Legislature(1999 - 2000)
02/28/2000 05:10 PM House FSH
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 363 - SALMON PRICE REPORTS CO-CHAIRMAN HARRIS announced the first order of business as House Bill 363, "An Act relating to salmon product reports; and providing for an effective date." Number 0054 REPRESENTATIVE ALAN AUSTERMAN, Alaska State Legislature, came before the committee as sponsor of HB 363. He introduced the legislation, he said, at the request of the United Salmon Association. It updates the current reporting requirements for salmon to include all products that are being produced. The current report deals strictly with canned salmon, yet the changes in the industry over the years have become so important that it is time to include all product types - fresh, frozen and roe. He pointed out that not only the processors use this type of information but many private firms and the university use it as well. He could also envision this type of information translating into more tax revenues for the state in relation to ex-vessel value. He has one proposed amendment that he would like to see incorporated. Number 0338 REPRESENTATIVE FRED DYSON expressed that he has heard criticism from processors in regards to disclosing this type of information as proprietary information, which compromises their position in the market. REPRESENTATIVE AUSTERMAN answered that processors are already reporting data for canned and thermally processed salmon. He has never heard of a problem with confidentiality. In fact, when the issue of reporting thermally processed salmon was taken up last year, there was no effort to eliminate that information due to concerns of confidentiality or impact on the market. CO-CHAIRMAN HARRIS opened the meeting to public testimony. Number 0639 LARRY PERSILY, Deputy Commissioner, Office of the Commissioner, Department of Revenue, came before the committee to testify. The department doesn't have a position on whether or not the data should be collected; they simply don't believe that it should be a function of the Department of Revenue. The department has worked a lot with the legislature over the years to refine their mission statement to include work related to the collection of taxes; they do not feel that there is a direct relationship between collecting this data and taxes. If this is fisheries data, he said, then it should be within the Department of Fish & Game. If this is an economic development to get more information to fishers, then it should be within the Department of Community & Economic Development. Nevertheless, if this function is placed within the Department of Revenue, it would take the equivalent of two staff positions to gather, input, and produce the reports. The department, however, is willing to work with the sponsor to help reduce that fiscal impact. For example, a consolidation of reporting areas, or electronic reporting would help reduce the amount of manpower needed. The department, however, is still looking at another staff position. Number 0809 CO-CHAIRMAN HARRIS asked Mr. Persily how much would electronic reporting affect the department's fiscal note. MR. PERSILY replied it would reduce it by about $22,000, which could be "shaved" a little more if the reporting areas were consolidated. In that way, there are fewer numbers to work with. Number 0866 CO-CHAIRMAN HARRIS asked Mr. Persily whether he thinks that this function should fall under the Department of Fish & Game rather than the Department of Revenue. MR. PERSILY replied this function should fall under the Department of Fish & Game, if the data is important for fishery management. Similarly, this function should fall under the Department of Community & Economic Development, if the data is a matter of economic development, fishers getting the best price, and promoting the industry. The numbers may be good to gather for statistics, he said, and they may have a purpose, but the Department of Revenue is not the place; the data is not directly related to taxes. Number 0950 MAC MEINERS, Salmon Fisher, came before the committee to testify. He said, "I just want to register my support of House Bill 363." REPRESENTATIVE DYSON asked Mr. Meiners how this bill would help him. MR. MEINERS replied, he thinks, it would help him make a little bit more money. It would hold processors accountable and fishers would really find out what the salmon are worth. Right now, fishers get a story. Furthermore, this would help generate more tax revenues for the state; salmon fishers are one of few who pay taxes in this state. Number 1018 REPRESENTATIVE DYSON asked Mr. Meiners how the state would get more tax revenues. MR. MEINERS replied, if 1 cent is accounted for in the pink salmon fishery, for example, it would equate to about $400,000 to $500,000 in extra revenues, which would also put more money "into his pocket." Number 1065 REPRESENTATIVE DYSON asked Mr. Meiners whether he's acting on the theory that processors aren't being honest with fishers. MR. MEINERS replied, "You hear so many stories." He'd like to follow his fish after dropping them off in the tramper to find out the truth. REPRESENTATIVE DYSON asked Mr. Meiners whether this legislation would help fishers get to the truth. MR. MEINERS replied, "I hope so. It's a start." Number 1124 REPRESENTATIVE JIM WHITAKER asked Mr. Meiners whether he could utilize the information that would be generated by this legislation as a bargaining tool. MR. MEINERS replied, "Hopefully." He's a small businessman, so he looks at revenues for the next year and plans accordingly. Yes, it would help. REPRESENTATIVE WHITAKER asked Mr. Meiners whether the data would be a year old. MR. MEINERS replied, "Hopefully not." He's hoping that this legislation would allow for earlier reporting. Number 1187 CO-CHAIRMAN HARRIS stated processors are concerned that this would "drive up" their costs and in essence "drive down" the amount of money that