The sales pitch for a state bailout

A news analysis

The Alaska Seafood Marketing Institute is out with its latest propaganda, and the Alaska legacy media is parroting the pitch as representative of a commercial fishing industry that remains an  “economic juggernaut.”

You have to say one thing for ASMI, it hooked a big one. Selling the mainstream media this juggernaut idea is a world-class, public relations play given that the numbers in the report argue the opposite.

This is not the Alaska of Territorial days when fish taxes funded the government and more than 100 salmon canneries plus numerous cold storages hugged the coast from Ketchikan north to Cook Inlet and then west to the tip of the Alaska Peninsula and north again to the northern edge of Bristol Bay.

Around them small communities formed with Alaska Natives coming in from the countryside to work the processing lines during the fishing season. Those days are long gone.

There are now but a handful of major processing plants in Alaska and, according to another ASMI report published last year, 58 percent of Alaska’s seafood goes directly to Asia, primarily China, to be processed by cheap labor.

“Although the importance of China in the Alaska seafood supply chain has declined since 2017  (when then President Donald Trump moved to restrict trade with China), in 2022 China remained the world’s largest export market for Alaska seafood by volume,” ASMI reported last year.

Southeast Asia has, however, become a major player, especially “Thailand where frozen,
headed-and-gutted pink salmon is the dominant product,” the report said. “Thailand has a large tuna-canning sector that also cans Alaska salmon, much of it for the U.S. and Japanese markets.”

The economic value of the seafood business to Alaska has withered amid these changes. Strip away the spin and ASMI’s latest report depicts an industry that:

1. Creates very few well-paying jobs; 44,300 of them statewide pay an average annual wage of $34,492, which drags down the median Alaska wage the U.S. Census now reports as $42,828 per year.  
2. Spends most of its labor income – a little more than 62 percent of it – on nonresidents who go home to other states or countries to spend their earnings.
3. Creates most of its claimed $6 billion in “economic output” as value that ends up somewhere other than in Alaska.

Suffice to say, the alleged “juggernaut” is the antithesis of the tech industry where the financial information company S&P Global now reports a median salary more than three times higher at $117,055 per year. 

So let’s break this down using ASMI’s own numbers as compiled for the seafood promoter by the McKinley Research Group.

One has to start here with that $248 million in labor income from “fisheries management” built around the report’s claim that “the Alaska seafood industry directly employed an estimated 3,700 people annually in 2021/2022 in fisheries management sectors, which include commercial fishing regulation and employment at Alaska salmon hatcheries.”

The problem with this claim is that aside from approximately 350 people reported to be employed in Alaska hatcheries, the seafood industry isn’t paying these people. The state and federal governments are paying them, and neither is collecting nearly enough revenue from the seafood industry to cover the costs.

Despite the report’s claim that the industry pays $161 million in “taxes” to the state and federal governments, which could offset 65 percent of the $248 million, this isn’t the case.

Those “taxes” include $22.6 million the state collects but immediately kicks back to the industry to pay for the salaries of ASMI employees, support the hatcheries run by private corporations controlled by commercial fishermen, and fund regional seafood development programs to aid those fishermen.

And the report for some reason throws things like “salmon hatchery cost recovery” onto its list of taxes. Cost recovery is the revenue the state allows the hatcheries to collect by catching fish. The hatcheries were originally supposed to be financed by the kickback assessment (ie. tax) on commercial fishermen, but because the hatcheries cost so much to operate, the assessments couldn’t begin to cover the costs.

So the state elected to let the hatcheries go into the fishing business themselves to cover costs.

The upside of this is that cost-recovery helps ensure that hatchery employees and the bureaucrats employed by the state and federal government contribute significantly more to the Alaska economy than anyone else in the seafood business.

Nearly all of these people are Alaska residents, and their average annual salaries work out to $67,027 per year or nearly twice the average, annual salary in the seafood industry as a whole.

Of the $248 million these people are paid, however, the seafood industry would appear to account for only about $10 million in federal taxes plus $20 to $30 million in state taxes. Most of the funding at the state level comes from the oil industry, which is now pumping just shy of $3 billion per year into the state’s “general fund” that pays for government services.

Most of the funding at the federal level, meanwhile, comes from Outside taxpayers because of the smallish amount of income tax paid by the comparatively few workers in Alaska. The WalletHub website in 2022 ranked Alaska the state most dependent on federal funding and reported that “for every $1 that residents pay in taxes, the state receives $2.47 in federal funding.”

So instead of claiming to have generated $248 million to support 3,700 jobs, the report should be recognizing a state-federal subsidy of about $200 million to cover the cost of 3,350 fishery management jobs that help keep the industry afloat.

