Legislature(2013 - 2014)CAPITOL 120
02/07/2013 10:00 AM House FISHERIES
| Audio | Topic |
|---|---|
| Start | |
| Presentation: World and Alaska Salmon Markets | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON FISHERIES
February 7, 2013
10:07 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Lynn Gattis
Representative Kurt Olson
Representative Jonathan Kreiss-Tomkins
MEMBERS ABSENT
Representative Eric Feige
Representative Bob Herron
Representative Craig Johnson
COMMITTEE CALENDAR
PRESENTATION: WORLD AND ALASKA SALMON MARKETS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
GUNNAR KNAPP, Interim Director and Professor of Economics
Institute of Social and Economic Research (ISER)
University of Alaska Anchorage (UAA)
Anchorage, Alaska
POSITION STATEMENT: Provided the overview of Trends in Alaska
and World Salmon Markets.
ACTION NARRATIVE
10:07:43 AM
CHAIR PAUL SEATON called the House Special Committee on
Fisheries meeting to order at 10:07 a.m. Present at the call to
order were Representatives were Seaton, Gattis, Olson, and
Kreiss-Tomkins.
^Presentation: World and Alaska Salmon Markets
Presentation: World and Alaska Salmon Markets
10:08:06 AM
CHAIR SEATON announced that the only order of business would be
a presentation on world and Alaska salmon markets.
10:09:08 AM
GUNNAR KNAPP, Interim Director and Professor of Economics,
Institute of Social and Economic Research (ISER), University of
Alaska Anchorage (UAA), introduced today's overview as a
compilation of two presentations: April 2012 given in Kodiak to
the Alaska Department of Fish & Game (ADF&G), Division of
Commercial Fisheries; and January 2013, given in Santa Monica,
California, to the Global Seafoods Markets Conference, sponsored
by the National Fisheries Institute (NFI).
10:12:50 AM
MR. KNAPP began with the trends in Alaskan markets, stating that
salmon harvests have fluctuated over the decades, but in general
have remained strong. The resources are in relatively good
condition, despite reports of low catches in 2012. Interesting
trends are taking place, regarding production, such as frozen
pink salmon superseding canned. The diversification of the
frozen salmon market is causing the U.S. to export less to
Japan, export more to the European Union (EU) and China. China
exports are primarily for reprocessing into value-added products
which are re-exported to the U.S. and EU markets. Also, he said
domestic salmon consumption has increased.
10:14:52 AM
CHAIR SEATON inquired about the shift in the Pink salmon
industry and asked if it primarily represents a relocation of
canning operations from Alaska to China.
MR. KNAPP said much of the pink catch is immediately frozen and
delivered to China for further processing not only into canned
items but into a wide variety of value added products. The
salmon industry went through an economic decline in the early
1990s, but has significantly rebounded and become stronger since
2002. Alaska's salmon industry has rebounded to a stronger
level and wholesale prices have increased dramatically. Both
the fishermen and processors have shared in the rebound and the
permit prices have increased commensurately. The driving force
in the world salmon market has been the enormous growth in
farmed salmon production. Farmed Atlantic salmon support two
thirds of the global market demand. The growth in production is
due to an enormous increase in demand created by new markets
that have emerged in countries such as Russia, Eastern Europe
and Brazil. The dramatic demand for supply caused farmed salmon
prices to strengthen during the period of 2002-2010 and spike
during 2008-2010; however, a price crash followed the spike
years when major disease problems befell the Chilean salmon farms.
The Chilean production is recovering, but uncertainty in world
farmed salmon markets persists and what happens regarding
production will affect prices. Consequently, what happens in
the market place for farmed salmon corresponds directly to what
occurs in the wild salmon market. This is especially true where
the two markets compete directly, as in the frozen headed and
gutted (H&G) product, frozen fillets, and fresh salmon sales.
10:18:21 AM
MR. KNAPP directed attention to the committee packet handout
titled "Trends in Alaska and World Salmon Markets," dated
February 7, 2013, and explained the bar graph labeled "Alaska
Salmon Harvest Volume," which compares, in millions of pounds,
the five species of salmon harvested from 1980-2012. The three
species of significance are sockeye, pink, and chum.
