Legislature(2013 - 2014)CAPITOL 120

02/06/2014 10:00 AM FISHERIES


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10:07:43 AM Start
10:08:08 AM HB204
11:25:21 AM Overview Alaska Seafood Marketing Institute (asmi)
12:02:15 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 204 SALMON & HERRING PRODUCT DEV'T TAX CREDI TELECONFERENCED
Heard & Held
+ Overview: Alaska Seafood Marketing Institute TELECONFERENCED
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
              HOUSE SPECIAL COMMITTEE ON FISHERIES                                                                            
                        February 6, 2014                                                                                        
                           10:07 a.m.                                                                                           
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Paul Seaton, Chair                                                                                               
Representative Eric Feige                                                                                                       
Representative Lynn Gattis                                                                                                      
Representative Craig Johnson                                                                                                    
Representative Kurt Olson                                                                                                       
Representative Jonathan Kreiss-Tomkins                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Bob Herron                                                                                                       
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SPONSOR SUBSTITUE FOR HOUSE BILL NO. 204                                                                                        
"An Act relating to a product development tax credit for certain                                                                
salmon and herring products; and providing for an effective                                                                     
date."                                                                                                                          
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
OVERVIEW ALASKA SEAFOOD MARKETING INSTITUTE (ASMI)                                                                              
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 204                                                                                                                  
SHORT TITLE: SALMON & HERRING PRODUCT DEV'T TAX CREDIT                                                                          
SPONSOR(s): REPRESENTATIVE(s) AUSTERMAN                                                                                         
                                                                                                                                
04/11/13       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/11/13       (H)       FSH, FIN                                                                                               
02/05/14       (H)       SPONSOR SUBSTITUTE INTRODUCED                                                                          
02/05/14       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/05/14       (H)       FSH, FIN                                                                                               
02/06/14       (H)       FSH AT 10:00 AM CAPITOL 120                                                                            
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE ALAN AUSTERMAN                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Introduced SSHB 204, as the sponsor of the                                                               
bill.                                                                                                                           
                                                                                                                                
ASTRID ROSE, Staff                                                                                                              
Representative Austerman                                                                                                        
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified and answered questions on SSHB
204 for the sponsor of the bill, Representative Austerman.                                                                      
                                                                                                                                
JOSEPH JACOBSON, Director                                                                                                       
Division of Economic Development                                                                                                
Department of Commerce, Community & Economic Development (DCCED)                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented a PowerPoint during discussion of                                                              
SSHB 204.                                                                                                                       
                                                                                                                                
BRUCE TANGEMAN, Deputy Commissioner                                                                                             
Office of the Commissioner                                                                                                      
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions during discussion of                                                                  
SSHB 204.                                                                                                                       
                                                                                                                                
JOE PLESHA, Chief Legal and Regulatory Officer                                                                                  
Trident Seafoods                                                                                                                
Seattle, Washington                                                                                                             
POSITION STATEMENT:  Testified in support of SSHB 204.                                                                        
                                                                                                                                
TOM SUNDERLAND                                                                                                                  
Vice President of Marketing                                                                                                     
Ocean Beauty Seafoods                                                                                                           
Seattle, Washington                                                                                                             
POSITION STATEMENT:  Testified in support of SSHB 204.                                                                        
                                                                                                                                
BRUCE SHACTLER, Director                                                                                                        
Global Food Aid                                                                                                                 
Alaska Seafood Marketing Institute (ASMI)                                                                                       
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of SSHB 204.                                                                        
                                                                                                                                
JULIANNE CURRY, Representative                                                                                                  
United Fishermen of Alaska                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of SSHB 204.                                                                        
                                                                                                                                
MICHAEL CERNE, Executive Director                                                                                               
Alaska Seafood Marketing Institute (ASMI)                                                                                       
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Presented a PowerPoint  presentation titled                                                             
"An overview of the Alaska Seafood Marketing Institute."                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
10:07:43 AM                                                                                                                   
                                                                                                                                
CHAIR  PAUL   SEATON  called  the  House   Special  Committee  on                                                             
Fisheries  meeting  to  order  at  10:07  a.m.    Representatives                                                               
Seaton, Kreiss-Tompkins, Gattis, and  Johnson were present at the                                                               
call to  order.  Representatives  Olson and Feige arrived  as the                                                               
meeting was in progress.                                                                                                        
                                                                                                                                
        HB 204-SALMON & HERRING PRODUCT DEV'T TAX CREDIT                                                                    
                                                                                                                                
10:08:08 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON announced that the  first order of business would be                                                               
SPONSOR SUBSTITUTE FOR HOUSE BILL NO.  204, "An Act relating to a                                                               
product  development tax  credit for  certain salmon  and herring                                                               
products; and providing for an effective date."                                                                                 
                                                                                                                                
