Never bet against tech

Part 3 of a 4-part series

Now semi-retired Alaska economist Gunnar Knapp, the nation’s foremost authority on the economics of the Alaska fishing business, offered a blunt warning to the state’s salmon industry seven years ago.

Boiled down to its essence, the message was simple: adapt or die.

At “The Future of the Seafood Industry” conference in Seattle, Knapp screened a PowerPoint presentation explaining 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,” he said. “Self-driving smart fishing gear? Integrated algae-based open ocean aquaculture? Fully-automated seafood processing and distribution?”

And then he asked a key question:

“Can’t we think of a better way to catch Bristol Bay wild salmon than gillnets?”

The answer to that question was obvious to everyone in the room. Anyone familiar with the Bristol Bay fishery can immediately think of better ways to catch and handle the fish. Knapp had the right thought, but he misstated the question.

The right question was this: How can the state implement a better way to catch Bristol Bay salmon in an industry focused on clinging to its past as if it were gold while lecturing Alaska’s unwashed masses on the noble goodness of preserving the commercial fishing “lifestyle” of the last century.

The set gillnet fishery of Cook Inlet, the 180-mile-long bay that cuts into the state’s gut and ends at the shore of the state’s largest city, might well be the poster boy for this problem. Set gillnetters knew for decades that there was a bycatch problem with Chinook salmon in their fishery.

Chinook are the biggest of the salmon species, the fish most Alaskans call king salmon. Kings were, and still are, highly prized by anglers, though it is becoming harder and harder to find places to fish for them because of their reduced numbers.

Inlet setnetters, who fish primarily for the sockeye salmon that still return to the Kenai and Kasilof rivers by the millions every summer, long thought of the kings that got tangled in their nets as bonus fish worth three, four or more times what a sockeye was worth.  They likewise knew this king salmon bycatch was a problem.

For decades, they warred with sport fishing interests over how to manage the setnet fishery so it could keep catching these kings while letting just enough slip past the nets to ensure a supply of fish for anglers in a Kenai River then world famous for its king salmon angling.

As king returns to the Kenai began to decline in this century, it became year by year more obvious that the setnetters needed to do something about their bycatch. But they clung to the idea that they were entitled to catch kings, and shouted down suggestions that they find a way to eliminate bycatch or dismissed the issue with the claim that the setnets were only catching the smallest of the fish and allowing the biggest to escape into the river.

Only a few setnetters were willing to experiment with changes in gear and techniques to reduce bycatch, and they were unpopular for doing so. And thus the bycatch problem lived on right up until the time that the return of kings was reduced to a size that forced fishery managers to close the entire setnet fishery to protect the spawning population.

The setnetters have largely been out of business now for three summers as the state tries to get enough kings into the river. For this, the setnetters blame sport fishermen, who have been shut down even longer, and the Alaska Department of Fish and Game, offshore trawlers, which have the least impact on the king return, and climate change, about which nothing can be done.

They blame everyone but the people who could have solved the problem long ago: themselves.

The Inlet setnetters are in the predicament they are in today because they clung to their past and ignored the changes taking place in the world around them. This is a death sentence for any business.

Business survival

Success in business does not come from preserving the past. It comes from competing in the present while positioning for the future. The commercial fishing industry has done a poor job of this in the 49th state, and the result is what one would expect.

The landscape is now littered with economic casualties, and the setnetters are the least of the victims. Processors who buy the fish from fishermen and who provide most of the fishing jobs in the state by paying thousands of processing workers to staff canneries and cold storages have been going down in flames.

Peter Pan Seafoods, a major international seafood brand controlled by Japan’s powerful Maruha Nichiro conglomerate, was sold in 2020 with the company explaining that its “Alaskan salmon business has continued to experience operating losses due to factors such as, soaring raw fish prices due to the intensified competition, high costs due to poor catch of fish, and fall in production.

“The Company’s financial performance will not be expected to improve as the competition for raw fish materials is expected to intensify in the future. Under these circumstances, the Company intends to withdraw from the Alaska salmon business.”

Maruha Nichiro was formed in 2006 by the merger of Maruha, Japan’s biggest seafood business, and Nichiro, the nation’s third largest seafood business. The company has been widely described as an international “seafood giant.”

Nichiro, in particular, had a long history in the North Pacific. In 1952, it started a mothership fleet to catch and process “high-quality canned salmon (that) was sold primarily to Great Britain,” according to a company history.

