The Winding Glass

A resource race for fisheries; and the U.S. may be on the short end of the stick

You may not notice the impact of a weak dollar on a day to day basis, but long term, it will mean that foreign producers gain greater control over the U.S. seafood market.

I was struck by the analysis of Mr. Ng Joo Siang, whom I met once in St. Petersburg, Russia, as he discussed Pacific Andes Results. Pacific Andes started out as a company that supplied overseas fish to China, and they became exporters as well of processed fish out of China. They used to be known for their fleet of trampers which regularly handled much of the at sea transfer of H&G pollock from Russian trawlers.

The company also expanded into value added products, acquiring National Fish and Seafood in the U.S., for example.

But now, Mr. Ng is in a race for fish. He is buying up vessels in Peru that have fishing rights, and searching elsewhere for the same thing. He clearly sees that the amount of wild caught fish is basically stable, and that overall its value is increasing; so those who control the supply by controlling vessels and licenses are the ones who will make the most money.

We have also seen this phenomenon in Japan. At the time of the Maruha Nichiro merger, the need for Japanese companies to strengthen their overseas sourcing and sales was well recognized. Yesterday we wrote about Glitnir opening a M&A office in Japan—again to finance the drive by Japanese companies to purchase access to supply overseas.

The same trend has been evident in Europe, as Icelandic companies by up companies in the Far East, and many others partner with Russian producers. It is also evident with the consolidation taking place in the Chilean salmon sector.

In fact, wherever there are groups of fish producers, there are major seafood companies waiting in the wings to buy up access.

U.S. companies risk losing in this global competition in several ways. First, even though our seafood market is dominated (80% +) by imports, our seafood policies are set by parochial local interests – and with entrenched industries on all coasts, congress is whipsawed as various groups fight for local issues – whether it is domestic shrimp using imports as a wedge issue, or West Coast fishermen supporting salmon restoration, or New England in a perpetual fight over fisheries management regulations—the effect is to obscure the big picture.

The big picture is that the seafood industry is globalizing, and our market is going to be lunch.

The companies that will supply the U.S. with seafood are big, integrated, very heavily invested in quality control and their supply chain, and they have secured sources of supply. This describes some of the Asian companies in our discussion of their financial strengths we reprinted from Forbes. It also describes some of the major European salmon producers. What it doesn’t describe are U.S. companies.

Only in pollock have U.S. companies approached the level required for success in international competition, and that strength is paying off with record prices and probably profits for the entire pollock sector.

The U.S. will grow more dependent on overseas global supply chains for our seafood; our industry will make less and less money from the supply end, and more from the distribution and marketing side of the business.

The problem is that in the end, success in the fish business comes down to control of supply. With less and less of the global seafood supply under the control of American companies, the long term future is that we will be price takers; paying what the world market demands to keep up our appetite for Seafood. That means if the dollar slides, we pay more.

Too bad the fish people in Washington are so oblivious to this. One of the most destructive aspects of the shrimp tariffs was the incentive it gave to transfer control of imports from U.S. companies to overseas companies. This has now largely happened in many areas – like catfish and with some shrimp. For example – much of the Thai shrimp which is a staple of the U.S. market is marketed and sold here by Thai owned or connected firms.

We need both parts of this industry – strong suppliers with control over resources, and strong marketers who have loyal customers. Too bad much of our government's recent actions appear to be weakening both.

The big mistake environmentalists are making on aquaculture

Remember the Give Swordfish a Break campaign? That campaign, begun by Seaweb, asserted that swordfish stocks were so depleted, and that there was so little regulatory response, that the only solution was for responsible consumers to boycott swordfish.

The result: much damage to the U.S. fishing industry, which had done a great deal to bring about swordfish recovery.

Now, while many still remember this campaign NMFS has declared swordfish stocks at 95% of their long term recovery target, and has urged U.S. fishemen to increase their catch or swordfish quotas, which are managed internationally, will be taken from the U.S. and given to Europe, which had a much worse environmental record.

It was a case where the boycott was conceived in ignorance, and without knowledge or recognition of the steps for conservation already underway.

We are watching a slow-motion repeat of the swordfish fiasco on offshore aquaculture. Offshore aquaculture is dead in the U.S. without regulatory reform, because currently no permitting authority exists to allow anyone to build an offshore fish farm. Recognizing the need for new sources of supply, NMFS has been able to convince the entire Dept. of Commerce to take up offshore aquaculture as an important tool to help the U.S. economically, and to reduce the reliance on imported seafood. Fish consumption will not continue to climb without aquaculture sources.

Environmentalists have the power to kill this bill. The fact is the offshore aquaculture bill is enabling legislation -- it would create conditions for an industry to develop. IN this context, there is no huge pressure group lobbying for this to happen. In fact the opposite-- many fishermen don't care, and in some areas, such as Alaska, they are passionately opposed.

