HOUSE SPECIAL COMMITTEE ON FISHERIES February 13, 1995 5:05 p.m. MEMBERS PRESENT Representative Alan Austerman, Chairman Representative Carl Moses, Vice Chairman Representative Gary Davis Representative Kim Elton Representative Scott Ogan MEMBERS ABSENT None COMMITTEE CALENDAR OVERVIEW: Alaska Seafood Marketing Institute * HB 116: "An Act exempting the Alaska Seafood Marketing Institute from the State Procurement Code." PASSED OUT OF COMMITTEE (* First Public Hearing) WITNESS REGISTER ART SCHEUNEMANN, Executive Director Alaska Seafood Marketing Institute 1111 West 8th Street, Suite 100 Juneau, Alaska 99801 Telephone: 465-5569 POSITION STATEMENT: Presented Overview of Alaska Seafood Marketing Institute and Supported HB 116 JERRY McCUNE, President United Fishermen of Alaska 211 Fourth Street, Suite 112 Juneau, Alaska 99801 Telephone: 586-2820 POSITION STATEMENT: Supported HB 116 PREVIOUS ACTION BILL: HB 116 SHORT TITLE: EXEMPT ASMI FROM PROCUREMENT CODE SPONSOR(S): SPECIAL COMMITTEE ON FISHERIES JRN-DATE JRN-PG ACTION 01/25/95 131 (H) READ THE FIRST TIME - REFERRAL(S) 01/25/95 131 (H) FSH, L&C, FIN 02/13/95 (H) FSH AT 05:00 PM CAPITOL 124 ACTION NARRATIVE TAPE 95-8, SIDE A Number 000 The House Special Committee on Fisheries was called to order by Chairman Alan Austerman at 5:05 p.m. Members present at the call to order were Representatives Moses, Davis, Elton and Ogan. HFSH - 02/13/95 OVERVIEW: ALASKA SEAFOOD MARKETING INSTITUTE Number 026 ART SCHEUNEMANN, Executive Director, Alaska Seafood Marketing Institute (ASMI) explained the mission and purpose of ASMI. He stated, "ASMI is a cooperative effort between the seafood industry, harvesters, processors, private and commercial users. We are also in a cooperative relationship with the Department of Commerce and Economic Development. We are governed by a board of 25, with 12 fishermen, 12 processors and 1 at large member, all appointed by the Governor." MR. SCHEUNEMANN explained, "The purpose is to increase the consumption of Alaska seafood and to promote the quality and superiority of seafood products in all marketplaces. A 1 percent harvester tax assessment was put into place to develop the domestic marketplace. Our budget for FY 95 is broken into several components, made up of the 1 percent harvester tax, estimated at $4.2 million landed value tax. Point zero three percent of the onshore processor tax, which is the landed value tax, is federal Market Promotion Program (MPP) funding. This MPP funding is directly from the U.S. Department of Agriculture for overseas market and trade development. Part of that program, is the federal MPP cash match, which is state general funds appropriated by the Alaska Legislature. A carry forward amount for 1995 is present because the strategic planning process was not in place." MR. SCHEUNEMANN further stated, "Our budget is about $15 million for FY 95. The federal MPP funding is directed to nine countries, with expansion planned next for Asia. The $5.6 million you see and the federal cash match are for promotional, trade advertising and buyer/seller development activities in the export markets we're targeting. The domestic program is about $6.8 million, divided between retail food service and media advertising programs. The strategic marketing plan was developed because of the competition out in the marketplace. The plan is driven by the passage of the 1 percent salmon harvester tax, the reorganization of the board and the culmination of a starting point in the market arena." MR. SCHEUNEMANN went on to say, "The program is broken down into retail and food service segments, with the objective of increasing the sales of seafood from Alaska. Our consumer program also uses a variety of advertising and public relations efforts to leverage a message out to the customer. We utilize radio programming and tagged television programming to reach the consumer. During the Lenten season we are utilizing fishermen to act as ambassadors in the marketplace. The Salmon Marketing Committee set up a program that would get the fishermen out into the stores and producers out into the marketplace. This would give the necessary exposure, education and training to the potential customer." MR. SCHEUNEMANN stated, "About 59 fishermen have gone around the country, primarily the Midwest, to act as these ambassadors. The information flow is not just one way, but educates the fishermen and industry as to what the consumer wants. We will continue this program on a targeted basis through the Lenten season, and as we continue to develop our marketing plan. The central core of the United States is our primary focus, which includes having ASMI field marketing representatives full time in two key locations. Eventually, the marketing plan will roll out into the other regions of the domestic market. A long term objective is to cover the United States with ASMI representatives to assist the program in maximizing the utilization of the marketing dollars." Number 388 MR. SCHEUNEMANN also mentioned, "The communications program objective is to communicate to the industry what ASMI is doing and to support the elements of ASMI's other programs. The quality program is designed to educate the industry and fishermen to achieve the highest possible degree of quality product. ASMI will continue to evaluate how they're getting the message out to the consumer. Performance standards will be developed to account for how ASMI utilizes the industries and Alaska's resources. ASMI hopes to build on the past, be more strategic in our thinking and build capacity in the marketplace." Number 498 REPRESENTATIVE SCOTT OGAN asked Mr. Scheunemann if the fishermen make over $15 million more in profit because of the efforts of ASMI. MR. SCHEUNEMANN responded, "What we're doing is not geared towards assuring differences in price in the marketplace for the fishermen. We can never guarantee that what we do will have an impact on the price paid to the fishermen. We could never defend our marketing strategy in a category marketing organization. What you have to look at is the long