When coastal nations began pushing their marine territorial boundaries out to 200 miles in the late 1970s, that history reflects that Nichiro “reduced high seas fishing operations and shifted the business to purchasing marine products for a steadier supply in order to buy fish from around the globe to deliver to the nation.”

Nichiro acquired Seattle-based Peter Pan in 1979. The company then owned a string of Alaska canneries with roots back to 1912.

“The addition of Peter Pan represented a major strategic step for the company, since Japan’s voracious appetite for fish, and particularly salmon, had led to the depletion of fishing grounds closer to home. Alaska was one of the largest – and last – of the remaining salmon regions in the world,” records Encyclopedia.com. 

When prospects for salmon profits in Alaska darkened, however, Nichiro, now part of Nichiro Maruha, did not hesitate to toss aside its Alaska salmon processing facilities, as it had its Alaska salmon mothership fleet.

And where Nichiro Maruha is positioned now is telling. It’s heavily into fish farming, and not just salmon.

It is also farming bluefin tuna, yellowtail and amberjack. The company website says “we want fisheries everywhere to expand their fish farming businesses and commit to safe capture so we can all enjoy a more sustainable planet.”

And in Alaska

Peter Pan’s Alaska operations were acquired in 2021 by McKinley Capital Management, an Alaska investment fund, and the RRG Global Partners Fund, thanks in large part to $29 million in backing from the Alaska Permanent Fund. 

Fanfare and big promises followed.

“My partners and I want to show the world that Alaska offers world-class sustainable seafood investment opportunities that result in benefits to the state of Alaska, our fishing families and coastal communities, and investors,” Rob Gillam, a lifelong Alaskan and the chief operating officer at McKinley Capital, told the Cordova Times in early 2021.

Three years later, Peter Pan went bust and closed the doors on its fish processing plants. It had survived a year longer than the Wards Cove Packing Company, which started canning salmon near Ketchikan in 1928 and later expanded to operations in Kenai and Bristol Bay. Wards Cove declared bankruptcy in 2023.

By then, Icicle Seafoods, another old Alaska salmon processor, had already sold out to Cooke Seafood, a Canada-based salmon farming company. Cooke thought the problem in Alaska was simply bad management and that with better management, it would be easy to make money off the fish that nature feeds for free.

That idea lasted for only a few years before Cooke learned the problems were bigger than it thought: too many fishermen of the belief limited-entry entitled them to guaranteed profits from their catch; too many other, struggling plant owners driving up fish prices in hopes of staying alive one year to be in business the next; a lack of profits to invest in automating processing operations or market fish’ a stagnant canned salmon business; and a lower quality product than the company was accustomed to because of the way salmon are handled in the 49th state.

So, Cooke decided to merge with a struggling Ocean Beauty Seafoods, another well-known Alaska processor that has been bought out by the Bristol Bay Economic Development Corporation (BBEDC), in the hopes that consolidation would result in profits. The two companies formed a new operation called OBI Seafoods.

“The Alaska salmon business is experiencing significant market and resource fluctuations,” Mark Palmer the CEO for the new company, announced at the time of the May 2020 merger. “In order to flourish in this rapidly changing environment, we need to develop flexible and efficient business models and form innovative partnerships,

“The merger will enable more focus on selling seafood products in the global marketplace by leveraging both strong sales teams. Increased sales will bring additional investment to support growth and jobs.”

Palmer’s promise of increased sales, additional investment, growth and jobs never materialized, which should have come as no surprise given the problems all processors were facing.

Trident Seafoods, arguably Alaska’s biggest commercial fishing powerhouse, in December 2023 announced that it was launching a “comprehensive restructuring initiative” that called for “streamlining” and modernizing its 49th state operations.

As part of that deal, it was looking to rid itself of a third of its dozen processing plants, including two on Kodiak Island, where the company reported employing “about 250 local (year-round) and 300 seasonal employees.”

Not so many years earlier, Trident’s website bragged that with Trident’s ‘Star of Kodiak’ plant and the ‘Pillar Mountain’ pier facility and freezer plant, the company presence has grown substantially in recent years, offering the local independent fleet and fishermen as far away as Prince William Sound new opportunities to deliver their catches quickly and keep their gear in the water.”

Trident’s desire to abandon Kodiak might have seemed OBI’s perfect opportunity for investment and growth since it already had operations on Kodiak Island, but only two months later it revealed it was closing its Larsen Bay processing plant there and scaling back instead of providing “growth and jobs.”