they could pay fishers. He asked Mr. Meiners whether he could see that happening. MR. MEINERS replied, "No. I really don't." This is the modern age. Information goes into computers. Sure, there are a few trade secrets, but he only hears the tales and excuses: the fish were too big, the fish were too oily, etc. Number 1322 KRIS NOROSZ, Representative, Icicle Seafood, Inc., came before the committee to testify. There are about 12 processors, she said, that have to produce a report for thermally processes salmon. This legislation would increase that number to 70 or 80. She further noted that this legislation would require a report by area of production, which would be extremely difficult if not impossible to produce because during peak periods fish are transferred to different plants around the state for processing. Moreover, fish are tracked through tickets, but once they reach the plants they are not kept separated. She said, We don't know that, you know, this tote of pink salmon from Prince William Sound went into a can and this tote may have been frozen. We can't physically do it. When we're at peak production we can't keep things separate like that. We might be able to keep track of the difference in the fish going into cans, but in terms of all the different product types we do, we just can't do it. And we certainly don't do it in terms of our paperwork. MS. NOROSZ further stated that she sees this legislation as an extremely onerous burden that Icicle probably couldn't meet, even if required. They would have to reduce their production and fishers wouldn't like to hear that they couldn't take their fish. Number 1512 MS. NOROSZ further stated that the data regarding quantity, prices and product type is proprietary information, even gathered in the aggregate. It's amazing how much customers already know, but they don't know the mix in terms of frozen, fresh, fillet or roe. She said, And I think that sometimes you have to be careful for what you ask for because once this information becomes public to the fishermen, it also becomes public to our customers. And I think we could end up with some unintended consequences that it's going to hurt both fishermen and processors in terms of price. MS. NOROSZ further stated that she understands the desire for additional information, but there is a lot out there that could be gleaned through market reports, for example. It's a guessing game for processors as well. She said, I don't think that you should be led to believe that if you know the quantity of the fish and the wholesale price that you can figure out what profits are. And it's really difficult for me to sit here and feel like everyone feels like they're being ripped off. I think the processing game is a lot harder than some people might realize, and I think that we've certainly seen over the years a lot of people go out of business. And if it was that easy, I think, more people would be jumping into the business rather than involuntarily getting out of the business. Number 1689 MS. NOROSZ further stated that processors like fishers are price takers, not price setters. Processors try to anticipate prices for their products, which is how a commodity market works. She further stated it seems that the impetus for this change is emanating from the Kodiak area. MS. NOROSZ further stated that fishers need to talk to their processors. If they aren't happy with their processor, they need to look for another one. She noted that Icicle has offered different types of programs that share in the profits to their fishers. She cited that some fishers in Southeast Alaska signed up for such a program and ended up being a half cent less in the end compared to the price offered to the rest of the fleet. As a result, many fishers did not sign up again for that program. In conclusion, she said, that communication is important between fishers and processors, but this legislation does not get those involved to where they need to go. Number 1789 REPRESENTATIVE DYSON stated, as a fisher in Bristol Bay, he delivered his fish to the same processor for many years because he felt that he could trust them, but he did not know what he would get for them. He is amazed at how processors can pay within 2 cents to 4 cents per pound of each other. He said, We worry that you all get together at Pebble Beach or somewhere in a cocktail room and say let's tell these guys what the price was, back in the days when it was just a half a dozen of shore-based processors. REPRESENTATIVE DYSON further stated it's hard to believe that there isn't collusion, but there might not be since they all sell in the same market. He further stated that Ms. Norosz' point of tracking this information is valid, especially since there is confusion when the salmon are running. He asked Ms. Norosz whether she has an alternative suggestion. MS. NOROSZ replied she wants to make it very clear that Icicle Seafoods has not been involved in any way in collusion, for it is illegal. The solution, she said, is better communication. It's easy to point a finger at fault, but the fact of the matter is, a commodity market involves many factors that processors do not have power over. Furthermore, the salmon market has changed. Alaska is not the only source of salmon anymore. There is competition, which has created a tough environment for business. Number 2064 REPRESENTATIVE DYSON asked Ms. Norosz and Mr. Kyle [Trident Seafoods Corporation] to indicate to the committee members the length of time processors hold fish. He has noticed that they often hold them until the time is right to sell. JOE KYLE, Representative, Trident Seafoods Corporation, came before the committee to answer Representative Dyson's question. The time, he said, can be anywhere from right away to months. Fish can be held for months in the hope that the market turns in a favorable direction, but that's not always the case. As a result, product and inventory