HOUSE SPECIAL COMMITTEE ON FISHERIES April 14, 1993 8:30 a.m. MEMBERS PRESENT Representative Carl E. Moses, Chairman Representative Harley Olberg, Vice-Chairman Representative Gail Phillips Representative Cliff Davidson MEMBERS ABSENT Representative Irene Nicholia COMMITTEE CALENDAR Fisheries Development Foundation Discussion WITNESS REGISTER Paul Fuhs, Commissioner Alaska Department of Commerce and Economic Development P.O. Box 110800 Juneau, Alaska 99811-0800 Phone: 465-2500 Position Statement: Supports endowment Carl L.Rosier, Commissioner Alaska Department of Fish and Game P.O. Box 25526 Juneau, Alaska 99802-5526 Phone: 465-4100 Position Statement: Supports endowment Chris Mitchell, Executive Director Alaska Fisheries Development Foundation 508 W. 2nd, Suite 212 Anchorage, Alaska 99501 Phone: 276-7315 Position Statement: Supports endowment John French, Director Fisheries Industrial Technology Center Kodiak, Alaska 99615 Phone: 486-1500 Position Statement: Supports endowment Kim Elton, Executive Director Alaska Seafood Marketing Institute Alaska Department of Commerce and Economic Development 1111 W. 8th Street, Suite 100 Juneau, Alaska 99801-1895 Phone: 586-2902 Position Statement Supports endowment Jerry McCune, President United Fishermen of Alaska 211 Fourth Street, Suite 112 Juneau, Alaska 99801 Phone: 586-2820 Position Statement: Supports endowment Bart Watson, Executive Director Armstrong/Keta Corporation P.O. Box 21990 Juneau, Alaska 99802 Phone: 586-3443 Position Statement: Supports endowment Dean Paddock, Executive Director Bristol Bay Driftnetters Association P.O. Box 21951 Juneau, Alaska 99802 Phone: 463-4975 Position Statement: Supports endowment ACTION NARRATIVE Tape 93-22,Side A Number 000 CHAIRMAN CARL MOSES called the meeting to order at 8:36 a.m., and said the committee would be hearing from a group of people who had been working together on a project to fund salmon development in Alaska. PAUL FUHS, COMMISSIONER, ALASKA DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT (DCED), talked of how everyone has seen the reduction in salmon prices and the problems and impacts it has had on fishermen and the local communities that depend on salmon revenue. He said the state also has a significant amount invested ($130 million) in fishing boats, permits and hatcheries. The DCED and the Alaska Department of Fish and Game were concerned about the situation and came up with a plan that they took to Governor Hickel which he "put his blessing on." MR. FUHS explained that marketing assessment is a critical piece of this plan. It would assure more money would go into domestic marketing. He stated the way Alaska is trying to sell its fish is very outdated and the seafood industry has not kept up with other industries. He felt the Alaska Seafood Product Development Fund is probably the most important part. The idea behind this is to set aside a suggested amount of $50 million dollars for ten years, from which the interest would be used to develop new products and the technology necessary to produce those products. He said the source of funds has not yet been identified MR. FUHS further explained that this would generate about $4 million dollars a year and it would be the responsibility of the departments working with industry to come to the legislature with a budget each year explaining how this money would be spent. It would be totally within the control of the legislature to appropriate, not setting up a constitutional endowment. If at any time the legislature feels it is not worth doing, the $50 million can be put back into the general fund, or at the end of ten years it would automatically go back into the general fund. He noted that this process really worked with surimi using federal funds that are not available now. MR. FUHS talked about the last aspect of the plan which is tax credits to promote value added salmon production in Alaska. For a few years, Alaska had a 50% tax credit to anyone who invested onshore in Alaska. It was very successful and led to hundreds of millions of dollars being invested in the shore site industries. There was a proposal to extend that, but the DCED testified against that because more primary production is not what is needed. What is needed is incentive for value added processing for new product forms and improvements to the quality of the products, he declared. Number 118 CARL ROSIER, COMMISSIONER, ALASKA DEPARTMENT OF FISH AND GAME, testified that Alaska has not yet peaked as far as salmon production goes. He felt there is a lot of concern amongst the industry, and fishermen are extremely concerned about fish prices this year. There is also concern about people getting out of the salmon business, because of the low economic return. He stated the industry needs our help at the present time, and this foundation is the next logical step in support of the industry. Number 188 CHRIS MITCHELL, EXECUTIVE DIRECTOR, ALASKA FISHERIES DEVELOPMENT FOUNDATION (AFDF), explained they are an industry membership organization whose project, programs and activities are to try to collectively move the industry forward and solve problems that are generic to the industry, or too big or expensive for a sector or component of the industry to take on by itself. He represents a consortium of people in