Legislature(1995 - 1996)

04/12/1995 08:08 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
 SB 3 - ANTITRUST EXEMPTION FOR FISHERMEN                                    
                                                                               
 Number 301                                                                    
                                                                               
 SENATOR JIM DUNCAN, PRIME SPONSOR, stated SB 3 will allow fishermen           
 to form associations to collectively negotiate raw or processed               
 fish with processors.  The bill does not authorize processors to              
 agree among themselves on the prices they will pay fishermen; it              
 only covers collective bargaining between fishermen and a                     
 processor, or group of processors.                                            
                                                                               
 SENATOR DUNCAN said a state antitrust exemption is a first step to            
 stabilizing Alaska's fishing industry.  While this exemption                  
 applies only to state antitrust laws, it is necessary to gain                 
 congressional approval for a federal exemption, so fishermen and              
 processors could negotiate prices.  He stated once the legislature            
 has approved SB 3, the state, fishermen and processors would be in            
 a position to request the federal exemption.  He pointed out that             
 the attitude toward a federal exemption may be favorable now that             
 Alaska's Congressional delegation is in the majority.                         
                                                                               
 SENATOR DUNCAN told committee members in order to permit collective           
 bargaining, fishermen must be allowed to market and sell their fish           
 as a group.  He said current state antitrust law does not mention             
 whether fishermen could collectively sell their raw catch or fish             
 products, although it permits them to form associations to catch              
 and prepare their fish for market.  SB 3 clarifies this ambiguity,            
 making state law consistent with federal law, which expressly                 
 permits fishermen to collectively engage in more activities,                  
 including marketing their fish.  He pointed out that incongruities            
 between current state and federal law make it possible for some               
 fishermen's organizations to be in compliance with federal                    
 antitrust law, yet breaking state law, or be in compliance with               
 state antitrust law and violating federal law.                                
                                                                               
 SENATOR DUNCAN said state legislation such as SB 3, and pursuit of            
 a corresponding federal exemption were recommended in the 1993                
 Alaska attorney general's report on the Bristol Bay sockeye salmon            
 industry.  He noted the fishing industry is Alaska's largest                  
 private employer, and affects every segment of the state's economy,           
 from small coastal villages to the state's general fund.  He                  
 stressed collective bargaining between fishermen and processors               
 will help stabilize commercial fishing prices, bolstering local and           
 state economies.  He stated stable raw fish prices will promote               
 stable consumer prices for processed seafood products, which means            
 greater sales of Alaska seafood.                                              
                                                                               
 CO-CHAIRMAN GREEN recalled that Senator Duncan had said SB 3 would            
 be in line with state antitrust but not with federal antitrust.               
                                                                               
 SENATOR DUNCAN stated SB 3 addresses the state antitrust laws and             
 gives an exemption on the state level, which is the first step                
 needed to be taken.  He explained congressional approval needs to             
 be gained as a second step for federal exemption.                             
                                                                               
 CO-CHAIRMAN GREEN clarified if SB 3 passes and an exemption from              
 state antitrust was possible, that could not be exercised until a             
 federal exemption was granted.                                                
                                                                               
 SENATOR DUNCAN responded that is correct.  He said it probably                
 would not happen overnight but with the state's Congressional                 
 delegation in the position they are in, they could actively pursue            
 it and get it accomplished.                                                   
                                                                               
 CO-CHAIRMAN GREEN noted SB 3 establishes a price floor.  He assumed           
 the price floor was based on American dollars.  He expressed                  
 concern about transactions with foreign operations and the                    
 fluctuation of the ratio of dollars to a particular foreign                   
 currency.  He asked if there was a price floor based on American              
 dollars, there was a large amount of fish to sell and the foreign             
 currency exchange rate changed, would there be a chance of                    
 violating that floor if the fish was sold because the foreign                 
 currency dropped 10 percent.  He wondered if by having a price                
 floor, there will be problems with the currency exchange.                     
                                                                               
 SENATOR DUNCAN stated SB 3 does not really establish a price floor.           
 He said once the exemption is gained at the state and federal                 
 level, it will allow fishermen, through associations, to                      
 collectively negotiate for raw fish prices with processors.  He               
 explained SB 3 does not necessarily establish a price floor but               
 establishes a process where fishermen can be involved in                      
 establishing what the price will be by negotiating.                           
                                                                               