This is a cost, not a benefit. But let’s now get into the guts of the benefits starting at the bottom.

The slime line

The ASMI report puts 20,700 different individuals working in seafood processing plants in Alaska in 2022. These people were reported to have earned a total of $547 million.

The math works out like this: $547 million ÷ 20,700 = $26,425.12 in earnings per person. That’s $885.12 above the $25,540 the federal government considers the “poverty level” for a couple living in Alaska. So it’s probably a good thing most of these processing workers live somewhere Outside, as Alaskans like to refer to the rest of the world

ASMI reported that 19 percent of the processing workers were Alaska residents in 2022. This would make the other 81 percent nonresidents.

A large number of them are foreign workers. The Alaska Seafood Processors Association in 2022 wrote to the U.S. Secretary of Labor to say “Alaska processors need approximately 2000 H-2B visa guest workers for the first half of fiscal year 2023, and up to 7,000 for the second half of fiscal year 2023.”

Those 9,000 individuals would account for close to half the number of people reported to be working the slime lines in 2022. These workers don’t contribute much to the Alaska economy. They save their money to take home as do most of the nonresident workers in the processing industry.

A rough but reasonable estimate would be that at least 60 percent of the $528 million in processing “labor income,” or about $316 million, leaves the 49th state without ever entering the Alaska economy. So Alaska benefits to the tune of only $212 million from these wages, if that.

Save this number anyway.

Better off fishermen

Thankfully, the 24,300 fish harvesters earning $1 billion per year are doing better than the processing workers. If we do the math there, $1 billion ÷  24,300 =  $41,152 per year per person.

This puts the average fish harvester just above Alaska’s poverty line of $39,000 per year for a family of four. Better yet, according to ASMI, 53 to 54 percent of the fish harvesters are Alaska residents. That means they’re living in Alaska and spending most of their 54 percent of the $1 billion, or about $540 million, in Alaska although the actual number is probably smaller than $540 million.

The Alaska Commercial Fisheries Entry Commission, which tracks commercial salmon fishing permits, regularly reports commercial fishermen resident in Alaska earn significantly less than their nonresident peers.

For example, in the Bristol Bay sockeye fishery, one of the state’s most valuable fisheries, the CFEC in 2021 reported nonresident fishermen earned $174.3 million for the year versus the $128.8 million earned by Alaska residents despite nonresidents owning only about 40 percent of the fishing permits for the Bay.

There is also a wide disparity in earnings among commercial fishermen themselves, according to the CFEC, with a few doing very well and many struggling to make a living. The agency reported that the approximately 1,400 people who hold permits to seine salmon in Alaska in 2022 were on the high end with a mean, gross earnings range from $138,239 in Chignik to $445,710 along the Alaska Peninsula. Hatchery-salmon-fueled Prince William Sound and Kodiak seiners were in the middle at $258,601 and  $236,946 respectively. 

Hand trollers in Southeast Alaska, on the other hand, reported gross earnings of but $4,248 for the year, and gillnetters in Norton Sound didn’t do much better at $4,409 nor did setnetters in Cook Inlet at $6,452 for the year. These fishing operations do have much lower operating costs than the seine fisheries, which require large boats with crews, but less than $6,500 for a summer’s fishing season isn’t much money.

It is, however, better than the nothing earned by Yukon River permit holders who weren’t allowed to fish because there were so few salmon returning. And, at the end of the day, the differences in income between the winners and losers in the fishing business don’t matter in the big, statewide, economic picture.

What matters is how much money fishermen and crew who live in Alaska have to spend at the end of the fishing season.

This would appear to have been around $500 million in 2022, a rough estimate of the resident share of the labor income for that year. Add this to the resident labor income of $212 million for processing and the total comes to $712 million available to be spent in Alaska.

According to the National Park Service, visitors to Alaska’s national parks spent significantly more than that in 2022. A park study concluded that the more than 2 million visitors to the state’s national parks left close to $1.2 billion in Alaska.

Tourists, love them or hate them, are good for the Alaska economy because they come north to spend money and leave it here. The people working in the commercial fishing business today are pretty much the opposite.

The majority come here to make money, put it in their pocket and leave.

Real ‘economic juggernaut’

Now let’s consider Alaska’s real economic juggernaut, the state oil industry.

In a report McKinley prepared for the Alaska Oil & Association in 2023, it calculated that the oil industry accounted for $5.9 billion in labor income and said that more than 80 percent of the 69,250 jobs supported by oil and gas were filled by Alaska residents.

