Consequences of Soviet-style economics

For the 64 years since Alaska Statehood, commercial fishermen and salmon processors have dictated the management of salmon in this 49th state, and this is where the business has ended up:

“Alaska seafood industry suffers shocking $1.8 billion in losses. Plagued by collapsing markets, rising costs, weak consumer demand and geopolitical fallout, the sector is struggling to recover.”

That was the Wednesday headline in Intrafish, a fishing industry trade publication, citing a study from the Alaska Fisheries Science Center, an entity of the National Oceanic and Atmospheric Administration that sometimes confuses science with politics.

Its latest report on the state of the Alaska fishing industry is a mix of both with a focus on economics. So you can ignore the websites wandering into climate change, which it blames for the downturn in the crab fisheries while ignoring the salmon boom linked to warmer water, and its finger-pointing at the ” increased competition abroad” that Alaska helped foster in more ways than one, which we’ll get into later.

But let’s stick to the numbers for now.

“Economists estimate that the Alaska seafood industry suffered a $1.8 billion loss (2022-2023). The Alaska fishing industry saw a 50 percent decline in profitability (2021-2023),” the report says.

“This has resulted in more than 38,000 job losses nationwide and a $4.3 billion loss in total U.S. output (the total dollar value of all goods and services produced). The most affected states (including Alaska, Washington, Oregon, and California) saw a combined loss of $191 million in state and local tax revenues.”

These numbers should come as no surprise to anyone who has been following the managed economy of the Alaska fishing business over the decades. The industry has long followed the model created by the Union of Soviet Socialist Republics (USSR) and most Americans know what happened there.

The USSR is no more because global markets killed its managed economy. Markets are ruthless in killing inefficient businesses by rewarding efficiency and innovation.

Managed economies reward inefficiency with arbitrary rules defining how businesses must be run and economic bailouts when companies fail. These things reward the status quo and stifle innovation.

Alaska was warned

Respected Alaska economist Gunnar Knapp pretty nailed this particular Alaska problem six years ago in a presentation to the International Institute of Fisheries Economics and Trade in Seattle.

“Wild fisheries management regulations and institutions may significantly and insidiously hamper technological innovation,” he warned then before going on to enrage any number of Alaska commercial fishermen with a simple question:

“Can’t we think of a better way to catch Bristol Bay wild salmon than gillnets? Fish are bruised as they are caught in and removed from gillnets.”

Bruises must be trimmed from filets, which adds to waste and increased labor costs in that the machines that can now do the fileting work of humans have to be aided by humans looking for and slicing away the bruising.

Not to mention the time constraints facing Bristol Bay processors in a fishery where they need to process huge volumes of fish in a few weeks.

Still, despite these issues, the Bristol Bay gillnet fishery for sockeye salmon has long been the state’s overall most valuable fishery. It was worth about $116 million to fishermen last year, despite record low prices, according to Alaska Department of Fish and Game data, and it accounted for about 30 percent of the value of the entire statewide salmon harvest.

The catch in the Bay was about $14 million more valuable than the combined pink salmon harvests of Prince William Sound, Southeast Alaska and Kodiak Island, which together produced more than three times as many salmon as were harvested in the Bay and accounted for about 57 percent of the statewide harvest of salmon of all species, according to Fish and Game numbers.

Unfortunately, Alaska has long measured fishery success by volume rather than value, making that 57 percent number look like much more than it is worth.

“A total of 230.2 million salmon were harvested in 2023, a 43% increase from the 2022 total harvest of 160.7 million fish,” Fish and Game bragged after the season ended. “When compared to the long-term time series (1985–2022), the 2023 all-species commercial salmon harvest of approximately 230.2 million fish and 919.7 million pounds was the fourth highest on record for total fish harvested, and the seventh highest on record for total pounds harvested

The value of the harvest was. however, the sixth lowest since 1975 and was mentioned as a secondary issue.

Not that this matters much. The Bristol Bay gillnet fishery is unlikely to be altered because the nearly 1,900 fishermen who hold valuable state permits to drift gillnet salmon there are heavily invested in boats and gear designed specifically for this fishery as the result of one of the first moves made to manage the Alaska fishery economy.

