HOUSE SPECIAL COMMITTEE ON FISHERIES February 3, 1993 8:30 a.m. MEMBERS PRESENT Representative Carl E. Moses, Chairman Representative Harley Olberg, Vice Chairman Representative Irene Nicholia Representative Cliff Davidson MEMBERS ABSENT Representative Gail Phillips OTHER MEMBERS PRESENT Representative Fran Ulmer COMMITTEE CALENDAR Overview: Alaska Seafood Marketing Institute (ASMI) WITNESS REGISTER Kim Elton, Executive Director Alaska Seafood Marketing Institute Alaska Department of Commerce and Economic Development 1111 W. 8th Street, Suite 100 Juneau, AK 99801-1895 Phone: 586-2902 Position Statement: Provided overview of the fishing industry, ASMI's structure, ASMI's budget and important issues on the horizon. Representative Fran Ulmer State Court Building, Room 601 Juneau, Alaska 99811-1182 Phone: 465-4947 Position Statement: Asked about ASMI's access to Federal dollars and questioned the effectiveness of ASMI's marketing strategy. Christopher Gates, Director Division of Economic Development Alaska Department of Commerce & Economic Development P.O. Box 110804 Juneau, AK 99811-0804 Phone: 465-2017 Position Statement: Spoke of intent to work to increase the number of value-added seafood production and manufacturing facilities in Alaska. Donna Parker, Fisheries Development Specialist Division of Economic Development Alaska Department of Fish & Game 8800 Glacier Highway, Suite 109 Juneau, AK 99801-8079 Phone: 789-6160 Position Statement: Commented on the recommendations by the Salmon Strategy Task Force. ACTION NARRATIVE TAPE 93-3, SIDE A Number 000 CHAIRMAN CARL MOSES called the meeting to order at 8:40 a.m. He noted all members in attendance and stated that Mr. Kim Elton of the Alaska Seafood Marketing Institute (ASMI) would be giving an overview of marketing. KIM ELTON, EXECUTIVE DIRECTOR, ASMI, opened by stating that ASMI added value to a common property resource and was a good example of the success achieved when state government and industry worked together. He covered four subjects in his overview: Dimension of the industry, structure of ASMI, ASMI's budget, and issues on the horizon. MR. ELTON surmised the fishing and seafood processing industry was the largest private employer in the state and the largest private employer in five of the seven regions of the state. He stated more than half of the seafood harvested in the United States was harvested in waters off the coast of Alaska, and 19,000 people were employed year round either fishing or in the seafood processing industry. If indirect and induced employment was added, it then totalled about 35,000 year round jobs in the seafood processing and fish harvesting industries, he added. The wholesale value of seafood products landed in the state totalled over $3 billion, while the value of this fisheries' resource to the fishermen was about $1.3 billion. MR. ELTON described the structure of ASMI as follows: An 18 member board of directors, comprised of seven Chief Executive Officers (CEOs), of large processing firms, five CEOs of small processing firms, five fishermen and one public member. The board was selected by the Governor and served staggered three year terms. The board had set up a system of committees staffed by people from the private industry, which devised the marketing strategy and quality enhancement program, and reported to the board. The committees also incorporated another 75 members from the private sector, he added. MR. ELTON declared ASMI's mission was primarily defined by its budget, which had four sources: The General Fund, federal dollars, private industry, and overseas participation. The General Fund support was of immediate concern to the board, he said, and added that in FY 93 the state appropriated $1.3 million for domestic promotions and a little over $1 million was used as a cash match to secure federal funding. Federal dollars for FY 93 totalled $8.52 million and was secured through the market promotion program, in which ASMI has participated for five years. MR. ELTON advised that currently, 61 different commodity groups across the US participated in the market promotion program; and of those 61, ASMI rated number seven. The pool of money used for this program was appropriated by Congress every year, he added. Federal dollars were used in overseas markets, and the federal government advised which coutries to work in and which species to market. Currently, ASMI worked in Germany, Italy, the Netherlands, the United Kingdom, France, Japan, Korea and Australia; and, the species being promoted overseas were salmon and crab, he said. MR. ELTON disclosed the third source of money was from private industry. This $3.2 million resulted from a volunteer assessment that the processors placed on themselves by a majority vote of processors licensed to operate in the state of Alaska, he advised, and added that the $3.2 million fluctuated