10:08:35 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   ALAN   AUSTERMAN,  Alaska   State   Legislature,                                                               
introduced SSHB 204,  as the sponsor of the  proposed bill, which                                                               
described the  need for legislation to  address world-wide hunger                                                               
through  the production  of dry  salmon  product.   He said  that                                                               
Western Alaska had  historically not processed as  much salmon as                                                               
possible,  as  there  was  a  lot  of  foregone  harvest  due  to                                                               
economics and its remoteness.   He reported that its good herring                                                               
fishery  with the  ability  to market  herring  could expand  the                                                               
processing industry to both herring  and salmon at the same time.                                                               
He  stated   that  research  by  the   Alaska  Seafood  Marketing                                                               
Institute (ASMI) had  shown that there was a  herring market, and                                                               
that  there  was  anticipation for  the  processing  industry  to                                                               
invest for  both in  Western Alaska.   He  reported on  the waste                                                               
products  from   the  processing  industry,  and,   although  the                                                               
majority were ground  up and dumped into the ocean,  there were a                                                               
few places,  including Kodiak, where  chicken feed was  made from                                                               
the waste.   He  shared that  there was  a world-wide  demand for                                                               
high  protein  to feed  the  world's  hungry population,  and  he                                                               
mentioned high protein powder.   He pointed out that the European                                                               
Union was  working on  phasing in 100  percent retention  for all                                                               
species  caught, possibly  by  2020, and  he  surmised that  this                                                               
would also  occur in the  United States.   He suggested  that the                                                               
processing industry should be ready  for this, and noted that the                                                               
Environmental  Protection Agency  (EPA) was  also working  toward                                                               
the  elimination of  dumping waste  into the  water.   Hence, the                                                               
timing  for the  ability  to  process the  waste  stream and  the                                                               
herring was nearing.                                                                                                            
                                                                                                                                
10:13:35 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS asked  why ground  fish and  other                                                               
species  were not  included for  the tax  credit in  the proposed                                                               
bill.                                                                                                                           
                                                                                                                                
REPRESENTATIVE AUSTERMAN  replied that  this had  been discussed,                                                               
and  that  the  ground  fish industry  had  already  been  making                                                               
strides  in this  direction, noting  the equipment  developed for                                                               
surimi  production.    He  offered his  support,  but  noted  the                                                               
necessity  to review  the holistic  view for  how groundfish  was                                                               
caught and  processed.  He stated  that there was a  goal for on-                                                               
shore processing and  the benefits that it brought,  instead of a                                                               
"floating fleet."   He said  that it  was these issues  which had                                                               
kept groundfish from being included in the proposed bill.                                                                       
                                                                                                                                
10:15:17 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  directed attention  to  page  1,  line 7,  of  the                                                               
proposed  bill which  read:   "in  a shore-based  plant  or on  a                                                               
vessel."   He expressed his  concern for an expansion  that would                                                               
also  include federal  fisheries  in federal  waters, as  vessels                                                               
would return to  another state without any benefits  going to the                                                               
State of Alaska.   He asked if there were  other situations where                                                               
this additional  benefit would  be lost, and  the money  was only                                                               
serving a private business.                                                                                                     
                                                                                                                                
REPRESENTATIVE  AUSTERMAN  expressed  his  agreement,  suggesting                                                               
that the committee have a discussion for any changes.                                                                           
                                                                                                                                
10:17:01 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  referred to page  3, line  26, and asked  about the                                                               
intent for the word "freeze."   He said that the tax credit would                                                               
not be  extended to  things already being  done, as  the proposed                                                               
bill was based on value added.   He asked if there was intent for                                                               
a restriction on freezing to only apply to herring and salmon.                                                                  
                                                                                                                                
REPRESENTATIVE  AUSTERMAN replied  that  this  was language  that                                                               
came from  Alaska Department of Fish  & Game, and he  deferred to                                                               
the department.                                                                                                                 
                                                                                                                                
10:18:16 AM                                                                                                                   
                                                                                                                                
ASTRID  ROSE,  Staff,   Representative  Austerman,  Alaska  State                                                               
Legislature, on behalf of Representative  Austerman, sponsor of ,                                                               
reviewed  the  key  points  of  the  sponsor  substitute  to  the                                                               
proposed bill, which included the  addition of "herring" wherever                                                               
there was  already "salmon."   She directed attention to  page 3,                                                               
line 16, and said that  a "qualified investment" now included new                                                               
parts  necessary  for, or  costs  associated  with, converting  a                                                               
canned salmon line  to produce can sizes other  than 14.75 ounces                                                               
and 7.75 ounces.  She relayed  that these can sizes were specific                                                               
as these  were already  standard market  sizes, and  the proposed                                                               
bill incentivized new markets and  new value added products.  She                                                               
directed  attention to  page  3,  line 26,  and  the addition  of                                                               
"freeze, scale, grind,  separate meat from bone,"  which were not                                                               
included in the previous version.                                                                                               
                                                                                                                                
10:20:22 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHNSON questioned the size  of the cans and asked                                                               
if it was necessary to make this a specification.                                                                               
                                                                                                                                
MS.  ROSE explained  that the  statute had  detailed pop-top  can                                                               
production  which was  the previous  incentive,  so this  current                                                               
proposal would exclude  these can sizes as they  were the current                                                               
market size.                                                                                                                    
                                                                                                                                
CHAIR  SEATON asked  for clarification  to the  reference to  can                                                               
size, and  stated that  the two provisions  differed.   The first                                                               
provision  excluded  "beyond  heading  and  gutting,"  while  the                                                               
second  provision   replaced  "the  incentive  for   pop-top  can                                                               
production to any size beyond the ... industry standards."                                                                      
                                                                                                                                
REPRESENTATIVE  FEIGE  shared  that this  was  not  incentivizing                                                               
industry standards.                                                                                                             
                                                                                                                                
CHAIR  SEATON expressed  his  agreement that  the  intent of  the                                                               
proposed bill was  an attempt to "get new product  forms" and new                                                               
markets.    He  pointed  out  that  there  had  been  a  previous                                                               
incentive for pop-top cans as a  new market form.  He offered his                                                               
belief that consumers had not  been as interested in these, hence                                                               
the subsequent shift to the current can sizes.                                                                                  
                                                                                                                                