Illustrating the same information in a line graph to highlight
the species contributions, he said the pink salmon harvest
varies dramatically statewide and by region. The sockeye have
fallen off from the very high harvest of the early 1990s,
rebounded slightly, and are expected to fall again, as forecast
by the state's Bristol Bay projections. Chum harvests have
remained consistent and strong. He pointed out that hatcheries
are major contributors to pink and chum production. He moved on
to data from the Commercial Operator Annual Reports (COARs),
pointing out that the data for 2012 are not yet compiled. The
bar graph labeled "Alaska Salmon Production: Sockeye,"
illustrates the distribution of product between canned, fresh,
frozen, and other, with the most important being frozen. The
data graphed by market share illustrates how the frozen and
fresh products have risen in importance above canned. He said
this is likely attributable to fresh sockeye being obtained from
the Southeast and Cook Inlet regions, where it is easier to
transport the fresh product due to the road system; Bristol Bay
produces the largest share of frozen and canned sockeye. The
corresponding bar graph labeled "Alaska Salmon Production:
Pink," and accompanying market share value graph, indicate a
dramatic increase in frozen production, in the last decade, and
the shift from 80 percent of the harvest being canned to only
about 33 percent. He continued with similar bar graphs for chum
production and shares, to note that the majority of the chum
harvest is processed as a frozen product. Five major product
forms account for most of the volume of Alaska salmon sales,
which are: frozen sockeye, pink and chum, and canned sockeye
and pink. He provided a graph labeled "Alaska Salmon Production
by Product," and said roe products represent a valuable part of
the market, though it is not as abundantly produced.
10:23:20 AM
MR. KNAPP described a series of pictures showing operations at a
Chinese salmon reprocessing plant. An increasing share of
Alaska's salmon harvest is frozen H&G, and shipped overseas for
this type of handling. The first stage of reprocessing requires
thawing the frozen H&G salmon, filleting the whole fish, and
hand pulling the pinbones. This is followed by refreezing of
the boneless fillets, cutting to market portions, and packaging
for worldwide sale. The process may vary based on the focus of
the processing plant, or the species being reprocessed. He
pointed out that China reprocesses salmon and pollock, not only
from Alaska, but also Russia, as well as shrimp from around the
world. The world fish processing industry has become centered
on Asian plants, due to labor costs. He provided a picture of a
consumer ready box, and said boxes are printed with various
languages for the appropriate world markets. The processing
plants employ great numbers of workers, and the level of hand
labor involved would not be possible in America.
10:26:55 AM
CHAIR SEATON noted the garb of the workers and asked about the
attention to the details, such as the masks worn, and asked
whether it relates to health and safety standards, and if it is
a marketed standard.
MR. KNAPP reported that he has visited processing plants around
the world, and said he is continually impressed by the
importance placed on hygienics and product handling standards,
which surpasses anything he has observed in Alaska. He
suggested that the requirement for international re-export
products may be especially stringent and backed up by corporate
inspectors.
10:29:10 AM
REPRESENTATIVE KREISS-TOMKINS asked if processing improvements
are taking place that would allow this type of processing to
occur in Alaska, and still be competitive.
MR. KNAPP said pictures of salmon processing plants in Norway
would primarily be of machines with very few people involved,
basically to monitor the equipment, but not performing the
manual labor as seen in the Asian plants. He reported that
investments are being made to upgrade Alaskan plants, such as in
Bristol Bay where new lines with fillet and portion machines
have been installed. China and other Asian areas are
experiencing increases in labor costs, thus, this practice may
become a thing of the past.
REPRESENTATIVE KREISS-TOMKINS inquired about the possibility, or
indications, that processing could shift back to Alaska.
MR. KNAPP responded that improvements and upgrades are being
made, and value added products have driven a market demand that
requires diversity. The expanded market creates new potential
for processors, he opined, resulting in new areas of investment.
10:32:40 AM
REPRESENTATIVE GATTIS asked whether one reason the fresh catch
is being frozen is due to the capacity of the canneries.
MR. KNAPP responded that companies with large plants and high
volume processing have the capacity to provide a diverse product
based on market requirements. Adjustments of product output may
need to be made on a weekly; a scale of flexibility that did not
previously exist. However, during high volume periods and peak
season harvest, Alaskan processors must gear-up to produce a
single product, such as canned or frozen salmon for instance.
When the rush of salmon slows, other products can be run, such
as fillets.
REPRESENTATIVE GATTIS surmised that cannery capacity doesn't
tend to "drive what the market drives."
MR. KNAPP explained that the market is becoming increasingly
important, and in high volume fisheries that occur in a short
period of time, only one choice for processing may be possible.
