industry in Norway having sufficient access to raw materials for its activities. The industry’s access to frozen cod and saithe raw materials has been limited due to shipowners being able to establish their own sales companies or processing facilities onshore. Shipowners that engage in trading have, therefore, been able to sell the fish via their own sales companies. Actors involved in shipowning and production have also been able to receive their own fish, although they have also had to comply with their cod delivery obligations. At the same time, the Norwegian Participation Act limits the ability of the industry to establish itself in the fishing part of the chain,” explains Nofima scientist Bjørn Inge Bendiksen. 

Contract sales between freestanding shipowners and buyers can also result in raw materials becoming less available for other buyers because some shipowners have, over time, developed relationships with a few buyers who have bought most of their landed volume. 

“Such relationships can benefit both shipowners and buyers through lower transaction costs for payments, fewer complaints and a good dialogue and common understanding of quality. However, at the same time, such relationships could exclude other buyers,” says Bendiksen.  

The ability to receive your own catch of frozen whole gutted fish was eliminated on 1 October 2021 in order to increase the proportion of raw materials offered at auction, and on 1 January 2022, a trial scheme involving a partial auction obligation was introduced. 

Available to buyers in an open market

The main purpose behind the auction obligation regulations is, therefore, to ensure more frozen raw materials are available to buyers in an open auction market, including to the Norwegian processing industry. 

“One important purpose of auctions is to create a marketplace in which buyers and sellers can purchase and sell efficiently and with low transaction costs,” says Geir Sogn-Grundvåg. 

The obligation to offer fish through the frozen fish auctions is also intended to ensure that the auctions provide buyers, whether industrial or other actors, with good access to buy frozen raw materials landed by Norwegian vessels. Another important purpose behind auctions is to create competition between buyers in order to find the buyer who is willing to pay the most. 

“In theory, when supply and demand meet, the ‘correct´ market price will be achieved. In this way, auctions can contribute to the most competitive buyer always winning the bidding rounds, thus ensuring the highest possible value creation,” says Sogn-Grundvåg.

The report produced by the scientists states that although the proportion of raw materials offered has increased significantly, this does not necessarily immediately result in more raw material processing in Norway. 

“The industry has to develop markets for its products if it wants to sell more, and investments in production equipment often also have to be made in order to increase capacity, which often involves a longer time horizon than the trial scheme evaluated here,” says Thomas Nyrud – also a scientist at Nofima. 

Special market factors have also played a role when it comes to saithe. 

“In 2023, we suddenly saw much stronger competition from the foreign fillet industry in some periods followed by sharply falling prices. Both are factors that may have impacted the industry’s purchase of frozen raw materials. During periods when frozen raw materials were significantly more expensive than fresh raw materials, the industry increased its use of fresh raw materials at the expense of the frozen ones,” points out Nyrud.  

More participants are in everyone’s interests

The scientists, together with Professor Dengjun Zhang of the University of Stavanger, stated in the report that it should be in everyone’s interests for as many actors as possible to participate in the auctions, not only from the seller side, but also from the buyer side. 

“However, the latter is contingent on buyers being there, and on the industry side we cannot expect to see more of these within the short period during which this scheme has been in operation,” says Geir Sogn-Grundvåg, adding:  

“We highlight this because a surprisingly large proportion of the auctions only involve a single bidder.” 

For frozen cod sold through Norges Råfisklag’s auctions, the scientists have previously shown that 24% of the lots sold via auction in the period 2010-2018 only received a single bid, i.e. there was no competition. 

“It is a challenge for both the sellers and the sales organisations that many lots are sold via auction with little or no competition. It weakens the sales system when there is little competition and many lots also remain unsold in an auction,” says Sogn-Grundvåg.

“We have also found examples of the intentions behind the auction obligation being undermined without the regulations being breached.  This has been done by, for example, shipowners offering catches in an auction in such a way that in reality there are no buyers. The lot is not sold and no longer subject to the auction obligation, meaning that it can be purchased by a company in their own group.”  

Can the regulations be adjusted?

Given that the main purpose of the trial scheme involving a partial auction obligation is as open competition as possible for the raw materials, the report states that the sales organisations should consider how the regulations can be adjusted to make the raw materials more accessible in an open market. And given the methods used to circumvent auction sales, the scientists believe that increasing the proportion of raw materials being offered via auction probably will not help. 

“However, the sales organisations may consider changing the regulations from what is today an obligation to offer to a genuine auction obligation, for example, by 50% of each vessel’s annual landings of frozen cod and saithe having to be traded via auction. This will result in an incentive to offer lots of a size that are attractive to as many buyers as possible,” says the project manager for the evaluation.

If such an obligation motivates shipowners to sell via auction, Geir Sogn-Grundvåg believes that the results suggest that it makes sense to set a starting price that is somewhat lower than the acceptance price since this will enable more buyers to participate in the auction. 

This will increase the probability of achieving a sale in the auction, attracting more buyers and achieving a higher final price compared with if the starting price is set equal to the acceptance price,” says Sogn-Grundvåg.

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