Cooke was not long after reported to be looking to get out of Alaska entirely.  By March of this year, OBI was history, with Silver Bay announcing it was taking over OBI’s assets in partnership with the BBEDC.

The Seattle-based law firm “Zachary Scott” promptly dispatched a media statement saying it was “excited to announce the ‘recapitalization’ of Ocean Beauty Icicle (OBI) wherein Bristol Bay Economic Development Corporation replaced its partner of five years, Cooke Aquaculture, with Silver Bay Seafoods.”

The law firm explained Cooke’s departure this way:

“After a challenging years-long period post-merger (with Ocean Beauty), Cooke ultimately expressed a desire to divest its ownership interest in OBI.”

Or, simply put, Cooke found it too hard to make money in the Alaska salmon processing business and decided to bail out, as had Maruha Nichiro. How much money changed hands when Silver Bay took over Cooke’s share of OBI and the day-to-day operation of the company’s plants has never been revealed.

A new world

It is hard to overstate how much the salmon fishing business in Alaska has changed in the 21st Century, and not for the better for the state economy as a whole.

Gone are the heady days of the late 20th Century when fishermen were making so much money, while believing they were being taken advantage of by Japanese traders, that the joke was that “for an Alaska commercial fisherman, the whining only stops when the jet lands in Hawaii,” a nice, warm place to spend the winter.

The Japanese salmon importers, once accused of being the puppet masters pulling the strings in the Alaska salmon market, are now history, and the Japanese market that once gobbled up the annual Bristol Bay salmon catch looks nothing like it did in the last century.

The net-pen farmers not only took over that market, they also transformed it. Parasite-free, pen-raised Norwegian fish made salmon sushi  – once a Japanese no-no due to the fear of Anisakis worms in raw fish – a now common item on Japanese menus. 

As a result of this transformation, U.S. exports of frozen sockeye to Japan fell from a peak of more than 100,000 tonnes in 1993 to 20,000 tonnes in 2010, according to Knapp’s data. The Japanese market would, however, continue to evolve in the years after that.

By 2015, the Food and Agriculture Organization of the United Nations was reporting salmon imports to Japan had shifted to 41 percent Chilean farmed salmon, 30 percent Norwegian farmed salmon, and 20 percent Russian salmon, with all U.S. salmon lumped in the “other” category at 10 percent.

Alaska had gone from a big player in Japan to a bit player.  The only remaining bright spot is that Japanese demand for Alaska salmon roe remains high. The country is still importing a third of that product from the U.S., and almost all of that comes from Alaska, where pink salmon are now as valuable, often more so, for their roe than for their flesh.

The Minato News was reporting an October roe price of near $33 per kilogram, “double the level from a year earlier.” That price works out to about $15 per pound.”

Overall, though, the markets are more against Alaska processors than for them because of the costs of operating in the remote 49th state. As a result of this, a report prepared for the Alaska Seafood Marketing Institute (ASMI) by the McKilney Research group last May cited a steady offshore movement of processing.

“Between 2019 and 2023, an average volume of 71 percent of salmon produced in Alaska has been exported (to be processed),” it said, “An unknown portion of exports return to the U.S. domestic market after reprocessing.”

Alaska’s steadily shrinking share of the global market for salmon, the report added, is now down to 8 percent. Alaska today competes with Russia, whose wild-caught salmon account for about 10 percent of the global market.

If one does the math there, this means the net-pen farmers actually control 82 percent of salmon sales.

“In the commodity market, farmed seafood is a competitive challenge because of low production costs, consistent year-round supply, and the industry’s ability to produce large volumes for the world market,” the ASMI report said.

There was one bright spot in that report. It said Alaska wild sockeye still attract a market premium price about $2.50 higher than farmed fish, but the report added that “aquaculture is a competitive threat to Alaska’s wild seafood industry on both the low-end and high-end of the market.”

Pricey fish

On the high end, net-pen farmers in New Zealand claim that through careful breeding, they “have created a unique breed, called Ōra King, genetically distinct from any other king salmon found in New Zealand or the world.”

Some foodies have bought into a Kiwi sales pitch that this is the globe’s best-tasting salmon.

“Every detail, from how our fish are sourced to how they’re presented at your table, honors both the sea and the craft of exceptional dining,” claims Trulucks, an upscale and price restaurant chain that started in Houston before spreading across that state, east to Miami and north to Washington, D.C. and Chicago. “Few ingredients embody this spirit more beautifully than Ōra King Salmon, often called the Wagyu of the Sea.”