may not be sold in time to meet the date and time requirements for reporting purposes. Number 2131 REPRESENTATIVE WHITAKER asked Ms. Norosz how many processors there are in each fishery. MS. NOROSZ replied, at the present time, 12 processors are required to report on thermally processed salmon. This legislation would include a lot more, but she's not sure of the exact number. She has been told that the number would be between 70 and 80. REPRESENTATIVE WHITAKER asked Ms. Norosz whether she is aware of a fishery with one processor. MS. NOROSZ replied she's not aware of a fishery with one processor, but there might be some that concentrate on a specialty value-added product. There are hundreds of salmon buyers, she explained, that buy different quantities and make different products. REPRESENTATIVE WHITAKER indicated that he is looking for the rule and not the exception. He asked Ms. Norosz whether, in general, there is competition amongst processors. MS. NOROSZ replied, "Yes." REPRESENTATIVE WHITAKER indicated that processors are stuck in the middle. He said, So, you compete for the product both in terms of supply and sales. You buy it, and you compete to buy it for the best price that you can, and then you compete to sell it for the best price that you can. You're stuck in the middle. Right? MS. NOROSZ replied, "Yes." She further stated that Icicle Seafoods was started over 35 years ago by a group of fishers who were disgruntled with the salmon markets and processors available at the time. The company is still held by fishers and the majority of stock holders on its board of directors are fishers. REPRESENTATIVE WHITAKER said, if this law went into effect, suppliers would know what the product is being sold for, and customers would know what the product is being bought for. It appears that this would put processors into a tight market dynamic. MS. NOROSZ replied absolutely. Processors would get it from both ends. In addition, customers would know what they produce, what they hold in inventory, and what they have been selling products for. Number 2331 REPRESENTATIVE AUSTERMAN pointed out that the reporting requirements provide for at least three processors in an area in order for this information to be distributed. In other words, if there are only two processors in an area, then the Department of Revenue cannot give this information out. REPRESENTATIVE DYSON pointed out, for the record, that he does not want anybody to infer that he has or had any knowledge about collusion. He said, We fishermen, who are not all that bright sometimes, are just amazed by the coincidences. Maybe, it's the market forces that drive it in that direction. REPRESENTATIVE MARY KAPSNER stated, for the record, that there is room for only one processor on the Kuskokwim River; the fishery is failing. Number 2415 CO-CHAIRMAN HARRIS referred to a meeting in November and indicated that he believes this legislation is before the committee because of a mistrust of processors on the part of fishing groups. They feel that they don't get enough information in a timely fashion out of the Commercial Operators Annual Report [COAR], which is probably accurate. He asked Ms. Norosz to elaborate on why she thinks that's true. MS. NOROSZ replied the frustration at that meeting was shared by both processors and fishers. She said, What I felt came out of that meeting was a commitment to try to streamline that report to make it more uniformed in terms of the definitions of the type of product forms that were being reported. So, that there wasn't six million pounds of a 'miscellaneous' category. So, that people knew what those products were. And there's been a work group that has been put together to do just that. The other thing that came out of there was the desire to do electronic reporting, realizing that that would speed the process up for tabulating the results and getting the results out to the public a lot quicker. I've had indications--indications have been made that that should be what happens by April of 2001. I know that the federal government is putting a lot of money into this idea of electronic reporting, so I think that in another year we're going to start getting information in a more usable form and a quicker manner. But I do still think that there's frustration between fishermen and processors, and I think that's, once again, is an issue where we need better communication. But I think part of where that frustration is emanating from is that there's a lot of factors that influence our markets to which we have no power over, and the fisherman has no power over. And that is really frustrating. We don't have any power over the consumers. We don't have any power over the exchange rate for currencies, especially in Japan. We don't have any control over world salmon supply and how much farm salmon is being produced and so that leads to a high level of frustration. But that's not something that I, as a processor or Joe as a processor, can change. We've got to learn to live with it, and hopefully fishermen and processors in Alaska can learn to work together better so that we can promote Alaskan salmon. But I don't think this bill gets us there. I think it's going to be detrimental. Number 2603 REPRESENTATIVE WHITAKER asked Ms. Norosz whether Icicle Seafoods processes farmed salmon obtain elsewhere. MS. NOROSZ replied in the negative. She pointed out, however, that Icicle Seafoods has done some secondary processing for customers upon request. Number 2649 DAVID FORBUSH, Representative, Wards Cove Packing Company, testified via teleconference from an undetermined location. Currently, 12 processors report on 13 different products to the state for canned salmon, and roughly 98 processors would qualify under this legislation. They would have to report on 35 different products. MR. FORBUSH further stated, in reference to the COAR, the Pacific Seafood Processors Association has submitted a