Alaska’s losing battle

News analysis

Bristol Bay – Alaska’s highest profile salmon fishery – had a banner year, and yet everywhere in the global market Alaska salmon fisheries look to be in more and more trouble over the long-term.

A $2 to $3 dollar per pound commodity in the 1980s ($4 to $6 when corrected for inflation)Bristol Bay sockeye is today a $1 per pound commodity, and there is no sign the pricing is going to get much better. It could actually get worse.

Chilean farmed salmon production is again on the rise and production costs in South America are falling.

“AquaChile lowered costs by 13 percent in the first quarter of 2017, in line with other competitors,” Reuters reported from Santiago in mid-July.  “The company’s shares rose 60 percent in 2016 and 13 percent in the first half of the year to 323 pesos and could rise another 25 percent, Guillermo Araya, analyst at local brokerage Renta 4 Chile said.

“‘According to technical indicators, this stock I see easily at 400 pesos,’ he said. ‘(AquaChile) isn’t the only one that looks good, the whole industry does.'”

“Lower costs” and an industry that “looks goods” are about the worse news possible for the Alaska fishing business given that University of Alaska Institute of Social and Economic Research economist Gunnar Knapp in a 2004 report observed that the “costs of farming, processing and distributing Chilean coho salmon to the Japanese wholesale market are about $1.63, and that future costs are likely to stay at about this level.”

The 170-page report is full of charts that show farmed salmon production costs and global salmon prices trending steadily downward for two decades. The news out of Chile would indicate the trend is continuing.

Why does it matter?

Chile is number two in global salmon production with an output of close to 400,000 metric tons. Norway is number one at about 1.2 million metric tons. Alaska, in a good year, can challenge Chile for production, but generally ranks number three overall.

And it lags way behind Chile in production of the premium product – fresh and frozen filets.

William Heard, a scientist with the National Marine Fisheries Service who has studied Alaska salmon for decades and led some of the pioneering hatchery work that allowed for an explosion in ranched-salmon production in Prince William Sound, estimates the state’s maximum sustained yield of wild and hatchery fish at about 318,000 metric tons per year over the long term, but only 183,000 tons of that is high-value Chinook, coho, sockeye and chum salmon to be cut into steaks and filets.

One Norwegian company – Marine Harvest – now produces more than twice as much high-value salmon per year. Japan’s Mitsubishi – with salmon farms in Norway, Chile and Canada –  produces almost as much.

Scotland believes it could be in the range of 300,000 to 400,000 tons per yer by 2030, according to an industry outline,  Aquaculture Growth to 2030 – A Strategic Plan for farming Scotland’s seas.

The Scots, the Norwegians, the Chileans, the Canadians and a growing number of Americans,  farm Atlantic and coho salmon, the filets of which compete directly with Alaska sockeye, chum, coho and Chinook in the market place.

The latter four species comprise the most valuable half of the Alaska harvest. The rest is regularly made up of lower quality pink salmon, which are largely canned like tuna.

Market realities

Alaska pink salmon prices averaged 25 cents per pound last year, according to the Alaska Department of Fish and Game. At that price, a fisherman has to catch a lot of pinks to make fishing pay.

Seiners can do that in Prince William Sound and Southeast Alaska, but even there it has proven difficult. The National Oceanic and Atmospheric Administration in 2011 organized a $13 million plan to buy back about 15 percent of Southeast seine permits. 

The buyback reduced to about 315 the number of seine permits in the region. That now appears to be about the number of commercial seiners the Panhandle can support. Some seine permit owners, about half of whom live in the Lower 48, can make a living fishing. Those who work crew jobs on the seiners cannot.

The result is that seining pink salmon is good for only about 160 full-time job equivalents in the region.

The numbers of job for Alaskans look better in gillnet and power-troll fisheries, where about 80 percent of the fishermen are Alaskans,  and the market situation there is better as well. Southeast trollers were doing well on Chinook at an average price of $4.88 per pound last year, and gillnetters – in those areas where they could catch large numbers of fish – were doing OK at an average of $1.05 for sockeye and $1.18 for coho, according to Fish and Game data.

With both troll-caught Chinook and coho salmon bringing good prices, primarily in fresh-fish markets, and the troll season running for about 11 months, the 800 or so Alaskans who hold troll permits can also make a living fishing. The situation is much different in other fisheries.

There are now more losers than winners in the Alaska fishing industry, and that is only likely to get worse going forward.

