HOUSE BILL NO. 363 An Act relating to salmon product reports; and providing for an effective date. JOANIE WALLER, STAFF, REPRESENTATIVE AUSTERMAN, stated that HB 363 renames the existing Wholesale Price Report (WPR, also referred to as AWPR or WCPR) to become the Alaska Salmon Price Report (ASPR) by updating it to include all salmon products. The report captures the bulk of Alaska's commercial salmon trade information in a timely and accurate manner. Ms. Waller pointed out that currently, AS 43.80.050 requires processors who sell 240,000 pounds or more of thermally processed salmon in a calendar year, to report three times each year, the volume and price of cans sold. She suggested that the ASPR would reflect the changing times in the industry, which has evolved to include all salmon products, thermally processed and fresh, frozen, and roe products. Ms. Waller pointed out that HB 363 would expand the information base for ex-vessel value, production, and wholesale price reporting. In order to track the production of the State's resource, ASPR adds a section that requires processors to report the quantity of each salmon product form and species, by area of production, along with the wholesale prices of product sold. Ms. Waller emphasized that the tax revenue realized from salmon fishing is generated from the ex-vessel price, which is the price that is paid to the fishermen. Fishery business taxes, raw fish tax, landing tax, Alaska Seafood Marketing Institute (ASMI) tax and aquaculture assessments are all based on the ex-vessel values of salmon products. The ASPR information is important for anyone planning income streams derived from the sale of Alaska's salmon. Ms. Waller stated that issue has been debated for a long time. In 1984, the Department of Commerce and Economic Development published a report on the possible development of a program to determine wholesale price averages for salmon products. Ms. Waller noted that the reasons for presenting the information were two-fold: ? Accuracy of information available to the State; ? The sharing of information between harvesters and processors. Co-Chair Therriault asked if thermally processed salmon was cooked salmon. Ms. Waller replied it is. BRUCE SCHACTLER, UNITED SALMON ASSOCIATION, KODIAK, noted that the report was a continuation of efforts of the past three years to bring to light for fishermen the value of the resource. He stated that they have attempted to keep it at a "level of public trust" to evaluate the resource. He emphasized that there is inaccurate user information available and that it has been damaging. The legislation would bring that information into a more accurate place. Mr. Schactler pointed out that the most recent legislation was dated 1998. The last salmon forum was last year and one of the recommendations was that there should be an increase in reporting and frequency of prices. The design has come from recommendations from processors and the industry. The intent was to create a forum which would protect confidentiality. Representative G. Davis asked if the forums would create a report or recommendations. Mr. Schactler explained that there had been a 1999 Salmon Forum and that the recommendations from that were that there should be at least one more reporting period within the current database. At present time, there has been no designing done. Representative G. Davis commented that there is currently a lot of information available. He questioned if that information was not adequately representing the product. Mr. Schactler reiterated that the essential information is not out there. What is needed is a detailed report, and now only is stipulated in regulation, not in statute. Therefore, the Department of Fish and Game is not able to make it available until late summer of the following year. For users of that database, that is too late. The United Salmon Association is looking for something that is timelier and that would provide more of a moving picture of the resource. Representative Williams asked how the information could be used confidentially and if that would hurt the processors. Mr. Schactler replied that the numbers could not hurt the processors. He noted that there have been a number of amendments to specifically address confidentiality. Representative Williams asked why the processors chose not to participate. Mr. Schactler stated that the processors believe that the information is "no ones business" but their own. They have indicated that the information supplied by the Department of Fish and Game is adequate for the needs of the association. Representative Phillips inquired about the salmon in Cook Inlet and how that process worked. She asked if the fisherman had been paid after the report came out. Mr. Schactler replied not necessarily. Some contracts are careful not to place the processors in a position with the buyer when they are not certain what they will be receiving from the fish. Every contract currently used has a portion which provides an advance. The data base is used at a later date to access the revenue that was received based on the contract and shared