REPRESENTATIVE JOHNSON  suggested that the language  be inclusive                                                               
and without  limitations, in order to  create durable legislation                                                               
that it would not be necessary to change in the near future.                                                                    
                                                                                                                                
CHAIR SEATON opined that a  different can, though not a different                                                               
size  could  require  different   equipment,  and  expressed  his                                                               
agreement with Representative Johnson.                                                                                          
                                                                                                                                
10:24:00 AM                                                                                                                   
                                                                                                                                
MS.  ROSE noted  that  the Department  of  Commerce, Community  &                                                               
Economic  Development would  also  testify to  the necessity  for                                                               
language regarding can  size.  She directed attention  to page 4,                                                               
line  8,   which  added  "new   canning  equipment   for  herring                                                               
products;" because salmon canning equipment already existed.                                                                    
                                                                                                                                
CHAIR  SEATON  clarified  that  the  referenced  herring  canning                                                               
equipment would  not be  the same as  existed in  the traditional                                                               
lines, in order to qualify for a tax credit.                                                                                    
                                                                                                                                
MS. ROSE offered her belief that this was the intent.                                                                           
                                                                                                                                
MS. ROSE moved on to page  4, lines 10-11, which read: "equipment                                                               
used to transform  salmon or herring byproduct  that is discarded                                                               
as  waste  into  saleable  product."     She  referenced  earlier                                                               
testimony by Representative Austerman  for the use of byproducts.                                                               
Moving on to the changes at the  end of page 4, she reported that                                                               
this reiterated  the cost associated  with converting  the canned                                                               
salmon line,  and that the changes  on page 5 reiterated  the use                                                               
of by-product for a saleable product.   She noted that there were                                                               
other  small changes  to  the  proposed bill  which  she had  not                                                               
addressed.                                                                                                                      
                                                                                                                                
10:26:42 AM                                                                                                                   
                                                                                                                                
JOSEPH  JACOBSON,  Director,  Division of  Economic  Development,                                                               
Department   of  Commerce,   Community  &   Economic  Development                                                               
(DCCED), said  that the limitations  to the size  requirement had                                                               
been  an  industry  request   through  Alaska  Seafood  Marketing                                                               
Institute (ASMI),  and he reported that  the aforementioned 14.75                                                               
and 7.75 ounce cans were not the  right sizes for the market.  He                                                               
reiterated that this was not  intended to incentivize investments                                                               
in  can  sizes   already  identified  by  the   industry  as  not                                                               
representing  their  best  interests,  but to  also  not  be  too                                                               
specific.  He opined that there  was an attempt with the language                                                               
of the proposed bill to avoid  revisiting it in future years.  He                                                               
pointed out that they had avoided  use of specific terms to allow                                                               
more  latitude  for  product.     In  reference  to  the  earlier                                                               
questions for the  inclusion of groundfish, he  reported that the                                                               
fiscal  note  had  been  minimized   by  consideration  for  only                                                               
specific fisheries which did not  operate year round and were not                                                               
federal fisheries.                                                                                                              
                                                                                                                                
10:30:17 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON asked  for clarification  that  equipment on  these                                                               
smaller  floating processors  which  was  predominantly used  for                                                               
salmon  or  herring  would  not  come  under  federal  groundfish                                                               
regulations  and  would   be  under  state  rule.     The  larger                                                               
processors, although  still able  to process herring  and salmon,                                                               
would  not  receive  a  tax  credit  unless  salmon  and  herring                                                               
processing was more than 50 percent of their use.                                                                               
                                                                                                                                
MR. JACOBSON expressed his agreement,  allowing that there may be                                                               
some exceptions.                                                                                                                
                                                                                                                                
10:32:04 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   FEIGE  surmised   that  incentive   for  further                                                               
development  of the  herring  catch and  its  products would  not                                                               
compete with the  sport fish industry.  He asked  if an expansion                                                               
to include  groundfish would  include species  that were  part of                                                               
the sport fish industry.                                                                                                        
                                                                                                                                
MR.  JACOBSON replied  that this  could  be expanded  as much  as                                                               
desired,  although   the  addition  of  species   and  processing                                                               
"becomes cumbersome  in drafting  a clean piece  of legislation."                                                               
He allowed that any addition  could create competition, hence the                                                               
desire to limit the proposed bill to these two species.                                                                         
                                                                                                                                
10:34:26 AM                                                                                                                   
                                                                                                                                
MR. JACOBSON, referring  to a PowerPoint titled  "Alaska North to                                                               
Opportunity," said  that the Department of  Commerce, Community &                                                               
Economic Development  supported the proposed  product development                                                               
tax credit as  it promoted development of  value-added salmon and                                                               
herring  products,  which  led   to  greater  product  diversity,                                                               
stimulated  product  development  of  underutilized  species  and                                                               
waste  byproduct,  softened  the financial  impact  of  potential                                                               
changes to EPA regulations for  effluent in non-remote locations,                                                               
and incentivized  investments to  produce canned salmon  in sizes                                                               
appropriate for today's  market conditions.  He  declared that it                                                               
also  supported  Alaska's  fishing  communities,  slide  2,  "Key                                                               
Benefits of Product Development Tax Credit."                                                                                    
                                                                                                                                
CHAIR SEATON  stated that, at this  was the first hearing  on the                                                               
bill, it was not his intent to move the bill today.                                                                             
                                                                                                                                