the fishing industry who feel that now is the time to collectively come together to make the industry better and bring it out of the crisis that it is in. MR. MITCHELL said the legislature's joint economic task force's mini summit was the stimulus behind the endowment asking what the legislature can do to help industry problems. He stated that the fishing industry is a very large, important industry that has invested heavily in itself and is a big contributor to the state's economy. Number 296 MR. MITCHELL spoke of how low fish prices are and how a near record harvest is coming up this year, with declining markets in Japan and a decline in North America for canned consumption. He felt all of these signs indicate the industry is in distress. Mr. Mitchell said the endowment can be the unifying factor to bring all of the pieces together. Alaska must look at the problem in its entirety and interact and attack in a comprehensive way, from ocean to market. He said only in that way can the business effectively move forward and ahead. The concept behind this is where the legislature, through the creation of the endowment would help the industry help itself. Mr. Mitchell felt only the industry can make those changes. Number 377 CHAIRMAN MOSES said he had run into sentiment that there is considerable duplication between the Alaska Seafood Marketing Institute (ASMI), the Fisheries Industrial Technology Center (FTIC), and the DCED. He asked how to get everyone under one roof, or going in the same direction. Number 386 MR. MITCHELL said there is a bill being drafted which outlines how the concept might work. A board could be developed to decide what projects are to be undertaken and provide the framework for each of the projects. The board would be industry based and have each of the components of industry, from fishermen to processors, to offshore processors and the DCED, all working together. Number 432 CHAIRMAN MOSES said legislators and fishermen who are going to contribute to the project are going to want to know that they have an entity that is going in the right direction and under one roof. Number 435 MR. FUHS responded that one month ago a meeting was called in Anchorage, of all of the groups who, for the first time, sat down together and came up with this proposal. He said the groups are all speaking with one voice now, and there is no division among them. Number 445 REPRESENTATIVE CLIFF DAVIDSON asked who the other members of the board would be. Number 450 MR. MITCHELL answered that honestly his wish list would be an industry member appointed by ASMI's board of directors, one appointed by the FITC's board of directors, one appointed by the AFDF, one appointed by Pacific Seafood Processors Association's board of directors, one appointed by United Fishermen of Alaska's board of directors, and one appointed by the DCED; the executive director of ASMI, the executive director of AFDF (Mitchell) and a marketing industry member elected by the preceding nine members. That is the way Mr. Mitchell visualizes it: To make it industry designed, industry directed and industry managed. MR. MITCHELL felt with that kind of makeup the board would undertake programs that the industry feels are real and needed. He stated he had recently spent some time in Seattle speaking with some of the major Pacific Seafood Processors Association members to get their support for this kind of concept. They ultimately said they could support it. Number 490 REPRESENTATIVE DAVIDSON told Mr. Mitchell he felt the committee members had heard the negatives and would like to hear some ideas or positive project specifics coming as a result of this coordinated effort. He wanted to know who would be the entity or individual to place the pieces of the puzzle to get the big picture. Number 502 MR. MITCHELL said the idea behind this was an endowment for ten years that would sunset after that point in time. The income from it would generate $3-4 million annually. He said the stimulus behind making it happen right now is the salmon situation. He felt there are two distinct salmon industries in the state: Pink salmon, a very large fishery with very low values which has some very interesting food market opportunities in food categories rather than fish categories; and sockeye, where there is a relatively directed market into Japan where stress is coming and doors are closing and prices are falling. MR. MITCHELL envisioned the first two projects would target those two immediate needs. What they will do as a consortium, he said, is put together an outline on both projects the way they see a development project taking place. Number 530 CHAIRMAN MOSES said it cannot be an industry driven program. He envisioned an all encompassing entity to try and solve a problem. Number 535 JOHN FRENCH, DIRECTOR, FISHERY INDUSTRIAL TECHNOLOGY CENTER (FITC), passed out an informational packet entitled "Turning Research into Reality". (A copy of this packet may be found in the House Special Committee on Fisheries' Room, Capitol Room 204, and after the adjournment of the second session of the 18th Alaska State Legislature, in the Legislative Reference Library.) He said they are talking about being able to effectively introduce new research and development ideas into the industry. MR. FRENCH agreed