HOUSE SPECIAL COMMITTEE ON FISHERIES February 11, 1994 8:30 a.m. MEMBERS PRESENT Representative Carl E. Moses, Chairman Representative Harley Olberg, Vice Chairman Representative Irene Nicholia Representative Cliff Davidson Representative Gail Phillips COMMITTEE CALENDAR Overview: Alaska Seafood Marketing Institute WITNESS REGISTER KIM ELTON, Executive Director Alaska Seafood Marketing Institute 1111 West 8th Street, Room 100 Juneau, Alaska 99801-1895 Phone: 465-5560 POSITION STATEMENT: Gave a presentation of the Alaska Seafood Marketing Institute TAPE 94-7, SIDE A Number 022 MR. KIM ELTON, EXECUTIVE DIRECTOR, ALASKA SEAFOOD MARKETING INSTITUTE, referred to a chart which was included in committee members' packets, and noted that last fiscal year the total budget for the Alaska Seafood Marketing Institute (ASMI) was a little over $14 million. Slightly over two-thirds of that budget was dedicated to overseas marketing through a combination of federal funds and state cash match. The industry contribution was about 22 percent of the total budget, with state dollars for domestic marketing totaling about nine percent. This year the chart is dramatically different. Industry funds are in the area of 47 percent of the total budget of almost $16 million. State funds are mostly cash match dollars for the federal grant monies, totaling about $1.1 million to secure the $7.25 million from the federal Market Promotional Program (MPP). The amount of state dollars remaining in the domestic marketing program is .3 percent, or about $48,000. Number 226 MR. ELTON stated there are three elements to the bureaucratic changes. The first is a management report designed in 1992. The second element is the passage of the one percent salmon harvesters assessment that added seven new fishermen to the board and added about $3.8 million to our domestic salmon marketing effort. The third element was a facilitated retreat that the board of directors went through earlier this year. MR. ELTON addressed the management report. It is called the Prior/Martech Report on ASMI and it recommended several things. The first was a dramatic restructuring of the committee system that has driven a lot of the ASMI decisions on promotions, especially in the domestic market. ASMI has a total of nine standing committees that consist entirely of industry members, either from the processing or marketing end to the fish harvester end. The third recommendation concerned ASMI's advertising agency and their fees. Prior/Martech found that ASMI's agency fees were higher than the norm and recommended that ASMI retool their promotions to focus more on trade promotions rather than on consumer promotions. They advocated that ASMI does not have a high enough level of funding to be effective in consumer marketing. Another element they noted was the absurdity of the state's procurement system. MR. ELTON continued by stating that Prior/Martech made other recommendations that he disagreed with and he thought the board would disagree with also. One was to take 30 percent of ASMI's promotional funds and link with other generic seafood promoters. This is a substantial amount of money. Prior/Martech also suggested the ASMI staff be centralized in Anchorage. ASMI has a staff almost evenly split between Seattle and Juneau. The Seattle staff is the marketing component and they bring ASMI closest to those markets they are most interested in. Bringing the Seattle staff to Alaska would greatly increase ASMI's cost of doing business. Prior/Martech stated ASMI was operating at 65 percent efficiency, but that it could be largely attributed to some of the impediments presented by operating in the state government. ASMI is attempting to perform a private sector job, which is marketing, within the structure of a government bureaucracy. MR. ELTON spoke to the second of the bureaucratic changes; that being the salmon harvester's assessment passed by the legislature last year. It essentially replaced the $1.3 million general fund monies with between $3-$4 million from the salmon harvester segment of the industry. Part of that legislative package included the addition of seven new fishermen to the board. The board is now a 25-member board comprised of 12 fishermen, 12 processors and one public member. The immediate result has been very beneficial. There has been a dramatic increase in dialogue with fish harvesters. The legislation also mandated the creation of a salmon marketing committee. This is comprised of four fishermen and three processors who will make recommendations to the full board on how the fish harvester dollars are spent in the domestic market. ASMI recently signed a contract with the University of Alaska and Seafare for a Salmon Information Service, as a part of the legislation. Number 250 MR. ELTON addressed the final bureaucratic element, which was the facilitated retreat held in January. The board hired a firm through the solicitation process. The firm was Co-Development Associates. They have facilitated for BP Alaska, Toyota, and the ANC in South Africa. As a result of the Prior/Martech Management Study and of new board members, the retreat was designed to pull everyone together and get them going in the same direction. The board created a working executive committee comprised of two fishermen, two processors, the public member of the board, and the chair of the board. They