HB 363 - SALMON PRICE REPORTS CO-CHAIRMAN HARRIS announced the first order of business as HB 363, "An Act relating to salmon product reports; and providing for an effective date." There is a proposed committee substitute and amendment. Number 0072 JOANIE WALLER, Staff to Representative Alan Austerman, Alaska State Legislature, came before the committee to testify on behalf of the sponsor. The intent of the amendment is to address concerns raised by Representative Dyson at the last hearing in relation to potential, unforseen consequences of providing fish buyers with in-season inventory information. The amendment changes the frequency of reporting that production information to one time per year as opposed to three times per year. This amendment does not, however, change the wholesale price reporting requirement of three times per year. This amendment also changes the department's report to include one annual report for the amount of quantities produced, along with a monthly and annual wholesale price average report for products sold. Number 0257 REPRESENTATIVE FRED DYSON asked Ms. Waller whether the proposed amendment would change the Average Wholesale Price Report for canned salmon or whether it would include all processing types. MS. WALLER replied it would expand the Average Wholesale Price Report to include all product types. REPRESENTATIVE DYSON asked Ms. Waller whether that information would be reported three times per year. MS. WALLER replied yes. Number 0349 REPRESENTATIVE DYSON asked Ms. Waller whether March 15 is the date that the legislature would get the report and whether January 31 is the date that the report would be turned into the state. MS. WALLER replied correct. The three wholesale price reports and the one annual report on products produced would be combined into one report for the legislature. REPRESENTATIVE DYSON asked Ms. Waller whether the six weeks from January 31 to March 15 would include time for the state to process the data, which would be held in confidence. MS. WALLER replied, "Correct." CO-CHAIRMAN HARRIS called for a brief at-ease in order to determine which version of the bill the proposed amendment applies to. CO-CHAIRMAN HARRIS called the meeting back to order and asked Ms. Waller to continue explaining the proposed amendment. Number 0530 MS. WALLER further explained that the proposed amendment eliminates references to secondary processing, which was included in the form of an amendment at the last committee hearing. It also clarifies the definition of the term "wholesale" to mean, "the first sale of a salmon product at wholesale for which the fishery business tax was paid." It also clarifies the definition of the term "produced" to mean, "the processing of salmon into a salmon product." CO-CHAIRMAN HARRIS called for a motion to adopt the proposed committee substitute. Number 0640 REPRESENTATIVE BILL HUDSON made a motion to adopt the proposed committee substitute for HB 363, version 1-LS1298\H, Utermohle, 3/1/00. There being no objection, Version H was before the committee. CO-CHAIRMAN HARRIS asked Ms. Waller to continue explaining the intent of the proposed amendment. Number 0684 MS. WALLER further stated that the proposed amendment changes the date that the department's report is made available to the legislature. The original bill said that it would be made available by the fifteenth day of session, yet the last report made available is January 1 creating a lag in time, which is where the March 15 date came from. CO-CHAIRMAN HARRIS opened the meeting to public testimony. Number 0860 KEN ROEMHILDT, Representative, North Pacific Processors, testified via teleconference from Cordova. North Pacific Processors wants to go on record as opposing this legislation. 1) It is unnecessary. Knowing more about a processor's books doesn't necessary raise prices. Prices still have to work for both sides or they don't work for either. 2) This proposal may backfire. There is a probability that knowing the numbers of competitors may encourage lower prices. 3) This proposal is costly. Both the processors and the state will incur large costs in bringing these reporting proposals about, which will play a part in future price negotiations. 4) This proposal is time and work intensive. North Pacific Processors transfers fish freely to and from its six locations around the state, which may result in imprecise numbers. 