 CO-CHAIRMAN GREEN asked if that would occur once a year.                      
                                                                               
 SENATOR DUNCAN said it would occur at least once a year.                      
                                                                               
 Number 409                                                                    
                                                                               
 CO-CHAIRMAN WILLIAMS asked how SB 3 would affect the bonus                    
 fishermen receive at the end of the year.                                     
                                                                               
 BRUCE SCHACTLER, AREA K SEINERS ASSOCIATION, testified via                    
 teleconference and said SB 3 is a very important bill.  SB 3 gives            
 fishermen the opportunity to be involved in a business-like manner            
 with the processors at all levels of price negotiations.  He stated           
 as the world markets and everything from the retail buyers to the             
 wholesale buyers change, fishermen need to be able to have some               
 type of input and relationship with those buyers.                             
                                                                               
 MR. SCHACTLER stated to do business in this manner presently,                 
 fishermen have to go outside the state of Alaska.  He said                    
 fishermen are contracted to do business as a marketing organization           
 in the state of Washington.  He explained SB 3 will allow fishermen           
 to do business like everyone else in the world.  He stressed SB 3             
 does not set a floor or ceiling and does not force anyone to do               
 business in any particular way but just gives fishermen the                   
 opportunity to do business the way the rest of the world does.                
 He urged support for SB 3.                                                    
                                                                               
 Number 460                                                                    
                                                                               
 KRIS NOROSZ, EXECUTIVE DIRECTOR, SOUTHEAST ALASKA SEINERS (SEAS),             
 testified via teleconference and stated SEAS fully supports SB 3.             
 She stated SB 3 serves two purposes.  First, SB 3 clarifies                   
 ambiguities currently found in state law concerning fishermen's               
 ability to collectively market their catch.  Second, SB 3 moves               
 fishermen closer to obtaining a much needed federal exemption, so             
 fishermen and processors would be allowed to negotiate prices.  She           
 stressed passage of SB 3 would put the state's fishing industry in            
 a much better position to request such an exemption from the                  
 federal government.  She pointed out this type of progressive                 
 action is an important and critical step toward stabilizing                   
 commercial fishing prices.  The result will be a greater value for            
 Alaska seafood products, which will directly benefit both the state           
 and local economies.  She urged committee members to support SB 3.            
                                                                               
 SCOTT MCALLISTER, REPRESENTATIVE, SEAS, said many people involved             
 in the various fishing organizations support SB 3.  He stated SB 3            
 is viewed as a forward-minded bill and fishermen look forward to              
 the benefits it will provide if adopted.  He pointed out SB 3                 
 provides a catalyst to bond the salmon industry.  The antitrust               
 exemption will allow fishermen and processors to consolidate their            
 interest in the marketplace and negotiate prices competitively from           
 a unified position of power in markets worldwide.  He noted                   
 fishermen do not currently operate under a law allowing them to do            
 that.  Other fish producers in the world already enjoy this type of           
 marketing advantage.                                                          
                                                                               
 MR. MCALLISTER stated there is no better example to Alaskans than             
 the Norwegians cooperative marketing worldwide of their salmon                
 products.  As fish farmers, they do not compete with each other for           
 markets and ultimately discount their product just to sell product.           
 They go into the marketplace as a total block of product.  He said            
 SB 3 potentially will allow these types of blocks of Alaska salmon            
 products to form in the world marketplace and truly be competitive.           
 He stressed SEAS urges the passage of SB 3.  He pointed out SB 3              
 could prove to be the most significant commercial fisheries                   
 legislation to cross Capitol Hill since statehood.  SB 3 will put             
 the fishing industry in a position of power to market its products            
 worldwide.                                                                    
                                                                               
 Number 523                                                                    
                                                                               
 DEAN PADDOCK, REPRESENTATIVE, BRISTOL BAY DRIFTNETTERS ASSOCIATION            
 (BBDA) said BBDA is not an association having negotiated prices and           
 is not a marketing organization but is very concerned about the               
 issues related to marketing.  He stated it is the intent of the               
 sponsor of SB 3 to smooth the present process which is notable for            
 a total lack of process.  At the present time, fishermen are price            
 takers and operate under a very restrictive set of legal                      
 constraints.  He noted fishermen see SB 3 as something which will             
 free up those legal constraints and allow them to join with the               
 processors as price makers.                                                   
                                                                               