This would provide about $4.7 billion for resident workers to spend in Alaska every year or more than five times what those associated with the fishing industry have to spend. And the oil jobs also pay a lot better: $5.9 billion ÷ 69,250 = 85,198. 56 in average salaries per worker.

Compared to the oil industry, the commercial fishing industry would be considered something of an economic pipsqueak due to the steady decline in the value of Alaska salmon or maybe even a drain on the Alaska economy.

The oil industry’s economic impact, it must be noted, is not only in the private sector. The approximately $4.5 billion per year the industry pays in royalties and taxes to the state and local governments, according to the McKinley report,  supports more than 33,000 public-sector jobs, including a bunch of fishery management jobs.

Nearly all of these public sector jobs are filled by Alaska residents who spend most of their money in Alaska.

The fishing industry could tax itself more to push funds into the year-round, public-sector economy, but it has long fought tax increases and is now begging the Alaska Legislature to give it money because its broken business model has left the industry in a shambles despite fish processors pocketing the lion’s share of the revenue generated by Alaska fish.

Wells Fargo bank this week went before a judge in the state of Washington to ask that the court appoint a trustee to oversee the Alaska operations of Peter Pan Seafoods because it is in default on $60 million in loans.

“The appointment would give the financial services firm the ability to liquidate Peter Pan’s assets to satisfy claims made by those to whom it owes money,” Seafood Source, an industry trade publication, reported.

Peter Pan appears to have put itself on the edge of bankruptcy despite being one of those processing businesses benefitting from the lion’s share of the $6 billion in “economic output” claimed for the seafood industry – the lion’s share being the $4 billion difference between said economic output and the $2 billion in labor income.

The $4 billion is part of what all the people outside of Alaska make off Alaska fish. The ASMI reports claims that “on average in 2021/2022, Alaska’s seafood industry supported an estimated 81,100 full-time equivalent jobs annually in the U.S. Workers in these jobs earned an estimated $5.8 billion in total annual labor income.”

This is close to three times the 21,900 full-time equivalent jobs (counting secondary employment jobs) the report calculated for the industry in-state, and these Outside jobs on average paid more: $5.8 billion ÷ 81,800 = $71,516.65 per year per worker.

Factor in the reality that a lot of those Outside jobs were in places with lower costs of living than in Alaska, and that $71,516 per year looks even better.

It might almost lead one to conclude that if you want to be in the Alaska fishing business the most profitable place to be in the Alaska fishing business is Outside with a capital “O.”

None of this, in ASMI’s view, is to be blamed on the people now running what was once the state’s most important industry because none of what has happened to this faltering industry over the years is the fault of the industry, at least in ASMI’s view.

Bad decisions

The McKinley report argues it’s all the fault of the strong U.S. dollar, inflation, consumers moving away from seafood now that the pandemic is over, the huge global production of salmon thanks to salmon farms all around the globe, and those damn Russians who increased harvests “for many key Alaska species such as pollock and pink salmon in 2023.”

“Large 2022 inventory of products including, but not limited to, sockeye salmon, whitefish,
and crab from Russia were being held across the supply chain in 2023,” the report says. “This made wholesale and retailers less motivated to buy 2023 products.”

As if it was hard to see that problem coming when a wholly unprecedented 79 million sockeye salmon swarmed Bristol Bay in 2022. Processors proceeded to buy 60.1 million of those fish – the equivalent of more than two years of average harvests – at $1.39 per pound, only 30 cents per pound less than they paid for the 40.8 million sockeye bought the year before, a good number of which remained unsold when the 2022 season started.

Intrafish, a trade publication, was by July of last year reporting “a lot of companies” still hadn’t sold all of the 2021 sockeye they had stuffed in cold storages along with all the 2022 fish. The oversupply collapsed prices and suddenly processors were sitting on a bunch of fish they could only sell at a loss, which is a business killer for companies lacking significant cash reserves.

To help the companies out, the Alaska Congressional delegation managed to convince the U.S. Department of Agriculture to buy $100 million worth of salmon to reduce the inventories held by processors, but those processors are now saying that wasn’t enough, and they need additional help from the state.

This not what “juggernauts” do. This is what failing companies do.

Alaska has been here before. It propped the fishing industry up with hatcheries in the 1970s; it banned salmon farming at the end of the 1980s in the belief that would protect the industry from competition; it helped the industry out with tax cuts and funds for promotion in the early 2000s; and it continues to subsidize hatcheries with grants and state-backed loans. 

None of this seems to have worked. After all these years, maybe it’s time for the state to step back and let the market do what markets do to correct business climates wherein the people running the businesses continually get things wrong.

This would no doubt cause chaos in the short term, but it might be the best long term decision.