5) This proposal is discriminatory. No one else has to do this. 6) If by some accident this legislation passes, it should be applied to all processors. There are many small processors across the state that target niche markets, which are the higher prices fishers are looking for. In conclusion, he suggested removing the 240,000-pound threshold in order to level the playing field. Thank you for the opportunity to testify. Number 1041 REPRESENTATIVE DYSON explained to Mr. Roemhildt that the proposed amendment would require one report per year on the quantities of products produced. He asked whether that would help him in any way. MR. ROEMHILDT replied he's not sure. He's not sure how that would fit in with the three-time reporting requirement without studying it further. Number 1182 REPRESENTATIVE JIM WHITAKER expressed concern about the unintended consequences of requiring processors to divulge information to both purchasers and sellers. He asked Mr. Roemhildt whether that would force processors out of business, which ultimately would be harmful to fishers because of reduced competition. MR. ROEMHILDT replied he is having a hard time rationalizing how the one-time reporting fits in with the three-time reporting. He's not sure how to answer Representative Whitaker's concern. REPRESENTATIVE WHITAKER said, As a processor, if your supplier knows what your buyer is paying and your buyer knows what your supplier is paying, can they not then put the squeeze on you pretty tight? MR. ROEMHILDT replied, "Certainly." REPRESENTATIVE WHITAKER asked Mr. Roemhildt whether that could be detrimental to processors. MR. ROEMHILDT replied yes, which is why he indicated earlier that this proposal may backfire. Number 1422 JERRY BLACKLER testified via teleconference from Cordova. He doesn't have the latest version of the bill or the amendment, but he will go on record in support. He agrees with Mr. Roemhildt's testimony in that this should be required for all processors. There is no sense, he said, in just having the "big boys" do this, if the "little boys" can get away with the catch. A three-time reporting requirement per year helps everybody make decisions, especially since sometimes the price is up and sometimes the price is down. He said, "We can't really go to the processor and say we want more money, if it's in fact proven that there's no money for the fish and vice versa." Number 1518 STEPHANIE MADSEN, Vice President, Pacific Seafood Processors Association, came before the committee to testify. The association has been around since 1914 and represents approximately 36 facilities throughout the state. The association, she said, does not believe that the reporting requirements in this legislation would benefit the state or result in a higher ex-vessel value. There are many variables that determine ex-vessel value. She cited the supply of wild and farmed salmon, inventories, consumption, prices consumers are willing to pay, competing foods, and an understanding of the exchange rates as examples. She further noted that, according to Senator Frank Murkowski, the cost of the state's energy impacts the ex-vessel value as well. Number 1638 MS. MADSEN further stated many people believe that processors are price setters, when in fact they are price takers, just like fishers. Processors, she said, pay what they think they can get from buyers. Furthermore, processors often share their profits with fishers, which can be reflected in an after-season bonus. Number 1700 MS. MADSEN referred to a meeting in November [1999] that included fishers, processors and the Department of Fish & Game, at which time, it was decided that by April 1, 2001 processors will be able to transmit the Commercial Operators Annual Report [COAR] electronically, which will help the Department of Fish & Game enter the data and turn it around to fishers in a timely fashion. MS. MADSEN further stated that requiring a report three times a year doesn't allow for any adjustments either up or down. She referred to a calendar of events which illustrated the time constraints on the reporting requirements in relation to the fishing seasons. MS. MADSEN stated, in conclusion, the association believes that more information is not better; it does not make the salmon market less complex. Number 1856 REPRESENTATIVE HUDSON asked Ms. Madsen whether the proposed committee substitute, even with the proposed amendment, is still too onerous. MS. MADSEN replied, according to her understanding, processors would be reporting wholesale value, not production, three times a year. She said, The difficulty with that Mr. Chairman, Representative Hudson, is that again you have--you're giving misleading information. I think, the best example that came to mind was if you knew that an artist sold one picture for $300 you would assume that every painting he sold was for $300. That's not really probably true. By knowing what we sold, you have no idea how much we sold. And we could have sold a very high-priced, low-volume product and again I would go back to that--this information in season in the time slots that you are asking is misleading information. It doesn't allow us to balance our books at the end of the year. There's no checks and balances with