HomeMy WebLinkAboutPort Heiden, AK Seafood Enterprise Facility 2003
Port Heiden, Alaska
Seafood Enterprise Facility
Port Heiden Seafood Enterprise
Processing Facility
Project Funding Request
Presented to
Bristol Bay Economic Development Corporation
January 2003
Submitted by the
Native Council of Port Heiden
City of Port Heiden
Meshik Seafood Coop
Table of Contents
Port Heiden Seafood Enterprise
Processing Facility Funding Request
Title Page......c.ccccsseccsseeceeeseeeeeees 1
BBEDC application pages............... 2-10
Project description...............cccceeee 11-13
Costs and Projections.................+. 14-17
Current Enterprise Status............... 18
Frozen seafood feasibility............... 19-25
Port Heiden feasibility.................... 26-36
Key personnel..............ccccccceeeeeeees 37
Significance of the Cooperative...... 38
Coop organization papers............... 39-41
Business - marketing development... 42-43
Far West Marine resume................ 44-45
Following inclusions not numbered
Letters of Support from various legislators, business entities,
City of Port Heiden, Native Council, Meshik Seafood Coop
Native Council Financial Statement
Bristol Bay Economic Development Corporation -Infrastructure
Assistance Application
Contact Name: Native Council of Port Heiden — Lynn Carlson or Gerda Kosbruk
Project Name: Community Processing Facility/Cold Storage
Address: Box 49007 Port Heiden AK 99547
Work Phone 907 837 2296 Home Phone
Fax Number: 907 837 2297 email: gkosbruk@starband.net
Concept
1. What type of infrastructure is needed? (What is the proposed infrastructure
project?)
The community needs a facility suitable for secondary seafood processing,
value adding operations, and eventually for freezing and cold storage.
2. How is the proposed project seafood industry related?
The facility is being designed to meet the needs of local fishermen who are
expanding their businesses into processing and marketing of seafood.
3. List and/or attach evidence of community support for the project.
Letters of support from the village council, the city of Port Heiden, private
businesses and other interested parties are attached to this proposal.
4. Why is the project needed, what problem will it solve?
Economic development on local seafood stocks is a community priority for us
and our feasibility studies indicate a strong likelihood of success for that
enterprise. This will demand a modern building where standards of quality
control and professionalism can be achieved. There is no suitable facility in
Port Heiden at present.
De What good or service will this project provide?
Our business plan calls for gradual development of operations starting with
fresh marketing of halibut, salmon, and clams. This project will provide a
sanitary area in which to prepare seafood for air freight, do quality control
inspections, provide for grading and sorting, and allow for storing iced
product while building up inventory to take advantage of cheaper freight
rates with greater quantity of cargo. It will also allow room for expansion
into freezing operations, value adding, and other opportunities.
6. What must be done to complete this project? Land purchase, permits, engineering,
funding.
Facility design work is in process including consideration for engineering
and permitting. Operations will require a DEC processing permit for which
an application will be submitted pending the authorization of funds. Land
purchase will not be necessary. All that remains of substance is funding
commitments for the project.
7. Will this infrastructure item require other infrastructure resources, such as sewer,
water, or power?
The funding request includes allowance for installation of all utilities in the
facility including water, sewer, and electrical.
8. Who owns the land where this project will be located?
The city of Port Heiden owns the land.
9. Does this project duplicate infrastructure in other parts of the region?
This project does not duplicate other infrastructure within 60 miles.
10. What businesses will-be created by this project?
Initially the facility will enable the Meshik Seafood Coop to startup fresh
market fly out operations. Expanded use will allow other business to do value
adding — specialty market operations, smoker operations, freezing and cold
storage. Tourism related business could use the facility to store sport
harvested fish and game.
11. What positive or negative impacts will this project have on existing businesses in the
community and region?
The creation of a full function processing/cold storage facility is a very
positive step for the community and region. Fresh seafood fly out activities
and future value adding operations that stretch over 6-7 months of the
year will bring jobs to the community and promote increasing regularity
in air freight service across the region. There are no conflicts with
existing businesses and the success of ours will positively impact the
willingness of other communities to engage in similar business.
12. What other communities in the region will directly benefit from this project?
With full operations on a variety of seafood resources it is likely that we will
increase regional commerce and become a job provider for laborers and fishermen
from the Chignik villages, Pilot Point, Egegik, and Ugashik.
Planning
13. If this application is for infrastructure planning funds, how much is being requested?
There is no request for infrastructure planning funds.
14. If pre-construction feasibility and design work has not already been accomplished has funding to do this work been sought through proposal submissions to federal or State agencies? What agencies and how much was requested?
Pre-construction feasibility is finished and initial design concepts have been
agreed upon. We have submitted 2 funding requests to USDA in the
amount of 130,000 dollars for facility construction and for future
feasibility studies for expanded facility uses. We are continually
looking for additional funding sources.
15. How much is the pre-construction engineering, environmental and permitting work estimated to cost? Who made the estimate? (Please attach a copy of the estimate)
As the engineering for our project will be done by the AEA engineering and
permitting staff in conjunction with their power house upgrade project
for Port Heiden, those costs are not specifically billed and will be
included within the full contract price for facility construction.
16. How much money has already been obtained from federal and/or state agencies and local community or tribal organizations for pre-construction planning?
With Native Council funds received from various government and tribal
agencies we have spent about 25,000 dollars on feasibility and planning.
17. Does the cost estimate for pre-construction engineering, design, environmental, and
permitting work include final construction design blueprints and permits or will
these be included in a later request for construction funds?
Final blueprints and permit costs are included as per question #15 above.
18. If some or all pre-construction civil engineering, design, environmental, and/or permitting work have already been done for this project, what has been done?
On site environmental assessments are ongoing. Civil engineering on the site
has been done through the years for adjacent public buildings with site
development to accommodate growth in the area. Design concepts arising out
of community planning and independent feasibility studies have been
submitted to AEA.
19. Who did the work listed in question 18?
Design concepts have been done in conjunction with the Native Council,
Meshik Seafood Coop, and Mike Heimbuch of Far West Marine. The State of
Alaska DOT has done work on site through the years. Alaska DEC and Port
Heiden tribal environmental have an active role in on-site environmental
monitoring.
20. Are reports available from those who did the work documenting results of the
work?
None are known at this time and the work done was not done in particular
relationship to the planned facility.
21. How much money has already been spent on planning for this project including
expenditures for the engineering and consulting work described in question 18?
As mentioned in question #16, about 25,000 dollars has been spent to date.
22. What were the sources of funding for work described in question 18 and how much
was obtained from each source?
Please refer to question #16.
Construction
23. If pre-construction planning and design work is already completed, how much
money is being requested from BBEDC for construction fund matching?
We are requesting $500,000.00 in total. Of that amount $400,000.00 is being
requested for the on shore facility and $100,000.00 for a processing barge.
24. What is the estimated total cost of the construction phase of this project (including
final design and permitting if appropriate)?
Including planning monies spent to date and funds allocated for facility
equipment, the project cost total is in the range of $575,000.00
25. What are the other sources of construction funds for this project and how much is
available from each source?
We are hoping to receive support funding from USDA and the Denali
Commission during the course of this project. We believe their participation
will be conditioned on our ability to provide at least 75% of the overall
project cost. There is no set amount that can be depended on from these
sources.
26. How many short-term and long-term jobs will be created?
Job creation in the short term will be local hire during site development and
construction. We anticipate that 6-8 people will be hired for that phase. The
long term job creation is expected to be a minimum of 8 jobs with a
practical ceiling of about 25 new jobs.
27. What will be the total income from these jobs?
Please refer to the Pro-forma projections in the narrative for specifics. The
net income figure given there after all expenses and amortization for a low
end projection on revenues and high allowance for all associated costs is just
under 100,000 dollars. This is based on a minimum level of 8 member
participation with harvests projected at low levels. The practical range of
net income from this facility with only fresh market operations is between
80,000 and 350,000 dollars. This would be for an operations time period of 6-
8 weeks.
28. Describe the spin-off projects that will develop from the proposed project.
For our young people there will be a strong educational component. They
will have an opportunity to learn about proper seafood handling techniques,
plant procedures, grading procedures, quality control, HAACCP
procedures, and general maintenance. There will be opportunities and
need for residents to attend schools such as AVTEC for training in
electrical, refrigeration, and marketing. Those professional skills will be of
use in plant maintenance and for contract work in other villages. We fully
anticipate expanding into custom pack and value added freezing operations
as money is available for equipment purchases. The need to transfer
seafood from vessels to the plant is likely to result in someone establishing a
dependable fish hauling service. People in the village have a variety of ideas
for marketing locally produced gift packs that can be manufactured in this
facility. The ability to purchase fish from outside vessels may allow us to
develop port facilities and provide services common to other ports.
Alternative energy development through installation of a wind turbine to
help offset facility operations costs is moving ahead in conjunction with this
project. Documented success in that energy project may help support the
viability of similar economic development projects in rural Alaska. Cold
storage facilities may allow larger regional air carrier to bring in and store
relative large frozen shipments for distribution to other villages. The use of
heat recovery systems from the adjacent AEA generator shed will allow us-to
experiment with industrial drying processes on lower value chum salmon so
we can use the salmon roe without violating wanton waste laws.
29. What will be the annual operating cost for the project after construction? Detail
these operating costs to include salaries, maintenance and repair, utilities, and
others as appropriate.
Please refer to the Pro-forma statement for details on all costs.
30. What will be the sources of funds to cover the operating and maintenance costs?
Please refer to the Pro-forma statement for revenue statement.
31. What agency or company will manage the construction phase?
AEA will manage the construction project.