at a later date. Representative Phillips questioned if the legislation was a request for filing three reports a year. Mr. Schactler replied it was. At this time the way it works, there is data three to six months after the fish are sold. Representative Phillips noted that the report indicates, "after it was caught", and that time ends August 31st. At that time, they have thirty days from which to put the report together. It would take six to eight weeks for the Department of Revenue to consolidate the report. If the fish were caught in May, the fisherman would not know until sometime in November what the value was. Mr. Schactler emphasized that the report only deals with fish "sold". Representative Phillips asked if a fisherman could conceivably not receive their money for the fish they caught, six to nine months out. Mr. Schactler replied that is how it works today. He added, however, it depends on the agreement the fisherman has with their buyer. At this time, there is no way to know what your share will be. That number does not exist. Representative Moses inquired if 80% of the data would be adequate. Mr. Schactler replied that it partially would be. He explained that the canned product makes up 36% of the products by volume. The 20% comes from the more innovative processors. The last 20% is the "head of the movement". Representative Moses maintained that the legislation would be difficult for small processors in State. Representative Austerman pointed out that current law indicates a 240 thousand-pound limit. Representative Moses proposed that the number be changed to one million pounds, so to protect the smaller processor. JEFFREY BAILEY, (TESTIFIED VIA TELECONFERENCE), COMMERCIAL FISHERMAN & SMALL SEAFOOD PROCESSOR, ANCHORAGE, voiced strong opposition to the proposed legislation. He believed that the bill would place unusual burdens upon the smaller processors. He noted that price information is available and that the prices can change in a matter of seconds. It would be very difficult for the small processors to be competing in that arena. Mr. Bailey reiterated that legislation would be very difficult for these processors and that the bill will result in isolating the two industries from each other. He believed that it would affect the price for fishermen. Mr. Bailey commented that the action is not coming from the Department of Revenue. He emphasized that the bill is going in the wrong direction. There is risk in harvesting fish, and given the world market, dealing with salmon, the risk is even larger. He invited members to look at the "bigger" picture and find a way of working together in the world market. Representative Williams asked for suggestions of how to work more closely. Mr. Bailey responded that profit sharing works directly with the fishermen. He reiterated the risks that the processors experience. (TAPE CHANGE, HFC 00 - 84, Side 2). Representative Austerman asked if increasing the amount to one million pounds would remove Mr. Bailey's concern in recording requirements. Mr. Bailey stated that it would. Representative J. Davies inquired if there was information needed for the proposed plan, which is not currently being collected. Mr. Bailey explained that when tax returns are filed, the processors do not record poundage. The requirement would stipulate that the number be broken down according to portions, fillets, and pieces. Consolidating that information would be very time consuming. Representative G. Davis questioned where that information currently could be found. Mr. Bailey explained that there are a number of web sites that are listing products for sale and the prices of those products. He emphasized that this is a world market. The State of Alaska no longer dominates the market and there are a lot of fish available. It is a competitive marketplace. KEN ROEMIHILDT, (TESTIFIED VIA TELECONFERENCE), NORTH PACIFIC PROCESSORS, CORDOVA, voiced opposition to HB 363, stating that the legislation is unnecessary. He noted that the process could "back-fire" with the prices being lower than currently being paid. He believed that not knowing prices often encourages higher prices. Mr. Roemihilt remarked that cost can play a part in future price negotiations. He added that the proposal will be time and work intensive. BILL BAILEY, (TESTIFIED VIA TELECONFERENCE), COPPER RIVER FINE SEAFOODS, CORDOVA, spoke in opposition to HB 363. He stated that the proposed legislation is not the answer to what the fishermen are looking for. He emphasized that the processors are not the ones who determine the actual price of fish. Ultimately, that goes back to the buyer. The legislation will be a "night mare". PAT HARDINA, (TESTIFIED VIA TELECONFERENCE), COOK INLET, ALASKA PROCESSING, KENAI, spoke to the difficulty that would be entailed in creating the report. She questioned who would utilize the information, emphasizing that the processors would not be. Ms. Hardina agreed that contrary to what was heard, the information could backfire on the fishermen. She believed that research and marketing consultants would analyze and republish the information. She