proposal on electronic reporting to the Department of Fish & Game in order to help speed up and improve reporting information. He pointed out that everything this legislation asks for Wards Cove does once a year in the COAR, which is sent in by April 1 of the following year that a product is produced. In general, it takes the Department of Fish & Game three to four months to process that information. There is frustration in terms of timeliness, he said, but that report deals with all 400 processors throughout the state. MR. FORBUSH further pointed out that this legislation requires three areas of reporting. The first area is a bar code, which would report the date, plant location, gear type, species, and what was done to the product. A bar code program would cost about $10,000 per location, while the bar code equipment would cost about $6,000 per line. A large processor would need roughly six lines, a medium size processor would need roughly three lines, and a small processor would need roughly one line. The average cost for a large processor would be $46,000, for a medium size processor $28,000, and for a small processor $16,000. In total, he noted a cost of $200,978,000. MR. FORBUSH explained that the second area is a software inventory system, which would cost about $30,000. MR. FORBUSH explained that the third area is a billing sales system that would bill, report taxes, and generate the report required under this legislation. He pointed out that this is not a cost-by-plant, but a cost-by-corporation, which would equate to $1.5 million. In the end, the total cost to seafood plants would be roughly $400,478,000. MR. FORBUSH further pointed out that electronic reporting would allow for transmission within one to two weeks after each reporting period. The question is, How long would it take the state to process that volume of information? TAPE 00-03, SIDE B Number 0001 MR. FORBUSH continued. In conclusion, Wards Cove Packing is opposed to this legislation. There is no advantage for this type of reporting, especially since the information is already made available at the end of the year in the COAR. Number 2942 REPRESENTATIVE DYSON asked Mr. Forbush whether it would be attractive to the industry if the state was to make a low-interest loan available for the necessary equipment. MR. FORBUSH replied that he can't see an advantage or a need from a company standpoint to make this information available, especially since it's an accounting function that is already done at the end of the year. He noted that the sales department gets their information on the marketplace from customers and trade materials. In other words, they don't read numbers to get the information that they need. Number 2837 VIC JONES testified via teleconference from Cordova. He supports this legislation. It would be good, he said, for all fishers. It would provide for timely reporting of wholesale prices, and reflect all production, not just canned production. Number 2807 JOHN RENNER, Fisher, testified via teleconference from Cordova. In the past few years, he said, he has been basing his season on pre-signed contracts with processors, which require accurate information. These contracts are based on a bonus or added economic incentive, if a certain level of production and sales are reached. Under the current COAR, he is having trouble determining figures to base such a contract on, which is the crux of this issue. This legislation, he said, would help facilitate negotiations with processors. He could see that there would be a little added burden for processors, but for an honest and open system, this information is necessary, otherwise a fisher has to take a processor's word. He would prefer that this information is presented in black and white. Please support this legislation. Number 2663 DOUGLAS DONEGAN, Vice President, Trident Seafoods Corporation, testified via teleconference from Anchorage. He is opposed to this legislation. The requirement, he said, to report by fishery management area is impossible to comply with. During the season, fish are routinely transferred from one area to another for processing. Moreover, even if this was possible, the inventory and record-keeping requirements would be a considerable expense. He strongly suspects that this information could actually provide leverage to drive down prices, which would ultimately lower the price paid to fishers and reduce revenues to the state. He also thinks that this information would provide endless opportunities for misinterpretation, which would increase the level of mistrust between fishers and processors. In addition, prices are subject to many variables including the value of the Yen and amount of farmed salmon on the world market at any one point in time. He said, "We must recognize that this is just the beginning. If we establish this precedent, we will eventually be forced to add on all other species, increasing the cost of this program both to the state and to the processors." He strongly recommends instead that the annual COAR be improved. He also finds it very disturbing to expend additional state funds in an era where state seafood inspections have almost been eliminated because of budget reductions. Surely, he said, the arguments for a good seafood inspection program outweigh the arguments for increased reporting. Thank you. Number 2557 NICK KOURIS, Bristol Bay Fisher, testified via teleconference from Anchorage. To be honest, he said, this bill would help him. He is tired of looking at open fish tickets. In addition, he is worried about why 95 percent of the processors in Bristol Bay pay almost the same price. He said, "You know, they say trust us, you know, but the record never shows up." Thank you. He supports this legislation. Number 2503 SUSAN ASPELUND, Executive Director, Cordova District Fishermen United [CDFU], testified via teleconference from Anchorage. She is also speaking on behalf of the fishing