32. What agency will manage operations after construction is completed?
The village will own the facility and it will be administered through the
Native Council. The commercial users will be responsible for operations
and maintenance.
33. What is the availability of skilled labor to provide operations and repair and maintenance?
Initial configuration of the plant is very simple requiring only minimal
oversight to provide adequate maintenance and repair. Port Heiden has individuals with experience in electrical supply, sewer-septic maintenance,
custodial, and general operations typical for such a facility. Expanded
operations into freezing and cold storage will require some professional
oversight on occasion until we can provide training for local residents.
34. How much annual income will this project generate from the sale of services or
goods that are provided?
Please refer to the pro-forma statement and to question #27.
35. Describe similar projects in the community or other communities in the region.
These is no similar project in our community through we have past
experience with seafood processing and fly-out operations. Currently there are village seafood plants all across coastal Alaska.
36. Is there a possibility of partnership with other communities, entities, boroughs on
this project? Include a description of any opportunities to work with other
communities to provide services and reduce capital and operating costs.
As stated previously we are working with AEA to develop this project and
seeking partnership from other grant sources. Partnering opportunities with
neighboring communities will come about after the facility is completed
through harvesting and marketing opportunities for neighboring fleets. It is
conceivable that another community might want to participate financially if
it provided an opportunity for their local fishermen to have a new market
outside of red salmon season.
37. List and/or attach documentation of past community involvement in development
and operation of infrastructure projects.
Building and operation of the community center, road and airport projects,
school construction, city maintenance shop and bulk fuel projects, fire hall
and VPSO shop, private boat house storage construction.
38. Include any other pertinent information on the following page.
The Native Council and City of Port Heiden, along with the Meshik Seafood
Cooperative have spent considerable effort to develop a business and
infrastructure plan suitable for the village. With an allowance for halibut
harvest in our area this facility will certainly be more viable. It is possible
that some people might look at our revenue stream and cost projection
and wonder why we could be excited about such a project. Our priority is to
recreate sustainable jobs that were lost when floating processors left this
region. The success of this facility will be measured in the near term simply
by putting people back to work.
10
Port Heiden
Community Seafood Processing/Cold Storage Facility
The Native Council of Port Heiden, in conjunction with the City of Port Heiden and the
Meshik Seafood Coop, is submitting this community development project to BBEDC for
approval and funding. Our proposal represents two years of community planning and
independent research. Port Heiden is historically dependant on the harvest of seafood
resources. Continuation and expansion of that tradition is an important part of our future
and necessary building block for a self sustaining economy.
This last year we have focused on building a seafood enterprise plan that is practical for
our situation. Like all of western Alaska we face high transportation and utility costs.
There is also limited profitability and labor inefficiency in our salmon industry. Our
answer to those problems is threefold:
e Integrating the harvest labor force into all aspects of handling and processing
e Implementing alternative energy strategies
e Reducing freight costs by value adding and optimizing outgoing product quality
Port Heiden has already begun incorporating these approaches into long range business
plans. Formation of the Meshik Seafood Cooperative (MSC) by local fishermen is of
particular interest. The MSC mission is restoring profitability in the local fishing fleet by
making more efficient use of their labor pool through reduction in harvest competition.
They also have responsibility to advise the Council and the City on the use of funds for
seafood related projects. Interaction of the non-profit City and Council with the for-profit
MSC provides a good system of checks and balances, and a means to insure that the
overall economic development needs of the village are being addressed.
The business development plan for Port Heiden seafood enterprise calls for initial
operations on the fresh market sales of higher value products with future growth into
different products and production methods conditioned on the success of the fresh
marketing program. In order to implement that plan and provide for superior quality
control we need suitable facilities with room for expansion. We also need to provide for
maximum flexibility in operations. In consideration of permitting and waste disposal, the
practical approach for Port Heiden is to set up primary processing at sea on a small barge
with product staging and value adding activities taking place in a shore-side facility.
We are asking BBEDC to fund these facilities in the amounts listed below and explained
in more detail in the following pages:
1. Shore-side facility of 2000 square feet $400,000.00
2. Floating primary processing barge $100,000.00
Because of an opportunity for construction cost savings with an AEA tie-in explained
below, BBEDC will achieve a very efficient use of their funds on this project. If full
funding is not authorized we ask that consideration be given to partial funding at no less
than 50% so that we can leverage those project funds into other grant writing efforts.
11
Shore-side Facility
Of the two listed items, this facility is our number one priority and we ask that it receive
the greatest consideration should full funding for the entire project not be achievable. It
has particular merit because of our ongoing work with the Alaska Energy Authority to
consolidate this facility construction under the same roof as a Rural Power Service
Upgrade building they have scheduled for Port Heiden. As the Denali Commission funds
these AEA village projects with a mission of economic development, they have great
interest in such a project tie. We have an opportunity to realize extensive cost savings in
design, mobilization, and project administration. There may yet be additional
contributions from the Denali Commission to the joint project, particularly if we can
show the ability to participate financially. Although the AEA project is not certain to be
built before 2004 they are already in the planning and design phases that require our
participation if the projects are to be combined. It is also fortunate that their modular
design and construction preferences are compatible with our facility needs and concepts.
We have submitted to AEA an outline of building size and inclusions necessary for our
purposes. This includes an area of approximately 2000 square feet with utilities and
services typically found in a light processing facility. The area must be large enough to
accommodate a 600 square foot community cold storage freezer and allow adequate work
space for all conceivable secondary processing. Planned activities for the facility include
staging and preparation of product for fresh market fly-out sales, portion control
packaging, immersion freezing operations @500 pounds per hour, cold storage of
commercial products, subsistence food preparation and storage, tourism related seafood
and game prep and storage, and value adding operations for any manufacturing processes
as allowed by the village.
Insurance, maintenance, and operations costs will be borne by the commercial users of
this facility. Ownership will be vested in the village and use agreements with the
Cooperative or other entities will specify the various responsibilities and authorities.
Future use of the facility by commercial entities for freezing and cold storage operations
will require stronger cash flows for maintenance and operations. This is why our business
plan allowing for those expanded operations in the facility will be conditioned on the
proven financial success of the MSC in their fresh market activities. We anticipate a
business ramp up period with the possibility of initial cash flow difficulties - during
which the village may expect to contribute some financial aid for utilities and insurance.
We will be expected to provide insurance regardless on that portion of the building which
houses the municipal generators.
The building design is modular panel with 30 year life expectancy on all exterior
surfaces. It will have concrete floors with typical drainage and interior walls suitable for
food grade work. There will be allowances for an office, supply room, first aid station,
and restroom. The AEA project consolidation will provide for a heat recovery system on
the generators that can be used for both heating the facility and for industrial drying
processes on seafood.
12
The cost of the modular panels and roofing for this facility was estimated independently
by the Zero-Loc company at roughly 20 dollars per surface square footage delivered and
installed in western Alaska. Being familiar with rural construction we believe allowing
for double that cost at $40 dollars per square foot is more appropriate. With our projected
building configuration that cost is roughly 180,000 dollars. A 2000 square foot poured
concrete foundation with site work and drainage system is estimated at 50,000 dollars.
Interior rooms, lighting, plumbing, heating, insulation, ventilation, electrical, windows,
and door costs are estimated at 170,000 dollars. The basic building costs are projected at
$200.00 per square foot. Because this facility is largely open space, uncomplicated in
design and function, we believe this estimate is appropriate. The costs for this type of
construction are in line with estimates by Chuck Jay and Ken Castner of Jay-Brant
Company, and Walt Bovich of Taiga Enterprises. They also reflect the experience of
Christensen and sons who have done similar work in Port Heiden. They do not reflect the
cost savings that may arise from project consolidation with AEA nor do they consider the
possible contribution from the Denali Commission to the project.
If project consolidation does result in construction cost savings, we would ask to use any
remaining funds from the BBEDC grant for purchase of additional equipment for the
facility. Our long range plans for a full function processing facility are geared towards
quick frozen fillets as specified in one of the supporting feasibility studies attached to this
proposal. Primary components of that operation include a vacuum sealer, an immersion
freezing system, and frozen super-cold storage unit. A cold storage unit is the first
priority simply because the vacuum packer and immersion freezer are of no use without
it. Cost estimates for the freezer and cold storage unit from Coastal Refrigeration are
submitted with this proposal. The approaches suggested with an immersion freezer and
super-cold storage come as the result of industry trends towards higher consistent quality
in frozen products. Other traditional batch freezing and storage methods have been
considered from reputable refrigeration companies, but their optimal use is found in
larger production facilities. They also do not readily achieve the quickness in freezing
that is critical in achieving superior quality product. The area required inside the facility
for this freezer and cold storage is approximately 700 square feet — leaving ample room
for associated activities.
Primary Processing Barge
We are also requesting 100,000 dollars to purchase and set up a primary seafood
processing barge. Port Heiden is a shallow bay making cargo handling between the water
and uplands difficult. Because of this it is more practical that the primary processing of
seafood be done at sea. It is also more practical from a permitting standpoint and for ease
of processing waste disposal. We do not require a sophisticated barge. A small non-
powered aluminum barge would work fine. Something that size would be relatively easy
for us to pull up on shore for storage after the season. It is conceivable that with the
current depressed vessel values it would be prudent for us to invest in a large aluminum
Bristol Bay drift boat. Although slightly smaller it would offer a ready made platform,
crew quarters, ample storage capacity, and importantly it could function under its own
power.