Bristol Bay gillnets boats have been limited in length to 32 feet since 1949. That action taken by the Alaska territory was driven by concerns that bigger boats “would lead to a few rich operators profiting to the detriment of the majority of fishermen,” according to a 1983 state report that considered removing the restriction.

Bristol Bay was historically a small boat fishery. Motors were banned until 1951, and the sailing/rowing boats in use from 1900 until then were generally 26 to 28 feet in length with a beam of about nine feet.

Once motors were allowed, “the length was gradually increased to provide greater carrying capacity, reaching a natural size limit for a crew of two at around 32 feet,” according to a National Park Service history. These were displacement hull boats with beams of about 10 feet limited by design to top speeds of seven and a half to eight knots.

The market would eventually do what it could to change this dynamic despite the 32-foot restriction.

“By 1980, nearly all of the traditional displacement-hull boats had been replaced by new high-speed planing hulls with powerful V-8 engines,” the Park Service report adds. “Since then, the desire for bigger boats on Bristol Bay has resulted in an entirely new approach: maximum volume within the 32-foot length. The beam has been increased to a massive 16 feet or more to increase capacity and house triple engines.”

These squarish fishing boats- beams on some are now out to 20 feet – are unique to the Bay and thus not easily sold off to fishermen in other fisheries. But restrictions on the size of boats is only one of many ways in which Alaska has tried to manage the economics of the commercial fishing business.

And it might be the smallest of political tampering considering the restrictions on the number of fishermen awarded highly valuable permits by what was called “limited entry;” an explosion in state-backed, free-range salmon farming; and a ban on net-pen salmon farming.

The failed ban

The latter came in 1990 with the net-pen salmon farming business in its infancy and prices paid for salmon at record highs. At the time, Alaska salmon harvesters had a significant influence on salmon markets, especially for high-value, filet-size salmon.

But Norwegian innovation was about to radically everything.

“In 1980, Alaska salmon harvests accounted for 41 percent of world salmon supply,” an Alaska State Senate Special Committee on Domestic & International Fisheries reported in 1992. “By the end of 1990, wild and enhanced Alaska salmon accounted for just 31 percent of the world supply. This occurred despite the 50 percent increase in Alaska’s production during the same period,” an increase largely due to free-range ocean farming of salmon.

The farmers who kept their salmon in pens and fed them, unfortunately for Alaska, were doing even better in producing ever more fish.

“Farmed-salmon production nearly doubled between 1980 and 1990, increasing from 310 million pounds to over 600 million pounds. In 1990, farmed salmon composed about 30 percent of world salmon production, up from a mere 1 percent in 1980,” the 1992 report said.

Alaska’s fishermen and fishery leaders believed they could control this shift by banning net-pen salmon farming along the potentially most advantageous coast of North America for such business, and by selling the idea that “wild” salmon were inherently better, though nobody bothered to test whether consumers shared that belief.

A fishery reporter at the Anchorage Daily News, a native Kentuckian, once observed that about the last thing his relatives back home wanted to eat was anything proclaiming itself “wild,” but the general Alaska view was that wild was better because Alaskans believe this is true.

Alaskans still believe this, despite a 2013, blind-taste test overseen by the Washington Post that concluded that farmed fish are better.

“The judgments were definitive and surprising,” the Post reported at the time. “Farmed salmon beat wild salmon, hands down. The overall winner was the Costco frozen Atlantic salmon (Norwegian), added to the tasting late in the game – to provide a counterpoint to all that lovely fresh fish, we thought.”

Most Alaskans still disagree with this view, but they are not representative of the market.

The data tracking website Statistic reported that global salmon production reached 3.44 million tonnes in 2022 of which 280 million tons or more than 81 percent was farmed. The 19 percent wild was largely split between Russia and Alaska with Canadian and Lower 48 U.S. salmon fisheries now a shadow of what they once were.

Farmed salmon production is expected to reach 3 million tonnes for the first time this year, according to Fish Farming Expect, a trade industry website, and then grow by another 117,000 tonnes in 2025.

That is about 41 tonnes more than the entire 2024 harvest of Bay sockeye, according to the numbers compiled by the Alaska Seafood Marketing Institute,  and the bay witnessed a sockeye return 7 percent above the 20-year average with a catch within 5 percent of that average, according to Fish and Game.

