"How greener methods reeled in the profits"

Loch Duart's drive to raise quality with environmentally friendly practices has made it a singular success, writes Mark Nicolson.

A rare glint of silver broke the dark waters engulfing Scotland's salmon industry last month: a spot of good news about growth. Loch Duart, a five-year-old company based in Sutherland, bought its neighbouring farm down the coast, Ardvar Salmon.

The purchase, for an undisclosed sum, will double the size of Loch Duart, the youngest of an otherwise dwindling band of independent Scottish salmon farmers in a troubled industry.

Assailed by health scares, environmental crusades, price pressures and fierce competition from Norway and Chile - from which the UK government is seeking European Union import protection - losses and insolvency are more the Scottish industry norm. Already five small Shetland farms have failed this year.

Even some of the Norwegian- and Dutch-owned multinationals operating in Scottish lochs are selling salmon below the cost of rearing them, according to industry insiders. That makes Loch Duart's tale of expansion the more remarkable.

But two factors make the expansion unique. One is that Loch Duart is profitable. According to Nick Joy, managing director and one of three owner-managers, the £4.5 million turnover company has made profits in four of the five years since the trio bought it. The other is that Loch Duart's expansion won rare support from environmental wardens. The director of the Scottish Salmon Fishery Boards, in effect the wild salmon lobby, called the acquisition "encouraging", describing Loch Duart as a "pioneering force in the move towards sustainable salmon farming".

Since 1999, Loch Duart has charted a distinctive course in the industry by adopting "sustainable" farming methods. More importantly, it has successfully rebranded and marketed its salmon to differentiate the product, allowing Loch Duart to charge for its costlier methods.

The company's sea-loch farming is never likely to impress the anti-salmon farm lobby, which insists the only environmentally-safe farming would be in land-locked waters or tanks. But Mr Joy says the company has gone as far as it can to meet the concerns of environmentalists and the food safety lobby, whose criticisms in effect created Loch Duart's opportunity.

"The more scared people are about their food, the more they look at differentiated producers," he says. "It's a matter of putting trust back into the food chain: people are looking for people to put their hands up and say they are responsible for their food. Multinationals won't do that."

To win that trust, Loch Duart has sought to extend its branding right back through the farming process, aiming to run a farm that not only minimises the impact on the host lochs but rears leaner, healthier and ultimately tastier fish.

"The ethos of the company is welfare, environment, community," says Mr Joy. "But none of that has any value whatsoever unless what we produce tastes better than anyone else's salmon."

Loch Duart's farms are in sea lochs in the rocky coast of around the settlement of Scourie. They are deep, well flushed by the tides and manageably close together.

The sites give Loch Duart capacity of well over 3,000 tonnes of salmon a year. But central to the company's ethos is to farm below capacity, nearer 1,500-1,800 tonnes a year. Uniquely in Scotland, the company leaves one site fallow each year, much as an arable farmer might rotate and lay fields fallow. This allows the site to flush out and helps keep the pens clearer of parasites and disease, minimising the need for pesticide control.

Loch Duart also farms more extensively, giving the salmon more room to swim. It farms at a ratio of 98.5 per cent water to 1.5 per cent fish - about 25 per cent below the industry average. Two pens at each site are also left empty and fish are swum through to fresh pens every six weeks.

This allows nets from the vacated pens to be dried in Sutherland's scouring winds, a natural way of clearing algae and other natural encrustation, without resort to the "anti-fouling" copper-based paints used elsewhere in the industry.

The salmon are also not fed as intensively, and are even given a feeding break every Sunday. "If you really care about an animal there are some things that are just obvious," says Mr Joy. "And animals in the wild feed in bursts. They're not built to eat all the time."

Fish meal is sourced only from fish stocks that, according to FAO criteria, are not themselves threatened by over-fishing.

"It's a very significant point of difference," says Mr Joy, who says Loch Duart not only tests toxin levels among the fish stocks that go into the fish meal but also the meal itself and later the salmon. The result, he says, is that "I can confidently say you can eat our salmon every main meal of every day of every week" without any health issues.

Such practices inevitably cost more, chiefly because of the farm's relatively lower productivity. Loch Duart employs 34 staff and an industry benchmark is to produce 100 tonnes of fish a year per employee. But the Sutherland company operates at nearly half that.

After taking on Ardvar, says My Joy, its current production of 3,200 tonnes a year will be halved and Loch Duart's less intensive farming practices introduced.

To accentuate the brand difference, Loch Duart won International Standards Organisation 14001 accreditation for its environmental practices. It is also the only UK salmon farm recognised under the Royal Society for the Prevention of Cruelty to Animals's "freedom food" scheme, a benchmark of farm animal welfare it took the company three years' work to earn.

But it is work which has paid. Loch Duart's trump has been to persuade clients and customers to appreciate and pay for these differences. Loch Duart salmon commands a 20 per cent price premium on average, enough to earn the company a 10 per cent return on equity that is highly unusual in the Scottish industry.

This in turn is the result of a direct and personal approach to the company's sales effort, led by Andy Bing, a co-founder and the company's sales director, who says the company overhauled its customer base after the 1999 takeover.

"It's been a question of having the customers understand the different way our salmon is produced," says Mr Bing. We have 50 or 60 main customers, so I can go and meet them all. We don't tend to deal with supermarkets but with family-owned or smaller businesses, so I can go and meet them or invite them up to the farm."

Clients include Loch Fyne Oysters, the employee-owned food and restaurant group, Moshi Moshi and Feng Sushi, the sushi restaurant chains, and Manor, Switzerland's biggest department store. Two thirds of Loch Duart salmon is exported.

"As far as I can see they are the standard bearers for the whole salmon industry," says Andy Lane, managing director of Loch Fyne Oysters. "We pay 20-30 per cent more than the standard market price for their salmon but you get what you pay for, which is quality."

One mark of this is Loch Duart's success in breaking into the sushi market, a particularly tough test of farmed fish. "We looked for about five years for the right salmon," says Mike Tory, general manager of Feng Sushi. "But we think with Loch Duart we've found the best in Europe."

Another came during the most recent health scare, when a group of US scientists warned that no one should eat more than four portions of Scottish salmon a year because of the toxins it contained. Feng Sushi's sales of Loch Duart salmon rose 20 per cent during the scare, says Mr Tory.

Success depends on choosing the right shop window

• Given the company's size, Nick Joy says Loch Duart prefers where possible to work with suppliers or customers of similar size and ethos, what he calls "handshake companies" where business relationships rely heavily on trust. Building such relationships helps dispense with the need for time-consuming and costly haggling over specific contract details, he says.
  
  
• While much of Loch Duart's branding relies on its production process, Mr Joy says he's keen to see management efforts devoted to marketing and sales rather than to efforts to cut costs: "I see a lot of salmon companies arguing strongly with suppliers to knock 0.2p or 0.3p off the cost of something, whereas if they'd spent the same time and effort on sales, they might see a 10p rise."
  
  
• Each of the three founder-owners of Loch Duart has a distinct role: Mr Joy in production and farming methods, Andy Bing in sales and marketing and Alan Balfour as commercial and finance director. Having such clear roles and leaving each other to fulfil them has been a vital factor. "You have to stay out of each other's fields. You have to have enough faith that the others can do their job," says Mr Joy.
  
  
• Loch Duart's success depends on branding an otherwise undifferentiated product. "That means you have to choose your shop window very carefully," says Mr Joy, meaning the retailers and restaurateurs who sell to the final customer. "They are as critical to our business as the quality of our product. It's vital to have the right people selling to the consumer."