Who actually pays for levies?

News Who bears the burden of levies on a product? Is it the processers, exporters, consumers or is it others? Nofima was commissioned by the Norwegian Fishermen's Sales Organisation to look at this.

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Who bears the burden of levies on a product? Is it the processers, exporters, consumers or is it others? Nofima was commissioned by the Norwegian Fishermen’s Sales Organisation to look at this.

Want more marketing

The marketing of Norwegian seafood is handled by both the industry itself and the Norwegian Seafood Export Council. Joint marketing through the Norwegian Seafood Export Council is financed by a marketing levy, which exporters must pay at the time of export. On various occasions, the fishermen’s organisations have wanted more joint marketing for different products. This can lead to an increase in the marketing levy.

…, but that has to be paid for

Exporters have not always been in agreement and have pointed out that it is them who have to pay the marketing levy. But the theory is that it is not necessarily the one who pays who bears the burden of a levy. How sensitive supply and demand are for prices determines to a great extent how the burden of taxes and levies is distributed. So who actually bears the burden of the marketing levy?

– In practice, it is difficult to find good calculation models that we can use to answer this question. Some studies of how price sensitive demand is have been implemented, but the supply side has not been studied to any extent, says Scientist Bjørn Inge Bendiksen from Nofima Market.

The marketing levy on Norwegian salmon has varied significantly and gives us the opportunity to study some effects of both an increase and reduction of the levy level. In 1997, the levy was increased from 0.75 percent to three percent. In 2003, it was reduced to 2.7 percent and further reduced back to 0.75 percent in 2004.

The exporter’s role

The role of the exporter also varies. Some can be looked at as brokers who perform a service in exchange for a fixed commission. Others take greater risk because they buy the product and then on-sell it as exporter.

– A lot suggests that the exporters in their activities can pass a lot of the marketing levy on to others in the value chain, says Bendiksen.

Exporters’ gross profit margins can be estimated based on the difference between the export price and what the salmon farmer was paid for the fresh salmon.

– We can’t find any clear connection between the amount of the marketing levy and the gross profit margins, he says. In monetary terms, the profit margins were on average somewhat lower during the period with the higher levy. However, the salmon farmers also received substantially lower process for their fish then.

Fish farmers, fishermen and the industry pay

The profitability among different exporters during the same period has been studied, among both those primarily exporting salmon and trout and those primarily exporting other seafood products. Among salmon exporters, the operational profit margin was 0.1-0.2 percent lower in the period with increased marketing levy. However, other exporters also had a lower operational profit margin compared with the years prior to 1997. They had also lower operating profit margins than the salmon exporters.

– Seen as such, the figures indicate that the theory is correct. Some of the levy was passed on to other links in the value chain, such as salmon farmers, fishermen and the fishing industry. The rest of the burden was exported to the consumers. The exporters can’t claim that they are bearing the burden, says Bendiksen.

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