MR.  JACOBSON  continued his  slide  presentation,  slide 3,  and                                                               
pointed out  that, although  Alaska produced  over 95  percent of                                                               
all salmon  in the U.S.,  this was only  one third of  the global                                                               
wild salmon  supply.  He reported  that the only way  to increase                                                               
the  value of  the  resource was  through  investment in  product                                                               
development, innovation, and other ways  to add value.  Moving on                                                               
to  slide 4,  "Alaska Salmon  Value, 2008-2012,"  he pointed  out                                                               
that  the  ex-vessel  and  first wholesale  prices  had  gone  up                                                               
considerably.    The  value  added  products  had  increased  the                                                               
commodity stability in the market  with its commitment to product                                                               
quality improvement.   He  acknowledged ASMI's  marketing efforts                                                               
to  create   the  brand,  and  market   product  diversification,                                                               
including salmon  burgers, canned salmon,  and salmon jerky.   He                                                               
pointed out that product  diversity proportionately increased the                                                               
ex-vessel  value  more quickly,  slide  5,  "Ex-Vessel price  has                                                               
grown  faster  than 1st-wholesale."    He  reiterated that  added                                                               
value was a  key element in the salmon  industry sales portfolio.                                                               
Directing attention  to slide  6, "Yet there  are some  clouds on                                                               
the  horizon... ",  he remarked  that the  current can  sizes for                                                               
canned salmon were  out of touch with the market,  as there was a                                                               
greater demand for  smaller cans and smaller portions.   He noted                                                               
that  the 2013  pink salmon  harvest was  the largest  on record,                                                               
which  had led  to  a glut  of supply  and  a potential  downward                                                               
pressure  on prices.    He said  that  some "non-remote"  seafood                                                               
processing  centers  in   Alaska,  including  Petersburg,  Sitka,                                                               
Juneau, Cordova,  and Ketchikan  would be  impacted as  they were                                                               
remote in terms of access to resources and transportation.                                                                      
                                                                                                                                
10:41:29 AM                                                                                                                   
                                                                                                                                
MR. JACOBSON  discussed slide  7, "Too  much supply...  (cases of                                                               
canned  salmon)"   which  reflected  the  inventory   level  from                                                               
September 2008  to September 2013  for canned sockeye  and canned                                                               
pink salmon.   He noted that the inventory of  canned pink salmon                                                               
had almost doubled.  He addressed  slide 8, "Too Many Ounces, Too                                                               
Much $$$  (price per  case)" which  indicated that  the inventory                                                               
for  canned pink  and  sockeye salmon  had  almost doubled  since                                                               
2005.   He explained that  the salmon  industry needed cans  as a                                                               
way to  get product through  its processing plants.   He reported                                                               
that  the price  point threshold  had been  reached, which  would                                                               
start  to affect  market  shelf space.   Moving  on  to slide  9,                                                               
"Potential  EPA Guidelines  (and cost),"  he reported  that there                                                               
would not be any variance, as  the rule would apply regardless of                                                               
year-round  or   seasonal  basis.     In  the  absence   of  full                                                               
utilization, without  the investment to  use all of  the product,                                                               
it  would be  required  to  haul waste  to  deep ocean  discharge                                                               
sites,  and  this did  not  take  into consideration  weather  or                                                               
mooring needs.  He estimated the  cost per pound to be from $0.21                                                               
- $0.56  per pound for disposal,  which could have a  huge impact                                                               
on the money going back into Alaska communities.                                                                                
                                                                                                                                
10:44:21 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KREISS-TOMKINS  asked about the variables  and the                                                               
timeline for EPA enforcement on these regulations.                                                                              
                                                                                                                                
MR.  JACOBSON replied  that the  comment period  closed in  early                                                               
March.   He  said  that  work with  the  industry was  continuing                                                               
through  the governor's  office  to ensure  industry and  seafood                                                               
processor perspective.   He stated  that it was unclear  when the                                                               
regulations would be implemented,  most likely after the upcoming                                                               
salmon season.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  KREISS-TOMKINS,  acknowledging  that he  did  not                                                               
have expertise, suggested that  existing regulations were already                                                               
being   overlooked,  and   he  asked   if  these   were  existing                                                               
regulations now being imposed by the EPA.                                                                                       
                                                                                                                                
MR. JACOBSON  expressed his understanding that  these regulations                                                               
had "been  on people's radar  for a while."   He stated  that the                                                               
opinion  of  the state  was  that  the existing  regulations  for                                                               
discharge were effective and safe,  and that the state permitting                                                               
process could  address these needs.   He said that he  could only                                                               
speculate what the plan was from the EPA.                                                                                       
                                                                                                                                
10:46:53 AM                                                                                                                   
                                                                                                                                
MR.    JACOBSON    addressed     slide    10,    "Waste-Byproduct                                                               
Opportunities," and  discussed the opportunities  for value-added                                                               
products  and the  many options  to claim  the tax  credit, which                                                               
included  nutritional supplements,  pet  food, and  leather.   He                                                               
indicated  that this  laundry list  could only  grow as  an extra                                                               
value was captured from items  that would otherwise be discarded.                                                               
He moved on  to slide 11, "Active Herring  Permit Holders," which                                                               
depicted  the  decrease  in  permit   numbers  since  2005.    He                                                               
suggested that an increase to  value added products could lead to                                                               
more active engagement  in this fishery.   Directing attention to                                                               
slide  12,  "Total  Value of  Alaska  Commercial  Salmon  Fishing                                                               
Permits,"  he  reported  that  the   tools  for  product  quality                                                               
marketing and  added value had  increased the total value  of the                                                               
commercial  salmon fishing  permits.   Maintaining the  diversity                                                               
and keeping waste  discharge costs to a minimum  should allow the                                                               
trend to continue to improve.                                                                                                   
                                                                                                                                