So, we have the powerful environmental lobby lined up against .........no one. NOAA has indicated much willingness to build in environmental safeguards in the permitting process. But there has to be a permitting process to begin with.

Unless the regulations are practical, no one will ever invest in offshore aquaculture, as NFI's president Jeff Davis keeps saying.

So, here the environmentalists have the power to either kill off the bill completely, or make it worthless, by going for the long ball -- their maximum demands.

Like the give swordfish a break campaign, the ones likely to be hurt by this are American consumers and the environmentally responsible aquaculture companies, like Kona Blue.

If environmental groups are opposed to everything but closed land based system aquaculture, they should say so, but not be taken seriously on this bill. For the rest, who see a long term future in Aquaculture, a responsible compromise today to get a workable bill will yield long term results tomorrow.

At the moment, too many groups that are simply opposed to all aquaculture seem to have the ear of Congress. This will be a death knell for the bill.

Winds of Change

The following editorial was on our Seafood.com News site today.

Will our future in the seafood industry be one of selling cod or tilapia? Although we all encourage the growth of aquaculture as a way to put fish on the plate, the true affinity for fish and seafood comes from people’s attachment to wild caught natural species – like cod, crab, swordfish and tuna.

Most seafood has very marked regional consumption patterns, which can be traced back to the biological abundance and trade patterns of seafood that existed for hundreds of years. People who have grown up on certain types of fish (i.e. real fish means cod), don’t change their habits easily, despite the flood of tilapia, basa, and other aquaculture species.

In short, even though tilapia and basa and catfish look white, they are not true North Atlantic whitefish. Real whitefish means traditional cod, haddock, and pollock.

Iceland has taken a major step to preserve wild Atlantic cod, and I don’t think the significance has been fully appreciated in the industry.

Today we run several articles on the quota cuts. What is remarkable is that this is almost the first time a European government has actually set a quota according to the scientific advice. Routinely the Marine Institute in Iceland and ICES in Europe recommend biological quotas that are then exceeded by fisheries ministers.

This has led to chronic overfishing, the collapse of north sea cod, and threats to Barents Sea cod.

The Icelandic quota was cut from around 190,000 tons to 130,000 tons, far more than industry observers were expecting.

The reduction will cut about 1% off the GDP growth in Iceland. That is real money, and it will have real consequences, which we also report on. But the bankers say that Iceland’s economy is in good shape to absorb this kind of hit, due to the performance of the non-fishing sectors.

What is interesting is the candid observation by the fisheries minister that Iceland took the drastic quota action to preserve its reputation among its largest customers. These are the British consumers of Iceland cod.

Many British retailers have demanded suppliers become certified by the MSC, or provide equivalent proof that fisheries are sustainable. Had Iceland failed to follow scientific advice on its cod stocks, it risked becoming a target – where groups like Greenpeace would force supermarkets to avoid buying Iceland’s cod.

The long term history of the Atlantic cod stocks is a disaster, with Canadian stocks in a situation where the change in the environment means they will likely never recover in our economic lifetimes. Iceland quotas and harvests are now at their lowest level in the past 50 years, and the chart we print shows just how steady the decline has been.

But the government’s determination to save the cod stock may finally be a breath of fresh air. It has come about through a strange mixture of environmental and customer pressure. Similarly, efforts to crack down on illegal fishing in the Barents Sea are gaining strength in Norway due to extreme public pressure.

This represents the winds of change. It is possible that this pressure will end up saving the wild fisheries by essentially giving the industry no choice. Only at that point does overfishing really stop. Governments alone won’t do it, as their industries can often override scientific advice, or influence the scientists themselves.

No longer can we assume that we can get by one more year without painful economic losses from fish conservation measures. The ability to recognize this will mean Iceland keeps its reputation as a leader in wild fish conservation—possibly for the good of all who grew up eating seafood from the North Atlantic.

Knee Jerk Reaction to Pew Funded Media Spin

Mary Beth Tooley, of the East Coast Pelagic Association, made a comment in our herring discussion that needs to be addressed. She says “Shame on you for the knee jerk reaction to a Pew funded media spin. You would do better to check the facts.” Her point was that the PEW claim, which I responded to, of significant overfishing by the herring fleet of the first seasonal allocation (3700 tons over a 5000 ton allocation) was not a fair charge.

First, NMFS does not have a real time reporting or tracking system for herring allocations, and did not think the overfishng represented any biological threat to the stock. Instead, the actual amount will be deducted from the overall quota, and as Mary Beth says, the total TAC will not be exceeded.

But the herring issue is still potent, because it raises the question of eco-system vs. species management, which is at the heart of New England fishing controversies in one form or another ever since the 200 mile limit and fishery management was introduced.

A healthy New England marine ecosystem depends on the interaction of a range of species -- from cod to herring to lobster -- and when fisheries science approaches these as single stock management problems, they are not likely to be successful.

