HOUSE SPECIAL COMMITTEE ON WORLD TRADE AND STATE/FEDERAL RELATIONS February 29, 2000 5:11 p.m. MEMBERS PRESENT Representative Ramona Barnes, Chair Representative John Cowdery, Vice Chair Representative Beverly Masek Representative Joe Green Representative Ethan Berkowitz Representative Reggie Joule MEMBERS ABSENT Representative Gail Phillips SENATE MEMBERS PRESENT Senator Loren Leman COMMITTEE CALENDAR PRESENTATION: Alaska Seafood International HOUSE JOINT RESOLUTION NO. 51, Expressing support for a cooperative United States-Canada feasibility study on extending the North American railroad system through British Columbia and the Yukon Territory to Alaska. - MOVED HJR 51 OUT OF COMMITTEE PREVIOUS ACTION BILL: HJR 51 SHORT TITLE: ALASKA-CANADA RAIL FEASIBILITY STUDY Jrn-Date Jrn-Page Action 1/31/00 2045 (H) READ THE FIRST TIME - REFERRALS 1/31/00 2045 (H) WTR, TRA 2/02/00 2075 (H) COSPONSOR(S): WHITAKER, FOSTER, MASEK 2/04/00 2103 (H) COSPONSOR(S): KOTT, COGHILL, DAVIES 2/09/00 2155 (H) COSPONSOR(S): CROFT, MURKOWSKI, HUDSON 2/09/00 2155 (H) THERRIAULT 2/18/00 2238 (H) COSPONSOR(S): OGAN 2/23/00 2288 (H) COSPONSOR(S): AUSTERMAN 2/28/00 2344 (H) COSPONSOR(S): KEMPLEN 2/29/00 (H) WTR AT 5:00 PM CAPITOL 124 WITNESS REGISTER HOWARD BENEDICT, Chairman Alaska Seafood International (ASI) 1007 West Third Avenue Anchorage, Alaska POSITION STATEMENT: Presented information on ASI. REPRESENTATIVE JEANNETTE JAMES Alaska State Legislature Capitol Building, Room 102 Juneau, Alaska 99801 POSITION STATEMENT: Sponsor of HJR 51. BILL BROPHY, Executive Director Fairbanks Industrial Development Corporation 515 Seventh Avenue, Suite 320 Fairbanks, Alaska 99712, POSITION STATEMENT: Spoke in favor of HJR 51. ACTION NARRATIVE TAPE 00-4, SIDE A Number 0001 CHAIR RAMONA BARNES called the House Special Committee on World Trade and State/Federal Relations meeting to order at 5:11 p.m. Members present at the call to order were Representatives Barnes, Cowdery, Masek, Green, Berkowitz and Joule. PRESENTATION: Alaska Seafood International Number 0077 CHAIR BARNES introduced Howard Benedict, Chairman of Alaska Seafood International. HOWARD BENEDICT, Chairman, Alaska Seafood International (ASI), began by distributing pictures of the new ASI plant in Anchorage. He said it had been built at a cost of $125 million, $50 million of which had been provided by the legislature. The new facility is the largest seafood plant in the United States, and the most technologically advanced seafood processing plant in the world. Number 0433 MR. BENEDICT explained that unlike a primary processor who takes a fresh fish, removes the head, cleans out the belly, and sends a whole fish to market, ASI does value-added processing, packaging seafood so that it is ready to cook and eat. Mr. Benedict said people today want seafood already portioned and coated or marinated. Therefore, ASI's goal is to make seafood as easy to cook as a hamburger or hot dog. MR. BENEDICT said that when the chicken industry learned to put its product into manageable amounts, with exact cooking instructions and sauces and coatings, the industry took off; the average American now eats 76 pounds of chicken each year. By contrast, that average consumer eats only about 15 pounds of fish. Thus ASI intends to do the same thing with fish as was done with chicken, and it is well on the way to doing it. Number 0650 MR. BENEDICT described the plant, which has almost seven acres under its roof. Production began in January, and ASI now has 120 employees. At full production, at the end of next year, it will employ about 450 people year-round. Behind that are another 750 jobs in rural Alaska harvesting the fish. MR. BENEDICT said the plant ultimately will have eight production lines. Already operating is the fresh seafood department, with three lines for salmon/cod, halibut and flatfish. Those three lines together will produce 25 million pounds of fish a year. He said ASI now is adding a frozen seafood department. Its lines will produce formed portions, breaded seafood, soups and chowders. When finished in 2001, it will bring the plant's total employment to 450. Mr. Benedict reported especially strong demand for entrees, restaurant-sized portions with seasonings and sauces, ready for the oven and ready to serve in five minutes. Number 1111 MR. BENEDICT explained that ASI has invested very heavily in research and development, creating 250 unique seafood products, all easy to prepare. Major goals are to make Alaskan seafood taste as good Outside as it does in Alaska, and to accommodate the industry with value-added processing that makes seafood easy to cook. Thus ASI development has intentionally concentrated on the fish hardest for Alaskans to sell, the pink and chum salmon, because Alaska has a surplus of them. The ASI salmon burger, made of pink salmon, has been judged better tasting than all of its competition. Number 