focused on four core issues, and will make their recommendations to the full board at the end of March. The first recommendation was to define who the customer is; the second, define who the competition is; the third, define what quality level is attainable; and, the fourth, how to foster more industry cooperation. Number 270 MR. ELTON addressed some of the problems ASMI is facing. The state procurement contributes to inefficiency at ASMI. ASMI is unbundling a lot of the tasks the advertising agency used to do and because of that, ASMI is running into more and more into conflicts. The bidding requirement from three sources is a problem, and going out for competitive bid is a waste of time and money for ASMI. Getting sole source authority in four days is impossible and there are times when ASMI must move quickly to respond to an emergency situation. Without state funding, ASMI would like more latitude. Number 377 REPRESENTATIVE PHILLIPS asked if ASMI has investigated the possibility of privatizing ASMI's division of sales to remove the restrictive requirements. Number 383 MR. ELTON stated that ASMI has considered this. Up until three years ago, the ASMI sales staff had been operating apart from the state umbrella. Three years ago, they were brought under the state umbrella, because it was an awkward position for the state to be in with the ASMI sales person being an employee of the advertising agency. There was a perception of a conflict of interest. Number 396 REPRESENTATIVE PHILLIPS suggested there would be validity in placing the sales staff under a separate contract. Number 398 MR. ELTON stated it is an obvious solution. The easiest way to move would be for ASMI to draft its own procurement code, have it approved by the state and handle it within ASMI. Number 409 MR. ELTON stated another problem facing ASMI is the shrinking portion of the budget supplied by the federal government. ASMI's percent of these funds has increased, but the total amount of funds available have shrunk and it looks as though they will continue to shrink. MR. ELTON addressed another problem with the salmon harvester's assessment. After reviewing all the information, the Department of Revenue should have collected $3.8 million; however, they only collected $2.8 million. ASMI has been working with the Department of Revenue in an attempt to reconcile the fish ticket information from the Department of Fish & Game (ADF&G) with the Department of Revenue. Number 455 MR. ELTON addressed the final problem ASMI is facing; the fiscal year carryover. There will be FY 94 dollars ASMI will not be allowed to spend in FY 95, because of delays in collections of the harvester's assessment and appropriations from Revenue. This is also true for the processor's assessment. ASMI is working with the Office of Management and Budget (OMB) to solve this problem and is looking for authority to carryover program receipts from one fiscal year to another. Number 491 REPRESENTATIVE PHILLIPS congratulated ASMI for the recipes they have developed and stated it is a good public relations tool. MR. ELTON stated the recipes help in marketing seafood, because consumers tend to shy away from the purchase of seafood when they are not familiar with it. Number 514 MR. ELTON stated he has felt a certain amount of frustration because the simplest way to define the "owner state" is the fisheries. He said it is a common property resource owned by the state, managed by the state, enhanced by the state, and it's a resource that has fed the economy of the state for a long period of time. There are a lot of people who are not protected from the booms and busts in the industry and many of these people will have to make the decision to stay or leave in the next few years. The frustration felt is relative to the fact that the fishing industry has become the "forgotten industry." MR. ELTON commented, the state has done a very good job with the business plan for the fishing industry relative to investment, production, management, research, and marketing, but the state cannot walk away now. The first portion of the business plan is investment. The state has invested hundreds of millions of dollars in the fishing industry through hatcheries, port facilities, runways, and boat and permit loans. The private sector has also invested in the fishing industry. About five billion dollars has been invested in onshore plants, permits, boats, and equipment. The second element of the business plan is production. Alaska produces over five billion pounds of seafood protein a year. This is more than half of what the entire United States produces. The next portion of the business plan is management. The state's professional managers at the Department of Fish & Game have managed a program that provides direct jobs for 19,000 people and indirect and induced jobs for another 16,000. That's a total of 35,000 people depending on the fishing industry, and management has done a good job in encouraging that kind of economic growth. The state has done very good, but we are slipping fast. Management at Fish & Game is being hurt by inflation and the investment in management is not going up as fast as inflation is. The state needs to focus on management. The forth element of the business plan is research. In looking back, we can see dramatic events; the development of surimi being one. Research is being