The size of the letters in the handwriting on the wall for the Alaska commercial salmon industry just keep getting bigger.
Only days after the Bristol Bay sockeye harvest began with processors offering $1 per pound for some of Alaska’s best salmon, Atlantic Sapphire announced it had raised another $100 million-plus in capital to expand its land-based salmon farm in Homestead, Fla.
Fish Farmer magazine reported that planned increases in a wealth tax imposed on private fish farmers in Norway helped push considerable Norwegian investment toward the company, but it is becoming increasingly clear that taxes or not there is strong investor belief in the idea that land-based, recirculating aquaculture systems are the salmon production method of the future despite the startup problems some of those farms have faced.
Just days ago, the Mitsubishi and Maruha Nichiro Corporation – once major players in the Alaska salmon processing business – announced they’d reached an agreement to form a joint venture called ATLAND to build and operate a land-based salmon farm in Nyuzen, Japan.
That farm is relatively small and appears based largely on the Superior Fresh-model pioneered in Wisconsin. A media statement from Mitsubishi and Maruha Nichiro, which bailed out of Alaska after its sale of Peter Pan Seafoods in 2020, said the Nyuzen farm “is expected to help develop a sustainable and stable land-based production system, efficient digital-tech-based operations, local production for local consumption, and progress in decarbonization.
Salmon farms to produce locally-grown salmon are “rising to new heights, due to the increased demand for sustainably produced seafood and an interest in more locally grown food sources,” according to the University of Maryland, which has a $10 million grant from the U.S. Department of Agriculture (USDA) to help study ways to further expand locally grown salmon operations.
Atlantic Sapphire, on the other hand, is farming at the industrial scale.
Its “phase one is already operational, with the second phase currently under development,” Fish Farmer reported. “Atlantic Sapphire says the long-term ambition is to produce 220,000 tonnes of salmon by 2031.”
For comparison’s sake, the Bay had a very good season later year and produced about 90,000 tonnes of sockeye, according to Alaska Department of Fish and Game data, and the entire statewide production of sockeye came in at about 122,500 tonnes.
Sockeye compete most directly with farmed Atlantic salmon, but coho and chum salmon are also in the mix of Alaska fish up against farmed competition. If they are added to the picture, the state produced about 167,000 tonnes of quality fish in 2021 from a total statewide harvest of 233.9 million salmon, the third biggest harvest in state and territorial history.
Think about this.
When it comes to high-value salmon, one land-based salmon farm in Florida could match the production of the entire state of Alaska in a decade if its development plan works.
Of course, Alaska doesn’t just produce high-value salmon.
About 69 percent of the fish caught last year were low-value pink salmon, the smallest of the species. They accounted for about 57 percent of the tonnage but only 28 percent of the value, according to state data.
On a statewide, average basis, pinks netted commercial fishermen 37 cents per pound or about 28 percent of the price paid for a pound of sockeye. The higher marketability of sockeye produced headed and gutted carcasses selling for wholesale at 3.64 per pound last year, according to the state figures.
That is in line with the bottom end of what the fish farmers are now collecting. Farmed Norwegian salmon are today trading at 3.64 to 5.12 per pound, depending on size, according to the NASDAQ tracker.
And size matters, which is just one of many problems facing Alaska salmon processors.
What the market wants today is a filet from a salmon of four to nine kilograms (8.8 to 19.8 pounds.) Farmed salmon in that size range trade at $4.78 to $5.12 per pound in the wholesale market at the moment.
Wholesale prices for 2022 Alaska sockeye are not yet clear, but based on the offering price to fishermen of $1 per pound and the average ratio of that so-called “ex-vessel price” to the eventually wholesale price, Alaska salmon processors are gambling that they’ll end up with an average wholesale price around $3 per pound.
“Gambling” is the key word because Alaska salmon, unlike farmed salmon, don’t arrive at processing plants of uniform size. There are big ones and there are little ones, and the little ones are sometimes so small they can’t produce marketable filets.
Thus, they end up in a can and canned salmon – as reflected by those prices paid for pinks – are a low-value product in the market as retail prices well reflect. You can, at the moment, buy a 14.75 ounce can of pink salmon from RiteAid for $3.49, the equivalent of $3.79 per pound.
Sockeye fillets, on the other hand, are retailing for around $14 to $15 per pound with farmed Atlantic salmon available for slightly less. The latter were selling at Wholefoods in Seattle today for $11.99 per pound.