13
Facility Cost Estimates
These estimates are taken primarily from Bob Brant and Ken Castner of Jay-Brant
Company in Homer Alaska. They have extensive experience in municipal construction
projects across rural Alaska and have been in business for over 25 years. They have an
interest in bidding on this project particularly if the project size is increased as a result of
consolidation with the AEA project scheduled for Port Heiden. These estimates also
reflect conversations taken from Rick Tennyson of BBEDC and Jim Christensen of
Christensen and Sons in Port Heiden — both of whom have extensive rural construction
experience. The Zero-loc company of Washington also provided some modular panel
construction estimates.
Foundation — 40’X50’ concrete slab (4”) —hand mixed on site —
with rebar, site work, drainage, framing tie in, 45,000-55,000
’ ’
8’ Tall Modular Panel Walls @ $40 per surface sq ft.
Delivered and assembled on site 55,000-60,000
Ceiling and Roof structure (4-12) @~3000 sq ft
Insulated with Ventilation @ $40 per sq ft. ai aa
Metal framing structure for walls and roof 40,000-45,000
$20 per sq ft. on 2000 sq ft floor
: ue 50,000-55,000 Doors, Windows, Interior room partition allowance
Electrical, Plumbing, Air ducting for heat from adjacent 60,000-65,000
Generator building, bathroom, fixtures, misc. equip.
Total Construction Cost Range 350,000-400,000
14
Pro-forma Projections for First Year Facility Use
Revenues from Fresh Market Sales
Mid range harvest and price estimates
Buyer — FAVCO of Anchorage
King Salmon
4,000 fish @ 15 Ibs. each = 60,000 round pounds less 25% for processing
45,000 net pounds — pre shipment weight
Net delivered weight = 45,000 lbs. less 10+% water weight loss = 40,000 pounds
Product loss allowance — 5% = net sellable pounds = 38,000
Gross revenues @ 2.10 per lb. X 38,000 Ibs. = $79,800.00
Freight costs @ .50 per Ib. (incl. ice and tare weight allowance) = $22,500.00
Cost of materials for 1001b. box shipping = ~.20 per Ib. X 45,000 = $9,000.00
Net sales revenue = $79,800 — $22,500 — $9,000 = $48,300.00
Sockeye Salmon
10,000 fish @ 5.5 Ibs. each = 55,000 pounds less 25% for processing
41,000 net pounds — pre shipping weight
Net delivered weight = 41,000 lbs. less 8% water weight loss = 36,000 Ibs.
Product loss allowance — 5% = net sellable pounds = 34,000 Ibs
Gross revenues @ 1.80 per Ib. X 34,000 Ibs. = $61,200.00
Freight costs @ .50 per Ib. (incl. ice and tare weight allowance) = $20,500.00
Cost of materials for 100Ib. box shipping = ~.20 per Ib. X 41,000 = $8,200.00
Net sales revenue = $61,200 - $20,500 - $8,200 = $32,500.00
Coho Salmon
15,000 fish @ 6.5 lbs. each = 97,500 rounds pounds less 25% for processing
73,125 net pounds — pre shipping weight
Net delivered weight = 73,125 lbs. less 8% water weight loss = 67,275 Ibs.
Product loss allowance — 5% = net sellable pounds = 63,900 Ibs
Gross revenues @ 1.10 per Ib. X 63,900 Ibs. = $70,290.00
Freight costs @ .50 per Ib. (incl. ice and tare weight allowance) = $36,562
Cost of materials for 1001b. box shipping = ~.20 per Ib. X 73,125 = $14,625.00
Net sales revenue = $70,290- $36,562 - $14,625 = $19,103.00
Halibut
20,000 pounds net head off weight
Net delivered weight = 20,000 Ibs. 5% water weight loss = 19,000 Ibs.
Product loss allowance — 5% = net sellable pounds = 18,000 Ibs
Gross revenues @ 2.25 per Ib. X 18,000 = $40,500.00
Freight costs @ .50 per Ib. (incl. ice and tare weight allowance = $9,500.00
Cost of materials for 1001b. box shipping = ~.20 per lb. X 19,000 = $8,000.00
Net sales revenue = $40,500 - $9,500 - $8,000 = $23,000.00
15
Pro-forma Discussion
Freight costs
The use of $.50 per pound represents the highest rates quoted for regular service on
Peninsula Airways to the market in Anchorage. Port Heiden has long been a minor
crossroads for air traffic along the Alaska Peninsula. Northern Air Cargo and big ACE
are primary contenders for less expensive backhaul freight rates from Port Heiden to
Anchorage. Those advertised costs vary between $.20 and $.35 per pound depending of
course on availability. Since most of our business will be during their peak flying times
we anticipate from past experience the continued likelihood of regular access to those
backhaul flight. Any use of those planes will result in substantial decreases in the cost of
freight for our seafood products.
Tare and other costs
The boxes, liners, and associated equipment for shipping product are taken from cost
estimates provided by our initial primary market - FAVCO of Anchorage. There are
deductions of $.20 per pound for those supplies. Also calculated by reductions in net
weight is the cost of shipping that non-revenue producing box weight as well as industry
standard subtractions for water evaporation losses, ice melt, and whatever gel packs may
be necessary.
Market
The MSC has established a market with FAVCO in Anchorage, a company that has been
in business for 30 years with a track record of buying from all around Alaska. Port
Heiden fishermen have done business with the company through the years. Recently
FAVCO management met with the Meshik Seafood Coop to set up a plan for fresh
market sales on a variety of products. Only the higher value species have been listed here
but there is market interest in clams, crab, ground fish, and possibly herring. Prices listed
in the Pro-forma reflect FAVCO midpoint to lower end prices during the season — FOB
Anchorage. This is particularly so for King Salmon which has an upper end price of
around $2.90 per pound. Coho salmon will be a challenge if market conditions stay so
low - but even a .10 to .20 upward price change will have a strong impact on the revenue
stream. Halibut prices also reflect low peak harvest market conditions. Harvest before or
after that time may have a very strong upward impact on price and other markets
certainly exist paying better than the prices listed here. Sockeye prices appear stable and
reflect the lowest ebb in the market seen to date. We believe that fresh fly operations on
sockeye will be profitable and have indications that these prices should creep upwards
this coming season.
Production
All production figures are estimated at levels approximately 50% below historical catches
in Port Heiden, with the exception of Halibut which represents a new fishery.
16
Pro-Forma (Cont.)
Net Sales Revenues from all species on prior page = $122,903.00
Facility Costs
Ice machine (and all electrical) 200 tons ice - estimated need @ $15 per ton = $3,000.00
Annual servicing and amortization allowance = $4,000.00
Building annual insurance estimate (SAFECO) - $1.00 per square foot $2,000.00
Building maintenance (water, lights, septic, interior,) $2,500.00
Building amortization — annual sinking fund allowance for reconstruction $7,500.00
Equipment Costs
Fish hauling services from vessels to plant $5,000.00
Net cost of Facility Operations = $26,000.00
Net Revenues after Operations and Freight = $96,903.00
Meshik Seafood Coop
The net revenue figure of $96,903.00 represents the amount available to pay for the
harvest, handling, and processing. Those activities are expected to be performed by the
MSC and with the projections included here would result in raw fish values of .80 per
pound on King salmon, .60 per lb. on sockeye salmon, .20 per Ib. on Coho salmon and
1.15 per Ib. on Halibut. The harvest projections are set relatively low and could be
handled by two vessels with a crew of one each. Roughly figured it will require those 4
fishermen plus 4 other people to handle the entire operation. With an allowance of two
months of occasional fishing to accomplish the production goals each of the 8 people
involved could expect to receive a $12,000.00+ share for that period of time. Harvest
vessel costs will likely dictate a somewhat less than equal split of profits. Deleting the
Coho production would reduce shares by about 1500 dollars but would cut the time
requirements by about 40%. With the use of cost projections at the high end of the range
and product values at low mid range, it is clear that the upside potential is strong.
If these goals are achieved, owners of the facility should consider the addition of the
freezer and cold storage units to expand the season of operations, increase product
variety, and broaden marketing options. A feasibility assessment for new approaches to
frozen seafood production and marketing is included with this proposal.
17
Port Heiden Seafood Enterprise Development
Current Status
During the last two years the Native Council of Port Heiden has been working with local
fishermen to find ways to regain lost market opportunities for our seafood resources. This
has proven difficult at times with the current salmon industry conditions and a general
lack of optimism about the future. We have always believed that the variety and extent of
our seafood stocks would support a thriving local industry if it was organized and
managed properly. There is no doubt that the traditional sources for funding construction
of a suitable processing/cold storage are difficult for rural villages to access without some
sort of track record. Port Heiden does have long experience with local harvesting and
marketing but it has always been done on a private enterprise basis.
A consultant was hired last July to do some feasibility work on our situation and to
suggest a likely route we could follow to bring a seafood enterprise on line that would
benefit the entire village. Those studies suggested that the harvest labor must be
integrated into the processing and marketing sectors if we hoped to achieve real
profitability and sustainability for that business. Since that time the fishermen of Port
Heiden have formed the Meshik Seafood Coop. Their specific goal is making the most
efficient use of their manpower in an enterprise where harvest based compensation is
replaced by shared profits based on the final sales value of processed seafood.
The first order of business for the enterprise was establishing a direct market link with
FAVCO of Anchorage and preparing for fresh market fly out operations in 2003. That
process is well underway but the lack of a suitable building for long-term operations will
greatly hamper their ability to achieve a consistently high level of quality control. The
community also desires a facility that can be expanded into commercial freezer
operations and other value adding projects. That facility will also serve the subsistence
processing needs of the village and can serve other tourism related businesses that need
frozen storage space for sport harvested fish and game.
Part of the village plans this year call for installing a wind turbine-alternative energy
project to help offset the utility costs for this facility. Our funding is just about completed
for that project and our regional utility advisory group is working to finalize the details.