as it was based on .3% of the value of all seafood products landed in the state of Alaska. MR. ELTON disclosed further that the fourth source of money was based on overseas dollars, and ASMI mandated participation from foreign partners. In the UK, ASMI did mostly canned salmon promotions, he noted, and canned salmon in the UK was handled by several major distributors. This leveraging had given another $8.2 million to use for overseas promotions, he said. Mr. ELTON made one last point about the budget: ASMI had two market tests. First was the leveraged money from private partners overseas who obviously felt they were getting a substantial return on their money and in return, ASMI got income from them. Second was the support from industry in the state of $3.2 million for generic promotions, which showed one unique way that the State was working with industry. The onshore processors were putting a substantial amount of cash into the generic marketing program that they could be using to promote their own, he said, which was good for the industry and small processors who could not afford to market on their own. MR. ELTON advised that the Salmon Strategy Task Force (SSTF) had reported to the Governor in February, 1992, and recommended that the domestic market had the most dramatic potential. Unfortunately, this was the market that had seen diminishing marketing efforts because of cutbacks. The SSTF recommended $10 million per year for the next five years for salmon marketing in order to stabilize the salmon markets. The source of the $10 million had not yet been determined, but there were legislative proposals in 1992 that tried to address that, he said. MR. ELTON advised further that Representative Hudson had introduced legislation that would have added a couple of members to the ASMI board, thereby creating a sub-group controlled by fishermen. That legislation would have also assessed fishermen one percent of the value of the product, which would have created about $5 million, in a normal year, in salmon promotions in the domestic marketplace. MR. ELTON stated the Department of Revenue was considering a landing tax, assessed in the offshore industry of about four percent, which would raise about $15 million per year. If one percent of that was diverted toward marketing, it would total about $3 million. Currently, the offshore industry contributed nothing toward the ASMI assessment, he declared. Number 145 MR. ELTON pointed out another issue for FY 93 was the ASMI appropriation, which was about $257,000 short in the cash match category in 1992. Of the $8.52 million of federally awarded money, $1.3 million was inaccessible because of the shortfall in the cash match. The governor had included that in his supplemental request for $196,000 to the legislature, because due to the shortfall, ASMI had sequestered funds from the overseas marketing in FY 92 so we could move forward about $60,000, he said. Mr. ELTON noted also that ASMI submitted its budget to the Governor who, in turn, submitted his budget on December 15th. During that time, ASMI did not know what the cash match award from the federal government would be for FY 94. In addition, the hatchery program and the management of the wild resource by the Alaska Department of Fish & Game (ADF&G), had been a real success story that was being used as a model around the world, he stated. REPRESENTATIVE FRAN ULMER asked if ASMI had made some effort to measure the effectiveness of the marketing and how so. Number 198 Mr. ELTON responded that private partnerships evaluated their effectiveness on their own brand of product so ASMI saw those results. On the federal side, pre-imposed research was done which enabled ASMI to evaluate and hone the program to make it more effective. On the domestic side, ASMI used the Nielsen Reporting Services to alter advertisements so that ASMI would buy 30 seconds of an advertisement to talk about generic Alaska salmon, and a retailer would purchase the other 30 seconds to say where to buy the salmon. The Nielsen scan information would track how well that ad did, he said. MR. ELTON disclosed ASMI had recently solicited competitive bids for an organization to analyze the effectiveness of programs and give the board some additional guidelines to use in the future. The bid has been awarded and would be an additional tool for evaluation. He added ASMI has, in the past, used the services of advertising agencies, and now looked forward to the results from the competitive bid for a broader perspective. REPRESENTATIVE HARLEY OLBERG asked if there had been an attempt to deal with the congressional delegation and have Alaskan seafood products treated the same as other commodities through price supports, marketing orders, subsidies and guaranteed loans in foreign countries. MR. ELTON advised that the delegation had been very supportive in dealing with