1280 REPRESENTATIVE JOULE asked where ASI is getting its chum salmon. He recommended fall chums from the Yukon and Kotzebue Sound. MR. BENEDICT said ASI is trying to buy quality seafood from all over Alaska. Number 1360 MR. BENEDICT described some of the things the ASI microbiology lab is developing to help fishermen. One is an additive to ice that will enable fishermen to stay out twice as long and still bring in a very high-quality product. He said ASI is sending its quality control people out to all the processing plants from which it buys, providing education to help them produce a better product that can command a higher price. The company also is encouraging processors to operate in the winter, guaranteeing to buy 100 percent of their winter production. Mr. Benedict said that means more year-round jobs for Alaskans and better prices for the fish. Number 1579 MR. BENEDICT then asked to speak very frankly to the committee. He said he should not have had to spend 13 years putting together the ASI operation. The problem, he said, was that there was no money. The legislature tries to solve its budget problem by cutting expenditures, but it often neglects looking at ways to increase revenues. The state does very little to encourage new businesses that would create new jobs. He credited the Alaska Development Association (ADA), the legislature and Chair Barnes with making a critical difference in his venture. Number 1840 MR. BENEDICT made it clear that he was not advocating setting up a bureaucracy, another state agency. But he urged the legislators to set up a fund of about $100 million to help finance new business ventures. If he had had that, the ASI plant would have been running for seven years. This state has no shortage of good people with good ideas, he said, but they can't find financing for the early stages of a project like ASI. He advocated creating a fund and enlisting two or three venture- capital groups in the Lower 48, as does the Permanent Fund Board, to help raise money. Number 2006 MR. BENEDICT emphasized that Alaska is shipping out logs when it should be shipping out plywood. And it ships out crude oil when the state ought to have a petrochemical industry. REPRESENTATIVE JOULE asked if ASI would be in a position to consider not only fish from the sea, but also fish from the state's river systems. MR. BENEDICT said yes. He added, "Our job, as we see it, is to enhance any good fish we can get in Alaska." [There was discussion of specialty markets for whitefish, sheefish and pike.] Number 2270 REPRESENTATIVE COWDERY asked whether ASI still was concentrating on selling its fish within the United States. MR. BENEDICT said plans call for concentrating on the domestic market for the first two years, then looking overseas. The Pacific Rim is a most attractive market, since it represents 32 times the U.S. market. REPRESENTATIVE COWDERY asked about the nature of the U.S. market that ASI has now. MR. BENEDICT said it appears that two-thirds of sales will be to food service (restaurants), and about one-third will be to retail supermarkets. One surprise ASI has found is that buyers want consistent supply year-round, not just seasonally, which will take up all their frozen capacity very quickly; ASI may want to double its freezer capacity to 64 million pounds. REPRESENTATIVE COWDERY asked about the procedure ASI uses for freezing. MR. BENEDICT said it is very "high tech." The average primary processor freezes fish in about two hours, during which time water in the fish causes the cell structure to expand and break down, resulting in a mushy fish. ASI freezes fish at minus 48 degrees, which takes just 20 minutes. He said he thinks the market will pay for the quality. Number 2439 REPRESENTATIVE COWDERY asked about possible economies in shipping, taking advantage of freight containers that are now going back empty. MR. BENEDICT said ASI has taken every advantage it can. And by paying for back-haul, ASI is going to lower the cost of the front-haul for everybody. REPRESENTATIVE JOULE asked if ASI could take advantage of bypass mail rates on back-haul. CHAIR BARNES said she thinks that Alaska is the only state in the Union that uses bypass mail, and that Northern Air Cargo does a lot of it within the state. REPRESENTATIVE JOULE said that only recently has bypass mail been used for fish, and that it could eliminate a lot of the high cost of transporting fish from rural Alaska. MR. BENEDICT suggested that if rural areas could fly fish into Anchorage, they would be very competitive with other producers. REPRESENTATIVE JOULE said that would be especially true if those rural areas had access to ASI's ice additive to help maintain the quality of the fish. Number 2670 REPRESENTATIVE COWDERY wanted to know if ASI planned to deal with shellfish. MR. BENEDICT said the company probably will in time, especially to use as