There’s a big question of how many Bay sockeye will go into cans this year because of fears a predicted sockeye return of unprecedented size will contain a lot of small fish due to food competition on the ocean pasture.
This is the downside of a boom caused by global warming that has improved lake-rearing conditions in the Bay. Young sockeye now grow faster in the warmer lakes, go to sea sooner, spend less time there and thus return smaller.
A lot of these fish go in the can and are now being bought by the USDA. It purchased 7.3 million cans for the National School Lunch Program and tbe Federal Food and Nutrition Assistance Programs last year, according to the IntraFish website, at a cost of $31 million or about $4.23 per 14.7-ounce can.
That’s about half the price of what a big can of sockeye retails for at Walmart these days, but most sockeye – which is considered a higher-quality product than pink salmon – is sold in 5-ounce cans or pouches like tuna and costs more – $5.69 per can on sale at Fred Meyer today.
Neither pouched nor canned is a big seller.
Though the canned salmon market was valued at about $3.2 billion globally in 2020, that is only about 6 percent of a global salmon market valued at $50.2 billion. The canned market is projected to grow, but Allied Market Research projects most of that growth will come from farmed salmon entering the canned/pouch market as “chunks” that can be added to a salad or made into pet food.
“Most consumers prefer salmon fillet as it can be utilized in a variety of cuisines and has a pleasing appearance when served,” the company says. “But chunk style canned salmon is growing fastest in the coming years, owing to the reasons such as use of chunk style in different cuisines and also chunks are being used in pet food more recently.”
Globally, processors have turned to pets as well as a sales opportunity for their lower-grade salmon.
“Norwegian salmon meal is the perfect source of protein for demanding pets,” says Mowi, the world’s biggest salmon farmer. It reported revenues of more than $4.2 billion last year.
It didn’t make that selling low-grade salmon to dogs and casts. The big money is fresh and frozen salmon fillets and therein the farmers enjoy numerous advantages over Alaska processors.
This helps explain why a salmon that requires an investment in a farm and feed to grow can be sold for less than one raised for free in the ocean, and still be more profitable for the people producing it.
Size, again, is part of what matters.
Fish of a consistent size can be run through an automated processing plant where human handling is cut to a bare minimum. Norway has been the world leader in robotizing its fish processing plants.
Leroy, another big Norwegian farmer, now has a plant staffed almost entirely by robots.
“One of the main tasks here was how we could produce products like pre‑rigor fillet without any hands touching the fish,” Midt plant production director told a writer for Marel, a company that helped produce the robots. “We do have a couple of positions still that perform manual work, but we have tried to automate as much as possible.”
Leroy’s Midt plant is considered a leader in automation, but automation is a norm in the salmon farming business.
“In 2020, production of salmon and trout (in Norway) was nearly 1,473,818 tonnes, of which 1,377,185 tonnes were salmon and 96,633 tonnes were trout. In addition, fish farmers produced 2,071 tonnes of shellfish, and 340 tonnes of algae (sugar kelp and winh kelp),” according to the Eurofish International Association. “In 2020, 1,348 companies were issued licenses of which 1,221 were for salmon and trout. The total number of employees in the aquaculture sector is 9,975.”
Alaska’s 2020 harvest of 116.8 million salmon, a low year given the weak pink salmon runs common in even-numbered years, totaled about 235,000 tonnes. Nearly all of this salmon is harvested in the months of June, July, and August for which the Alaska Department of Labor reported average monthly employment of about 10,500 salmon processing workers in 2020.
These numbers show Norwegian processing plants producing about 148 tonnes of fish per employee while the number falls to 22 tonnes per employee in Alaska. Labor efficiency in the farming business radically reduces the costs of production.
But this is only the beginning of the savings in Norway, where salmon are raised and processed year-round by residents living in their own homes. About 75 percent of the salmon processing labor in Alaska has to be imported every summer, and processors often face the costs of feeding and housing these employees at remote sites.
That cuts into potential profits, and so, too, the costs of maintaining processing, housing and dining facilities for the many months when processing workers aren’t in residence. The Alaska Labor Department figures show the salmon processing business almost disappearing for most of the year. The average number of workers employed in salmon processing from September through May fell to an average of 518 per month, a twentieth of the summer employment.