MR. JACOBSON  indicated that "Resident Participation,"  slide 13,                                                               
in the  fisheries had increased  steadily, even while  the salmon                                                               
numbers had not  increased.  He pointed out  that the recognition                                                               
for  economic opportunity  would create  more involvement  in the                                                               
Alaska fishing industry.   He presented slide  14, "Gross Revenue                                                               
from  Fisheries Business  Tax and  Utilization Credits  Claimed,"                                                               
which reflected this  information on an annual basis.   He stated                                                               
that this  small investment could lead  to a great return  to the                                                               
state.    In  response  to  Chair  Seaton,  he  stated  that  the                                                               
administration was in support of the proposed bill.                                                                             
                                                                                                                                
10:51:49 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KREISS-TOMKINS  acknowledged that  slide 14  was a                                                               
good quantitative  overview of  the tax  credits, and  asked what                                                               
kind of industry  investments had been made since  2003 that took                                                               
advantage of this program.                                                                                                      
                                                                                                                                
MR. JACOBSON offered  to confer with Department of  Revenue for a                                                               
more substantive answer, as opposed to a generic answer.                                                                        
                                                                                                                                
10:53:35 AM                                                                                                                   
                                                                                                                                
BRUCE TANGEMAN, Deputy Commissioner,  Office of the Commissioner,                                                               
Department  of   Revenue,  in  response  to   Chair  Seaton,  via                                                               
teleconference, said that the department  would like to work with                                                               
Mr.  Jacobsen  to  provide  a   response  to  the  question  from                                                               
Representative Kreiss-Tomkins.                                                                                                  
                                                                                                                                
10:54:10 AM                                                                                                                   
                                                                                                                                
JOE  PLESHA,   Chief  Legal   and  Regulatory   Officer,  Trident                                                               
Seafoods,  explained, via  teleconference, that  Trident Seafoods                                                               
was  a  seafood  processing  company with  plants  in  Ketchikan,                                                               
Wrangell,  Petersburg,  Cordova,  Kodiak, and  Sand  Point  among                                                               
others.  He  stated that the proposed bill would  help to improve                                                               
the  value of  the Alaska  salmon and  herring fisheries  for the                                                               
processors, communities, and fishermen  who were dependent on the                                                               
fisheries.   He  declared that  the inclusion  for production  of                                                               
byproducts from  fish waste  was very important  and was  a great                                                               
way to  add value to  this resource.   He reminded  the committee                                                               
that,  although most  Alaska communities  were currently  exempt,                                                               
the  EPA was  requiring in  every  other state  that all  seafood                                                               
processing waste  be screened  and then  barged or  produced into                                                               
fish meal.   He stated  that, as the  EPA was reviewing  this for                                                               
Alaska,  it   would  be  necessary   for  modifications   in  the                                                               
processing industry.  He stated support for the proposed bill.                                                                  
                                                                                                                                
10:57:03 AM                                                                                                                   
                                                                                                                                
TOM  SUNDERLAND,  Vice  President   of  Marketing,  Ocean  Beauty                                                               
Seafoods, noted that Ocean Beauty  was a shore side processor and                                                               
that diversification  within the market was  necessary to protect                                                               
from market swings  for any particular commodity or  product.  He                                                               
relayed  that  the  salmon  market  was  now  experiencing  price                                                               
resistance  and  the industry  was  trying  to defend  its  gains                                                               
against this price pressure with  market adjustments, such as the                                                               
can  size  offered.   He  declared  that consumers  bought  these                                                               
products  by absolute  retail  price, not  per  pound similar  to                                                               
other  commodities.    He  offered  examples  of  other  consumer                                                               
products where the size had migrated  down.  He declared that the                                                               
by-product  utilization  was  also  an important  area  as  value                                                               
gained  from parts  of the  fish currently  not being  used would                                                               
offset any  loss in  other areas.   He  stated that  the proposed                                                               
bill was  about product development,  and, although it was  not a                                                               
solution for issues with the EPA, it would be an important help.                                                                
                                                                                                                                
