Confluence of factors cause disconnect in salmon pricing

  • By DJ SUMMERS
  • Thursday, November 5, 2015 10:15pm
  • News

Seafood producers were hoping U.S. consumers would have cheaper salmon this year, but that doesn’t seem to be the case.

The $8.99 per pound of Alaska sockeye the U.S. consumer pays at a minimum in Anchorage isn’t making its way back down the chain to the fishermen, whose overall pay has been slashed in half by a cyclone of every possible negative market pressure and a marketing campaign that keeps prices high and attracts fraudsters.

Bristol Bay produces the world’s largest natural sockeye run and the most valuable fishery in Alaska state waters, but after one of the largest harvests on record with 37 million salmon, Alaska fishermen experienced a severe shortfall on the 2015 season price.

The voluntary 0.5 percent tax processors pay to the Alaska Seafood Marketing Institute, representing roughly half its operating budget, funds a marketing campaign almost too successful for its own good.

Alaska wild-caught salmon is marketed so aggressively and successfully as a high-end product the brand brings in frauds and keeps prices high for the consumer even as fishermen are losing money.

Meanwhile, retailers are relying on the trained consumer base to continue paying for the traditionally expensive fish.

“Retailers can slap a price tag on anything,” said Jerry McCune, president of United Fishermen of Alaska, the state’s largest commercial fishing industry group. “We have no control on what they retailers put on it.”

Bristol Bay fishermen received 50 cents per pound of sockeye as the ex-vessel price from the area’s fish processing plants, less than half the average price processors paid Bristol Bay fishermen in 2014. Processors in turn sell to retailers at wholesale prices.

Fishermen often suspect processors when ex-vessel prices are too low relative to the retail price, but comparisons of ex-vessel prices to wholesale prices indicate processors lowered their wholesale prices right along with the fishermen’s pay. Spot prices link wholesale value with ex-vessel value in roughly the same historical ratio as prior years.

Between 2005-2014, according to Alaska Department of Fish and Game records, the average wholesale price for head and gutted, or H&G, Bristol Bay sockeye was $2.58 per pound.

For fillet with skin and no ribs, the average was $4.83.

In the same time period, the average ex-vessel price for Bristol Bay sockeye was 99 cents per pound.

Processors do not share first wholesale value until April, nor do they share that price with media.

On Tradex Live, an online seafood brokerage, a batch of Alaska-caught skin-on sockeye fillets sold wholesale for $4.40 per pound, roughly on par with the average $3.84 above ex-vessel price for fillet with no skin and ribs.

In retail stores, however, little has changed for sockeye prices, which remain at their usual fall/winter prices. Anchorage’s sockeye salmon goes for $8.99 per pound for skin-on fillets at Carrs or $11.96 per pound at Walmart.

In Seattle’s Whole Foods, Alaska sockeye is $14.99 per pound.

Alaska seafood marketing experts said such prices should be expected at the retail level regardless of what fishermen are actually being paid.

Wild-caught Alaska sockeye is a specialty item for which retailers have worked very hard to justify a healthy markup.

Customers in the market for sustainability and healthy local economies don’t know Bristol Bay dock prices well enough to see retail prices are amiss.

Earlier in the year as salmon producers predicted excess supply, some hoped customers would get hooked on Alaska sockeye at a lower price, but that hasn’t materialized on the retail level.

“Prices may be lower, but the volume of pink and sockeye will likely increase,” wrote McDowell Group economist Andy Wink in an email to the Journal in April. “Even if fishermen do not make much, if any, lower prices driven by supply benefits the industry in the long run because it increases consumption. Generally that demand carries over for some time.”

This has not yet proven to be the case, however, as consumers are still content to pay the usual for sockeye.

“The retailers are in a very strong position,” said Tyson Fick, director of communications for the Alaska Seafood Marketing Institute. “They’ve trained their customers over the years that Alaska salmon is a premium product worth paying extra for, and the average customer in the Lower 48 isn’t aware of the economic situation here.

“They can put us on a price competition with Russian or farmed, then they get to pocket the difference. And why wouldn’t they?”

The low ex-vessel price comes from a perfect storm of negative price pressures the industry has feared since before the first sockeye returned to the Bay. Skepticism earlier in the year has proven well-founded. Alaska seafood marketers hesitated to guess earlier in the year, but Northrim BanCorp CEO Joe Beedle, who takes part in economic forecasts, was forward with his pessimism.

“Fishermen will get 25 percent less this year because of the strength of the dollar and the high supply,” said Beedle at an editorial board meeting on April 2.

Indeed, Fick said the one of the biggest drivers for the 50-cent dockside sockeye price is the dollar. Sockeye has a domestic market but is still primarily an export product. Alaska exports 70 percent of its wild-caught salmon, with particularly strong markets in China, Japan, and Europe.

“With currency values,” Fick said, “it’s difficult on our customers. They have decreased buying power, in some cases as much as 35 percent less. It has the combined problem of making our competitors look better on a price basis.”

Japan, Alaska’s second-largest single seafood market behind China, imported $132 million worth of Alaska salmon in 2014. From its highest point during 2014, the Japanese yen’s value has fallen 22 percent against the U.S. dollar.

The U.S. dollar’s strength works against U.S. salmon on the domestic market.