At the Pike Place Market in Seattle, a whole Ōra King now retails for $29.50 per pound with a minimum sale of 10 pounds. It’s a $2 per pound more expensive than a fresh whole Northwest king salmon but $3 per pound less than a fresh whole Alaska king salmon, the far and away most valuable of Alaska salmon.

As for the “low end” of the salmon market, Alaska pink salmon pretty much dominated there for years. But competition from the net-pen farmers is growing because their production has reached a volume where the trimmings from high-quality filets are so large they can feed alternative products such as canned, smoked salmon; pet food, and fish meal for a variety of uses. 

One thing that can be said about the net-pen farmers, or at least those in Norway, is that they are not wasteful. They are not dumping offal and fish parts at sea as are the processors of Alaska wild-caught salmon, who can’t find a use for their waste stream.

…”For farmed salmon, it was assumed that all by-products were utilized,” fishery scientists Friederike Ziegler from the Research Institutes of Sweden and Ray Hillborn from the University of Washington reported in the peer-reviewed Science of the Total Environment two years ago.

“For farmed salmon processed in Norway, this is close to the actual situation, whereas by-product use is much lower in the case of wild salmon. In Bristol Bay, there are indications that around half of by-products are processed to fishmeal and oil; for Prince William Sound, we don’t have any information on utilization.”

But they added that “older data from the Fisheries and Agriculture Organization (FAO) of the United Nations reported an edible yield of 62 percent of Alaska wild-caught salmon,” which leaves 38 percent as waste.

“While it is known that some by-products in Alaska are used for fish meal and oil, most are ground up and dumped at sea because the short duration of the fishery means that a meal and oil plant would only be used for a few weeks a year,” the scientists reported. “Since it was difficult to find any robust data on the matter, it was assumed that no by-products were used at present, as a worst-case scenario.”

But waste is only part of the environmental costs of any kind of farming, and the two scientists found the operation of net-pen farms far from perfect.

In the big picture, they concluded, wild salmon result in lower life-cycle impacts on the environment than farmed fish largely due to the significant greenhouse gas emissions involved in the shipment of feed for penned fish, and the environmental costs of producing that feed, whether from the capture of forage fish or from the agricultural production of soybeans and other alternative fish foods.

Science of the Total Environment, Ziegler and Hillborn

 

Both the capture fisheries in Alaska and the net-pen fisheries around the world could significantly lower environmental costs by shifting production from fresh salmon to frozen salmon, the researchers added, but “the trend has been opposite in recent years, with industry marketing campaigns and sometimes even governmental policies aiming to shift consumption to fresh products, which are more valuable and profitable.”

And business success is all about providing what the market wants.

Market ignorance

Alaska commercial fishermen have long been mired in the idea that it should be easy to increase the value of Alaska salmon with better marketing because, as all Alaskans know, wild-caught salmon taste better and are healthier.

Knapp specifically warned fishermen against this kind of thinking more than 20 years ago with points that hold true to this day.

“Wild salmon has potential marketing advantages of taste, health, and wildness,” he wrote in 2002 PowerPoint presentation delivered to fishing groups across the state. “But these have limits:

• Not all consumers necessarily perceive wild salmon as inherently superior to farmed salmon
• People tend to like what they are used to. Unlike salmon fishermen, most salmon consumers are not used to wild salmon
•  Not all consumers are interested in health or wildness. Look at the kinds of foods most people eat
• Many consumers don’t know anything about differences between wild and farmed salmon. It may require a significant marketing effort to get them to know or care about these differences
• Wild salmon has some marketing disadvantages, such as consumer perceptions that salmon are “endangered.”

The Alaska Seafood Marketing Institute (ASMI) put a huge effort into trying to exploit Knapp’s fourth point early in this decade. And a “wild is better” campaign aided by some environmental interest groups led Target, a major U.S. retailer, to in 2010 announce the elimination of “all farmed salmon from its fresh, frozen, and smoked seafood offerings in Target stores nationwide. This announcement includes Target-owned brands – Archer Farms^® and Market Pantry^® – and national brands. 

“All salmon sold under Target-owned brands will now be wild-caught Alaskan salmon. Additionally, sushi featuring farm-raised salmon will complete its transition to wild-caught salmon by the end of 2010.”

Target’s announcement was embraced by Greenpeace and the Monterey Bay Aquarium, which had long been Alaska’s best ally in the battle against farmed fish.