a stuffing for some of the products. CHAIR BARNES asked if most of the 450 ASI employees will be working in processing. MR. BENEDICT said yes. In response to a further question, he said they start at about $9 an hour plus fringe benefits that include a medical plan. He said ASI wants employees to stay for years. ASI is building a day care center on the grounds, and currently is contributing $240 a month toward child care for any employee earning less than $35,000 a year. Number 2787 CHAIR BARNES reminded Mr. Benedict that she previously had asked him if ASI could train and hire some people from the welfare-to- work program. MR. BENEDICT said the company is working with three or four state and city agencies, and hiring as many of those people as it possibly can. He mentioned that one of the toughest challenges to selling fish at retail in the Lower 48 is that customers complain that when they cook it, it smells up the kitchen. The ASI research and development people attacked that problem and have found a way to eliminate the fishy smell. [End of presentation.] HJR 51-ALASKA-CANADA RAILROAD FEASIBILITY STUDY TAPE 00-4, SIDE B Number 2921 CHAIR BARNES announced that the next item of business would be HOUSE JOINT RESOLUTION NO. 51, expressing support for a cooperative United States-Canada feasibility study on extending the North American railroad system through British Columbia and the Yukon Territory to Alaska. Number 2881 REPRESENTATIVE JEANNETTE JAMES, Alaska State Legislature, sponsor of HJR 51, introduced the resolution. She said this is a very high priority of Alaska U.S. Senator Frank Murkowski. In January, at his request, an Alaska-Canada Rail-Link Conference was held in Vancouver, British Columbia (BC). Among those attending were people from the Yukon and BC, chambers of commerce, industries, businesses and governments. This resolution [HJR 51] was drafted at the request of Senator Murkowski to bring a message from the legislature that it supports his efforts to establish a bilateral commission to work on a feasibility study. Drafting of HJR 51 was done with the assistance of Senator Murkowski's staff, and he has now drafted federal legislation to fund the U.S. portion of the cost of the feasibility study. Representative James provided copies of "Rails to Resources," the report on the conference in Vancouver. Number 2702 BILL BROPHY, Executive Director, Fairbanks Industrial Development Corporation (FIDC), testified by teleconference from Fairbanks. He said the FIDC supports and encourages initiatives to expand rail transportation within Alaska and to establish a rail link from Alaska connecting with the Canadian and North American rail system. This initiative will afford tremendous opportunities for economic growth and development, create new employment opportunities, enhance military defense, and allow responsible utilization of significant natural resources. There are enormous amounts of unrealized resources including forest products, minerals and agriculture, as well as tremendous opportunities for all-season tourism. Railroad expansion will enhance and facilitate an intermodal transportation network for Fairbanks and Interior Alaska. He urged moving forward with the feasibility study to make this connective link a reality. Number 2597 REPRESENTATIVE MASEK made a motion to move HJR 51 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HJR 51 was moved out of the House Special Committee on World Trade and State/Federal Relations. Number 2526 REPRESENTATIVE COWDERY commented on the decreasing usefulness of the Panama Canal, citing concern from both Europe and the Pacific Rim that an alternative way is needed to get products to the East Coast of the United States. He was enthusiastic about the possibility of shipping by railroad instead. REPRESENTATIVE JAMES said there definitely is interest in extending the railroad line to Russia; however, this is Phase One and that will be Phase Three. It will take six to ten years to complete this connection between Fairbanks and the Lower 48. Once the line reaches Fairbanks, Senator Murkowski is interested in extending it up to the Northwest Arctic coal reserves and bringing coal down to the Red Dog Mine. That will make it possible to do more refining there instead of sending out all heavy concentrates to be smelted elsewhere. The link with the Northwest Arctic would be Phase Two. The Russians definitely are interested in a third phase; this surface transportation is a valid concept. Today's ships are too big for Panama Canal, which has lived its lifetime. Surface transportation is needed. It is easier to clean up environmental spills on land, and easier to control. [HJR 51 was moved out of committee.] ADJOURNMENT There being no further business before the committee, the House Special Committee on World Trade and State/Federal Relations meeting was adjourned at 6:12 p.m.