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Salmon Fishers Try to Stay Afloat by Steve Wilhelm Puget Sound Business Journal, March 7, 2003

The Seattle fishing-boat owners and processing companies that depend on the Alaska salmon catch are bracing for another turbulent shakeout.

Wards Cove Packing Co.'s December decision to drop out of the salmon-processing business after 75 years is just the beginning of a winnowing among processors, many observers say. Other local processing and catching companies are looking for buyers or merger partners as they struggle to stay profitable.

"Frankly I see there being more liquidations," said Jeff Menashe, principal for Seattle food-industry consultant Food Partners. "I don't see people selling from a position of strength."

Terry Gardiner, president of Seattle-based NorQuest Seafoods Inc., said his Seattle-based processor is losing money on its salmon-canning operation.

"There is going to be consolidation and rationalization on the fishing side, and the same thing is going to happen on the processor side," he said. "Some will close, some will merge, some will go out of business."

Until a decade ago, prices rose when salmon supplies dropped, and that created some semblance of stability for those who catch and process the fish.

But these days growing volumes of farmed salmon from Chile, Norway and Canada increasingly dominate the high-value fresh and frozen salmon market, while Alaska salmon has become a minority product in the category it once defined.

The large, steady supply of farmed salmon means that swings in the wild salmon harvest affect prices far less than they once did. If the harvest drops, prices still stay the same and fishers simply get less money.

Small fishing boat operators are in the same fix as the processors who buy from them. David Harsila, president of the Seattle-based Alaska Independent Fishermen Marketing Association, said many of his organization's 300 boat-owning members, a third of whom live in Seattle, are in trouble because of diminished salmon prices.

The average Alaska price for sockeye paid to the catchers dropped steadily from $1.23 a pound in 1998 to 55 cents a pound last year, according to the Alaska Department of Fish and Game.

"Certainly those fishermen who overcapitalized themselves, based on the types of returns we were experiencing, have found themselves in a very difficult situation," Harsila said.

Owners of Washington-based purse seine vessels are in a similar bind. Rob Zuanich, president of the Seattle-based Purse Seine Vessel Owners' Association, said his 400 members, with as many ships, are trying to find a way to trim the fleet. About half of the members live in Washington, and many of them are on the brink of bankruptcy, he said.

"We have to reduce the number of people trying to harvest salmon," he said. The most likely mechanism will be a state and federal program to buy back up to half of the 1,000 purse seine licenses.

Reflecting these pressures, about 4,500 fisherman in Alaska and Seattle, and a group of the largest processors, mostly based in Seattle, are battling in Anchorage Superior Court in a $1 billion price-fixing suit. The fishermen allege that the companies colluded to drive down salmon prices. The companies deny that, pointing instead to pressure from farmed salmon.

The waning of Seattle's salmon industry promises to transform the city's maritime economy. While salmon once was king, it's now little brother to the pollock fishery, which operates the mammoth trawlers that briefly show up here between voyages to Alaska.

These pressures are a key factor in the changes under way at the Port of Seattle's Fishermen's Terminal, which the port is reconfiguring to handle larger fishing vessels as the number of smaller ones drops.

The reasons for these pressures are complex.

In recently released numbers, the Alaska Department of Fish and Game estimated the 2003 harvest will increase slightly to 150 million fish this year. But the agency projects that the industry won't get any more money due to dropping prices.

Indeed, 2002 was one of the state's best salmon harvest years ever, but the worst in revenues since 1976.

During the early '90s, Alaska fishers pulled in annual revenues of about $500 million, but that dropped to $140 million last year, said Glenn Haight, fisheries development specialist for the Alaska Department of Community and Economic Development in Juneau.

"It's been declining very quickly over the last few years, so it's a big concern," he said.

And while Seattle-based processors and boat owners were buoyed by exceptionally large harvests of some of the highest-value species during the '90s, especially in the productive waters of Bristol Bay, those harvests are dropping to more average volumes due to natural cycles, and may slide lower still.

"The best estimates are that the runs in the next 20 years are half of what they have been in the last 20 years," said Ray Hilborn, professor of fishery sciences at the University of Washington. "We're dealing with lower volumes, and we're dealing with lower price, so it's not a pretty picture."

Other global changes damaging the Alaska/Seattle salmon industry include:

• Joint ventures between Japanese and Chilean companies are feeding farmed salmon directly into the huge Japanese salmon market, where farmed salmon are replacing Alaska-caught sockeye.
• The strong dollar has increased U.S. exporters' difficulty in selling into overseas markets.
• Traditional domestic consumption of canned salmon, usually prepared into middle-America dishes such as salmon loaf, is fading away.
• Wild Russian salmon has been replacing wild U.S. salmon in Japan's market, as the Russians and Japanese collaborate at stocking Russian rivers.

Pink and chum salmon are usually canned, and demand for canned salmon has dropped so low that the industry now has nearly a half-year's inventory backlogged. Because of this, while pink and chum runs have been fairly plentiful even in Puget Sound, there's little economic gain to be had from harvesting them.

The glut of pinks has even drawn Russian businessmen such as Oleg Nikitenko, president of Seattle-based Global Seafoods North America, who wants to buy pink salmon from local fishers, freeze them, and sell them as a bottom-rung protein source in Russia and Eastern Europe.

The idea is being resisted by some U.S. seafood interests, who worry that the company's products may show up again on U.S. shelves. But Nikitenko said he'll be competing against cheap meats such as chicken and pork in Russia and Eastern Europe, and undercutting farmed salmon.

On the top end of the fish hierarchy, industry leaders have been cultivating upscale markets for the best sockeye and other natural fish, with some success in what is so far a narrow niche.

The buyers for these top-of-the line sockeye are primarily white-tablecloth restaurants and natural-food outlets, representing population segments concerned about the additives in farmed fish, or the environmental impacts of growing them.

Related Sites:
Wards Cove Cans Salmon Operations by Mike Chambers, Associated Press 12/13/2