term. If consumption increases, ultimately prices will increase. Seafood is driven by the international market. If we target effectively, and if we build relationships and keep the capacity growing, then ultimately the fishermen are going to become more profitable." Number 540 REPRESENTATIVE OGAN followed up with a question about whether or not other organizations have this type of marketing, where they contribute to a marketing plan and what are their budgets. MR. SCHEUNEMANN stated, "The Norwegian farmed salmon groups spend far more than we do as an industry to promote their farmed salmon. The Chilean's have a farmed promotional organization with unknown expenditures. All of the major farmed salmon countries have put a million dollars into a fund, that is doing domestic generic promotion. Other non-seafood commodity groups have been promoting their products for many years." Number 572 CHAIRMAN AUSTERMAN wanted to know what percent of the 8 percent of seafood consumed is farmed fish. MR. SCHEUNEMANN stated, "Farmed fish is 30 percent of that portion of the pie. Alaska's market share has shrunk from 75 percent to 33 percent over the last 15 years or so." CHAIRMAN AUSTERMAN followed up by asking, "What can ASMI do to raise that consumption rate?" MR. SCHEUNEMANN answered, "We need to deliver a consistent message about salmon and keep the number of categories growing. The field representatives out in the marketplace will help keep the focus on salmon." Number 640 REPRESENTATIVE KIM ELTON stated, "The salmon fishermen are putting $4.2 million into this program. This assessment has four years left, so it also becomes a market test for ASMI. The fishermen will be in the best position to determine if the program works." He also recommended that all committee members read the ASMI report. He additionally stated, "In the last 15 to 20 years salmon production has gone from 800,000 metric tons to 2.4 billion metric tons, with roughly the same consumption rate. At a minimum, we have to preserve market share and preserve the price as much as possible in a market where production is outstripping the demand." CHAIRMAN AUSTERMAN commented, "The question to ask ourselves is: Without this expenditure, would we as fishermen have less than the market share." Number 684 MR. SCHEUNEMANN responded, "I believe the expenditure does have an impact on the market share. I'm not sure if the focus on marketing would have changed much had it not been for the reorganization of bringing in the fishermen. I think that this expenditure by the fishermen will be the catalyst to growth. But it will be tough to measure, because of the very nature of category marketing. So many organizations are doing this type of marketing, in so many areas, that somewhere in there is the valid reasoning for this market strategy. In talking to processors over the last eight or nine months, you're finding more and more interest in investing in some of the risk to...." TAPE 95-8, SIDE B Number 000 MR. SCHEUNEMANN still commenting, "....instead of giving the consumer what it's been used to giving it." HFSH - 02/13/95 HB 116 - EXEMPT ASMI FROM PROCUREMENT CODE Number 035 MR. SCHEUNEMANN testified, "ASMI needs to be removed from the state procurement codes, because ASMI is not a state government organization in the sense of the word that those codes were originally designed and enacted for. The codes were designed to prevent conflict of interest and abuse of competing interests or services, not a market-orientated type of program ASMI is moving forward with. The process to place two field representatives in the Midwest was encumbered for months by the procurement codes. The procurement system has also been a hindrance in the area of bringing media agencies on line. Many varied promotional programs are made difficult by all the legal aspects of the procurement codes." Number 236 REPRESENTATIVE OGAN asked, "Is ASMI an administrative unit of the Executive Branch of state government or a public corporation?" MR. SCHEUNEMANN responded, "We are tied administratively with the Department of Commerce and Economic Development." Number 263 REPRESENTATIVE OGAN followed up by asking, "Why should we grant ASMI an exemption to the procurement codes?" MR. SCHEUNEMANN responded, "ASMI is not a typical state agency, that do business with the same types of private sector individuals, corporations or providers. We are a market-orientated business and for all intents and purposes, a private organization working in a governmental environment." Number 329 REPRESENTATIVE ELTON stated, "First of all, in marketing, you want the best bidder, not necessarily the lowest bidder. Secondly, HB 116 doesn't remove the state oversight of the procurement procedures. And last, by making the process a little quicker, we are more responsible to industry." Number 377 JERRY McCUNE, President, United Fishermen of Alaska, testified in support of HB 116. He further stated, "ASMI is hampered by the states' procurement codes and additionally, more of the dedicated funds could be used for advertising and promotional activities if this bill passes." Number 406 REPRESENTATIVE GARY DAVIS commented, "Representative Ogan is not off target, when he questions, what is in the states' procurement codes and how they relate to ASMI." REPRESENTATIVE OGAN added, "I applaud the efforts of ASMI's marketing program. I have a fundamental problem with the government taxing people, to fund a private corporation. For that reason, I am going to vote against HB 116." Number 437 REPRESENTATIVE CARL MOSES motioned to moved HB 116 out of committee with individual recommendations and a zero fiscal note. REPRESENTATIVE OGAN registered an objection. Number 452 CHAIRMAN AUSTERMAN called for a roll call vote. Those voting in favor of the motion were Representatives Davis, Elton, Moses and Austerman. Representative Ogan voted against the motion. CHAIRMAN AUSTERMAN announced that HB 116 passed out of the House Special Committee on Fisheries with a zero fiscal note. ADJOURNMENT CHAIRMAN AUSTERMAN adjourned the meeting at 6:15 p.m.