Legislature(2013 - 2014)CAPITOL 120
02/06/2014 10:00 AM House FISHERIES
| Audio | Topic |
|---|---|
| Start | |
| HB204 | |
| Overview Alaska Seafood Marketing Institute (asmi) | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 204 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
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.
| 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 |