10:36:04 AM
MR. KNAPP said the next set of data is from 2010 dealing with
trends in exports and end-markets for major Alaska salmon
products. He said that in tracking U.S. salmon exports, it can
be assumed that it is primarily Alaskan salmon and whatever is
not exported, is sold in the U.S. market; export data are
accurate and domestic are assumed. He pointed out the graph
labeled "Alaska Production & U.S. Exports: Frozen Sockeye
Salmon," and said Alaska's most valuable salmon product is
frozen sockeye. Review of data from the 1990s, and earlier,
indicate that nearly all the frozen sockeye was exported to
Japan. Through the 1990s to the current decade, sockeye is no
longer being exported in the same volume, with more remaining in
the U.S., and the primary exports are now to China and the EU,
not Japan; this represents market diversification.
REPRESENTATIVE GATTIS queried who Japan is buying from, if not
from the U.S.
MR. KNAPP replied that Japan has increased purchases of farmed
salmon, particularly from South America. He explained that the
lessening of dependence on the Japanese market came about for a
number of reasons but created diversification in the Alaska
market, with an end result of a strengthened industry. The data
for 2011 and 2012 are not on the graph, but he said the pattern
is consistent.
10:41:24 AM
MR. KNAPP reviewed data similarly graphed for pink salmon, and
pointed out the huge increase in frozen production, which is
primarily exported to China and Thailand for reprocessing.
Continuing with comparative data for chum salmon, he said that a
quantity of frozen chum was at one time destined for the U.S.
market; a trend that has also shifted to China. The canned
markets have not changed as dramatically, he reported. The U.S.
remains a major consumer of canned pink salmon, particularly in
the eastern and southern states. He provided an anecdote
regarding a recent telephone call from a senior citizen group,
located in North Carolina, inquiring about the rising cost of
canned sockeye salmon. The major destination for canned sockeye
salmon is the former British Commonwealth; especially the United
Kingdom and Canada, probably for re-export he conjectured.
10:44:07 AM
MR. KNAPP moved on to trends in ex-vessel prices paid to
fishermen, stating that there was a drastic fall in the 1990s
but a dramatic rebound since 2002. In the last year the ex-
vessel price is predicted to record a dip; final data are
pending. Inflation needs to be considered in the price recovery
but the purchasing power of 2002 has not been regained.
Regarding the first wholesale prices paid to processors, he said
that two data sources were used to compile the report; COAR and
the Alaska Department of Revenue (DOR), Salmon Price Reports.
He pointed out the low rates that processors received in the
1990s are reflected in the ex-vessel prices paid out, as are the
increases when the market rebounded. He directed attention to
the table labeled "Average First Wholesale Prices Received by
Alaska Salmon Processors: Roe," to state that the roe market
stands alone without competition from farmed products.
Influences to this market come from the competing markets in
Russia and Japan. Roe is harvested strictly from wild salmon
and the product prices have remained strong in recent years.
10:49:38 AM
MR. KNAPP reported that canned salmon prices have been strong in
the last few years, especially in 2012. He said this can be
attributed to a shortfall in production in 2011 and a lower
sockeye harvest in 2012, while demand remained high. He opined
that this is good news because canned salmon is a made in
Alaska, value added, consumer ready product. In contrast, the
wholesale prices for frozen and fresh salmon fell in 2012, which
in turn lowered the ex-vessel prices paid to fishermen.
Although the fresh salmon market prices fell for sockeye, the
pink and chum remained strong.
10:50:41 AM
MR. KNAPP provided two bar graphs to indicate the ex-vessel
value, one not adjusted for inflation and one adjusted for
inflation. A tremendous recovery in value has been seen, with
values nearly three times higher in 2011 than what was
experienced in 2002. However, he pointed out that levels are
still below the peak values recorded in the 1980s, especially
when inflation is factored in; still, a good news story, he
said. The graph labeled "First Wholesale Value of Alaska Salmon
Production by Product," illustrates the increase in total
wholesale value of Alaska production since the early 2000s. He
pointed out the inclusion on this graph of roe data, and said
roe products represent a significant component of the total
wholesale value of Alaskan salmon; particularly from chum.
10:52:49 AM
REPRESENTATIVE GATTIS inquired why farmed salmon products do not
include roe.
MR. KNAPP responded that the focus of farmed salmon is meat
quality, and fish are harvested young when roe is not at its
optimal peak. Also, the species used for farming is typically
Atlantic salmon, and the roe, if harvested, would be
significantly different.