 MR. PADDOCK said the market relationship between fishermen and                
 those to whom they sell their product has been changing in recent             
 years.  He stated there was a time when the costs of the processor            
 were closely guarded proprietary secrets but now every fishermen              
 has a good idea, if interested, what all those costs are.  He                 
 recalled that a couple of years ago fishermen urged the legislature           
 to vote in a 1 percent assessment, a percentage of which was                  
 dedicated to providing all the permit holders in the state with               
 salmon market information, which they now are receiving.                      
                                                                               
 MR. PADDOCK stressed SB 3 is badly needed and gave an example of an           
 incident which occurred several years ago.  He stated if fishermen            
 have the ability to participate more in a process such as                     
 envisioned by SB 3, unfortunate situations will be avoided.                   
                                                                               
 Number 600                                                                    
                                                                               
 DWIGHT PERKINS, SPECIAL ASSISTANT, OFFICE OF THE COMMISSIONER,                
 DEPARTMENT OF LABOR, stated the department supports SB 3.  He said            
 SB 3 would allow fishers to form associations to negotiate fish               
 prices.  He noted AS 16.10.280 provides that the Department of                
 Labor serve as the mediator of disputes between fishers and fish              
 processors on the price to be paid for salmon.  The department's              
 experience has revealed that the inability of fishers to form                 
 associations to negotiate with processors has been a primary factor           
 in such disputes such as the 1991 Bristol Bay strike.                         
                                                                               
 MR. PERKINS stated SB 3 would provide a mechanism to stabilize raw            
 fish prices and thereby protect Alaskan fishers and processors from           
 the debilitating and extreme fluctuation in fish prices.  He said             
 a stable fishing industry will have a direct and positive effect on           
 the Alaskan economy.  He felt it is only reasonable that Alaska               
 fishers and processors have the legal ability to protect themselves           
 and this important resource from price setting by outside                     
 interests.                                                                    
                                                                               
 REPRESENTATIVE KOTT noted on page 2, line 12, fishermen would be              
 able to set the minimum price.  He asked if a processor did not               
 meet that minimum price collectively, could fishermen in Alaska               
 take their product to a foreign processor.                                    
                                                                               
 MR. PERKINS said the department would be there to mediate disputes            
 between the two groups.  He did not know if fishermen could take              
 the product to an outside market.                                             
                                                                               
 TAPE 95-50, SIDE A                                                            
 Number 000                                                                    
                                                                               
 JERRY MCCUNE, PRESIDENT, UNITED FISHERMEN OF ALASKA (UFA) said SB             
 3 is a straightforward bill.  He stated Section 1 cleans up                   
 collective bargaining.  He noted previously there was a union but             
 in the 1940s, the federal government decided there could no longer            
 be a union because there were no employees.  Therefore, fishermen             
 had to go to collective bargaining and change the way they did                
 business.  The rules were set in a way that fishermen would have to           
 go talk to each individual processor for price.  He explained                 
 Section 2 adds more to collective bargaining if there is someone to           
 collective bargain with.  He added SB 3 provides the opportunity to           
 go to the federal government to change the federal antitrust laws,            
 so fishermen can talk to more than one processor.                             
                                                                               
 MR. MCCUNE noted with the passage of SB 3, fishermen still cannot             
 talk to more than one processor at a time because they are still              
 under the umbrella of the federal antitrust laws.  However, SB 3              
 does provide the opportunity to go to Congress.  He said the                  
 minimum price fish pricers will accept for the sale of processed              
 aquatic products does not bind anyone to anything.  He explained              
 this language would work well if a fisherman formed a partnership             
 with a processor and they agreed what they would sell on the                  
 wholesale market.  He pointed out this language does not have                 
 anything to do with foreign processors, as those processors are               
 only considered when the U.S. processors close the door and say               
 they will not buy any fish.  He urged passage of SB 3.                        
                                                                               
