North Pacific Crab Association

1. North Pacific Crab Association

2. Who and what is the Alaska crab industry, anyway? • Crab as a commodity in the global market • The Crab rationalization program - still young and only partially implemented. • What’s working. • What needs refinement to work better. • Who has gained the most benefit to date?

3. What is Alaska’s market share of the major crab fisheries ? King Crab Opilio (Snow) Crab

5. Note: 2006 Imports jumped again to 23,434 MT Source: International Trade Commission

7. What are major forces and trends in the global market at this time? • Large retailers are driving market, squeezing both processors and harvesters. • Product substitution (both “other crab” and “non-crab”) is setting further constraints on market value of Alaska crab. • Consolidation and rationalization are logical response to try to maintain market leverage and margins for Alaska crab.

8. Consolidation among (retail) buyers is pushing prices down • Retail buyers have become stronger in Japan; U.S. and Europe • For some items, they set the price: king crab in U.S. is good example • Their benchmark is not seafood -- it’s everything • The product is now heavily dependant on promotions. • Retail demand is a big factor in increasing sales of seafood • Seafood sellers need to consolidate to be able to effectively sell to retailers • John Sackton, Seafood.com • Presentation to SWAMC, February 2007

9. Consolidation among buyers driving processors (sellers) to merge • Bigger buyers (Wal-Mart, Costco, Ahold, Carrefour) force sellers (processors) to consolidate • 2006 saw: • Trident / Ocean Beauty (called off) • Maruha / Nichiro (Westward / Peter Pan, Pending) • Pan Sfd/Marine Harvest / Fjord: One company now controls 25% of world farmed salmon John Sackton, Seafood.com Presentation to SWAMC, February 2007

10. Sellers (Processors) are getting larger to protect margins All sellers give the same reason for their acquisitions: They need to be bigger to protect their margins by meeting major customers demand for greater efficiency, lower prices. John Sackton, Seafood.com Presentation to SWAMC, February 2007

11. In the face of global competition, Alaska’s best course to maintain the economic health of it’s fisheries (margins, incomes and tax base) is to continue to foster a more cooperative approach between harvesters, processors and coastal communities.

12. The BSAI Crab Rationalization Program • Council, industry and community design process: 1999 through 2003 • First fishery: 2005/6 season • The Program is the first to include harvesters, fishery dependent communities, processors and crew. • The Program includes 18-month, 36-month and five-year reviews.

13. 18-month Review • The A share/B share split and it’s impacts on processors, harvesters and crab dependent communities. • Binding arbitration review • Captain and crew share review

14. The Myth of 90/10 Restricted use PQS 78% of TAC Unrestricted IFQ/CDQ to 22% of TAC encourage new processors, competition between regions and communities

16. The program is still young and only partially implemented. • Halibut, Sablefish IFQ and American Fisheries Act programs took 3-4 years to fully implement. • Weakening markets (due to a flood of imports), the need for remote region fishery use cap changes and lack of a harvester inter-coop to facilitate more fluid transfers have slowed implementation of the BSAI Crab Program.

17. What’s working. • No deaths/vessel sinkings • No vessel bankruptcies in spite of relatively low TAC’s, rising fuel costs and falling wholesale market values. • Rapid, voluntary and industry wide response to Red King Crab high-grading that would not have been possible under derby fishery rules. • Harvest sector can now operate profitably, and respond to changing TAC’s, market conditions, and emergency events (though there is still need for an inter-coop and more fluid transfers). • Pribilof and Adak/Atka community economies slowly recovering, and economic foundation now established with issuance of regionalized Processor Quota (though efficiency and profitability are still challenges). • Stellar Sea fire generated a lot of noise but IFQ transferability actually allowed everyone to adjust; intercoop still needed. • Decline in pots (graph next page) • No Search and Rescue call-outs the first two seasons

18. Source: ADF&G Review/Forrest Bowers

19. In light of the market declines brought on by the huge influx of imported crab in the last two years, combined with rising fuel costs and relatively low TAC’s, there is little doubt that the crab industry - especially the harvester sector - has avoided the economic collapse that the old derby style program would have created.

