AK’s economic mismanagement of salmon

Part I of II

Sixty-six years ago, the political leaders of the newly formed state of Alaska banned fish traps for the harvest of salmon in the name of job creation. Thus began a multi-billion dollar devaluation of one of the state’s most valuable resources.

A state economist in 1999 estimated the traps “as actually deployed in Alaska between 1906 and 1959, generated between $50 million and $250 million in real 1967-dollar, cost savings relative to a boats-only open access fishery.”

Those cost savings, corrected for inflation and translated into 2024 dollars, equal $482 million to a mind-boggling $2.4 billion today, according to the Bureau of Labor Statistics inflation calculator. And much of that money would have flowed back into the Alaska economy.

Traps were at Statehood and remain today, the most efficient form of salmon harvest and, in mixed stock fisheries, the environmentally cleanest. But nearly all of the salmon traps of territorial days were owned by business interests based outside of Alaska, and the residents of the territory that was to become a state greatly resented that no matter the benefit.

There was a benefit, too.

The upside of the traps was that they allowed salmon processors to generate enough profit that taxes on the fishing industry for decades funded the territorial budget the way oil would later come to fund the state budget.

All of this began to change after World War II, when Alaska witnessed a population boom funded by postwar defense construction that helped fire a desire for statehood. Four years after the war ended, the Territorial Legislature established the Alaska Statehood Committee and at the same time imposed a 10 percent income tax on residents of the territory in the aim of becoming a state like any other state.

With a new revenue stream in place, the value of the taxes from processors diminished, the public resentment of processor profits grew, and the traps were eventually outlawed in the name of allowing every Alaskan a chance to fish commercially.

Bad business

As a business policy, reducing efficiency in the name of job creation is a generally idiotic idea, but in the case of the new state, abolishing traps made sense in the beginning. In 1959, the market demand for salmon was far in excess of the supply given a total, global salmon production of only about 200 million fish per year.

That is fewer salmon – North Pacific-wide – than Alaska alone produced in 1995, 1997, 2005, 2007, 2013, 2015, 2017, 2019, 2021 and 2023.

Thanks to a warming North Pacific, better fisheries management and a boost from industrial-scale, ocean-farming hatcheries, Alaska has witnessed an unbelievable bounty of salmon since just before the the dawn of the new millennium 

When the New York Times in 2018 and The Nation the next year suggested Alaska salmon runs were fading, the state’s five-year, average, annual, salmon harvest was over 200 million fish – or more salmon than the entire North Pacific catch of an earlier era.

Since then, the annual harvest average has yo-yoed along a slightly downward trend line influenced by the big differences in the size of pink salmon returns in odd- and even-numbered years, but the average remains near 180 million per year. The 2023 harvest  – an odd-year catch – came in at more than 230 million, according to the Alaska Department of Fish and Game. 

While harvests have remained on average huge, the value of those harvests has gone down, down, down due to competition with farmed salmon; the shrinking in size and number of high-value Alaska Chinook, sockeye and coho salmon; and the growth in volume of low-value pink and to a lesser extent chum salmon.

When Steve Colt, an economist at the University of Alaska Anchorage Institute of Social and Economic Research (ISER) penned “An Economic History Perspective” on the industry in 1999, he observed that “the ex-vessel value of salmon (the price paid Alaska fishermen) declined from a 1988 peak of $781 million to $362 million in 1996 despite a 50 percent increase in harvest volume. Starting from a zero-profit equilibrium, these downward price shocks have induced full-blown ‘natural disasters’ in coastal Alaska, complete with federal aid.”

To put those numbers in perspective by correcting for inflation as of today, the 1988 harvest would be worth $2.2 billion to fishermen in 2024 dollars, according to the inflation calculator of the Bureau of Labor Statistics, and the shrunken harvest of 1996 would be worth $745 million.

The value of this year’s catch?

The state reported it at “approximately $304 million, a significant decrease from $398 million from the 2023 season” when Alaska fishermen harvested 232.2 million salmon. Federal aid is again being sought as it has been regularly sought in even-numbered years since the 2010s.

Multi-faceted disaster

With all of this ongoing, the National Oceanic and Atmospheric Administration (NOAA) in August chimed in with a report that the collapse of salmon prices was just one aspect of the massive failure in the state fishing industry.

“First-wholesale values (basically what the fish are worth after being processed in Alaska) dropped by $1.2 billion (26 percent) from 2022 to 2023 for a total direct loss of $1.8 billion,” a NOAA report said. “This shock to the Alaska seafood industry resulted in a loss of more than 38,000 fishing and non-fishing jobs in the United States and a loss of $4.3 billion in total U.S. output.

In Alaska’s salmon fisheries, state records indicate first-wholesale prices for salmon are around five times higher than the so-called “exvessel” prices paid fishermen. For instance, in the Bristol Bay sockeye fishery, the state’s most valuable fishery, the reported first wholesale price in 2023 was $4.23 per pound while the exvessel price that year was 82 cents per pound.

If first-wholesale prices are used to review the history of the salmon fishery, the 1988 catch would have been worth approximately 11 billion in 2023 dollars compared to an actual first wholesale value of that year’s catch of around $2 billion for more than twice as many fish.

The monetary losses to the state are so big here it is hard to wrap your head around what has happened since peak-salmon in 1988. The annual losses are in the hundreds of millions or billions of dollars when measured by first-wholesale value.

Measured in 2024 dollars, the average price paid a fisherman for an Alaska salmon in 1988 was just shy of $22. The average price paid for an Alaska salmon last year? It was $3, according to state data. 

Just to be clear, so no one gets confused, this was not $3 per pound. This was $3 for the entire fish.

As an economic matter, devaluation on this scale costs all Alaskans. Forget the idea of Alaska’s fair and equitable share of the value of the salmon harvest, that disappeared long ago.

.

But now the situation has reached the point that the fishing industry could fairly be described as ripping off one of the state’s most valuable resources. And given that, one can’t help but ask a simple question:

How the hell did the state get here?

Coming next: Failed engineering