fleet in Prince William Sound and Copper River. The CDFU board of directors voted unanimously to support this legislation. The seafood industry, she said, is in a constant state of change, and in order to accurately depict its status regulators, legislators and other policy makers need to know the economic worth of product, value, production and inventory. While good information exists, she said, for thermally processed salmon products due to the Average Wholesale Price Report, that same level of reporting is needed for fresh, frozen and roe products. She further noted that fishers pay a 1 percent assessment for marketing, and a 2 percent aquaculture assessment, both based on ex-vessel value. The City of Cordova receives revenues generated by the fisheries business tax also based on ex-vessel value. This legislation would, therefore, provide accurate information for every entity dependant upon revenue streams derived from salmon products. Moreover, the current information provided in the COAR is neither timely nor verifiable. It contains inaccuracies due to noncompliance and confidentiality issues. In addition, the seafood market has become increasing complex and diverse. She said, "Gone are the days of the single-product forum and marketplace. Markets are very difficult to understand and reliable information is difficult to obtain and/or understand." If this industry is to mature and meet these challenges, she said, then all involved must work with a clear understanding of the issues to survive much less succeed. Fishers, in particular, are poorly equipped to understand the marketplace, which often creates a divisive attitude between fishers and processors, at the very time when understanding and cooperation would improve the ability to respond to these types of challenges. The basic information provided for in this legislation ought to enable fishers to make better business decisions based upon facts, not fiction. CDFU encourages the committee members to support this legislation. Number 2327 JACK KEANE, Bristol Bay Fisher, testified via teleconference from Anchorage. He said, I was just reflecting on the changes in the marketing since that time that when I was first in Bristol Bay the price was largely negotiated between the fishermen and the packers. And then just about that time the Japanese market was emerging along with the what we called 'floater' or cash markets at the time that were smaller, newer processors that are now the giants of our industry. And we thought we were sort of working together to accept a grounds-price that might be 80 percent of the ultimate price and then a 20 percent bump later on. And those buyers were short of money and the Japanese were supplying the money and most of you know sort of how that worked, I think. And then all of a sudden there was a day when nearly simultaneously all of these now much larger processors said, 'Well, gee we don't even know what 80 percent of it's gonna be. I think you guys ought just go fishing with no price on the ticket.' And ever since then that's pretty much what we've been doing. What I call fishing for tips. And then there was a strike in Bristol Bay in 1990 that all over the state it seemed to be about price, but I think that two-thirds of it was about having something on the fish ticket. And then a legislative law was put in to insist that fish processors posted the price being sold. Well, it was never enforced for two years and then after two years it sort of mysteriously disappeared. So, then for all that time now we've been at the end of the season giving the fish companies an amount of fish almost equal to some of our homes with nothing on the fish ticket. In this last year when we left the docks we thought we were looking at $1.30 or somewhere there 'abouts.' When we got back to the docks, it seemed like it was about maybe a $1.00, but when we got back home it seemed like maybe it was 80 cents, which is a huge disparity that Icicle brought up this word 'mistrust' and that's exactly the problem and why this bill may be up here, is that a mistrust does exist and while all the processors and fishermen and legislators are here somehow we need to work together to get more so that the processors and the fishermen's issues are more the same. And it seems like the state of the art of that is the USA contract around most of the state, except USA, which is based at least on the wholesale price that the processors get for their fish. That doesn't put us on the same side of the street because, I think, most fishermen think that the processors need to do more innovation, find new markets, get us out of Japan, but there's not any way for us to try and do that because once we let go of those fish then it's pretty well up to them. So, I think that I'm in support of this 363; that we need this reporting and/or a substitute would be for the processors to come up with a way of cooperating that might be opening their books to a neutral CPA to settle up with the price, to find some way to work with the fishermen and it seems like we're all shooting ourselves in the foot here because the processors are going to antitrust suit and it seems to me that the seeds for another one are there; that this year we again sold our fish in Bristol Bay on an open ticket. The price seems to be, as one other fisherman testified, you can't flip a penny or two in between one processors from another by the time you add in the services and this and that. They all shake out about the same, and Icicle said, 'Well, gee if you don't like us let's go to the next one,' which is about like these chairs around this room here. One's the same as the other. So, I think, the thrust of this is to try and find some way that that our fishing industry which seems to me ten years behind the times can work together to come up and compete in this globally competitive environment together. So, I don't know that 363 is the perfect