Given the global nature of salmon markets, Alaska processors and the farmers, with the exception of businesses such as Superior Fresh which promote “local grown” and serve a limited clientele, face similar shipping costs, but the Alaska processors again face big costs for freezer space.
Much of the farmed product can be shipped to market and sold fresh. Most Alaska salmon, because they come in a big surge in the summer months and because some host tapeworm cysts, are frozen.
Holding the fish in a normal freezer for a week will kill the tapeworms, or they can be killed by keeping a salmon frozen at minus-31 degrees or colder for 15 hours, according to the Food and Drug Administration.
Flash freezing the fish in the latter way has no effect on its flavor. Tastes tests conducted by researchers at the University of Oregon concluded people really couldn’t tell the difference between fresh and fresh-frozen fish, and might actually like the latter slightly more.
Unfortunately, freezing fish and keeping fish frozen year-round in order to maintain a year-round supply of Alaska salmon to maintain a market presence costs money.
Reporter Chris Chase quoted industry authority Brian Beattie observing that “our two major costs are labor and energy…(and) energy costs are at a ridiculous level.”
That was then. And now with gas and oil prices sky-high?
None of this is going to kill the Alaska fishing business. Alaska salmon, being one of the most predictable sources of wild food, will always be worth something. The question is how much, and how can it be managed to provide the maximum return for Alaska.
Too many fish; too many fishermen
In the Bay now, there are too many fish. The state in May estimated maximum daily processing capacity at 3 million sockeye if processing plants run full tilt for 24 hours.
Given an expected harvest of up to 60 million sockeye, there are concerns the catch rate could surpass the processing rate with the end result fish being lost to spoilage or fishermen being put on limits to keep them from overloading processing plants.
So far, processing capacity has kept up, but with a catch of near 20 million salmon to date the season is heading into the crunch week with 40 million fish yet to be harvested if the state forecast of the return is correct. The next 10 days will prove interesting in the Bay.
Elsewhere, the problem is not too many fish but too many fishermen.
In some areas of the state, most notably Cook Inlet, there are too many commercial permit holders competing for too few fish making it hard if not impossible for anyone to make their living off commercial fishing, especially when salmon prices are low.
The Alaska limited entry system was supposed to solve this problem after voters in the early 1970s approved an amendment to the state Constitution to limit the number of permits issued commercial fishermen.
The fix then was easy. The state determined who’d been fishing the longest, gave them permits and kicked everyone else out of the business. The situation is much more complicated now given that those state-issued permits are now privately owned and have value even if it isn’t what it once was.
Cook Inlet drift gillnet permits, which the state’s Commercial Fisheries Entry Commission valued at more than $388,000 in 1990, are now being sold for as little as $27,500.
The drop is a sign of market realities. Those realities have led to discussions of Limited Entry – Take Two in the form of permit buyback programs, but the existing permit holders generally don’t want to foot the costs of such programs and many Alaskans don’t like the idea of paying commercial fishermen large sums of money for something the state originally gave them for free.
Commercial seiners in Southeast Alaska were more successful in 2011 and 2018 in creating a buy-back program, but it took federal help and the agreement fishermen still in business would pay back about $23 million in “fishing capacity reduction” loans over the course of 40 years to remove 100 permits, according to the National Oceanic and Atmospheric Administration (NOAA).
Remaining permit holders are now paying an annual fee of 2.5 percent on the landed value of their catch to pay back those loans. Other permit holders in other fisheries have been unwilling to take on such obligations.
The state’s Commercial Fisheries Entry Commission says it is authorized by statute to “establish its own buyback programs in order to achieve the optimum number in a fishery. (But) to date, CFEC has not established any buyback programs.”
The only other buyback program has been conducted by the National Park Service.
The agency bought the permits of 10 fishermen “who had substantial fishing history in the marine waters of Glacier Bay National Park,” according to the CFEC. “It was part of a larger effort to phase out commercial fishing in the park. Each of the permit holders contractually agreed to allow their permits to lapse by not renewing them.”
Those fishermen might have been lucky to get out when they did with the commercial fishing business in Alaska looking like an ever harder business in which to make a living. It’s not in as bad shape as the newspaper business – the Associated Press this week reported “U.S. newspapers continuing to die at rate of 2 each week” – but it could be close to that point not long ago when newspaper owners were confident things just couldn’t get any worse.
But they did because the market for the product changed.