with the previous speakers that it is very critical that the industry be a significant part of that process so they can utilize the results. If the end results are not of value to the industry operations, he felt it is not worth spending state money to do it. He spoke in favor of the tax credits on low interest loans as they could be used to increase the industry's cash contribution towards projects that require matching funds for federal monies. Number 588 KIM ELTON, EXECUTIVE DIRECTOR, ALASKA SEAFOOD MARKETING INSTITUTE (ASMI), said he managed a marketing arm of state government and emphasized that an important component of marketing is being ignored. He felt this endowment would make his job much easier. Generic promotions such as ASMI does are much easier when you have diversified products. He said there had been a lot of cooperative work done by groups that in the past had been divided in coming up with a piece of legislation that establishes a harvester assessment for marketing programs that ASMI does. Number 615 MR. ELTON felt they had come up with a piece of legislation that marketers, processors and many major fishing groups could buy off on. He was encouraged by the fact that these different groups have been able to work together to do this. Number 628 JERRY MCCUNE, UNITED FISHERMEN OF ALASKA, stated that Alaska used to have a world share market and could force prices on the world market, but that is not so anymore. TAPE 93-22, SIDE B Number 000 MR. MCCUNE suggested getting into a domestic market. He felt if all the groups can work together then it is a good proposal. Number 074 BART WATSON, EXECUTIVE DIRECTOR OF ARMSTRONG/KETA, a salmon hatchery in the Baranof Islands, stated that they only employ 35 people, but bring hundreds of thousands of dollars of value into the fishing industry by mainly seining and trolling. He said facing the challenges of the current low prices is not the problem of too many fish in the world, but that marketing has not caught up with the increased supply. He was really encouraged to see this consortium come together, and noted that the hatchery had donated several thousand pounds of pink salmon this year to the AFDF for processing research. MR. WATSON felt this consortium really had the ability to create new markets for salmon in Alaska if it were funded properly. Number 163 DEAN PADDOCK, SEVEN YEAR MEMBER, ALASKA COMMERCIAL FISHING AND AGRICULTURE BANK (CFAB), stated that the CFAB has been very concerned with the changes in the industry. Concerned enough that in 1992 they devoted approximately $100,000 to a program to educate fishermen that their world was indeed changing. Fishermen feel they are at a crisis point as their collateral is at stake. The CFAB is a longtime supporter of the AFDF and has granted money to the AFDF for some very worthwhile programs with some very worthwhile accomplishments. He thought this plan was brilliant and would urge the committee to support this plan. MR. PADDOCK said this approach offers hope because it proposes to attack the problem of the changes that are facing those involved with this industry. Number 219 CHAIRMAN MOSES expressed his feeling that one big problem was in the past they were told by the canned salmon industry that salmon could not be frozen, which turned out not to be the case. They just did not want to change with the times and he felt there was another stalemate in the industry in not wanting to change with the times. Number 243 MR. ELTON agreed and went on to discuss some changes that have been made. He stated that there is some resistance to product form change, but that is because of investments the industry has made. He was, however, very optimistic. CHAIRMAN MOSES said one of the big problems is concentrating too much on catching or buying the fish and not determining where or how the market is going to be. Number 324 MR. FRENCH talked about how originally only a small group believed in the surimi project. The AFDF board went and found some federal money and it proved to be very successful, and as the project went forward it gained more industry support. The industry dollars were far greater than the federal dollars, but the federal dollars helped to ease the risk. He said the monies in this endowment could be used in the same way. They could provide the incentive for industry to take some of those risks. MR. FRENCH said the industry realizes it has problems. He didn't think industry appreciates what the real solutions probably are, but solutions are being sought. All of the ideas for the projects will not necessarily come from industry, but certainly industry needs to be an active partner. It is not putting a lot of state money forward, except for delaying the monetary return from the money in the endowment. Number 365 MR. PADDOCK shared with everyone his pleasure in hearing that Governor Hickel approved of the idea of approaching the problem this way. Number 394 CHAIRMAN MOSES felt the governor was in favor in principle and everyone was in agreement. Everyone just needs to figure out how to do it, he added. Number 402 MR. MCCUNE mentioned legislation that is being drafted and suggested that the committee request it from drafting and take a look at it. Number 426 ADJOURNMENT CHAIRMAN MOSES adjourned the meeting at 9:55 a.m.