stated that processors would need to be willing to sign the contracts. Ms. Hardina did not believe that the fishermen had given a reasonable argument. She listed that the number of processors that have closed over the past couple of years. If the profits are not reinvested, the industry will die. She stressed that it is not possible to educate every fisherman about price. The bill will drive another wedge between the fishermen and the processors. Ms. Hardina questioned at what point does the Legislature have the authority to force operations. Representative G. Davis questioned if the one million-pound limit would make a difference. Ms. Hardina replied that change would not make much of a difference. To increase the volume to one million pounds would only shift the burden to the larger processors. Representative Williams asked what Ms. Hardina would do to close the gap. Ms. Hardina emphasized that no one will be satisfied unless they are making a lot of money. The processors acknowledge that a problem exists. She suggested that the fishermen should use their own organization to read the reports and bring that information back to a mutual source. She reiterated that the information is available on the Internet. Representative Williams asked if her company placed their information on the Internet. Ms. Hardina replied that they did not. VIRGINA ADAMS, (TESTIFIED VIA TELECONFERENCE), COMMERCIAL FISHERPERSON, KODIAK, spoke in support of the legislation. She noted that it would be well-used information. She stated that fishermen are in contract with processing companies to assess what they are being paid. To date, there is nothing to hang that "trust" upon. Ms. Adams stated that the intent of the legislation would remove the "mystery" and that fishing people would then be sharing in the risk. At present time, there is no core report but rather a reduced wholesale one. TOM WISCHER, (TESTIFIED VIA TELECONFERENCE), COMMERCAIL FISHERMAN, KODIAK, testified in support of the legislation. He acknowledged the "riff" between the fish industry and the processors. The fishermen are asking to know what they are entitled to, what is produced, and how the cost is determined. He disagreed that this information is currently available for the fishing industry. BRETT FRIED, ECONOMIST, DEPARTMENT OF REVENUE, advised that the Department has not taken a position on the collection of the data. He stated that the Department does not believe that this would be a function of the Department of Revenue because there is no direct link with taxation. However, Mr. Fried noted that the Department would be requesting one position in order to create the proposed requirements to build a $20 thousand dollar database. Representative Austerman asked if changing the requirements from 240 thousand pounds to one million pounds would require more of a workload for the Department. Mr. Fried stated that it would as it would reduce the number of processors reporting and that would decrease costs. Representative Austerman asked how long the Department had been collecting the data. Mr. Fried replied that it has been collecting data since at least 1983, and probably before that. STEPHANIE MADSEN, VICE PRESIDENT, PACIFIC SEAFOOD PROCESSORS, JUNEAU, noted that they are opposed to the proposed legislation. She emphasized that reporting is a large part of the business. Ms. Madsen spoke to the current reports required by the Department of Revenue. The proposed legislation would significantly change the required reports from the current four-page report to a twenty-page report. She noted that the reporting requirements would be increased fourfold. Ms. Madsen noted that they agree with the Department of Revenue regarding the change and level of complexity of the expanded report. There will be an increased cost to the State and to industry. Reporting wholesale prices by production area would be very expensive. The current production is not tied to the wholesale costs and values. HB 363 would also change the availability of "in season" wholesale value by area. Not only will the fishermen have access to the reports, but also so would the customer. Ms. Madsen identified consequences of changing the number from 240 thousand to one million pounds, which she believed would reduce the number of processors. If there were less than three processors, the information would not be released. She believed that a problem with confidentiality could result. Ms. Madsen emphasized the complexity of the salmon market situation. She noted the differences among processors and observed that the reporting is the same. She pointed out that supporters of the legislation want to restore the trust of State government, but she stressed that trust cannot be legislated. Ms. Madsen reiterated her opposition to the bill. She listed examples of ways in which trust could be established without implementing the legislation. (TAPE CHANGE, HFC 00 - 85, Side 1). Representative Moses clarified that his proposal would be to place a 10 million-pound limit. Ms. Madsen replied that 10 million pounds would be worse as it would potentially drop out