answer to that, but we need something. That's--that's my suggestions and thank you very much. Number 2050 KEVIN ADAMS, Bristol Bay Fisher, testified via teleconference from Anchorage. Being the single, largest resource and tax base in Bristol Bay, he said, timely and accurate reporting would be most helpful for budget projections. Community members need to know if their jobs would be funded over the winter. A bad fishing season and job uncertainty, he said, has loaded these communities with a lot of unnecessary stress. If a processor has sold its pack at the end of the summer, diligent tax reporting would infuse money to communities earlier. On the other hand, however, knowing that the money is not coming would allow a community to search for other funding. Thank you. Number 1972 PAT HARDINA, Controller, Cook Inlet Processing Inc., testified via teleconference from Kenai. In response to the issue of collusion, she believes that fishers are responsible for processors paying the same price. She said, If I pay a nickel more than the processor down the street, the processor-down-the-street fisherman goes down there and beats them up for a nickel more. Conversely, if processor 'X' pays a dime more than me, our fishermen come into our office and demand a dime prior to going--or they'll go fish for someone else. MS. HARDINA further stated it's a little surprising that fishers think processors are responsible for the prices being the same. As a controller, she said, she is directly responsible for filing the COAR, which is very comprehensive and general at the same time. Most processors in the state do not have adequate computer and reporting systems that allow for the transmission of this type of data. She called it a garbage-in, garbage-out process. In addition, the information is not accurate enough for fishers to base judgement. She cited that many processors do not track the sale of their fish by management area. The problem with fresh, frozen and roe, she said, is that it matters where it came from; it doesn't matter where canned salmon comes from. Processors average this information, then the Department of Fish & Game averages it again, which results in a very general set of data. Another problem, she said, is that the reporting of different products could include a skin-on fillet, a skin-off fillet, a pin-bone-off fillet, a pin-bone-on fillet, an industrial-cut fillet, a vacuum-packed fillet, and an individually-cooked-frozen fillet. All of that information would be combined to one line that says "salmon fillet." Similarly, salmon roe could include many different types which would also be combined to one line, which negates any benefits of reporting this type of data individually. Another problem, she said, is burden. It takes her staff one week with four people to file the COAR one time per year. Three times a year would triple that effort. It would almost be impossible for Cook Inlet Processing to meet the September 30 reporting period because from May 1 to August 31 they do 50 percent of their annual production, while salmon processors do 100 percent of their annual production. Lastly, who will audit this information going to the state to ensure that the data is valid? Prior to USA attaching salmon contracts to the COAR, she was never interested in the results. It was simply filed away. The same is true for the Wholesale Case Price Report [WCPR]. She's not interested; she is well aware of the inconsistencies in the data. In summary, she said, this legislation would require most salmon processors in the state to spend considerable time and money to report largely inaccurate data for the purposes of providing invalid information to fishers and the market, both of which could be used against processors. Number 1425 BRUCE SCHACTLER, President, United Salmon Association [USA], testified via teleconference from Kodiak. He noted that USA is the organization that sets the contracts and ex-vessel value, which are based on the COAR. This legislation, he said, calls for a commodity report. The COAR is very complicated and no one wants to require that information three times a year, which is why it was decided to add this to the thermally processed reporting requirements. In addition, most of the potential problems being discussed today in regards to confidentiality were discussed when the reporting requirements for thermally processed salmon were changed from two to three times per year, and the language was changed to include pouch products. He also noted that after the requirement changed the price went up; it didn't go down. Since then, however, the price has gone down, but he hasn't seen anything to indicate that the fluctuations are related to the actual report being put out. In addition, this report asks for first wholesale price, whereas the COAR asks for processed, which results in theoretical and manufactured data. It's really just a database, which is unfortunate because it's the only thing that the harvesters and public have anything to base their information on. Furthermore, the COAR is filed in April and it isn't until July, August or September that it is finalized. He cited that for the 1999 season legislators, fishers and the public will not have any idea of its value until 2000, which is too late. In conclusion, he said, there is no way for the Department of Revenue to cross-reference and audit this type of information. He believes that this legislation wouldn't move the industry forward, for the information would be anywhere from three to six months old, which in this day and age is ancient and worthless to any competitor. Number 0824 TOM WISCHER, Kodiak Fisher, testified via teleconference from Kodiak. He is representing himself and the United Fishermen of Alaska. He thinks that the timely reporting of wholesale fish prices throughout the year is important to every citizen of the state. There is a direct relationship, he said, between