North Pacific-wide, wild salmon production is at historic peak and more likely to decrease than increase. Farmed-salmon production, however, continues to grow.

Japan’s shift

Japan, which pioneered the open-ocean farming of salmon later copied by Alaska, has now joined the latest technological breaking through in salmon farming with a move to land-based, recirculating aquaculture (RAS).

Proximar Seafood reported its first harvest from its Japanese RAS farm last month. The company is working in cooperation with Marubeni Corporation, once a big player in Alaska.

Marubeni was one of the major companies named in a $1 billion Bristol Bay salmon price-fixing lawsuit 4,500 fishermen filed against Alaska processors in 1995. The company settled out of court for $25 million eight years later and in 2021 left Alaska entirely. 

Other defendants in the price-fixing lawsuit held their ground. An Alaska jury subsequently listened to nearly four months of testimony, spent fewer than five hours in deliberation and ruled there had been on price fixing, according to a case history. 

Alaska, which once sold a lot of salmon in Japan, is now a minor player there despite salmon sushi becoming a top seller in the Asian nation. 

“Between 1986 and 1990, fresh/frozen exports to Japan accounted for about 81 percent of sockeye production, 44 percent of coho production, 33 percent of chum production, 25 percent of chinook production, and 14 percent of pink production” totaling more than 400,000 metric tonnes, the University of Alaska’s Institute of Social and Economic Research reported. 

By 2022, the Alaska Seafood Marketing Institute was reporting salmon exports of all sorts from Alaska to Japan were down to less than 15.2 metric tonnes with the Asian country shifting imports told farmed Chilean salmon, almost 106 million tonnes, and salmon from Norway and Russia.

Japan now looks on the road to upping domestic production via RAS. Soul of Japan, another RAS operation, in June received $210 million in funding to build a farm planned to produce 10,000 tonnes of Atlantic salmon per year, according to the trade publication Fish Farming Expert. 

RAS farms are considered the future of salmon farming because their use of recirculated waters eliminates concerns about marine pollution, fish contamination and offers opportunities for waste utilization.

Superior Fresh – a land-based, Wisconsin farm featured on the NOAA website – has pioneered the use of its fish waste in the “world’s largest aquaponic greenhouse….Using a microbial biome that mineralizes the waste and releases its nutrients, the waste is repurposed and is used to fertilize the leafy greens,” NOAA says. “In addition to rigorous hygiene practices, a series of filters and disinfectants are employed to keep food clean.

“The result of this closed system is that Superior Fresh produces nearly 1.5 million pounds of salmon and over 3 million pounds of leafy greens each year.”

A similar operation looking to boost its production to 6.6 million pounds per year is now up and running in Nebraska. Its planned salmon production is about two-thirds the volume of the sockeye catch in Cook Inlet last year. 

RAS salmon farms still face environmental opposition because of their use of marine fish for feed, but there are increasingly widespread efforts to alter this dynamic through the production of fish meal made from plants, yeast, insects, and algae.

According to NOAA, its work with the U.S. Department of Agriculture on a cooperative “Alternative Feeds Initiative has accelerated progress toward reducing fishmeal and fish oil use in aquaculture feeds while maintaining the important human health benefits of seafood consumption. The remarkable progress in developing alternatives has reduced reliance on wild fish caught for this purpose.”

These are the sort of threats of which Knapp warned with the declaration that “aquaculture will be more able to take advantage of technology than wild fisheries. We can’t predict – or maybe even imagine – the changes technological innovation may bring. Self-driving smart fishing gear? Integrated algae-based open ocean aquaculture? Fully-automated seafood processing & distribution?”

These are likewise the kinds of innovations that develop in free markets, but free markets are exactly what Alaska has for decades tried to stifle in the state’s fishing industry. And instead of letting the market straighten out this decades-long mess, Alaska fishermen and their enablers are again calling for and supporting more government bailouts to add more bandaids to an industry being held together by bandaids.

These sorts of treatments only serve to prolong the inevitable. The reality is that change is painful, but economic evolution is no different than that of biological evolution. Ultimately, there is adaptation, or there is death.