more processors and then less information would be available. DAVID FORBUSH, WARD'S COVE PACKING COMPANY, SEATTLE, pointed out that Ward's Cove Packing Company has twelve operating plants in Alaska and would be over the 10 million-pound limit. He noted that he had developed a plan as to what it would cost the industry to supply the data as recommended in the bill. He observed that $4.4 million dollars would be needed for computer support if everyone complies. Mr. Forbush stated that it takes three components to put together a computer system. ? Start a plant and control the merchandise that comes in; ? Create an inventory system; and ? Development of a billing sales system to provide the reports. In order to comply with the proposed legislation, the earliest that Ward's Cove could, would be September 2001, and that would cost approximately $600 thousand dollars for the programs and equipment not including the training. Mr. Forbush pointed out that they have not used the proposed system. The federal government, when legislated changes to the way in which taxes needed to be reported, gave companies three years to make those changes. Most companies do not have a tracking program to track the product from the plant. Currently, there is a program for fish tickets. Mr. Forbush recalled the first requirements for reporting of canned product. He emphasized that the report being requested is nothing that the plants will use. Sellers now go to the buyers to obtain that information. Representative Foster questioned how the money would be recouped. Mr. Forbush stated that in the fish business, the price is unknown. He observed that the consumer sets the price. He did not think that the price would be passed on to the consumer. Mr. Forbush recalled days when Alaska could dictate the price of the product, however, he noted that he now has to hustle to sell the product. Representative Austerman questioned if Mr. Forbush computed the average wholesale value when determining the price. Mr. Forbush explained that they do not use the average wholesale value for any purpose. They receive a report of the total value of what was sold. He pointed out that there are hundreds of values involved. Representative Williams suggested that mistrust was the underlying reason for the legislation. He questioned how that could be addressed with the fishermen. Mr. Forbush stressed that Ward's Cove, who has been in business since 1929, has always been honest and fair with their fisherman. Representative Williams asked what caused the 1997 fish strike in Ketchikan. Mr. Forbush gave a brief history of the strike. He felt that due to competitive pricing, they were required to pay more to meet competition. He maintained Ward's Cove meets the competition and provides a fair market price. He stressed that the good must be taken with the bad and noted that the market price changes daily. Representative Foster clarified that the $600 thousand dollar cost would be a one-time cost. Mr. Forbush noted that there would be additional costs for training and modification of the program. He explained that there are at least three different qualities of fresh fish. He maintained that the report would not reflect the quantity of each fish and noted that the costs of canned fish does not change. JOHN GARNER, NORQUEST SEAFOODS, SEATTLE, testified in opposition to the legislation, indicating that NorQuest was a more than 10 million-pound company. He expressed his sympathy to the fishermen's frustration regarding salmon pricing. Mr. Garner noted concern that the proposed report would not accurately reflect the value or cost of producing the product. He mentioned that they produce 40 different styles of chum style salmon fillets and that each has a significantly different yield. Mr. Garner stressed the difficulty of mirroring canned salmon reporting and noted that products would be combined. Mr. Garner questioned the value of the information. He pointed out that some fish are being freighted with an unknown price. STEVE OKERLUND, CHIEF OPERATING OFFICIER, TRIDENT SEAFOODS, SEATTLE, noted that Trident Seafoods has plants in Ketchikan and Bristol Bay and that most of the owners of the company have come from a fishing background. He noted that they are the largest seafood employer in the State of Alaska. Mr. Okerlund pointed out that with respect to sockeye, farmed salmon has taken the lead in Japan. It dominates the domestic market. There is no identity in the domestic market. He mentioned that the market place cannot handle the increased costs and spoke to the complexity that currently exists. Mr. Okerlund stressed that this is not a system of costs and that there is not a computer system that could track the varieties. He spoke to the processor trying to build a market in the domestic field. He noted that their mission is to make the job of the fisherman easier and provide them the largest gross stock that is available. Mr. Okerlund reiterated that his mission was to jointly communicate with the fishermen in creating a plan to work together. The fisherman need to deliver every possible pound of fish they can