Legislature(1995 - 1996)
04/12/1995 08:08 AM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.