those numbers and ex-vessel value, which determines how much goes to the general fund. As a fisher, he believes, that he is a partner with processors; he has just as much at stake as they do. In other words, he can't survive without them and they can't survive without him. The problem is, he has very little information to base his business decisions upon. As previous testimony has indicated, the data is garbage. As a result, it's hard to determine whether he got a fair price and which fish to target the next season. He said, Ideally, I would want to go to a processor as a partner in the industry and say, 'Okay, you're telling me that this is the market value of your products and this is what you're willing to pay me and I'm willing to accept that and if we're gonna share in this process that at the end of the season you're gonna justify to me that--that I got a fair deal and give me numbers from your operation.' Well, that's not happening, and I don't know that that has happened successfully anywhere. Ideally, I think that's the answer, and that gives fishermen the opportunity to say, 'Well, I don't like your company because you're not marketing salmon, and you're not getting a good enough price in the world market, so I'm gonna go down the street.' But given that that's not a possibility at this point in time, I think this bill offers the only compromise that makes sense. And that's to have a benchmark, a statewide, wholesale average of the most common product forms that salmon take in the world market in order for me to base all of my business decisions upon. And for that reason, I urge support of that bill. Like I say, I think every citizen in the state has a stake in knowing what the value of our salmon pack is, whether it's in the can or whether it's a fillet. It doesn't really make any difference. Thank you. Number 0568 MATT MOIR, Representative, Alaska Pacific Seafoods, testified via teleconference from Kodiak. When the fishery is at its peak, he said, everybody is pressed to their limit; a lot of fish changes hands throughout the state. As a result, it would be nearly impossible to track products by reporting area. In addition, tracking by specific product type would be burdensome, as many testifiers have already indicated. He's not convinced, therefore, that this legislation would benefit the industry as a whole. His biggest fear is that the customers would gain leverage, and that the industry would sacrifice confidentiality. He's against this legislation, but he's glad to see that the COAR is being revised. Thank you very much. Number 0377 BILL LINDOW, Representative, Copper River Salmon Producers Association, testified via teleconference from Cordova. The contracts that the association has negotiated with local processors for Copper River salmon products are based on the COAR. It's very important, therefore, that the COAR is improved so that their profit sharing becomes more meaningful and accurate. The association, he said, wants to be progressive and find ways to work with processors. This legislation is a good start. He realizes that this legislation presents problems, but he hopes that it will bring the parties to the table for a reasonable agreement. Thank you. Number 0158 SCOTT McALLISTER, Representative, United Salmon Association, came before the committee to testify. He has been a charter member of the association since its inception. He understands that the relationship between harvesters and processors is one of a long and rich history, which goes back to territorial days when everything went into a can and fish were bought by the piece. But as time has gone on, he said, that relationship has not changed. The heart of the issue is trust. He said, We are clearly co-producers of a product here in Alaska, which is the number one product produced here in Alaska outside of raw...[TAPE CHANGE] TAPE 00-04, SIDE A Number 0001 MR. McALLISTER continued. He said, ... we are taxed 1 percent of our gross earnings as fishermen goes to marketing. And we work together with the processors and the wholesale and retail industry to return ourselves the best possible interest for these products. Clearly, we cooperate on the grounds to get our fish out of our gear, over our decks, onto transportation network that gets fish over the dock and into the processor's pipeline and then down the road to service these markets where we're spending our marketing dollars. When it's all come a time, everything comes down and is due and payable, there is a strict proprietary secret that the processors withhold from us, and that is how much this product was worth until a year and a half later when they're required to report through Commercial Operators Annual Report at Alaska Department of Fish & Game the results. Well, at the end of the year and then a year and a half after the fishing season we get the results of the market. MR. McALLISTER further stated that the relationship between fishers and processors is dysfunctional. Fishers are asked to be co-producers and co-sell, yet they don't have any idea of the value. He doesn't know of any other industry in which people conduct business under this type of arrangement, especially when dealing with a public resource. Every citizen of the state, he said, has a vested interest in the ex-vessel value. It's incumbent upon the government, therefore, to restore an element of trust. He would be glad to answer any questions. Number 0370 REPRESENTATIVE DYSON asked Mr. McAllister whether he could see another way to solve this problem. A previous suggestion was to let fishers "see the books" and "share in the risks." MR. McALLISTER replied he has participated in a shared type of relationship in the past with black code, halibut and herring, but the salmon fishery is a different story. He noted that the United Salmon Association has pursued transparent types of relationships with processors, but have failed. They instead have