MR. KNAPP explained how the difference of the total ex-vessel
value and the total first wholesale value is the total processor
margin, and he illustrated the relationship of these three
figures on a graph labeled "Alaska Salmon Wholesale Value, Ex-
Vessel Value, and Processor Margin," and pointed out that both
processors and fishermen have shared in the recovery of value
and prices; although it remains debatable about the equality of
the shares.
10:55:09 AM
MR. KNAPP moved to the handout section titled "Trends in Total
Earnings and Permit Prices in Selected Fisheries," and explained
that Alaska supports twenty-seven limited entry salmon
fisheries. Each is unique to species, catch trends, and other
influential factors. Two of the most valuable fisheries are the
Bristol Bay drift gillnet, and the Southeast purse seine. He
pointed out the graph labeled "Total Earnings, Selected Alaska
Salmon Fisheries," to indicate how these two fisheries have
performed since 1980. He said that each of Alaska's 27
fisheries would show a different trend in catch, price, and
species mix. The common trend would be that each would show a
big drop in total earnings in the early 1990s followed by a
major recovery. Another commonality would be the recovery of
permit prices since 2002. In 2002 there was not a profit to be
shown in any of the fisheries; the cost of the effort was not
offset by the market price of the catch. He said that this also
caused the price for a permit to drop and subsequently increase.
He opined that the increase in permit prices reflects the
optimism that fishermen have for the future prospects of Alaska
salmon fisheries.
10:57:32 AM
MR. KNAPP said global trends are important to the context as
indicated by the graph labeled "World Salmon Supply: Wild and
Farmed," reflecting data from 1980-2008. He described how the
Alaskan salmon once dominated world markets, prior to the rise
in farmed Atlantic salmon. Alaskan products now represent a
small global percent. Although the volume of wild harvested
salmon in Alaska and elsewhere, has remained basically static
since 1980, the production of farmed salmon and saltwater trout
has soared. Similar information is provided in a slightly
different manner in the bar graph labeled "World Salmon Supply,
Farmed and Wild, by Species; Estimated Global Salmon Supply,"
with data dated 1980-2012, which underscores the rise of farmed
Atlantic salmon as the world dominant product. He said Chili
and Norway are the primary global suppliers. Chili has
recovered in recent years, from a disease related setback
experienced in 2008, and Norway has continued to expand in the
area of farmed products.
11:02:16 AM
REPRESENTATIVE KREISS-TOMKINS asked for further details
regarding the sources of the world wild salmon supply.
MR. KNAPP responded that the four primary producers are Alaska,
Canada, Japan, and Russia: Russian production is about half of
what Alaska contributes and is comprised primarily of pink, some
chum and a minor amount of sockeye; Japan also contributes about
half of what Alaska does, but harvest levels are high due to the
great quantity of hatchery chum produced; and Canada is a bit
player, providing about a fifth of what Alaska provides, and, he
added, supplies from Canada are on the decline.
11:03:59 AM
MR. KNAPP estimated U.S. salmon consumption, indicating a graph
labeled "Approximate U.S. Fresh & Frozen Salmon Consumption,
which illustrates the important contribution of Alaska wild
salmon products to the U.S. market. The major volume of salmon
consumption is dominated by imported Atlantic salmon. The graph
component tracking imports of unspecified frozen fillets is
probably data for reprocessed salmon coming back from China, he
conjectured; possibly Alaska and Russian wild stocks. The
contribution, of Alaska Wild salmon products, is important in
the U.S. market but far from being dominant.
11:05:46 AM
REPRESENTATIVE KREISS-TOMKINS queried whether there is an
appreciable supply of wild salmon supplied by fisheries in the
Lower 48.
MR. KNAPP responded that a wild salmon industry exists in Puget
Sound, [Washington], and pointed out the colored bar graph
component representing imports-all other, to illustrate where
these contributions, as well as Canadian, are accounted for on
the graph.
11:07:04 AM
MR. KNAPP directed attention to the graph labeled "U.S. Monthly
Salmon Imports, by Product," and reviewed data collected during
June 2000-2012, reflecting the dominance of the Atlantic farmed
salmon market. Farmed Atlantic salmon markets have been
diversified and developed new areas for expansion. He pointed
out that from 1998-2011, annual Russian imports jumped from
12,000 to 147,000 metric tons; becoming Norway's largest market
for farmed Atlantic salmon. This has occurred, despite Russia's
production of wild salmon. During the same time frame, South
American export numbers rose from 8,000 to 45,000 metric tons
and is aggressively market throughout the world. The EU is
Norway's biggest market, he said, and added that Denmark and
Poland are reprocessing countries. As an example of unexpected
variables to the market, he recounted a recent action by China
to boycott Norwegian salmon products, due to the Nobel Peace
Prize being awarded to a Chinese dissident. The largest market
for Chilean products is the U.S., but Brazil has become an area
of major growth. It is important that the farmed salmon markets
are diversifying, he opined, because if the Atlantic farmed
salmon was targeted at traditional wild salmon markets the
prices would become depressed.