The Cook Inlet fishery at Anchorage’s doorstep is but one example. The Cook Inlet commercial salmon harvest was valued at $22.3 million last year, according to Fish and Game.  About 1,000 of the people holding limited-entry permits to fish the Inlet participated in the fishery. They averaged $22,300 per fishermen for the season before they paid any crew.

The 2016 poverty line for an Alaska family of four was $24,300. Thankfully, a lot of Cook Inlet commercial fishermen are hobbyists. They are school teachers and businessmen and doctors and lawyers with jobs that support them; they commercial fish for fun and extra income.

Only a handful of people make a living off commercial fishing in the Inlet, and many of them fish multiple permits. Over the decades, as Inlet fishing permits have been bought and sold, there has been a trend away from fishermen dependent on the resource to the hobbyists.

The professionals still in the fishery are sometimes at odds with the hobbyists, but all are well united on one important issue: continuing to harvest the maximum number of fish going forward to make up for the comparatively low prices paid for Alaska salmon.

Alaska sockeye are trading today for between $1.00 and $1.50 per pound. Norwegian salmon are bringing $3.15 to $3.17 per pound at the farm. Part of the reason the price isn’t higher in Alaska is that the price to fishermen get doesn’t reflect the high costs of processing and transportation.

Norwegian salmon farms are near processing facilities that operate year round and are sized to match farm production. Alaska fish are delivered to processing plants that must be large to handle the summer’s large volume of fish, but spend most of the year in mothballs, the plants not the fish.

The whole system puts Alaska at a disadvantage, and neither this nor world marketing trends are going to change. Global salmon markets are now working against Alaska, and they appear destined to continue working against Alaska.

The cowboys of the sea are being replaced by the farmers of the bays much as happened on land.

Technology is transforming the fishing business the way it transformed the cattle business. With the development of the refrigerated rail car just before the start of the 20th Century, the years of free-ranged cattle and long-distance cattle drives were numbered. Increasingly cattle were fenced in and ranched. Feed lots followed, and soon the cowboys were history.

Wild is better

Alaskans like to believe that because our salmon is wild it can stop the historic forward march of industrial agriculture. Wild is better than domestic, we believe – better tasting, better for the environment, and better for one’s health.

This view is not universal.

“By going wild, you’ll get a firmer, less fatty fish,” writes Carina Storrs at Health.com “While it is still just as healthy as farmed, (Purdue University food toxicologist Charles) Santerre says the wild variety is a slightly gamier-tasting fish.”

Health devoted a whole article to the subject of which salmon to buy – farmed or wild.

The conclusion? “Nutritionally, they are just as good…,” the story said.

The Washington Post subsequently taste-tested farmed versus wild.

“Read a story about salmon, and the odds are good that, somewhere, it’ll tell you that wild salmon tastes better than farmed,” the Post’s Tamar Haspel wrote. “But does it? We decided to find out in a blind tasting, and assembled a panel that included noted Washington seafood chefs and a seafood wholesaler.

“The judgments were definitive, and surprising. Farmed salmon beat wild salmon, hands down.”

Farmed salmon didn’t just win; it won “hands down.”

The state of Alaska is now helping Alaska fish processors based in Washington state fund a multi-million dollar public relations and advertising campaign to sell Americans on the idea Alaska wild salmon is better than farmed salmon.

The idea is to attract a premium price for Alaska wild salmon in a market where Alaska salmon have become a minority player. About 70 percent of the salmon not in a can now comes from salmon farms. The salmon farmers, some of whom are connected to the same processors the state is helping fund, are also trying to push their product.

When the dominant market force is selling a product that the national media says tastes better and costs less, and a bit player is pushing a product that is supposedly better because it is wild, who is likely to win the marketing battle?

Organic chicken – aka “free range” – is pitched as having many of the same attributes as wild Alaska salmon – tastes better, healthier, better for the environment. Organic chicken attracts a premium price. And it represents about 1 percent of the $30 billion per year chicken market. 

Organic chicken is a classic niche product. There is every reason to believe Alaska salmon is on a journey to the same destination.

Price point

“I can often find farm-raised Atlantic salmon for about $6.99 a pound, while the wild-caught salmon may be nearly twice as expensive,” writes Julie Corliss, executive editor of the Harvard Health Letter. “Salmon and other fatty fish are the main dietary source for omega-3 fatty acids, which are known to lower the risk of heart disease.

“It turns out that you probably won’t shortchange your heart if you choose the less-costly farmed salmon, as both types seem to provide similar amounts of omega-3s per serving. But that’s likely because farm-raised salmon tend to have more total fat — and therefore more omega-3 fat — than wild ones.