There is no doubt that increased legislative pressure on the power cost equalization
program for rural Alaska will demand our continuing efforts to increase electrical
efficiency and bring alternative power generation projects online. Port Heiden is actively
working with a rural utility cooperative (SECAP) to make that happen.
The processing facility is listed as a number one priority in the water resource section of
our community development plan which is being finalized by Burns Consulting. It has
received support from a variety of sources as a natural step in our quest for a self
sustaining economy.
18
FAR WEST MARINE
Frozen Seafood
New Approaches and Feasibility For
Harvesting — Processing — Marketing
Problem Analysis
In our lifetime Alaska is never likely to have the luxury of cheap transportation costs for
bringing fresh seafood products to world markets. Neither will there be a large influx of
‘seafood eaters’ to the state who could absorb a significant amount of our daily
production. Except for high end products, freight costs and market price ceilings will
seriously limit fresh market profitability for Alaskan seafood. This equation is further
compromised by the sheer volume of production in relatively short time frames which is
detrimental both to product quality and supply/demand driven values. In spite of the
superior qualities of wild Alaskan seafood, public insistence that “fresh” is always better
creates a daunting economic barrier for many of our products. To break that barrier we
must set a product quality goal that will challenge consumer perceptions on the
superiority of ‘fresh fish’. Even during these difficult times there are indications that
revitalizing frozen seafood production is a promising option. This paper is mostly about
applying that technology to the salmon industry. For the frozen salmon industry to once
again succeed in Alaska at the level of individual coastal fishermen, it is essential that 2
elements of production change dramatically.
1. Inputs of seafood into processing must be metered to allow for superior quality control.
2. Freezing techniques must improve so frozen product can compete with fresh.
Addressing the Problems
These concepts are not new and they are repeated with increasing regularity at every
seafood quality forum. The biggest impediment to their wide scale adoption is that
processors are forced into industrial grade processing because volume and quality are
almost impossible to control in competitive commercial fisheries. Of all the practices that
must change in the fishery in order to enhance product quality, removing harvest
competition as the primary financial incentive is near the top. This is particularly true in
gillnet fisheries where the rush to extract fish from the net and reset it results in practices
that are in direct conflict with quality controls. These free-for-all harvests within small
areas and set time frames continue to be managed in this manner only because of
historical practices and lack of new and cohesive ideas for change.
There are some in the fishing community who believe the processing and marketing
infrastructure can be revamped with little more contribution from fishermen than better
handling of seafood aboard a vessel and shorter periods between deliveries. There are
also those who believe that decreasing the number of fishermen to enable larger
production by those remaining is the proper free market approach.
19
This thinking ignores the depth of the problem with the product in the market and fails to
consider that loss of a jobs base in coastal fishing communities is of more concern to the
state than promoting survival of the fittest in the harvest of a publicly owned resource. In
fact survival of the fittest may not belong to the more adept ‘hunter-gatherer’ but to
emerging groups of fishermen who find a way to compete jointly for quality and market
improvements through regulatory and technological changes.
Alaskan fishermen struggle with loss of values in the salmon industry partially because
their conceptions of value were based for so long on the artificially high standard of
living and buying power in Japan where much of the product is sold. It is likely that
strong seafood values can be recovered to an extent but only if accompanied by a
different production approach than was taken for the last 25 years, and with sales
promotion into a wider range of markets.
These production change concepts do not imply that adequate markets exist to absorb
superior products at higher prices — which in turn would encourage the industry to
convert from older technology and approaches. It is simply the recognition of basic
requirements for a product that will be targeted for sale to a high end market.
It is also difficult to see how increased profits in processing and marketing sectors will
filter down to harvesters in any meaningful way. Without establishing strong and long
term market demand for improved product there is little incentive for processors to
compete with each other in buying seafood from the harvesters. Processors bearing the
brunt of costs for retooling plants and altering business plans are not likely to distribute
the fruits of that improvement to fishermen without necessity to do so. This is not to say
that engaging in fair business practices and concern for the stability of industry is absent
in the processing and marketing sector, only that it is not prudent for Alaska fishermen to
expect that improvements in those sectors will serve as even a partial remedy for their
own economic distress. It is worth considering that harvesters must move into processing
and marketing if they hope to retain more profit from sales of their products.
Different as the roles of fishermen and processors are, profits for both are constrained by
the problems in volume based production and marketing. Large volumes have well
documented impacts on quality and price. Breaking down a large manufacturing
inventory into increasingly smaller units for distribution is labor and middleman
intensive. It dilutes profitability but the degree to which it is necessary for efficient
distribution today is coming under closer scrutiny. Fishermen and processors are well
aware of the significant increase in values as product gets nearer to the consumer.
Whether accomplished by one or both parties, elimination of unnecessary steps in the
distribution chain could be of great economic benefit. Reaching that goal implies that
one can physically and logistically implement a new distribution method, and that your
cash flow needs and product shelf life will allow for a more gradual sale of inventory.
Both the harvester and processor have time and money concessions to make in this
approach. A closer alignment of their interests with shared consequences in the business
plan would be a positive development in the industry. It is also a precursor to fishermen
owned processing and marketing enterprises.
20
Labor innovations
When fishermen are freed up from competition amongst themselves and gain more
control over the rate of production and quality, it is logical to believe that their excess
harvesting capacity could be channeled into the processing and marketing sectors. The
narrow margins in the industry as it stands now would indicate that profit streams need to
be consolidated where possible. Substantial regulatory changes and philosophical
adjustments will be necessary to accomplish this. At a minimum this implies the
formation of cooperative enterprises where individual harvest levels do not determine
income. The revenue stream available for distribution to members would be determined
by net revenue from sales of processed product. This is a viable approach to the first
production change suggested in this paper.
In order to fully comply with the spirit of the state’s limited entry program on fisheries —
active personal participation in such a coop should be required. Anyone getting money
from the enterprise must be engaged in a designated task. Enabling the coop requires that
rights be established to harvest a certain percentage of a resource and regulations put in
place to make that possible without the time limits that are customary in traditional
fishery openings. When there is no gain to be had in competing for the resource,
fishermen have time to fully address quality issues at sea and in fact will be compelled by
coop authority to deliver only a product of superior caliber.
Marketing and Cash Flow Considerations
Even if the harvesting sector branches into processing and marketing, it is not clear that
the traditional volume based approaches of processors is appropriate. It is also not proven
that high quality — limited production approaches are feasible under current marketing
conditions. What seems most certain is that high value — high consistent quality — will not
be achieved without segregating that product starting from the time of initial harvest all
the way through the entire manufacturing and marketing process. Niche marketing —
while offering some hope for wild salmon, requires not only targeting of a particular
consumer group but also the ability of the product to distinguish itself in the market.
Success at this will demand time and commitment as well as the financial ability to
withstand very limited cash flows during ramp up. For a cooperative of fishermen turned
processors — who have long depended on being paid immediately for raw product, this
will be no small accomplishment. On the other hand many situations exist that would
allow fishermen to deliver substantial product to traditional markets while working with a
portion of the harvest to develop improvements in processing and marketing techniques.
Processing Improvements
After providing for a more rational and ordered harvest, the second major task is to fully
upgrade all the subsequent steps in the freezing of seafood. As long as the frozen salmon
pack has no particular distinction except for the basic size and grade sorting, we cannot
expect special marketing treatment for any one segment of the pack.
21
There needs to be a set of industry standards initiated that if complied with will allow
superior frozen products to achieve special recognition in the marketplace. The process
might be called “FRESH LOCK” — a new frozen standard to meet or surpass fresh
seafood standards. Although there will continue to be some demand for products in
different form, this paper is concerned with production of a quality vacuum packed fillet.
The ultimate goal is to produce a frozen product that competes very favorably with the
best fresh market fish. To achieve that quality will require improvements and significant
changes all along the manufacturing and marketing chain. Roughly considered they are
listed here.
“FRESH LOCK” Processing Standards
Fish must be bled immediately upon harvesting and immersed in chilled water.
Fish must be fully cleaned within 2 hours of harvest with continued chilling.
Fish must be delivered for final processing within 8 hours of harvest.
Fish must be filleted, de-boned, and vacuum packed within 16 hours of harvest.
At no time shall fish be held at a temperature of greater than 36 degrees F.
Packaged fillets shall be frozen in a process lasting no longer than 60 minutes.
Core temperatures for frozen product shall be no higher than -30 degrees F.
All fish must be frozen within 20 hours of harvest.
Frozen fish shall be moved into cold storage immediately after freezing.
10. Cold storage temperatures shall not exceed minus twenty (-20) degrees F.
11. Avoid transfer of frozen product from one cold storage to another.
12. Products should be sold to consumers thawing in route for use ‘As Fresh’. CRNA AwWN > For some people these steps are a big departure from common industry practices. They
call for more effort on board the harvesting vessel and a decrease in the traditional
amount of time allowed for processing. To improve quality it is well documented that a
‘sooner the better’ approach is called for. What has not been so evident is the need for
much higher standards and controls in the freezing and cold storage temperatures. There
is a growing body of knowledge regarding the physical changes in frozen seafood not
only during the freezing process but in the small temperature changes during cold
storage. This is the area where Alaskan wild salmon can make its biggest improvements.
Freezing Innovations
The freezing practices and standards used by seafood processors for some time now are
capable of turning out a fine product within the quality limits of the raw product. They
were never particularly intended to compete with fresh market quality and could not
withstand the market dominating appearance of farmed fish. Volume based industrial
seafood processing is efficient and arguably as inexpensive as it gets. The problem is that
it does not provide superior product and extensive profit-taking middle markets are
required to break down the pack into sellable units. While the ultimate ability of small
producers to establish market conduits which leap over the middle men and get closer to
the consumer has yet to be widely proven, we do have the technology to make a frozen
product that is vastly superior to what the consumer has available now.