 Number 075                                                                    
                                                                               
 DONNA PARKER, FISHERIES SPECIALIST, DEPARTMENT OF COMMERCE AND                
 ECONOMIC DEVELOPMENT (DCED), expressed support for SB 3 and urged             
 passage.  She stated SB 3 will promote price stability and product            
 development, important for the state to recover its market share,             
 not only in the world, but especially in the domestic marketplace.            
 She said after the 1991 Bristol Bay strike, former Governor Hickel            
 organized a salmon strategy tax force which DCED was asked to head.           
 She noted that several recommendations were developed and                     
 strategies launched.                                                          
                                                                               
 MS. PARKER said what was learned was that the price declines were             
 caused by a radical increase in world supplies which drove the                
 price down.  Salmon was particularly displaced by farmed salmon,              
 which went from zero production to as much production as Alaska               
 does (one-third of world production) within a single decade.  She             
 stated the price, quality and supply of farmed salmon is stable               
 making it very attractive in the marketplace, which is why it has             
 been successful in displacing Alaska in the marketplace.  She                 
 pointed out that Alaska wild salmon has its advantages as well--              
 there is a huge supply, it is favored in certain marketplaces, and            
 it is produced at a lower cost.                                               
                                                                               
 MS. PARKER told committee members the state does have disadvantages           
 in not being able to provide consistency of price, supply and                 
 quality.  She said that was discussed by the salmon strategy task             
 force and the four-prong strategy developed was to expand the                 
 state's marketing efforts, increase product options to consumers,             
 increase the consistency of quality, and reduce the cost of                   
 production.  She stated SB 3 goes a long way toward accomplishing             
 each of those goals.                                                          
                                                                               
 MS. PARKER said at this time it is difficult for the Alaska seafood           
 industry, because of the way it is organized, to invest the risk,             
 resources, and capital in producing new products.  That has been              
 overcome by the unique organization of the community development              
 quota (CDQ) groups program and the aquaculture associations.  She             
 stated because of their nonprofit corporate status, they are able             
 to get into agreements with their harvesting partners.  She noted             
 that three of the CDQ groups have done that and have spearheaded              
 product development of salmon through vertical integration.  Those            
 groups enter into price agreements with their harvesting partners             
 that allow vertical integration and risk sharing, which permits the           
 processors to take on that risk.  They have provided markets not              
 existing for pink salmon in Norton Sound or coho in Bristol Bay               
 when the processors have left or there was not enough reason for              
 them to stay.                                                                 
                                                                               
 MS. PARKER stated price stability is very important because                   
 entities such as a health care facility or a family style food                
 chain has price ceilings on what they are going to offer their                
 consumers and cannot change their menu every month.  She said those           
 entities cannot live with the fluctuations of price the Alaska                
 seafood industry is famous for, which has made those entities                 
 reluctant to risk their participation in using new Alaska seafood             
 products.  She noted salmon is particularly volatile.                         
                                                                               
 MS. PARKER told committee members SB 3 will allow the rest of the             
 fishing industry to engage in the types of projects the CDQ groups            
 are now able to do.  She urged passage of SB 3.                               
                                                                               
 MS. PARKER noted the task force investigated why the prices in                
 Canada for wild salmon were higher than those in Alaska.  One of              
 the things determined was that Canada has antitrust exemptions and            
 has long-term price agreements three years long.  She added that              
 Canada's pink salmon prices are stable and are 113 percent higher             
 than Alaska's price.                                                          
                                                                               
 Number 204                                                                    
                                                                               
 MS. PARKER said to answer the question about bringing foreign                 
 processors in, under the Magnuson Act, the state is required to               
 show there is not enough domestic processing capacity.  She noted             
 that DCED and ADF&G make that investigation.  She stated the                  
 restrictions are quite defined and it is not a light matter to                
 allow a foreign processor into domestic waters.  She did not feel             
 SB 3 would have any relationship to that issue.                               
                                                                               
 CO-CHAIRMAN GREEN said, "if all the antitrust things are put aside            
 momentarily, if you have a group of fishermen who can establish a             
 price...then you talked about vertical integration where some of              
 these fishermen would contract with downstream users...are those              
 two statements contrary to each other?"                                       
                                                                               