hammered. Research through ADF&G and other components including the University of Alaska or through the Alaska Fisheries and Development Foundation (AFDF) is severely limited. The fifth element of the business plan is marketing. The harvesters, processors and the federal government have made a financial commitment to marketing, but the state has withdrawn from the joint marketing effort. Number 600 REPRESENTATIVE IRENE NICHOLIA asked Mr. Elton which section of the University will be performing the Salmon Information Service. Number 604 MR. ELTON replied it would be conducted through the Institute of Social and Economic Research (ISER) unit of the University of Alaska, Anchorage and they will subcontract with the Seafare Group, publishers of Seafood Leader, Simply Seafood and other publications. Number 615 REPRESENTATIVE DAVIDSON asked Mr. Elton if he would comment on how he saw the Individual Fishing Quota Program as it attempts to privatize the common property resources of the "owner state." Representative Davidson spoke to the decimation of the research portion of the state effort and said, nothing is more illustrative than the example of dismantling a perfectly fine research effort built up over many years in Kodiak and we locate part of it away from their federal counterparts in Anchorage. Number 632 MR. ELTON stated he was hesitant to comment on quota systems and would not presume to know what is best from a management perspective. The increased discussion of quota systems is indicative of the state of the industry. As the industry declines, people start casting about for ways to stabilize the industry and the economic return. There are market implications. TAPE 94-7, SIDE B Number 000 MR. ELTON continued with a discussion of research and addressed the Fisheries Industry and Technology Center (FITC) enzyme research for arrowtooth flounder and its importance. He also addressed marine mammal research and its importance to fisheries management. Number 070 MR. ELTON spoke to an item of debate both in the legislature and the administration; that is whether the fishing industry is paying its way. He referenced a report from OMB which states that the fishing industry is not paying its way. Mr. Elton noted that a portion of the Exxon Valdez litigation fees were "charged off" to the fishing industry. Number 107 REPRESENTATIVE DAVIDSON asked Mr. Elton if OMB was guilty of using "sloppy" numbers, and whether it was true that livelihoods would suffer when we are forced to manage a resource conservatively, because of lack of good information? MR. ELTON said the short answer is no. He stated there is a problem across the spectrum. It involves policy makers like legislators, Fish & Game, like himself, and in the Governor's office. It involves a lack of knowledge and a lack of interest in the state's largest economic engine. There are a lot of assumptions and many things taken for granted. Number 145 REPRESENTATIVE PHILLIPS expressed her concern over the industry and wondered why we continue to spend millions of dollars and keep losing ground. Representative Phillips asked Mr. Elton if he would consider writing an assessment when he's no longer in his position as Executive Director of ASMI. Number 160 MR. ELTON said he would be happy to write an analysis. He stated he believes the state has to invest, but that it is not the only answer. An economic return will follow, but, perhaps not immediately. Private sector involvement is necessary, too. Consumption demands have not met production. Number 216 REPRESENTATIVE NICHOLIA asked Mr. Elton if any of the 12 fishing members of the board were from the Yukon or Kuskokwim River? Number 218 MR. ELTON answered that Mr. Nels Alexie is from the AYK region. Number 227 REPRESENTATIVE MOSES asked when ASMI anticipated an answer from OMB on their carry forward funding issue. Number 230 MR. ELTON replied ASMI sent over a memo at the end of last week and if they did not hear within the next several days, he would call OMB. He stated that he did not think it would be a problem. Number 236 CHAIRMAN MOSES asked if it could be solved through legislation if the answer was not forth coming. Number 238 MR. ELTON stated he thought it could be done as a part of the budget packet. Number 242 REPRESENTATIVE DAVIDSON referenced the recommendations of Governor Hickel's Salmon Task Force, and that the number one recommendation was to increase the domestic marketing effort, and asked Mr. Elton where that recommendation currently stands. Number 258 MR. ELTON replied that the Salmon Strategy Task Force identified several areas and one was that $9-$10 million a year needed to be spent in the domestic market place to make the needle move at all. They recommended a $10 million commitment. When the Governor's office prepared the budget, all state monies were eliminated for domestic marketing. Mr. Stastny with OMB, reasoned that the fishing industry is a "mature" industry, and as such the components had to step in and take the place of the state. ASMI argued that economic investment decisions should not be based on maturity. Also, it was a rule that was not applied to all marketing programs (tourism). All monies were replaced by industry monies. Mr. Elton stated that there was a continuing role for the state as a joint partner in marketing. ADJOURNMENT Chairman Moses adjourned the meeting at 9:47 a.m.