11:01:14 AM                                                                                                                   
                                                                                                                                
BRUCE  SHACTLER,  Director,  Global   Food  Aid,  Alaska  Seafood                                                               
Marketing  Institute  (ASMI),  said  that he  was  the  practical                                                               
application  person, and  that this  bill represented  a host  of                                                               
legislation  that  had  governed  the  fisheries  industry.    He                                                               
reported that during  the period of low prices,  about 90 percent                                                               
of all  salmon was canned.   He  declared that the  incentives to                                                               
make  new  investments in  new  products  saved the  wild  salmon                                                               
industry  from  farmed salmon  programs.    He explained  the  $3                                                               
billion  industry that  World Food  Aid  represented with  canned                                                               
salmon that  had now evolved  with demand for other  shelf stable                                                               
protein.   He  declared that  the herring  roe harvest,  a luxury                                                               
market for  Japan, had collapsed  many years  ago.  He  said that                                                               
the herring were sex sorted and  the male herring were sorted out                                                               
and considered  waste product.   However, with four  million tons                                                               
of  herring  being  consumed throughout  the  world,  Alaska  had                                                               
decided to enter the market and  use the male herring in order to                                                               
bring an opportunity  for value and economic  development back to                                                               
the herring fishery.   He stated that United  Fisherman of Alaska                                                               
and  the State  of  Alaska  had helped  fund  this  program.   He                                                               
relayed  that,  although  nine  of  ten  new  products  were  not                                                               
successful, canned  herring already had  a market.   He explained                                                               
the   food  aid   project  which   marketed   for  funding   from                                                               
governments, agencies, and NGOs.   He spoke about the nutritional                                                               
studies  directed   toward  areas  of  Africa,   with  the  study                                                               
population  showing  phenomenal   health  benefits  from  herring                                                               
consumption three times  each day.  He said that  Alaska was also                                                               
concentrating  on the  commercial market.   He  offered anecdotes                                                               
about the  use of round  tins, as  no other equipment  existed in                                                               
the local processing plants.   He stressed that this research and                                                               
development was expensive and would  be an important area for the                                                               
state  to make  an investment.   He  reported on  the demand  for                                                               
nutrition around  the world.   He noted that, although  there was                                                               
no limit  on the  budget for food  in one of  the large  food aid                                                               
programs  through  the Department  of  Agriculture,  there was  a                                                               
budget limit for shipping, and the  canned herring was heavy.  He                                                               
explained that producing a fish  based high protein powder out of                                                               
waste products  minimized the shipping  costs.  He  referenced an                                                               
earlier  program  in  Kodiak  that   had  no  outlet  so  it  was                                                               
abandoned.   He  offered  some anecdotes  of  the development  of                                                               
protein powder and  its uses, and the difficulties  for finding a                                                               
market.  He offered his belief  that the state could help develop                                                               
the  program, and  he displayed  a sample  of the  protein powder                                                               
that was being used for food throughout the world.                                                                              
                                                                                                                                
11:14:35 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GATTIS asked about  the ingredients of the protein                                                               
powder.                                                                                                                         
                                                                                                                                
MR. SHACTLER,  in response,  said that  the ingredients  were all                                                               
food  grade,  with  "no  guts  involved,"  primarily  "heads  and                                                               
frames."                                                                                                                        
                                                                                                                                
REPRESENTATIVE  GATTIS offered  an anecdote  about a  family food                                                               
tradition.   She  asked if  the  protein powder  used the  entire                                                               
fish, with the exception of the guts.                                                                                           
                                                                                                                                
MR.  SHACTLER  said  that  this   was  considered  a  by-product.                                                               
Research  and development  was expensive,  so  they were  working                                                               
with  industry  to  use  existing   infrastructure  for  the  new                                                               
products.  He said that once  the market was created, there would                                                               
be  the incentive  for private  industry to  take the  lead.   In                                                               
response to  Representative Gattis, he  said that the  powder was                                                               
not tasteless, and  was a little fishy and bitter.   He described                                                               
a  pilot  project  in  the  Congo that  was  feeding  about  1000                                                               
children for  the next four months  to study how it  was used, as                                                               
the  local diet  did not  include much  protein and  this was  an                                                               
important additive.   He  declared that  the world  food programs                                                               
were clamoring for this sort of  product.  He surmised that a tax                                                               
credit  bill would  bring this  investment  in to  the state  for                                                               
economic development.                                                                                                           
                                                                                                                                
11:19:16 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON asked  for clarification  that  the ingredients  of                                                               
this powder were "waste stream"  from a filleted product, and did                                                               
not include  the guts.   He suggested  that the product  could be                                                               
frozen during  the peak  season fillet  operation, and  then made                                                               
during the shoulder  season when the equipment  and the personnel                                                               
were available.                                                                                                                 
                                                                                                                                
MR.  SHACTLER expressed  his agreement  that the  waste could  be                                                               
frozen during  the peak of the  season and then canned  after the                                                               
prime season.                                                                                                                   
                                                                                                                                
11:21:35 AM                                                                                                                   
                                                                                                                                
JULIANNE  CURRY,  Representative,  United  Fishermen  of  Alaska,                                                               
reported that  United Fishermen of  Alaska (UFA) consisted  of 36                                                               
member associations and more than  450 businesses and individuals                                                               
participating in  fisheries throughout Alaska.   She testified in                                                               
support of  SSHB 204  which was consistent  with a  long standing                                                               
UFA  priority for  the consideration  of modification  to current                                                               
raw fish tax rebate provisions  to encourage processor investment                                                               
in herring and  other processing equipment, as  well as modernize                                                               
canning  equipment, and  increase  energy efficiency.   She  said                                                               
that  the   proposed  bill  allowed  the   processing  sector  to                                                               
encourage  innovation  and  provide incentives  for  response  to                                                               
changing market demands.                                                                                                        
                                                                                                                                
11:23:13 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  posed  a  question   to  the  industry,  directing                                                               
attention  to  page  3,  line  14 [11]  which  removed  the  word                                                               
"salmon" for  product development tax  credits, and he  asked for                                                               
further interpretation of  the ongoing language.   He offered his                                                               
belief that a  misrepresentation would not be  fraudulent, as the                                                               
product development, the  use of the equipment, or  the amount of                                                               
product  could have  significantly  changed.   He  asked for  the                                                               
intent of that wording to be clarified.                                                                                         
                                                                                                                                
CHAIR SEATON said that SSHB 204 would be held over.                                                                             
                                                                                                                                
^OVERVIEW Alaska Seafood Marketing Institute (ASMI)                                                                             
      OVERVIEW: Alaska Seafood Marketing Institute (ASMI)                                                                   
                                                                                                                              