 MS. PARKER responded there are many ways to work in the                       
 marketplace.  She assumed that most of this would be long-term                
 price agreements between the fishermen and processors and might               
 include things that are profit-sharing arrangements in the                    
 wholesale sale.  She stated she cannot imagine fishermen being                
 involved in the wholesale sale except to share in the risk of                 
 profit or loss, unless they hire processors to custom process their           
 product and sell it themselves.                                               
                                                                               
 CO-CHAIRMAN GREEN said, "you have a horizontal agreement and then             
 part of those people would go in a vertical contractually...stay              
 independent contractors but work with processors to come up with a            
 value-added product at the end."                                              
                                                                               
 MS. PARKER stated she was explaining what the CDQ groups are doing            
 or are proposing, which is not to say it would be done in the same            
 way...it would be difficult to do something that vertically                   
 integrated.  She sees versions of that happening quite easily.  She           
 said each year there is a bidding process and stressed it is                  
 important for people to unload their inventory very quickly because           
 of cold storage costs, risks on the commodity market, etc.                    
                                                                               
 MS. PARKER pointed out it is an expensive and risky proposition to            
 hold on to an inventory and add value to it.  She explained these             
 types of agreements share that risk and profit and make it more               
 attractive because the price is more stable.  When the price is               
 stabilized, it is possible to enter into other agreements that                
 guarantee a supply, which is very important.  There can also be               
 agreements on quality.  When reducing risk, the cost of production            
 is lowered.  She reiterated SB 3 addresses the entire range of                
 strategies developed to help Alaska recover its market share.                 
                                                                               
 CO-CHAIRMAN GREEN said, "Vertical integration sounds like a good              
 idea.  I was just wondering if it is competing with the ability for           
 the fishermen at one end of this vertical agreement to establish a            
 price...does that then hamper the vertical integration of a group             
 that belongs to that.  If they are part of the fishing group that             
 establishes a dollar a pound and this group over here says well               
 because we are fully integrated year-round and all the benefits you           
 said, we could trace back an 80 cents a pound to the fishermen here           
 because he has other benefits, does that compete with what they               
 were doing horizontally."                                                     
                                                                               
 MS. PARKER replied it gives fishermen the potential to become more            
 active participants and players in the seafood industry.  She said            
 while it is expected that most of the agreements will begin with a            
 base price for one year, it will evolve into a multi-year price and           
 a risk and profit sharing arrangement.  She stated a group of                 
 fishermen can decide what they want to do.  If they want to do it             
 for one year, they go with one group and a base price.  If they               
 want to share profit and loss risk, they negotiate with another               
 processor.                                                                    
                                                                               
 CO-CHAIRMAN GREEN clarified fishermen are not locked in.                      
                                                                               
 MS. PARKER responded that is correct.                                         
                                                                               
 REPRESENTATIVE DAVIES asked Ms. Parker when she was comparing                 
 Canadian prices to Alaska's prices, was she talking about what the            
 fishermen get or the prices they get for their product.                       
                                                                               
 MS. PARKER stated she was talking about the prices fishermen get.             
 She said the price currently for pink salmon is 13 cents a pound as           
 opposed to 30 cents a pound in Canada.  She noted in the 1980s when           
 Alaska's prices were high, Canada's price was lower but they had              
 the stability allowing them to run their businesses better and                
 allowing their customers to have a better expectation of the price.           
                                                                               
 Number 340                                                                    
                                                                               
 REPRESENTATIVE DAVIES noted having higher prices would not                    
 necessarily be an advantage for being competitive in the world                
 market.  He clarified that Ms. Parker was saying that more                    
 important than the price is some sense of long-term stability.                
                                                                               
 MS. PARKER said that is correct.  She noted stability is very                 
 important to the Japanese who are Alaska's biggest customer and buy           
 over 80 percent of the state's products.  She stated SB 3 would               
 help the state expand its domestic marketplace and enable the state           
 to be less reliable on the Japanese.                                          
                                                                               
 CO-CHAIRMAN GREEN made a MOTION to MOVE SB 3, with attached fiscal            
 note, out of committee with individual recommendations.                       
                                                                               
 CO-CHAIRMAN WILLIAMS asked if there were any objections.  Hearing             
 none, the MOTION PASSED.                                                      

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