ended up in price actions. He said, There is so much transparency and there's such a level of understanding in all the other aspects of our business that this one missing piece of information is something that the processors tenaciously hang on to. And regardless of their--anybody's desire to enter into these agreements, the closest we have come is the price contracts we currently have at United Salmon Association for thermally processed salmon. We have a very good price index. We have very successfully negotiated contracts with processors that have an in-season, ex-vessel price and have a settlement schedule based on the performance of the wholesale season after the season, which is based on the reporting of the WPR by processors to Department of Revenue. It's working now, and I believe it can work for these other product forms which we don't have. Number 0604 REPRESENTATIVE DYSON asked Mr. McAllister whether a transparent relationship has worked with other kinds of fish. MR. McALLISTER replied yes. It has worked for herring, cod and halibut. REPRESENTATIVE DYSON asked Mr. McAllister, What will it take to make this happen for the salmon fishery? MR. McALLISTER replied, it will take a reasonable dialogue with processors, a wholesale price index upon which to base ex-vessel value, and the attachment of a fisher to the market value over time as the product is sold after the season. REPRESENTATIVE DYSON asked Mr. McAllister whether he believes that this legislation gets him there or part of the way there. MR. McALLISTER replied it gets him to the wholesale price index, so that a price and settlement could be negotiated. The dialogue part is up to the fishers by region and processor, however, which could take on a number of different forms. Number 0858 CO-CHAIRMAN HARRIS closed the meeting to public testimony. Number 0871 CO-CHAIRMAN MORGAN made a motion to adopt Amendment 1, 1-LS1298\G.1, Utermohle, 2/22/00. It reads as follows: Page 3, following line 26: Insert a new bill section to read: "*Sec. 7. AS 43.80.100(4) is amended to read: (4) "fish processor" means a person engaging or attempting to engage in a business for which a license is required under AS 43.75.010-43.75.055; "fish processor" does not include a person engaged solely in secondary processing of salmon products; in this paragraph, "secondary processing" means additional or supplemental processing performed on salmon products that were purchased at wholesale and for which the fisheries business tax under AS 43.75 was paid by another fisheries business;" Renumber the following bill sections accordingly. REPRESENTATIVE DYSON objected to the motion and asked that it be explained. Number 0981 JOANIE WALLER, Staff to Representative Alan Austerman, Alaska State Legislature, came before the committee to explain the amendment. Alaska Seafoods International, she said, has expressed concern, as a secondary processor, that this reporting requirement would affect them since they are a value-added processor, not a primary processor. REPRESENTATIVE DYSON asked Ms. Waller whether removing secondary processors would affect the value of the COAR, even as amended. MS. WALLER replied yes. She noted that Alaska Seafoods International wants to clarify that fish primarily processed have already been taken into account. Number 1088 REPRESENTATIVE DYSON indicated that he needs more time to consider this amendment. He is guessing that this would spark an interesting discussion on what becomes a secondary process. He is also guessing that some processors would indicate that their business includes both primary and secondary processing. REPRESENTATIVE DYSON withdrew his objection. CO-CHAIRMAN HARRIS announced that Amendment 1 has been adopted. Number 1173 CO-CHAIRMAN MORGAN made a motion to adopt Amendment 2, 1-LS1298\G.2, Utermohle, 2/28/00. It reads as follows: Page 4, lines 11-17: Delete all material and insert: "(8) "area of production" means the area in which a salmon product was produced; in this paragraph, "area" means one of the following areas: (A) Southeastern and Yakutat; (B) Prince William Sound; (C) Cook Inlet; (D) Kodiak; (E) Chignik; (F) Aleutian Islands, Atka-Amlia Islands, and Alaska Peninsula; (G) Bristol Bay; or (H) Kuskokwim, Yukon-Northern, Norton Sound-Port Clarence, and Kotzebue." CO-CHAIRMAN HARRIS objected to the motion and asked that it be explained. MS. WALLER deferred to Mr. McAllister of the United Salmon Association. MR. McALLISTER explained that Amendment 2 came about as the result of brief discussions with the Department of Revenue as a cost-cutting measure to reduce their fiscal note. It consolidates the Aleutian Island, Atka-Amlia Island and Alaska Peninsula into one reporting area. It also consolidates the Kuskokwim, Yukon-Northern, Norton Sound-Port Clarence and Kotzebue into one reporting area. It also consolidates Southeastern and Yakutat into one reporting area. The other areas remain the same. CO-CHAIRMAN HARRIS asked Mr. McAllister whether the intent of the amendment is to tighten up the districts so that there are less reporting areas, thereby cutting costs. MR. McALLISTER replied yes. There would be fewer fields of data to enter. CO-CHAIRMAN HARRIS withdrew his objection and announced that Amendment 2 has been adopted. Number 1376 CO-CHAIRMAN HARRIS indicated that he doesn't have the votes to move this legislation out of committee today. He is also disappointed in that the Department of Fish & Game doesn't have a representative here to testify. He will hold this bill over for further consideration. REPRESENTATIVE DYSON asked that public testimony be allowed when the committee reconvenes to discusses the amendments further. He thinks that Amendment 1 will be problematic. CO-CHAIRMAN HARRIS indicated that he would open public testimony again when the committee reconvenes. [HB 363 WAS HELD OVER FOR FURTHER CONSIDERATION]
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