20. Who Has Won So Far? • Harvester IFQ Values now exceed halibut and sablefish values. • Harvester seasons elongated; improving safety and efficiency. • Resource: Gear (pot) reductions on the grounds up to 31%. • Resource: Rapid response to high-grading. • Resource: Likely less handling mortality during very cold periods. • Alaska: Creation of quota systems has spurred new Alaska investment in both harvesting and processing sectors; particularly (but not exclusively) by the CDQ groups.

23. Issues Confronting Processing Sector • Inappropriate small TAC custom processing use caps that actually required an increase in processing capacity. • Elongated seasons and stacking have improved harvester efficiency but processors have actually had to extend operating their days, reducing efficiency on some levels. • Binding arbitration model has not been implemented as envisioned in EIS and program design.

24. Small TAC Use Cap Problem is Being Addressed by NPFMC The Council elected to extend the potential amendment to include options to exempt custom processing from the caps in all of the traditionally small crab fisheries included in the program: * the Western Aleutian Islands golden king crab fishery, * the Western Aleutian Islands red king crab fishery, * the Eastern Aleutian Islands golden king crab fishery, * the St. Matthews blue king crab fishery, and * the Pribilof red and blue king crab fishery. The Council requested staff to develop a draft purpose and need statement for the action for Council consideration. Possible rationales for the action include enhancement of competition, contingencies in the event of a processor breakdown, processing efficiencies, enabling full harvest of the TAC, and sustaining coastal communities.

25. Elongated seasons have decreased processor efficiency in the many instances • Because of IFQ (which guarantees a vessels share of the TAC), harvesters can delay crab fishing in response to emergencies or to pursue other income (pot cod being the most common), causing plants with up to 150 people to stand idle for weeks at a time. • For instance, the PV Arctic Star processed only 9 out of 26 days in January 2005 and 46 out of a total 84 days for the season; extending operations (and costs) by a full four weeks. • Clearly, more coordination and cooperation is needed to maximize efficiency and product value for everyone.

26. Binding Arbitration (EIS) • It is important to remember that the Crab Rationalization program has consolidated negotiating power within the harvest sector. The era of individual vessels negotiating price are over. • Recognizing that the Program created two large quota sectors, each with it’s own power and leverage, a Binding Arbitration system has been established.

27. The Binding Arbitration is not yet functioning as envisioned in the EIS: North/South and Kodiak pricing in a historic context • (From EIS)“Generalizations concerning the spatial distribution of ex vessel prices… • The prices in Kodiak are higher (than Dutch Harbor) (approximately 20 cents in the recent Bristol Bay red king crab fishery) because of the longer distance to the fishing grounds and the proximity to consumer markets.” • The St Paul processors are thought to pay slightly less for crab (5 cents less than Dutch Harbor) because of the proximity to the grounds… • “These minor price differences between ports are thought to have little effectiveness on the competitiveness of vessels… when their other costs are considered.”

28. More on Binding Arbitration from the EIS: Regional Pricing • (From EIS) “Pricing also varies regionally among crab processors… processors (locations) with less access to consumer markets may pay slightly less for crab … since they must bear the cost of delivering the crab to market.”

29. Summary Rationalization of any fishery is a result of over-capitalization and inefficiency; which then leads to market erosion and financial peril. Crab is no exception. The 1999 Opilio crab crash put everyone at risk. The Program is not even two seasons old, and experience has shown us that it takes 3-4 years for industry to fully adopt to new Programs and regulations. Gains in safety and efficiency for the fleet have been huge; for the processing sector less so. But often overlooked is the fact that stability is also returning to the crab dependent communities.

30. A Final Thought Most of the “program problems” reported in the media have been over-stated by non-participants, or those fearing this Program will be forced on their fishery, or consultants who want to be paid to fight the fight all over again. Our real problem? Market Competitiveness.