get in order to make themselves more competitive. Currently, there exists an open door policy with the fishermen. Mr. Okerlund reiterated that the processor must be competitive. He noted that helping the fishermen reduce costs, improve quality, and services to keep them fishing is the goal of the processor. Mr. Okerlund acknowledged that it is a complex sales system. He pointed out that sales information is available in the papers the following day. The bill has provided a "wake up call" for the process to better communicate with the fishermen. He agreed that intent was good. SCOTT MCALLISTER, UNITED SALMON ASSOCIATION, JUNEAU, explained how value had been derived, however, the missing piece of information is determination of the wholesale value. He emphasized that none of the processors have shared the wholesale value. To harvest fish and take the risks associated with that, it is important to know the wholesale value. He stressed that is the "business end" of the bill. Mr. McAllister maintained that there is another element which is one of trust. He acknowledged that this is a public resource. As a harvester, he considered himself to be a gatekeeper of that public trust. Without information to enter intelligently into a contract, he asked how he could represent his position in this resource. Mr. McAllister commented that it is essential to be able to provide that information in order to vie for a higher position in the market place. Mr. McAllister pointed out that this is not a bill to leverage money out of the market place. The bill is brought forth to understand the value that the product leaves and to account for that changing value. He noted that he has made a commitment to this legislation since 1997. In response to Representative Foster, Mr. McAllister explained the process is complicated. He gets paid, but does not have any idea of what the relationship the pay is based upon. It would be meaningful to understand the aggregate when assessing the industry and harvesting. (TAPE CHANGE, HFC 00 - 85, Side 2). CHRIS MCDOWELL, PROJECT MANAGER, MCDOWELL GROUP, JUNEAU, advised that his group had a contract with Alaska Seafood Marketing Institute to conduct an information service. Representative Williams asked what the graph in the packet represented. Mr. McDowell replied that the graph indicates a fluctuation in price and is included in the fiscal note. The other graph is the Commercial Operators Handling report (COHR) as distributed by the Department of Revenue. [Copy on File]. Information in the graph was taken from the Department of Fish and Game that had been available in June, 1999. Representative Williams asked if the reports would coincide with one another. Mr. McDowell explained that the advantage of the program is that it provides a month to month report regarding what the market is doing. Representative G. Davis pointed out that the fluctuations indicate what the processors have been testifying about and that the market price changes too rapidly to keep tabs on it. Mr. McDowell agreed that it does fluctuate rapidly. Representative Williams questioned why the report had been included in the packet. Mr. McDowell indicated that the graph illustrates single numbers and a full year's average. Co-Chair Mulder explained Amendment #1, 1-LS1298\I.1, Utermohle, 3/28/00. [Copy on File]. He advised that the amendment was not controversial, as it would clarify what is in regulation regarding salmon that are not yet caught, and requiring more accurate information. Co-Chair Mulder MOVED to adopt the Amendment. Representative J. Davies requested a brief at ease. (TAPE CHANGE HFC 00 - 86, Side 1). There being NO OBJECTION, Amendment #1 was adopted. Representative Moses MOVED a change to Page 1, Line 6, delete "240,000 pounds" and insert "10 million pounds". Representative Austerman OBJECTED. Representative Austerman stated that even the processors indicated that would narrow it down too much to be productive. He believed the change would be "discriminatory". Representative Moses testified that the Department of Fish and Game had provided figures that given 10 million pounds, they would still be able to provide 80% of the data. He foresaw that some of processors at the 1 million-pound level might not have access to a computer Representative G. Davis noted that he supported the amendment because of detail costs of the legislation. If the changes are not made, the only ones who could afford to make these changes, will be the larger processors. A roll call vote was taken on the motion. IN FAVOR: J. Davies, G. Davis, Foster, Grussendorf, Moses OPPOSED: Austerman, Phillips, Williams, Therriault, Mulder Representative Bunde was not present for the vote. The MOTION FAILED (5-5). Representative Foster MOVED a change to Page 1, Line 6, deleting "240,000 pounds" and inserting "one million pounds". There being NO OBJECITON, the Amendment was adopted. Representative Williams MOVED to report CS HB 363 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 363 (FIN) was reported out of Committee with a "no recommendation" and with a fiscal note by Department of Revenue.