I have always contrasted the Alaskan fishery management approach with that of New England, because one fishery has seen its total stocks and biomass thrive for twenty years, while the other has seen a catastrophic collapse.

Having been involved with both fisheries for 30 years, I remember when hard TAC's were rejected in New England, and embraced in Alaska.

In 1984, there was open revolt against hard TAC's in New England for flounder, cod, haddock, and other species caught in a "mixed" trawl fishery. Illegal landings were rampant. "Night Riders" in New Bedford would unload 20,000 lbs of cod at night, and then report a catch of 30,000 at the auction the next morning. Also, there was a vicious outcry that because the fishery was mixed, no system of TAC's could work.

The result was the New England Council adopted a "days at sea" approach, which has totally failed. Because it allows for continuous improvements in effort, encourages high grading, still makes the fleet economically marginal and inefficient, and is a crude measure to control overall fishing, it has not stopped the decline of many of the mixed New England stocks.

Alaska by contrast, was lucky. First, the state constitution focused on salmon management and had a legal requirement that the state put the health of the fishery first. This grew out of a notorious history where canners had essentially destroyed salmon fisheries, leaving Alaskans with nothing. It was a key issue in Alaska's drive to statehood.

Also the 200 mile limit was embraced to control Japanese fishing off Alaska -- so there was widespread support for restricting catches -- both historically and at the time the management councils were created.

But the thing that probably saved Alaska was almost an afterthought. It was the 2 million ton cap. The original council accepted that no matter what the status of the individual stocks, total groundfish catches would never exceed 2 million tons. This rule, done more by luck than science, meant that if 500,000 tons of arrowtooth flounder were left in the water, no fleet was built to pursue them. It meant that by-catch for halibut or salmon was taken seriously, and could shut down a much larger fishery if it was exceeded.

Without calling it by name, Alaska adopted an ecosystem management approach, before this became fashionable fisheries science.

New England, by contrast, became the middle east of fisheries management-- beset by warring ports, by warring fisheries, and by warring gear groups-- none of whom was very open to compromise.

The costs have been great. New Bedford's opposition to only getting 75% of historic scallop catches, rather than 90%, ended up scuttling an agreement between the U.S. and Canada, and resulted in the loss of the Northeast Peak to American fishermen due to a world court decision. Gloucester supported the agreement.

The fact that trip limits were set for individual species often led to wastage and high grading. Even now, lobsters are high graded due to trip limits.

The herring issue is one of the first times the council has been really pushed to look at the whole ecosystem-- rather than just the status of the herring stock. At issue is a dispute between small boats and large boats; between inshore and offshore, and between those who want ecosystem management and those who want individual species TAC management.

Mary Beth is right that the TAC is in place for herring, and has not been exceeded. But it is not clear whether the fisheries science that establishes a single species TAC should be trusted.

Maybe New England needs a hard cap for all species; so that in any given year only so much fish can be taken, period -- whether it is lobsters, scallops, cod, flatfish or herring -- once a certain amount has been caught, all fishing should stop.

The most successful fisheries rebuilding efforts in New England have come from closed areas -- such as the closed rotating scallop areas. Bitterly opposed at first, the scallop industry now embraces this system totally, as it has led to a huge scallop boom.

My reaction to the Pew report was a knee jerk one. In this I accept Mary Beth's criticism. But my hope for New England fisheries is a broader one -- of true eco-system and area management. And in this case, the herring plan should address these broader goals -which is the essence of what some of the Pew critics are calling for. And in this, I support them.

Was China the tip of the Iceberg?

I want to highlight our editorial analysis today on whether China is the tip of the iceberg. In our news today we follow the unfolding problems of Vietnamese shrmp exports to Japan. We have covered this story for months.

Last fall, the Japanese inspection agency found an unacceptable number of Vietnamese samples contained illegal anti-biotics, and raised the inspection rate, which is now 100%. Under Japanese regulations, (and under US regulations as well), if a 100% inspection regime still indicates significant problems, the country can ban imports of an entire group of products. The 100% inspection in Japan is very similar to the Automatic detention of Chinese seafood products in the U.S.

In this case, the Japanese have written the Vietnamese government suggesting that if conditions do not improve, they may consider an outright ban. Sound familiar?

The issue here is that this is not just a Japanese or Chinese problem - but points to a broader issue. Focusing on China may be doing a disservice to the seafood consuming public, and ourselves, because the real solution may lie with more importing issues with all countries, and how we approach food safety.

We hope to be covering more of this issue in the coming weeks, and provoke some discussion. Clearly what we have now-- food hysteria, political fights, and an epidemic of cheating in the seafood industry--cannot last.

There is a view that sees these problems as creating a huge opportunity for the seafood industry -- and that is what we want to explore in the coming weeks.