22
The tuna industry which enjoys a strong market outlet in Japan is finding commercial
success with freezing product at temperatures much colder than has been the norm.
The benefit to this approach is the preservation of texture and taste at a level which
challenges the superiority of fresh product. The quickness of freezing has a major impact
on the molecular structure of water in seafood and this directly affects taste and texture.
With a quick-freeze approach the salmon industry will not likely equal the cost
effectiveness of large tuna seiners harvesting and freezing bigger fish at sea, but clearly
the prospect of achieving a superior product with new techniques must be fully
investigated. One approach that is adaptable to remote locations is the use of immersion
freezers that use food grade brine-gels such as potassium formate. Vacuum packed
products are literally surrounded by -40 degree liquids which freeze seafood at rates of 2
inch of thickness per 10 minutes. This technology is in use at cryogenic temperatures in
urban areas with nearby access to liquid nitrogen. It is also used at temperatures not quite
as cold in what is called a ‘secondary coolant’ application — a relatively simple and cost
effective way to accelerate the chilling process using two stage refrigeration techniques.
Power consumption is a bit higher than with traditional blast freezing but the quality and
freeze time improvements more than offset the cost differential. It is a technology which
has been used in the blood plasma industry for sometime and was initially considered for
use on a small scale in Alaska seafood processing during the 1980’s. The relatively high
values of salmon at that time did not provide for much interest in alternative freezing
technologies. This immersion approach has been used successfully aboard catcher
processor vessels and some small units have been built by Alaskan refrigeration
contractors. They are all custom built units — adaptable to the conditions and capacities
needed for any operation.
Frozen Product Freight and Storage
Studies also indicates that temperature fluctuation in frozen state product causes changes
in cell structure that can have a degrading influence on quality. It is not clear whether that
is a large problem for industry but stricter control over storage and transit temperatures
down the marketing chain is desirable. If a product approaches a thawed state for any
reason and is refrozen out of necessity, it is safe to assume that both product quality and
pack consistency takes a hit. With slim profit margins that circumstance is not acceptable
to a buyer and certainly will damage the seller’s credibility. One solution is for the initial
freezer operation to maintain the frozen product in one absolutely controlled environment
until time of sale to the consumer. This approach also limits exposure to middle
marketers but calls for more fully developed marketing.
The marketing approach needed to move the ‘point of sale’ closer to the consumer, even
for a superior product, is full of risk and uncertainty. Small harvester/processor
cooperatives with sufficient cash flow strength might be able to afford to hold onto
substantial frozen product after the harvest season while operating much like a catalogue
mail order store. This assumes the availability of freight service at a cost low enough to
ship out product in less than bulk quantities.
23
For discussion purposes here the minimum size shipment is a 50 pound ‘wet lock’ type
box. It has been customary for frozen seafood shipped in these boxes to be put into
another freezer upon delivery. While it is acceptable for fresh fish to be shipped with gel
packs or other in-route coolants, the loss of stable sub-zero temperature control during the
shipment of frozen product is unacceptable and puts product quality at risk — particularly
if it must be refrozen.
New Marketing Approach for Frozen Product
If the argument can be made — in terms of quality — that it is better for a frozen fish to
thaw out completely than to undergo significant temperature changes in a frozen state or
refreezing, perhaps that idea can be used to one’s advantage in small scale marketing.
Why not market frozen fish with the full intent to have them thawing out in route? As
long as the consumer standard is ‘fresh fish’ then arguably the product should reach the
consumer in an “AS FRESH” condition. If superior quality and presentation are achieved
in the “FRESH LOCK” standards of processing, then unlocking that quality should be no
more difficult than going through a normal thawing cycle.
There are many advantages to marketing and shipping in this approach. No expensive
heavy gel packs are needed, coldness is already well distributed throughout the product,
freight delays in route are less risky, the weather tends to be cooler if product is shipped
later in the year, no need to ship with the more expensive ‘frozen’ rates, packaging
requires less Styrofoam, and vacuum packaging provides cleaner handling with flesh
surfaces much less prone to degradation and spoilage. This concept does not immediately
offset the negative marketing impacts of the small sticker commonly seen on some
packaging in the seafood section of a store — “This product has been previously frozen”.
It is also unknown what the outcome of a marketing campaign for “Fresh Lock” products
would be. The retail level may not be the target market however. Many of the
promotional efforts for Alaskan Wild Salmon have focused on restaurants and
intermediate wholesalers. The process will require a new level of customer education and
discernment as well as absolute consistency of quality. It will also demand considerable
sales ramp up time and a reasonably sophisticated inventory and shipping program. It is
conceivable that a seafood wholesaler with respect for the product would take on much of
that responsibility. The availability of different seafood varieties and product forms
would also enhance that marketing relationship.
Infrastructure Development
The ability to produce a consistently superior seafood product that can be stored and
shipped as outlined here, requires a substantial infrastructure — in terms of both the
facility and the management. To build that enterprise from scratch in a village is a
considerable feat. The estimated costs are listed here:
Facility of approximately 2000 square feet at approximately 400,000 dollars
Immersion freezing system at approximately 80,000 dollars
Frozen cold storage of 150,000 pounds capacity at approximately 70,000 dollars
Vacuum Packing equipment at approximately 15,000 dollars
Miscellaneous equipment at approximately 25,000 dollars WRYNP 24
There is a total estimated cost here of 590,000 dollars for a fully functional operation
capable of turning out extremely high quality products on different species of seafood.
The facility could be scaled down or progressively staged. It is important that all
equipment for such a facility be of extremely high quality and represent the latest
advancements in technology. It should not be prone to obsolescence within 20 years nor
require extreme operation and maintenance expertise. Villages undertaking such a project
should find residents within the community willing to take training and assume
responsibility for the machinery, the necessary quality control and HAACCP processes,
and logistical support duties for marketing. The project should be fully in step with
community planning goals and the availability of near shore seafood resources should be
substantial enough to support operations for at least 6 months of the year.
Port Heiden Situation
This is the type of enterprise being planned for Port Heiden. Much of the community
planning and groundwork has been done that will be necessary to initiate and support
such a project. The community has a history of harvesting and marketing with some
limited processing. Port Heiden has a sizeable airport with regularly scheduled service
from several carriers. The airport has a substantial upgrade on schedule for this year as
well as a significant BIA road projects. There is also a planned Alaska Energy Authority
— Rural Power Services Upgrade project scheduled for 2004 and a bulk fuels project
completed in 2002. The community is focused through the activities of the City of Port
Heiden and the native council. Tribal Environmental programs are being implemented in
the village including an upcoming Village Safe Water project. The community is also
making significant headway towards installing a wind turbine as part of their ongoing
efforts to promote alternative energy. Port Heiden is the center of a variety of activity and
ongoing educational outreach efforts that will serve them well as they move towards the
future and development of a self sustaining local economy on their great natural resource
base — the seafood at their door.
Of special interest is the AEA — RPSU program. The AEA will be working with the
village to consolidate the building of a new municipal generator building with a
community cold storage/processing facility. The possible cost savings of this
consolidation present a great opportunity for the village in the furthering of their seafood
enterprise plans. To support the economic development efforts the village is also engaged
in an aggressive grant writing campaign through various agencies.
Mike Heimbuch
Far West Marine
25
Port Heiden Seafood Enterprise
General Conditions
And
Feasibility Assessment
Submitted to the
Native Council of Port Heiden
September 2002
By
Far West Marine
Mike Heimbuch
4540 Anderson St.
Homer AK 99603
26
FAR WEST MARINE
Port Heiden Seafood Enterprise
Beginning July 1, 2002 a study was initiated to assess the economic development
potential for seafood related industry in the Port Heiden area. This effort was undertaken
to support a sustainable business plan and to help secure an equitable share of project
funds available through CDQ operations of Bristol Bay Economic Development
Corporation. Far West Marine accepted this project during a time of challenging
economic conditions for small fishing vessels in the seafood industry.
The information presented here is taken from exploration of — services and resources
available within the area, probable scope of operations, and marketability of local seafood
stocks. Although one specific pro-forma is included for fresh market King salmon
operations — more discussion is given to the development of a general business model
suited to conditions in Port Heiden.
Because almost any favorable assessment for starting a wild salmon related business
would meet with skepticism in the current market climate, the definition of ‘profitable’"—
as used in this study and as envisioned by Port Heiden residents — must be clarified.
Impetus for this study did not come about under pleasant conditions and simple reflection
on natural resource opportunity. The fishing fleet and village of Port Heiden were
devastated by the loss of jobs and income as traditional King and Silver salmon markets
vanished completely with the salmon market crash. The local residents will evaluate
profitability with primary regard for the recapture of formerly existing jobs — and with
little initial regard for profits above the break-even point. The feasibility study for a
Seafood Enterprise Project is simply an attempt to find an adaptable business approach
that offers some possibility for recreating those income streams. The central question
challenging this exercise can be framed as follows:
How can a sustainable seafood enterprise be developed in Port Heiden if existing
seafood processing interests find no economic reason to establish a presence here?
With no surprise, our research into the factors that impact viability of coastal seafood
enterprises does not show a ‘resistance free’ path to profitability. At the same time
research does indicate that sustainable and profitable operations can be started on higher
value species with low initial capitalization rates, and serve as the basis for sound-
incremental growth.
Core Findings
The primary discoveries of this study are:
A. Successful small-scale salmon enterprise in Port Heiden under current market
conditions will require changes in the traditional industry business model.