this. You're just putting information out there without any explanation and without tying things together. And we really do believe sincerely that it is misleading and the unintended consequences, that I've heard several of you mention, still exist. Number 1978 REPRESENTATIVE DYSON asked Ms. Madsen when a report could be done once a year that would give fishers information to plan an impending season, without disserving clients. MS. MADSEN replied, she believes, that electronic reporting would allow the Department of Fish & Game to turnaround information from the Commercial Operators Annual Report within a 30-day period, which would give a snapshot of the previous year including fresh sales, frozen sales, the previous year's inventory, and adjustments normally made in a calendar year. She also believes that processors could make an effort to make that information available earlier such as, March 1. Number 2061 REPRESENTATIVE DYSON asked Ms. Madsen whether a March 1 date would largely remove the problem of confidentiality and competitive advantage for processors. MS. MADSEN replied that she is a bit confused. This legislation deals with the Commercial Operators Annual Report, which is required one time per year, and the Alaska Salmon Price Report, which is required three times per year. She said, And we believe that, given this current reporting form for the Alaska Salmon [Price] Report, it does not allow us to make any adjustments. If we sell a pack and we get more money, we have no way to report that in the Alaska Salmon [Price] Report. Now, if you're asking me, Do I believe that the March 1 date would alleviate our concerns about misleading information on an annual basis? I believe the answer is, yes. REPRESENTATIVE DYSON replied that isn't what he asked, but it's an excellent point. He wanted to know whether the March date would get processors largely past the time when confidentiality of volume and prices would compromise a competitive position. MS. MADSEN replied in the affirmative. Number 2233 CO-CHAIRMAN HARRIS closed the meeting to public testimony. Number 2346 REPRESENTATIVE HUDSON made a motion to adopt the proposed amendment, 1-LS1298\H.3, Utermohle, 3/6/00; he asked unanimous consent. There being no objection, it was so adopted. It reads as follows: Page 1, line 8: Delete "(1)" Page 1, lines 10 - 11: Delete "; and (2) the quantity of salmon products produced by the processor or an affiliate of the processor" Page 2, lines 4 - 27: Delete all material and insert: "(b) A report submitted by a processor under (a) or (c) of this section must include (1) the requested information for the following salmon product forms: (A) thermally processed salmon products; (B) fresh headed and gutted salmon products; (C) fresh fillet salmon products; (D) frozen headed and gutted salmon products; (E) frozen fillet salmon products; (F) salmon roe products; (2) the requested information regarding the total quantity of each salmon product form sold by providing the total number of (A) each size of container in which thermally processed salmon products were sold by the processor or its affiliate; and (B) pounds for each of the other salmon product forms sold by the processor or its affiliate; and (3) for sales to buyers that are not affiliates of the processor, the total quantity of each salmon product form sold by area of production by species, and the wholesale price received." Page 3, following line 5: Insert a new bill section to read: "* Sec. 4. AS 43.80.050 is amended by adding a new subsection to read: (f) Each fish processor who submits a report under (a) of this section during a reporting year shall also submit an annual report of the quantity of salmon products produced by the processor or an affiliate of the processor between January 1 and December 31 of the reporting year. The report shall be submitted to the department not later than January 31 of the following reporting year. The report must include (1) a description of the products and the total quantity of each salmon product form produced by area of production by species for each of the salmon product forms listed in (b)(1) of this section; and (2) the requested information regarding the total quantity of each salmon product form produced by providing the total number of (A) each size of container in which thermally processed salmon products were produced by the processor or its affiliate; and (B) pounds for each of the other salmon product forms produced by the processor or its affiliate." Renumber the following bill sections accordingly. Page 3, lines 22 - 23: Delete "the 15th day of each regular legislative session" Insert "March 15 [THE 15TH DAY] of each year [REGULAR LEGISLATIVE SESSION]" Page 3, line 25, following "products": Insert "and a report of the quantity of salmon products produced during