Norway, Chile, and Canada produce the vast majority of farmed salmon on the U.S. market, which accounts for two-thirds of total U.S. salmon consumption.

Chile, which produces roughly one-third of the U.S. farmed salmon imports, has also seen the value of its currency, the Chilean peso, drop 16 percent against the U.S. dollar from November 2014 to November 2015, giving the U.S. greater purchase power.

In Norway, which produces another third of U.S. farmed salmon, the Norwegian kroner dropped 25 percent against the U.S. dollar in the same time period.

Abroad, some markets have closed while others suffer under the dollar’s value.

In August 2014, Russia enacted a ban on seafood imports from the U.S., European Union, Canada, Australia, and Norway in retaliation for U.S. sanctions against the Russian Federation.

Norwegian fish have few places to go except the U.S., out pricing Bristol Bay salmon at the retail level. Meanwhile, the U.S. dollar’s relative strength is preventing the product from marketability overseas.

“The domestic market can only absorb so much of this,” said McCune. “The exchange is killing us in Europe.”

Relationships with Russia have multiple effects. Russian sockeye from the North Pacific still competes with U.S.-produced salmon in the U.S. market, but far cheaper due to the strength of dollar against the ruble, which has fallen 48 percent in value against the dollar in the last 12 months. Ukraine, in the midst of the conflict with the Russians that caused the sanctions, also has less to spend on imports.

However, Alaska salmon doesn’t have the same opportunity on the Russian market. Russia’s U.S. seafood import ban hasn’t been reciprocated by the U.S. government, which still welcomes cheaper Russian imports.

While U.S. consumers buy Russian sockeye, Russian and Eastern European markets are closed to Alaska salmon roe, one of the more valuable seafood products.

Russia and Ukraine, at the height of consumption in 2013, purchased nearly 10 percent of the total $1.1 billion of Alaska salmon exports. Russia imported $46.6 million worth of Alaska roe. Ukraine imported $31 million of roe and $15 million of fresh and frozen pink salmon.

As if geopolitics weren’t enough, Alaska sockeye have had to battle surplus from the 2014 season, which left processers and retailers stuffed with canned and frozen sockeye that required U.S. government action to try to ease. Next year, the situation will continue if the 2015 harvest creates the same surplus running into another big year.

“There’s the surplus,” said Fick. “The amount of supply is way up from the big run now and surprisingly large run last year, where producers had product in the freezer going into this season.”

The Alaska all-species salmon harvest for 2014 totaled 157.9 million, or 25.3 million more than the pre-season forecast and the second largest harvest in a decade. This included 44.1 million sockeye salmon.

At the urging of Sen. Lisa Murkowski, Secretary of Agriculture Tom Vilsack authorized the U.S. Department of Agriculture to purchase up to $30 million worth of surplus canned Alaska sockeye salmon that’s been crowding processor storage since a blockbuster 2014 season in Bristol Bay. USDA bought $22.5 million of canned sockeye from Peter Pan’s Astoria, Ore., plant and Icicle’s Egegik plant. Icicle sold $11.8 million. Peter Pan sold $10.7 million.

The product was sold in cases of 24 7.5-ounce cans between $31.40 and $36 per case. At 11.4 pounds per case, the USDA paid between $2.75 and $3.16 per pound for the canned sockeye, a total of 7.6 million pounds. The past two sockeye seasons both exceeded or met large expectations, and the trend will continue on into next year.

Alaska’s most valuable fishery, and the world’s largest wild sockeye salmon run, will have another massive run and commercial harvest, if the Alaska Department of Fish and Game’s forecast is accurate.

ADFG biologists are forecasting 46.5 million sockeye in the 2016 run, with an allowable commercial harvest of 31.2 million.

Both the run size and the harvest prediction surpass both recent and long term averages. The run forecast is 15 percent greater than the previous 10-year average, and 41 percent greater than the long-term average of 32.9 million.

The projected harvest is broken down between 29.52 million fish in Bristol Bay and 1.72 million fish in the South Peninsula fisheries.

A Bristol Bay harvest of 29.52 million would be 8 percent greater than the previous 10-year average of 27.3 million, and 46 percent greater than the long-term average of 20.2 million.

Retailers charge a premium for Alaska sockeye and people are willing to pay it, but some of what’s sold isn’t Alaska wild-caught sockeye at all, depending on region on time of year.

Oceana released a study detailing that 43 percent of their 82 grocery store and restaurant samples of Alaska salmon were mislabeled, according to DNA samples; 69 percent were farmed Atlantic salmon being marketed as Alaska or Pacific wild-caught.

Oceana’s methodology isn’t discussed in the report. The study only took samples from East Coast and Midwest establishments during the winter of 2013-14, when salmon production is at its lowest.

The report in fact clashes with a 2013 Oceana study, which found only 7 percent mislabeling of salmon in 2012, but during the height of the season when salmon were readily available and largely from grocery stores.

ASMI Executive Director Alexa Tonkovich recognizes the problem, and said it’s a least got a silver lining. People recognize the Alaska wild-caught brand enough for frauds to want on the bandwagon.

“It’s great they want to copy us,” said Tonkovich. “It means we have a strong brand.”

DJ Summers can be reached at daniel.summers@alaskajournal.com.

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