11:25:21 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON announced  that the next order of  business would be                                                               
an overview by the Alaska Seafood Marketing Institute.                                                                          
                                                                                                                                
11:25:48 AM                                                                                                                   
                                                                                                                                
MICHAEL  CERNE,  Executive  Director,  Alaska  Seafood  Marketing                                                               
Institute (ASMI),  presented a PowerPoint and  indicated slide 3,                                                               
"Impact  of Alaska  Seafood Industry,"  stating that  fishing was                                                               
big business  in Alaska, and  responsible for  a lot of  jobs, as                                                               
well as tax  revenue, as Alaska produced more  seafood than every                                                               
other  state in  the United  States combined.   He  reported that                                                               
Alaska would rank  in the top 10 of  seafood producing countries.                                                               
Directing attention to slide 4,  he explained each of the species                                                               
harvested  by  volume,  with  pollock,  Pacific  cod,  and  other                                                               
groundfish accounting  for more  than 80  percent.   Referring to                                                               
slide  5, the  same chart  expressed in  value revealed  that the                                                               
lower volume  fisheries, including  salmon, crab, black  cod, and                                                               
halibut, accounted for almost 60 percent  of the value.  Slide 6,                                                               
"Ex-Vessel  Value  of AK  Seafood,"  depicted  the tax  base  for                                                               
funding  to  ASMI,  as  the  seafood industry  had  agreed  to  a                                                               
voluntary 0.5  percent tax  on the  value.   He pointed  out that                                                               
this annual average price per pound  was the metric by which ASMI                                                               
performance was judged, although  he acknowledged that there were                                                               
many fish price factors outside of  ASMI's control.  Moving on to                                                               
slide 7,  "Exported Value  of Alaska  Seafood," he  reported that                                                               
the United  States was  the largest  customer of  Alaska seafood,                                                               
even  though 60  percent was  exported, predominantly  to Europe,                                                               
China,  and Japan.   He  presented  slide 8,  noting that  Alaska                                                               
ranked sixth in the world as a seafood exporter.                                                                                
                                                                                                                                
11:29:14 AM                                                                                                                   
                                                                                                                                
MR. CERNE  reviewed slide 9, "Historical  Alaska Salmon Harvest,"                                                               
a graph showing the statistics from  1900 through 2010.  He noted                                                               
that  the fish  harvest during  this time  had increased  from 25                                                               
million fish to  more than 272 million fish in  the current year.                                                               
He lauded  the efforts of  the Alaska  Department of Fish  & Game                                                               
and the Board of Fish.   He presented slide 10, "Alaska Salmon by                                                               
Species -  2013," which  offered an  estimated breakdown  by each                                                               
species, and  reflected a harvest  of more than 1  billion pounds                                                               
of  fish.   He reported  that 80  percent of  the volume  and the                                                               
value was from pink and sockeye  salmon.  He declared that slides                                                               
11 and  12 reflected the  value and  the success of  marketing by                                                               
ASMI  for the  fishing  industry, and,  despite  a rising  global                                                               
supply  of  salmon, including  farmed  Atlantic  salmon, the  ex-                                                               
vessel price  of wild  Alaska salmon had  increased.   He pointed                                                               
out that the price for farmed salmon had dropped.                                                                               
                                                                                                                                
MR. CERNE stated  that there was often surprise  for the "breadth                                                               
and the depth of the activities  that we're involved in to market                                                               
the state's seafood all over the  world."  He jumped to slide 35,                                                               
"ASMI's WEEK  AT A GLANCE,"  and he described the  various retail                                                               
and food service promotions being  conducted during February.  He                                                               
reported that ASMI was working  on a canned salmon marketing plan                                                               
to sell  the excess  pink salmon  from the  current harvest.   He                                                               
shared  that  the  ASMI  public relations  firm  had  secured  an                                                               
interview with  Alaska Airlines magazine regarding  the impact of                                                               
the seafood industry in Alaska.                                                                                                 
                                                                                                                                
11:36:06 AM                                                                                                                   
                                                                                                                                
MR. CERNE reviewed  slide 36, "ASMI Budget,"  listing its revenue                                                               
sources, which included the aforementioned  industry tax, as well                                                               
as general  fund requests from  the State of Alaska,  and funding                                                               
from the Federal  Market Access Program.   Directing attention to                                                               
slide 37,  "FY14 ASMI Program  Budget," he described  the program                                                               
budget allocations, which included  $8 million for international,                                                               
$6 million for  domestic, and $4 million for  administration.  He                                                               
described the  structure and organization  of the  Alaska Seafood                                                               
Marketing   Institute,  slide   39,  noting   that  ASMI   was  a                                                               
public/private  partnership  housed  in Department  of  Commerce,                                                               
Community & Economic Development.   As the Executive Director, he                                                               
reported  to a  seven member  board, which  was appointed  by the                                                               
governor  and included  five processors  and two  fishermen.   He                                                               
reported  that there  were also  four ex-officio  members of  the                                                               
board,  one  each from  the  senate,  the house,  the  governor's                                                               
office,  and the  department.   He shared  that there  were eight                                                               
very active  volunteer committees which supported  and guided the                                                               
ASMI  work through  studies of  specific issues  and advice.   He                                                               
lauded  the   dedication,  experience,   and  expertise   of  the                                                               
committee members, many  of whom were seafood  professionals.  He                                                               
stated that  the committees  approved the  budget and  guided the                                                               
marketing efforts, making ASMI an  industry led organization.  He                                                               
pointed out that the ASMI  international program was supported by                                                               
six overseas  marketing representatives in Europe,  Japan, China,                                                               
and Brazil.   He noted that  in 2010 ASMI had  started a Customer                                                               
Advisory Panel, comprised  of eight to ten of  the largest Alaska                                                               
seafood  customers  worldwide.   In  response  to  Representative                                                               
Olson,   he  said   that  there   were  two   overseas  marketing                                                               
representatives in  China, and another representative  from China                                                               
on the aforementioned Customer Advisory  Panel.  He reported that                                                               
this group  was brought  to Alaska each  year for  discussions on                                                               
improvement, trends, and opportunities for ASMI.                                                                                
                                                                                                                                