the preceding calendar year" Page 3, line 27, through page 4, line 3: Delete all material. Renumber the following bill sections accordingly. Page 4, line 10: Delete "finished [THERMALLY" Insert "[FINISHED THERMALLY" Page 4, line 11: Delete "less than retail" Insert "wholesale [LESS THAN RETAIL]" Page 4, line 18: Delete "a new paragraph" Insert "new paragraphs" Page 4, line 20: Delete "produced" Insert "processed by a fish processor" Page 4, line 29: Delete "." Insert ";" Page 4, following line 29: Insert new paragraphs to read: "(9) "produce" means to process salmon into a salmon product; (10) "wholesale" means the first sale of a salmon product at wholesale after the fishery business tax was paid or became payable on the salmon from which the salmon product was produced;" Page 5, line 5, following "at": Insert "first" Number 2393 REPRESENTATIVE WHITAKER said, I'm very, very concerned that we are dealing with the market in a manner that will provide an advantage from the status quo to one market player. That is, to suppliers from fishermen at the expense of the processors. And I think that is a very, very dangerous position for the legislature to put itself in. We are at that point putting politics in front of economics. And we are saying that we, the legislature, want our constituents, the fisherman, who are more numerous than the processors - and we all know that - to make some more money at the expense of the processors. I think that's fine. I think fishermen should make more money, but when we, the legislature, start trying to insert our political influence in the market process, we run the risk of damaging that industry in a manner that we're not aware of. So, I speak against the bill and will vote against it. Number 2463 CO-CHAIRMAN HARRIS commented that there has been a lot of attempt at compromise, but obviously this legislation has a long way to go before it becomes law, if it ever does. Furthermore, he's not sure whether there would ever be a compromise that includes what fishers want and what processors want, without some type of legislation. Number 2498 REPRESENTATIVE WHITAKER said it's important to ask whether the process and market are broken. If they aren't, he said, should the legislature try to fix them? He doesn't see that the fishers en masse are doing poorly. There are poor runs and there are good runs, which is the nature of the market. But it's very, very dangerous for the legislature to change the market dynamics because of political motivation(s). Number 2547 REPRESENTATIVE DYSON stated that he's not comfortable with this legislation yet, but he would not object to moving it out of committee. He really wants the legislature to be the "hammer" that gets the fishers and processors together under mutual grounds. Moreover, if electronic reporting, as Ms. Madsen has indicated, would help solve this problem, the legislature at some point may have to craft legislation to include progressive dates of enforcement. Furthermore, he's not sure of the real value for three times a year reporting, but he's in favor of fishers having information on what happened last year to help make decisions for the next season. He's fairly comfortable with the March 15 date in terms of getting this information out. Number 2660 REPRESENTATIVE HUDSON stated he believes that information helps everybody, but he doesn't want it to compromise confidentiality, especially as it relates to the ex-vessel value. For a healthy industry, he said, fishers need to know product worth, yet they aren't getting that type of information in a timely fashion. He would like to see harvesters come forward and indicate what they get out of the information. He's uncomfortable with this legislation in its present form. CO-CHAIRMAN HARRIS asked Representative Hudson what type of information he is looking for from harvesters. There was a lot of testimony from harvesters at the last committee hearing. REPRESENTATIVE HUDSON replied that this committee has dealt with the mechanics of the bill. It is now an issue for the House Finance Committee - the next committee of referral - in terms of the financial ramifications to harvesters and processors. CO-CHAIRMAN HARRIS asked Representative Hudson whether he is comfortable knowing that his answers may be answered in the House Finance Committee. REPRESENTATIVE HUDSON replied, "Well, they either will or I won't vote for it." CO-CHAIRMAN HARRIS announced that it is his intent to move the proposed committee substitute, as amended, out of committee today. Number 2857 CO-CHAIRMAN CARL MORGAN made a motion to move CSHB 363, version 1-LS1298\H, Utermohle, 3/1/00, as amended, out of committee with individual recommendations and attached fiscal note(s). There being no objection, CSHB 363(FSH) so moved from the House Special Committee on Fisheries.