B. The use of separate labor pools to perform harvesting, processing, and marketing
tasks is too costly for small production operations.
These findings suggest that the small available workforce could best be utilized as a job-
rotating cooperative, and that traditional harvest competition is an impediment to forming
such a cooperative. In spite of being a departure from long ingrained commercial fishing
practices, adopting changes as a result of these finding would allow formation of an
operational system suited for practical business plan development in Port Heiden.
The limited available work force is comprised primarily of commercial fishermen who
have historically competed with each other in the salmon harvests. In order to make some
changes possible in Port Heiden it will be necessary to alter thinking about a cooperative
business effort and its implication for added multi-task responsibility. Integrating the
fishing fleet into a harvester/processor Coop could maximize seafood quality and reduce
costs along the entire enterprise. Removing ‘harvest competition’ as a factor in income
may be essential to the formation and continuity of the coop — at least in the early stages.
It would allow for a large immediate reduction in fleet capitalization, as far fewer vessels
are needed for adequate harvesting. It will decrease seafood harvest expenses, and make
it possible for fishermen to work at different jobs within the cooperative without loss of
financial opportunity that normally accrues only when actually catching the fish.
Factors Impacting Enterprise Sustainability
A. Transportation — product shipping costs
B. Electrical utility costs — projected and actual
C. Labor force — size and potential
D. Market conditions for salmon — middlemen and price
E. Maintenance, amortization, and cash flow requirements
The reality of those impacts statewide is nothing novel and local residents are well
acquainted with them. It is interesting to note that all 5 of those impact factors are
sensitive (and reactive) to fluctuations in production levels. This is true at the capacity
design stage and during actual production. Those fluctuations affect each impact factor
somewhat differently but simple cause-and —effect examples demonstrate the important
connection. Because the ability to exercise control over those costs is linked with stability
of revenue flow and essential to sustainability — there is a need to design for affordable
and consistently achievable production levels. This could indicate a production
capacity/goal being set far lower than the abundance of available seafood stocks might
allow for in a given year’s harvest.
28
Planning for small production with consistent levels of high quality and value is a
departure from the traditional wild salmon business model. Historically, processors tried
to accommodate substantial and unpredictable deviations in the annual harvest. Typically
these have been large volume based enterprises with a variety of large customers (in
Japan predominately) who could absorb substantial variations in quality that have
occurred with large harvests and less than optimal handling methods. This condition is
not unusual for manufacturing industries that can exert only limited quality control prior
to point of raw-material purchase. Commercial fishermen are also accustomed to having
processing markets that absorb those yearly production quantity and quality differences —
as well as absorbing the cost of capitalization to accommodate those fluctuations while
operating in such short time frames. The profitability factors on the revenue end have
been private matters for processors and completely immune from the oversight or control
of fishermen. The erosion of markets and escalation of costs has forced the small boat
fishing fleets to confront the stark reality of being overcapitalized while using antiquated
harvest methods that do not produce optimal quality. If fishermen do take on the business
of processing and marketing they will have to deal with the impact that variable seafood
abundance and harvest methods can have on operating costs, quality, and market value.
Production capacity must be planned at a level in which fluctuation of costs and
values can be accommodated with minimal upheaval.
Air Freight
The recent bankruptcy of Reeve Aleutian Airways that had served Port Heiden through
much of the last 50 years has created uncertainty in local airfreight service. The loss of
access to bigger planes flying on a regular basis is a consideration in enterprise planning.
Other carriers such as Northern Air Cargo and ACE are filling the void to some degree,
but the extent of their commitment to provide freight service through the years is
unknown. Peninsula Airways continues to provide the most continuity in passenger air
service, but their freight hauling capacity is very limited. Freight charges by carriers in
the area are consistent though, and backed by published tariffs. They are not generally
subject to radical change and quotes can be used reliably when calculating freight costs
for a project. Depending on cargo value, the published rates can be prohibitively
expensive— but a less expensive option can sometimes be found with the so-called
‘backhaul’ rate — when available. This backhaul discount is associated with cargo carriers
who will be, for one reason or another, in route back to Anchorage in empty condition. If
a requested stop is within reasonable proximity during the flight, the carrier may offer to
pickup the freight at tariff reductions of 50% or more. Attractive as those backhaul rates
may be, their scheduling is completely outside the control of a seafood business whose
production quality and market obligations often rest on timely and dependable freight
service. An average of .80 per pound for product and packaging weight should be
allowed for airfreight costs.
Predicted freight costs in a business plan should be guided by the prevailing
tariff structure with any backhaul cost reductions viewed as a bonus.
29
Maritime Freight
The waters of Port Heiden are ice free and navigable on the average from April through
November. This is not a deep or even medium draft port and there are no docking
facilities currently available to accommodate a freight vessel. Entrance from the outside
is treacherous for large vessels because of sand bars and the development of a significant
freight handling facility there is unlikely. The tide rise is significant enough to allow
medium size vessels with a draft of 8 feet or less to approach and maneuver close to the
village beach or to land ashore in the case of a landing craft. The practice of lightering
cargo — particularly with LCM type craft is suited to the area and using that method
would allow finished product to be delivered to other deep water ports that lie on major
shipping routes. The closest destinations are Port Moller about 70 miles to the southwest
and Naknek, which is approximately 120 miles Northeast. The major carriers that serve
those two ports currently have an operations window from about late April through
September. Other traffic is sporadic but occasionally available.
Ocean going freight costs for seafood products can be as low as 17 dollars per
hundredweight. Those costs while more attractive than air freight rates, are only
applicable to frozen, salted, or dried products because long transit times require
processing adequate to preserve or stabilize the seafood. The lower maritime freight rates
are to some extent offset by increased processing costs.
While lightering freight from the beach to a cargo vessel standing offshore in deeper
water can be practical, the use of a lightering vessel may represent a substantial fixed
cost. It might be possible to use local fishing vessels for that purpose but they are not as
suitable as landing craft — in that they are not designed to lay against the beach for cargo
transfer. That situation could be rectified with construction of a small docking facility
with a top surface capable of handling limited motorized traffic and small boom or crane
assemblies.
Even with lightering brought to a cost effective stage, the always-possible problem of
inclement weather coinciding with cargo vessel scheduling cannot be addressed. Vessels
have safety limits that prohibit at-sea transfer of cargo above certain wind and wave
conditions. Cargo carriers, while having small amounts of time and courtesy leeway,
cannot be expected to stand by for 12-24 hours waiting for weather to abate. The
consequences to shore side operations from maritime weather impacts on shipping should
be considered in processing facility design.
Jf maritime shipping rates are integral to a seafood business plan, there must be
maximum flexibility in product holding time and the market delivery schedule.
30
Utility Costs
Water is free. Power is expensive. Electricity is generated by a 175-kilowatt village
power plant located centrally on the road system. As it does for many villages, the state
plays a significant role in maintaining the system and providing some measure of power
cost equalization support. There appears to be up to 25% disparity between produced
power and billable power. That inefficiency combined with high fuel costs and probably
line losses all combine to make electricity very expensive at around 30 cents per kilowatt.
An effort is being made through SECAP —a regional association of villages formed
recently to address power consumption problems and expense. Alternative energy —
particularly wind generated power — is being looked at closely and Port Heiden is very
close to installing a pilot project wind generator. Scott Anderson — a long time local
resident is very active in the project and is taking training in that technology.
Power requirements for seafood enterprises depend on product forms for which electrical
consumption varies greatly. While not a large factor in more urban communities, at the
prevailing Port Heiden rates the cost of electricity can be a major factor in enterprise
profitability. Even if wind power is inadequate to meet peak facility demand during the
main months of operation, the annual power output of a wind generator could equal or
exceed the annual operating needs for a seafood plant. It is conceivable that the city of
Port Heiden might allow the seafood plant to pay a rate offset by the annual power feed
back into the electrical grid from a wind generator. This alternative technology should be
considered, particular if it can be funded as part of the seafood project from energy grants
and the real amortization costs represent a considerable savings over conventionally
generated power.
High electrical rates must be factored into — and may limit — production options.
Labor force
Port Heiden is a small community and difficult economic conditions are impacting its
ability to hold onto residents. There are jobs in the area related to state and federal
services, aviation, municipal and tribal entities, and some mercantile interest. Some
people in those positions are available periodically to join a seafood enterprise work force
but more likely candidates are to be found in the commercial fishing fleet. They will be
the primary beneficiaries of a seafood plant and are most likely to put the necessary
energy into initial operations. This is an important consideration since financial
institutions supporting this enterprise will need clear indications of project support,
leadership, and responsibility. Residents in Port Heiden have an interest in jobs — and
even temporary seasonal work will be attractive if it does not require forsaking other
work commitments. The village has a strong interest in seeing that the seafood enterprise
benefits as many people as possible. They want this project to succeed in a fashion that
will encourage the retention of residents and promote the influx of population.
31
There are relatively few people in the local workforce, and a significant percentage of
that group is in the fishing fleet. One consideration is the impact that traditional methods
of fishing income based on harvest production could have on labor force availability.
Although fishermen might prefer to develop a seafood enterprise that allowed them to
continue on profitably solely as harvesters, the reality is that limited profit availability in
salmon dictates a different course of action for the time being. Fishermen assuming some
of the processing responsibility normally performed by a separate labor pool would allow
significant reduction in production costs. If the small labor force requires that fishermen
leave off fishing at scheduled times to participate in processing, they will need a
mechanism to insure they will not be disenfranchised when not participating in the
harvest. Formation of a Cooperative with member proceeds based on shares of the overall
profit from group operations is a suggested approach. Since it is possible to harvest
available seafood with far fewer boats then have been used historically, the establishment
of a cooperative offers an opportunity to use the fishing fleet as a processing labor force
without jeopardizing their access to revenues that normally accrued only when fishing.