11:10:45 AM
MR. KNAPP referred to the line graph labeled "Average U.S.
Import Prices," to discuss the January fluctuations of farmed
salmon products of 2007-2013, pointing out that the trends are
the same as those of the wild salmon. He said that the prices
collapsed in the 1990s, and recouped to spike in 2010 and 2011,
due to expanding world demand through identification of new
markets. Even as production rebounded, the expanded markets
created a supply and demand that spurred subsequent growth and
increased prices. He cited the correlation of the farmed and
wild salmon prices, and said is not possible to predict the
markets but optimism prevails.
11:15:09 AM
MR. KNAPP offered observations of the data analysis, to explain
the recovery in Alaska salmon prices since 2002. The Alaska
salmon industry representatives contributed through: sustained
marketing strategies; identification of niche markets;
development of new markets; creation of new product forms; and
implementation of methods for improved product quality. He
elaborated to state that the Alaska Seafood Marketing Institute
(ASMI), in conjunction with regional development agencies, and
processors, has created a worldwide, high profile, recognizable
market scheme for Alaskan wild salmon. The global salmon market
influences on Alaska's salmon prices have included a greatly
expanded world salmon demand, which then experienced a shortfall
in the farmed salmon supply due to Chilean disease problems, a
situation which may occur again. He said that it could be
argued that Alaska wild salmon is a superior product; however,
consumers get conditioned to what they eat. In blind taste
tests, Alaska wild salmon is not always chosen as best.
Competition is important to a point, but cultivation of market
recognition and increased niche markets for Alaska wild salmon
are important areas for focus. Not all markets are competitive,
such as canned salmon and roe products, where sales have
remained strong. The increase in price for farmed and wild
salmon over the past decade, he stressed, is because world
demand for product grew faster than the ability to supply. The
rapid demand was due to a number of factors, including:
development of new geographic markets, such as Russia, Brazil
and China; growing incomes in the new markets; development of
new product forms; sale of products from more types of retail
outlets; and shifting consumer tastes as salmon became a more
familiar meal with known health benefits. The reasons for the
slowdown in supply include: nature limits the supply of wild
salmon; farmed salmon disease; and higher salmon feed costs for
farming.
11:22:51 AM
MR. KNAPP said the future outlook for Alaska salmon markets can
be viewed from short and long term perspectives. The short term
is less predictable, with a number of variables to consider
centered on supply and demand. Major factors include: run
forecasts; harvest of wild salmon in Russia and Japan; the
foreign exchange rate for currencies, particularly the Euro and
the Japanese yen; farmed salmon market conditions; and factors
which affect Alaska processor costs, such as harvest volumes and
visa rules for foreign workers. He stressed that run
predictions may not be accurate, but tend to have short term
monetary effects.
11:25:56 AM
MR. KNAPP offered that the long-term outlook is good, and said
there are many reasons for optimism for Alaska wild salmon.
Influential factors ensuring worldwide demand include: a
growing global population; economic opportunities in emerging,
which enables the populace to purchase products; health benefits
are associated with salmon consumption; and market appeal is
expanding to a broader range of consumers. The limited supply
of wild salmon means the market will not be flooded, and assures
the potential for continued niche market expansion. The
potential long-term concerns for the farmed fish market include
a continued possibility for disease and limits for procuring
fish oil and fish meal as feed sources. Finally, he said, the
challenges to the wild salmon market potential include:
resource uncertainty, such as regime shifts and climate change;
market glut caused by increased farmed fish production;
development of other non-salmon fish species, including tilapia,
barramundi, and pangasius; and world economic and political
uncertainties. He finished, stating that depending on a wild
resource presents challenges, but it is an optimistic time for
the business.
11:29:21 AM
CHAIR SEATON said that pollock is a strong component in Alaska's
fishing industry, but salmon dominate across the state and
create the underpinnings of the coastal infrastructures and
economies.
11:30:57 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Fisheries meeting was adjourned at 11:30
a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Gunnar Knapp-Trends in Alaska Salmon Markets (February 7, 2013)-preliminary.pptx |
HFSH 2/7/2013 10:00:00 AM |
Alaska and world salmon market trends |