federal program managers. The Department of Agriculture (DoAG), however, had not considered seafood as a commodity. One recent success was that seafood was being considered in the school and prison lunch programs. The ASMI was able to convince the DoAG that seafood was a commodity and there were dangers in the market due to over-production. The tougher area for the congressional delegation had been the overseas food programs, which put up credit and then allowed countries to pick which food commodities they wanted to use. The former Soviet Union, for example, was more interested in wheat now, as they have fishing resources that were under-utilized. In Africa, canned seafood was not a traditional food, he noted. REPRESENTATIVE OLBERG asked if Tyson Seafoods would have a beneficial effect on the seafood market. MR. ELTON advised that it was much easier to market several types of seafood products at once, and with the entrance of Tyson Seafoods, there would be other product lines of salmon available for promotion. Tyson Seafoods also had a vertically integrated marketing strategy, which deleted traditional brokers and traders. REPRESENTATIVE ULMER asked when the money in the governor's supplemental budget for ASMI was needed in order for ASMI to access federal dollars. MR. ELTON advised those funds were needed by the end of this legislative session. The ASMI had convinced the federal government to fund it on the state fiscal year and not on the federal fiscal year, he noted. The domestic marketplace had the most potential and, therefore, the federal government did not want to divert money from domestic advertising to secure additional funding for the overseas market, he said. REPRESENTATIVE CLIFF DAVIDSON asked if Tyson Seafoods had mentioned cooperating with the ASMI for promotional purposes. MR. ELTON said he had advised Tyson Seafoods that as a goodwill gesture, they might donate to the ASMI's promotions. Tyson Seafoods also spoke of sending research and development people to speak with the ASMI representatives, he added. CHRISTOPHER GATES, DIRECTOR, DIVISION OF ECONOMIC DEVELOPMENT, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, introduced himself and advised that he would be focusing on increasing value-added seafood production and manufacturing facilities in Alaska, and would work on a program to deal with Tyson Seafoods. He added that the Division had a matching grant program for entrepreneurs that became involved in the seafood industry. DONNA PARKER, FISHERIES DEVELOPMENT SPECIALIST, DIVISION OF ECONOMIC DEVELOPMENT, ADF&G, noted the fishing industry outlook was not very promising. With the passage of the individual fishing quota program by the Secretary of Commerce, the organization of the fishing industry would change dramatically, she said, and noted the recommendations of the SSTF as follows: 1. expand marketing efforts; and, 2. diversify the products available to the consumer, particularly convenience products. MS. PARKER pointed out the U.S. market was the biggest opportunity in the entire world and the problem was the lack of markets. She added the problems in moving into product diversity were: Inconsistency, production costs, lack of proper technology, unstable prices, and run returns. The task force hired consultants, like the Seafood Management Corporation, to facilitate the development of a successful strategy for the development of value-added production for pink and chum salmon, she disclosed. TAPE 93-3, SIDE B Number 000 MS. PARKER continued speaking of the importance of value- added production. The consultant was specifically supposed to look at seafood resources in other countries and states to see how to increase value-added production, she said, and added that in the Prince William Sound area, salmon production paid for the machinery and overhead costs in the facilities, because the groundfish market had not flourished. MS. PARKER concluded that fish marketing was a priority of the Division of Economic Development, and they were working with the ASMI and Commissioner Paul Fuhs to seek marketing assessments. REPRESENTATIVE DAVIDSON commented that fishermen were less able to rebound from low levels of fish than processors. MS. PARKER pointed out when prices fluctuated, the processors' proportionate share of revenue remained rather consistent, but fishermen did not have that luxury. She said fishermen were looking into long-term contracts and risk-sharing. REPRESENTATIVE DAVIDSON asked why the Governor's SSTF recommended more resources be directed at domestic marketing while the entire line item for a contribution to the ASMI in the Governor's budget had been omitted. MS. PARKER advised that the ADF&G'S Commissioner had met with the Governor on that issue, and the Governor had wanted the ASMI to become more privatized. ADJOURNMENT CHAIRMAN MOSES adjourned the meeting at 9:50 a.m.