“Target’s decision to source sustainable wild-caught salmon, instead of farmed, will have a real impact in the marketplace and ultimately, on the health of our oceans,” the Aquarium’s executive director said at the time.

The ban lasted seven years. and the Aquarium not long after that recognized the war had been lost switched sides. It is now heavily into promoting farms that have shown they can farm salmon in an environmentally safe manner.

The Aquarium’s “best choice” list for salmon is now led by “Atlantic salmon…farmed in indoor recirculating tanks (also called RAS, land-based, and tank-farmed)” followed by salmon from net-pen farms in Maine, the Faroe Islands and Denmark, plus “ASC certified Atlantic salmon.”

ASC is the Aquaculture Stewardship Council. It now certifies more than 200 Atlantic salmon farms in Norway and more than 100 coho salmon farms in Chile.

The study by Ziegler and Hillborn well illustrated why any Alaska hope of displacing the farmers is today hopeless. The scientists reported that farmed salmon “is now 80 percent of total global salmon supply,” and it might actually be slightly higher.

Two other points Knapp made in 2022 are even more pertinent today. The first of those was that the net-pen farmers also market salmon, “and spend a lot more money than we do.” The second was that “even consumers who know about and prefer wild salmon to farmed salmon won’t necessarily buy wild salmon unless they can get it at a competitive price.”

On top of all this is what might be the most important issue: taste. And taste, by and large, is less about how salmon are grown and more about handling a rather delicate protein that starts decaying rapidly the second a fish dies.

“Wild salmon leave the water as a better product than farmed salmon,” Knapp noted way back in 2002, “but whether it is a better product when it reaches the consumer depends on how it is handled at every step from when it leaves the water till it reaches the consumer.”

The handling of Alaska fish has improved since he made that observation. Most Bay sockeye is now quickly chilled after harvest rather than left on the warm decks of gillnetters, but gillnets bruise fish and in many other gillnet fisheries, it can be hours between when the fish are caught and when they arrive at a processor.

“…Fish is a highly perishable food characterized by a short shelf-life. Refrigeration is probably one of the most used methods for fish preservation, along with freezing, and, more recently, superchilling. However, several deteriorative fish quality changes occur during refrigerated storage, particularly in texture, color, and flavor, limiting shelf-life. Frozen storage can avoid these changes (except for texture), but freezing/thawing largely alters the fish’s fresh-like characteristics,” food researchers four years ago reported in the peer-reviewed journal Foods. 

“Emerging food packaging techniques, such as the use of edible films and coatings, also meet consumer demands due to their biodegradability and sustainability, while improving the safety and extending the shelf-life of fish and fishery products. Other emergent technologies are arising, as in the case of hyperbaric storage. This methodology uses different pressure and temperature conditions applied at subzero, low, and room temperatures, and has shown the possibility to increase fish shelf-life by microbial inhibition/inactivation, maintaining textural, sensorial, and nutritional characteristics when compared to conventional methods of storage, with the additional advantage of potentially high energy savings, especially when performed at naturally variable/uncontrolled room temperatures.”

And the way things stand today, many of the net-pen farmers already winning the salmon taste competition have the money to invest in such new technology while Alaska processors don’t.

Way back in 2013, National Fishermen, an industry publication covering wild-caught fisheries in the U.S., reported that “wild salmon took a beating from farmed in a blind taste test.” The handling of Alaska fish improved in the years that followed and along with that the quality. But farmed salmon are continuing to win taste tests.

As Kyle Lee at the Alaska Salmon Company has observed, “farmed salmon…is usually softer and fattier, which gives it a milder, buttery taste. Many people who prefer a subtler flavor, including children and those new to eating fish, often find farmed salmon more appealing.”

Lee is a fisherman in the business of selling wild-caught salmon, and selling it in a new way by connecting consumers to individual catchers who provide custom orders of hand-prepped, vacuum-packed and flash frozen to ensure the filets are guaranteed to be parasite-free thanks to being held for 15 hours or more in freezers with temperatures below minus-30 degrees. 

This model for sales is similar to that of the U.S. wine industry, which now boasts nearly 11,500 wineries, 97 percent of them small, very small or of limited production, according to Wine Business Analytics.

Those small wineries are exploiting what are called “niche markets’‘ where there would seem to be significant opportunities for Alaska fish catchers now hauling in a tiny fraction of the world’s salmon. But as Knapp long ago suggested, a shift like this require big changes in how the industry operates and committed fishermen willing to turn their backs on the past to embrace new ways of doing business.

 

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