“Bottom line: Don’t stress too much about your salmon selection. Follow the American Heart Association’s advice to eat two servings of fish a week, letting affordability and availability guide your choices. As for me, I often opt for farmed salmon for dinner once a week or so, but I’ll splurge on wild salmon if it looks especially good. ”

Alaska can spend tens of millions of dollars on advertising trying to counter this kind of press, but it won’t help. Price is a very real issue for American consumers, and if the lower-priced farmed fish is anywhere near as good as the wild, the farmed fish, sad to say, wins.

“‘Best value’ and ‘lowest prices’ are the first and third most important factors in choosing a grocer,” according to a consumer survey by Bain & Company and ROI Consultancy.  The study was aimed at helping grocers compete in an increasingly competitive market, but it well reflects the general attitude of consumers.

Second on their list between best value and lowest prices was “highest quality or freshest groceries.” Alaska wild salmon can clearly compete, even better farmed salmon, in the quality department, but Alaska salmon are generally destined to be losers in the “freshest” category.

The farmers can provide fish fresh to grocers on a daily basis. Alaska salmon is available fresh for only a very brief period of time each summer. Most of Alaska fish has to be frozen to preserve it, and then, too, there are quality concerns with eating fresh wild salmon.

The Centers for Disease Control earlier this year published a study noting the dangers of tapeworms in wild salmon.  Freezing will kill that parasite, but once frozen, the fish really isn’t fresh.

Fish farmers have their own parasite problems, mainly sea lice. The lice are common on wild fish and no threat to people, but too many of lice on young fish can cause all kind of problems – unsightly lesions, infections and even death for the fish. Some farmers have responded by chemically treating the fish, which raises contamination issues.

A Canadian group – “Farmed and Dangerous” – backed by commercial fishermen and some environmental groups – have been using the threat of chemical contamination to try to drive back salmon farms. Unfortunately for the cowboys of the sea, farmers have a rich history of finding technological solutions to their problems.

The American Dustbowl was stopped with technology. So to an impending global food crisis in the 1960s.

The Norwegians, the leaders in salmon harvests, are already working on a wide variety of ways to not only protect their farms from lice but to grow healthier farmed salmon.

“Norway understands that safeguarding the environment and fish stocks for the future is the only way it’s aquaculture industry can remain sustainable,” says Norge, the voice of the Norwegian Seafood Council,  in an intro to an explanation of fish-farming practices in that country. “They also understand the importance of transparency.”

Norwegian quality claims have led to a jump in prices for the country’s salmon.

“Despite (a) decline in volumes sold, the higher prices have boosted profits at the (Norwegian) salmon producers,” Emiko Terazono reported in Financial Times earlier this year.  “Marine Harvest reported record operational earnings before interest and tax for the fourth quarter at 259 million euros, while net profits more than doubled from the year before to 211 million euros. As with its other peers, the company’s share price has mirrored the salmon price, rising about 30 per cent in 2016.

“‘It’s fantastic to make money, but long-term we need to continue to grow volume wise,’ Alf-Helge Aarskog, Marine Harvest’s chief executive said at the North Sea Atlantic Forum conference.”

The farms keep growing

The words “we need to continue to grow volume wise” coming out of the mouth of the leader of the globe’s biggest fish farming business ought to send a shiver up the spine of anyone involved in the commercial harvest and sale of Alaska salmon.

But possibly most troubling is the alliance between fish farmers and the World Wildlife Fund, the globe’s leading environmental organization.

“Salmon is a priority commodity for WWF,” the group says, “because it has significant potential for negative impact on the places and species we seek to protect. We are leading the way in ensuring that key environmental impacts associated with open-pen salmon farming are significantly and measurably reduced.

“We help move salmon farms toward responsible production. We also provide a framework for responsible growth in an industry that has tremendous potential to feed more people with fewer resources than required for other protein sources.”

“Responsible production” and “responsible growth” in salmon farming might be good for the environment and good for consumers, but they are not good for the Alaska commercial fishing industry which is likely to see continued price stagnation, even as inflation slowly grinds on.

Couple this with ever-increasing competition in high-end markets as farmed-fish quality continues to improve, toss in the natural limits capping wild salmon production, and it would appear to be inevitable that Alaska commercial fishing businesses appear fall victim to the much the same market conditions that seriously decreased the value of Alaska oil business.

Production goes up; prices go down; profits fade.

It’s not a pretty picture. The Alaska salmon industruy clearly needs to change to succeed in the market of tomorrow, but the industry is controlled by vested interests that don’t want to change.

They could well render Alaska the biggest loser.