11:40:41 AM                                                                                                                   
                                                                                                                                
MR.  CERNE   addressed  slide  40,  "ASMI   Mission:"  and  read:                                                               
"increase  the  economic  value  of  Alaska  seafood,"  which  he                                                               
relayed  was accomplished  through a  variety of  ways, including                                                               
brand   awareness,  long   and   short   term  marketing   plans,                                                               
collaboration   with  industry   marketing,  quality   assurance,                                                               
education, and  research.  He  stated that  ASMI had done  a good                                                               
job,  as it  was the  second most  recognized brand  specified on                                                               
U.S.  menus  and  was  the   top  choice  amongst  other  seafood                                                               
products.                                                                                                                       
                                                                                                                                
MR.  CERNE   presented  a  brief   video  that   highlighted  the                                                               
essentials of each ASMI program and  what each did to support the                                                               
fishing industry  in Alaska.   He  said that  the video  was also                                                               
available on the internet via  YouTube.  He directed attention to                                                               
the focus  on the emerging markets  in Brazil and China,  and the                                                               
opportunity  for growth  that  each offered.    He mentioned  the                                                               
school  lunch program  of  2.5  million meals  per  day, and  the                                                               
desire to  get Alaska pollock on  that national menu.   He stated                                                               
that,  as  chefs  had  a  tremendous  amount  of  influence  over                                                               
consumer behavior, 26 chefs had  been recruited as ambassadors of                                                               
Alaska seafood.   He pointed out that ASMI  also sponsored Kikkan                                                               
Randall,  who was  competing  at the  Olympics  in cross  country                                                               
skiing,  and who  would  promote the  healthy  aspects of  Alaska                                                               
seafood  at various  events upon  her return.   He  reported that                                                               
social  media   offered  the  opportunity  to   reach  a  younger                                                               
generation, and  that ASMI was  taking full advantage of  all the                                                               
outlets,  although  it was  a  full  time job  to  keep  up.   He                                                               
addressed the rash  of exaggerated claims in  the press regarding                                                               
the  threats  posed  to  Alaska seafood  by  the  radiation  from                                                               
Fukushima, and explained that ASMI  was working to share factual,                                                               
science  based   information  with  its  customers.     Directing                                                               
attention to  slide 48,  he reported that  ASMI was  working with                                                               
the crab industry  to combat, through education  to consumers and                                                               
buyers, the illegal and unregulated  crab coming from Russia.  He                                                               
relayed that a big challenge to  ASMI was the seafood third party                                                               
certification,  and  he  offered  his  belief  that  the  current                                                               
decisions by Wal-Mart to  recognize Alaska salmon, sustainability                                                               
practices,  and   the  Responsible  Fisheries   Management  (RFM)                                                               
certification program "will be huge."  Directing attention to                                                                   
slide 46, "Pinks!" he relayed that ASMI was working to help with                                                                
the marketing of the excess inventory of canned pink salmon.                                                                    
                                                                                                                                
12:01:21 PM                                                                                                                   
                                                                                                                                
MR. CERNE invited the legislative members to join ASMI at any                                                                   
global event.                                                                                                                   
                                                                                                                                
12:02:15 PM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Fisheries meeting was adjourned at 12:02                                                                   
p.m.                                                                                                                            

Document Name Date/Time Subjects
ASMI Fisheries Committee 2014.pdf HFSH 2/6/2014 10:00:00 AM
ASMI presentation
Sponsor Statement Fish Committe.docx HFSH 2/6/2014 10:00:00 AM
HFSH 2/13/2014 10:00:00 AM
HB 204
DOR 2012 Annual Report - page 16.pdf HFSH 2/6/2014 10:00:00 AM
HFSH 2/13/2014 10:00:00 AM
HB 204
DOR SPD Overview 3 slides.pdf HFSH 2/6/2014 10:00:00 AM
HFSH 2/13/2014 10:00:00 AM
HB 204
HB0204B.pdf HFSH 2/6/2014 10:00:00 AM
HFSH 2/13/2014 10:00:00 AM
HB 204
fiscalNote HB 204 Commerce.pdf HFSH 2/6/2014 10:00:00 AM
HFSH 2/13/2014 10:00:00 AM
HB 204
HB 204 Support product development tax credit 2.5.14.pdf HFSH 2/6/2014 10:00:00 AM
HFSH 2/13/2014 10:00:00 AM
HB 204
Alaskan-Seafood-Processing-Effluent-Guidelines-Notice-of-Data-Availability-Factsheet.pdf HFSH 2/6/2014 10:00:00 AM
HFSH 2/13/2014 10:00:00 AM
HB 204
HB 204 FY 14.pptx HFSH 2/6/2014 10:00:00 AM
HFSH 2/13/2014 10:00:00 AM
HB 204