The total labor force of permanent residents available for this enterprise is probably not
greater than 25 people. It is possible to design a number of different small seafood
harvesting/processing operations requiring even less than that number of people.
Incorporating people into a working coop that still favors personal initiative and supports
free enterprise would not necessarily be easy, and there may be opportunity for non-coop
type operations after the operation is up and running. Skills in the village are varied and
with some specialized training they will easily accommodate the tasks associated with
seafood handling and production, quality control, electrical and refrigeration work, and
general maintenance.
To gain full community support, guarantee supply of workers, and maximize the
chances for success, the village should consider integrating all related seafood
enterprise jobs into a cooperative labor pool for initial operations.
Market conditions for local seafood stocks
Locally available seafood resources include halibut, all sub-species of salmon, herring
and smelt family fishes, cod, Pollock, and crab. Their values are quite dependent on the
level of processing prior to sale, and thus market conditions are relative to processing
costs. The impact of market conditions on profitability differ markedly depending on
operation debt structure, start up costs, labor input requirements, and overall
expectations. When combined with an assessment of financial and production
capabilities, market price and demand information may roughly indicate the general
feasibility of a particular mode of operations. The greatest immediate opportunities can
be found in King Salmon, salmon roe production, and halibut as allowed by CDQ.
32
Because Port Heiden is in the developmental stage of enterprise with no track record of
commercial processing and trying to operate with a newly formed cooperative structure,
it is recommended that initial enterprise efforts be limited in scope and risk. The
production cost and market demand factors indicate good chances of success for a small
initial operation supplying King Salmon to the fresh market via airfreight.
The wholesale values for fresh market King salmon (headed and gutted) have remained
relatively consistent over the years. There were upward price anomalies during the late
1980’s when salmon prices had a large spike. In other years the grounds prices have
suffered in areas of the state like Bristol Bay, but not so much in others. This may
partially be due to overlapping run timing of different salmon species and the inherent
complexities of simultaneously producing dissimilar products with different marketing
requirements. It may also be due to the limited market competition in those areas or lack
of efficient access to fresh markets elsewhere. The size of the King salmon runs has been
historically small in comparison to other commercial species and in general their run
timing is a bit earlier than others. Processors historically have not seen reason to compete
over such a small pie like King salmon except in Prince William Sound and to some
extent for troll caught kings in South East Alaska. In places like Bristol Bay king salmon
have been traditionally purchased somewhat incidentally to operations. This was true for
Naknek, Egegik, and Ugashik, while in Nushagak the run was larger and there was a
commercially viable fresh market operations using jet service to Anchorage.
The Port Heiden King salmon run had a level of exploitation in past years through a local
privately run operation, sending product out by airfreight. Occasionally floating
processors would show up to purchase and process Kings, holding them on ice until they
had enough to run up the cost and ship out via air to the fresh market at cheaper rates than
flying out of Port Heiden. Problems with the local fly out operation stemmed from
several sources including predictability of air service, constraints on holding time due to
ice supply, no operation to provide primary processing that would increase holding time,
and a cumbersome expensive delivery system to pick up salmon from commercial fishing
boats. Problems with the floating processors included fixed cost expenses for crew and
fuel regardless of production levels of salmon, complex delivery and marketing scheme,
and no ability to provide ice or otherwise control quality at the fishermen’s end. A
primary observation on the demise of those operations and the current situation is that the
separation of processing/handling/harvesting tasks to different labor groups is not
workable in a low volume/moderate value enterprise. The Coop suggested here is a direct
response to those conditions in the hopes of regenerating at least some portion of that
previously existing income stream. The initial Cooperative business plan for a fresh
market King Salmon operation might be handled in the following fashion: All local
fishery permit holders that would fish if a market existed would be eligible to become
equally vested cooperative members. The coop would decide how many vessels were
needed to harvest King salmon and what quality control measures will be implemented at
point of catch. Coop members not participating in the harvest will be working at
handling, processing, packing, cleanup, maintenance, ice making duties, transportation,
phone work, marketing, and all other associated tasks. The key element changed from
traditional harvest based compensation in commercial fishing, is the compensation of all
téop members equally based solely on net profit from operations.
33
The basic procedure in a fresh market fly out operation is straightforward. Market
commitments and production level agreements are reached. Ice is produced in advance
and supplied to the harvesting vessels for quick chilling of fish that are bled and gutted
immediately after harvest. At selected intervals no longer 6 hours these fish are delivered
with minimal handling to another vessel for final processing and well-iced storage in
totes. These totes are kept aboard until the end of the weekly 3-day fishing period at
which time they are transferred to shore for repacking pending confirmation of shipping
rangements are being made for airfreight service — taking
advantage of cheaper backhaul rates when available. The coop will repack the salmon
into standard cartons just prior to plane arrival. The collection for salmon sales will occur
in normal fashion. Seasonal up costs for the ice machine and other costs associated with
coop operations should be small and can be funded initially from the village or from
other assets. Typically the markets can supply packing cartons for the operation.
Projections for King Salmon operations
1999 —2002 yearly King Salmon values FOB Anchorage AK range from a low of 2.10 to
2.95 per pound. These values are from FAVCO in Anchorage, the Auction Block in
Homer, and the Plitt Co. from Chicago. Product freight costs will range from .40 to .90
per pound allowing for tare weight. These figures come from Pen Air, Northern Air
Cargo, and ACE.
Production range is 20k to 150k pounds headed and gutted weight. This is based on 75%
recovery from salmon weighing 15-18 pounds average and with a historical run strength
allowing for a variable harvest between 1500 and 10,000 salmon. Production costs
attributable to depreciation and maintenance — using 100k values for ice machine, totes,
associated equipment, vessels, and building over a 10-year period — equal 10k annually.
Using a 40k pound annual production average — the allowance is .25 per pound.
Remaining production costs related to utilities, disposable items, fuel, nets, supplies, and
misc. is allowed for at .20 per pound.
Pro-fermna projection using high-end costs and low-end market values:
Production — low end — 20,000 pounds (equals 1773 fish X 75% recovery)
Price —low end prediction - $2.10 per pound
Freight cost calculated at .90 per pound
Infrastructure depreciation allowance at .25 per pound
Near term production costs at .20 per pound
Calculation: 20,000 Ibs. @ $2.10 per pound = $40,200.00 gross revenue
Expenses 20,000 X $1.35 (total per pound) $27,000.00
$13,200.00 Gross Profit
34
Pro Forma Projections using mid range production, costs, and values
Production — mid range 40,000 pounds (equals 3550 fish X 75% recovery)
Price — mid range at $2.50 per pound
Freight cost — average w/ backhaul combinations at .70 per pound
Infrastructure depreciation allowance at .25 per pound
Near term production costs at .20 per pound
Calculation: 40,000 Ibs @ $2.50 per pound = $100,000.00 gross revenue
Expenses 40,000 X $1.35 per Ib. = $54,000.00
$56,000.00 gross profit
There are other pro-forma that could be presented as worst case and best-case scenarios.
Using those more extreme projections as planning models is suspect but possible impacts
of a worst-case scenario are important to consider. There is concern about financial risk
for the enterprise owner and about the depth of community support for sustaining
operations through a tough learning curve. No specific plan of compensation is included
here but the distribution of gross profit shares to Coop members is indicated. Significant
questions about mandatory participation plans, coop operation decisions, and directorship
need to be addressed prior to operations.
Any debt structure is undesirable for operations until confidence in the decision-
making process and viability of initial business plan is well established.
The effort required to produce the volumes of product listed in the two projections is not
large. With even moderate abundance of king salmon, two vessels with a crew of two
men each could easily harvest the listed numbers of fish during two days of fishing time.
It would require a crew of approximately 4 additional people providing a total of 100
man-hours to fully process and prepare fish for shipment. If a total of approximately 260
man hours is needed to complete the work requirements for the operation, the value of
that labor is approximately 50$ per hour for the low end profit projection if split amongst
8 workers. If the Coop has more members working and eligible for distribution of
proceeds, the value of that labor per man-hour is unchanged but the shares are reduced as
the individual workload requirements decrease.
The ability of the coop to maintain group support and satisfactory working relationships
is related to how much money is available for distribution. Uncertainties about worker
ability and reliability within an equal share coop do cause skepticism about leaving the
tradition of harvest-based compensation. The absence of practical market alternatives and
unlikelihood of near term reversals in salmon market economics does make the coop
concept more attractive. The upper end possibilities in the projections are also enticing.
35
Maintenance, amortization, and cash flow
Cash will be needed for all levels of maintenance and provisions must be made to
amortize for the value of all equipment used — regardless of its origin as a purchase by the
operation or as an outside grant to the operation. Though major contributions from CDQ
programs may provide for quasi-free major equipment purchases, it is not prudent to
assume the same program will exist to replace that equipment when it wears out some
years later. The standard of care, major maintenance, and protection from environmental
conditions — all impact equipment longevity. Insuring adequate cash flow to cover those
needs must be a consideration prior to purchase of the equipment and onset of operations.
It is recommended that all equipment purchased be state of the art — or close to that
standard — for reasons of longevity. As the business in Port Heiden is initiated it may take
several years for operations to become sustainable through production improvements and
market development. If the incubation period is protracted it will be important to have
equipment protected to maintain optimal function — and purchased without near term
threat of obsolescence. It is also recommended that initial operations be simple and
require minimal processing, thus generating only small cash flow needs. This is simply so
that the decision making process of the coop has a chance to operate in the beginning
with as few financial and production pressures as is possible.
Initial operation design should aim to keep cash flow needs at a minimum.
Financial opportunity and growth
This study does not predict near term enterprise success if cash flow must service any
substantial debt. Because of funding availability through various public and private
programs, there appears to be opportunity for building a substantial seafood enterprise
without incurring indebtedness. The ability to get ‘free’ money will not guarantee wise
use of the funds — even if directed toward the intended goals. Such is the case in Port
Heiden where little substantive work has been done for local seafood enterprise
development. Any business established where power and transportation costs are
expensive — has a good chance of being delicate and subject to failure because of
sensitivity to abrupt change. Such will be the case if Port Heiden grows the infrastructure
of its seafood business without assuring the sustaining components of markets, money,
predictable costs, and local commitment are in place.
The rational path to sustainable enterprise in Port Heiden is one of
small incremental growth and commitment to market research.
Mike Heimbuch
Far West Marine
36
Discussion of Project Responsibilities and Key Personnel
Administration responsibility for this project is vested in the Native Council of Port
Heiden. This body is well established and has a proven track record of grant
administration in a variety of areas. Lynn Carlson and Gerda Kosbruk are capable
experienced individuals who are qualified and willing to assume the administrative duties
of this project. Both women are very active in community and regional forums and have a
strong sense of commitment towards local economic development.
Project development and management has been the responsibility of Mike Heimbuch of
Far West Marine. He is employed by the Native Council for the purpose of establishing a
seafood enterprise in Port Heiden. He also serves the community through his efforts to
initiate the cooperative enterprise amongst fishermen. He brings 40 years experience
from the seafood industry as a fishermen, processor, political activist, and promoter of
innovations in the industry. He has owned and operated a seafood processing operation in
Port Heiden in the 1980’s. He was also part of processing cooperative in Cook Inlet and
has done cooperative development work for groups of fishermen in Prince William
Sound.
Construction Management will be the responsibility of the contractor, either
independently or in conjunction with the AEA project coordinator. Bonding will be a
requirement for contract.
The Meshik Seafood Coop under the direction of Emil Christensen will be responsible
for providing a level of in-kind match as well as advising the project administrator and
manager regarding specific community needs and uses to be considered during
construction. Emil brings a life long experience in Port Heiden to the job and also has
considerable construction experience in the village with projects of this scope.
37
FAR WEST MARINE
907-235-6329 4540 Anderson — Homer AK 99603
Importance of the Seafood Cooperative
The restoration of profitability to the small boat fisheries is being actively pursued across
the state. It is commonly recognized that overcapitalization with the resulting labor
inefficiencies and overly high ratio of expenses to income must be changed. The
movement toward cooperatives is very promising but it calls for revolutionary thinking
on the part of fishermen. Compensation in fishing has always been based on the amount
of harvest which provides a high degree of competition for the resource. The practice
results in winners and losers and is a primary reason why achieving on-board quality in
the seafood product is so difficult. The fact that profits have fallen so low in the salmon
industry has caused even the productive fishermen to consider the possible benefit of
cooperatives. The willingness of some fishermen to consider forfeiting a competitive
edge in favor of group efforts that might result in achieving equal or better revenues with
fewer expenses and stress is a major step in the evolution of fisheries. It is the beginning
of re-empowerment of the fleet and gives them an opportunity to make more effective use
of their labor force in others industry sectors of processing and marketing.
Port Heiden was a particularly good candidate for coop development because of the small
fleet size and the need to make maximum use of their small local labor pool available for
processing and marketing. This fleet will be able to work in this coop for some of the
fishing season and still participate in the July Bristol Bay sockeye fishery under the
traditional competitive harvest method. It is a great opportunity for them to evaluate the
relative benefits of each without undue risk.
These fishermen understand that they need to be available for handling and processing if
the seafood enterprise is going to be successful. This was impossible without some
method of insuring that they would not be disenfranchised from their harvest opportunity.
It is clear to them that they do not need the entire fleet fishing to be able to harvest the
amounts necessary to keep the plant operating successfully. They are also aware that with
a business plan of incremental growth, they will not be committing themselves to a level
of responsibility for the enterprise that is far above what their expertise and experience
would justify.
A supporting element for coop development is the willingness of the Alaska Dept. of Fish
and Game to provide harvest management plans that are coordinated with the needs of
the plant operations. This will provide for more civilized operations and flexibility in the
fishery openings which in turn will allow better metering of product into the facility so
that the highest quality control can be maintained. The coop will allow fishermen to
retain more control over their product beyond the harvesting stage, and allow them to
capture more of the downstream profits in the processing and marketing sectors.
38
Meshik Seafood Coop
Founding Statement
The Meshik Seafood Cooperative, referred to herein as MSC, is hereby established by
mutual accord of the undersigned individuals. The original members of this group are
local traditional commercial fishermen in Port Heiden, Alaska.
Mission
To help provide for economic opportunity and stability in the community through the
activities of a cooperative whose members are fully integrated into the harvest,
processing, and marketing of local seafood resources.
Primary Goals
1. To create business plans for sustainable enterprise
2. To re-establish markets for King and Silver salmon
3. To design and build an expandable seafood processing facility 4. To explore and develop value adding marketing opportunities
5. To become an outstanding candidate for recipient of CDQ funds
Legal Structure
At time of formation MSC is an unincorporated entity with no prohibition against
incorporating under existing laws of the State of Alaska.
Place of Business
The MSC shall have Port Heiden, Alaska as its primary place of business but shall not be
prohibited from holding meetings elsewhere or from allowing its spokesmen to conduct
authorized business in other places.
Duration
The MSC shall operate under its original charter until January 1, 2005, unless authorized
to continue beyond that date by written consent of 2/3 of its membership.
Membership
Requirement for MSC membership at origination is ownership of a State of Alaska
commercial fishing limited entry salmon permit and signature on this charter. This does
not prohibit the addition of members under different qualifications in the future. New
membership qualifications requiring a by-law change and addition of new members must
be approved by 2/3 of the membership in a non-proxy vote.
39
Leadership
Prior to the election of officers by consensus or majority vote, MSC shall choose a
director from its membership to function as a facilitator for meetings and spokesman for
the group. Prior to signing any formal agreement that require commitment of any sort
from the coop, a meeting shall be held to elect officers by simple majority vote with at
least 2/3 of the coop
membership voting in present or by telephone. Those officers shall serve without
compensation and will include a Chairman, co-Chair, and Secretary, whose terms shall
run for one year unless
terminated by mutual agreement, resignation, or by a majority vote of the total coop
membership during any publicly noticed meeting. Upon election and unless decided
otherwise by majority vote, the Chairman shall assume the duties originally charged to
the original director, the co-Chair will function in the Chairman's absence, and the
Secretary shall record the meeting minutes and be responsible for coop correspondence.
Quorum
Meetings may be conducted with no fewer than 5 members present including either the
Chairman or co-Chairman. Changes to the bylaws may not be made without majority
consent of all coop members. The exception to this is the 2/3 vote of all members
required for changes in membership qualification or the addition of new members.
Meetings
Meetings shall be run by Roberts Rules of order. Consensus shall be worked toward but
not demanded. A majority vote shall be required for all decisions except as listed
otherwise in this charter.
Primary Relationships
MSC is conceived as a primary seafood enterprise advisory group to the Native Council
of Port Heiden and the City of Port Heiden. The Council and the City are recognized
entities for the appropriate channeling of private and public funds towards community
based economic development projects. MSC shall provide the Council and City with
recommendations for the expenditure of these funds on seafood enterprise projects in a
fashion that adds to the economic stability of the community. MSC must be prepared to
take responsibility for implementation of projects approved by the Council and City as
the result of MSC recommendations. MSC may also develop direct relationships with
funding sources such as CDQ groups as conditions permit.
ADutside Directorship
At their discretion the coop may appoint or hire someone outside their membership to
perform any of the coop officers' designated duties, or promote coop business enterprise
as directed.
40
Finances
MSC shall have a fiduciary and accounting responsibility to its members for any
authorized business activity engaged in for the benefit of its members. Making
information available to coop members concerning that activity is the responsibility of
the MSC Secretary. MSC is authorized to open bank accounts as needed for its operation
as allowed for by a majority vote of its membership. Authorization to spend coop money
may be vested in the Chairman and the limits for that authorization shall be determined
by majority vote of the coop membership.
MSC shall not incur indebtedness for capital projects on behalf of the membership. This
shall not preclude the establishment of business plans that incur costs related to utilities,
transportation, and supplies.
The coop is authorized to develop seafood enterprise projects in a manner consistent with
general member agreement. The coop is authorized to seek enterprise funding
independently or in conjunction with the Village Council of Port Heiden and the City of
Port Heiden. The coop is authorized to provide information to interested legal and
business institutions regarding coop activities. The coop is authorized to sign general
activity agreements and business related memorandums of understanding on behalf of its
members provided authorization to do so is agreed to by a majority of its members and
documented in writing during a coop meeting.
Limits to Authorization
Without re-establishing itself as a corporation, MSC is not authorized to enter into legally
binding contracts on behalf of its members.
Rules of Conduct
By a vote of 2/3 of the cooperative membership officers may be removed for misconduct
including the unauthorized conduction of business, breach of confidentiality, or failure to
attend 3 meetings in a row. Members engaging in activities counter to the aims of MSC
may also be removed from the coop by a 2/3 vote of the membership.
Signatory
The undersigned founding members agree to this charter document for the Meshik
Seafood Cooperative:
Signature Date
41
ave evey avesy 1AA BVvIOCUvIE+4U SLULL ANDEKSUN
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Finances
MSC shall have a fiduciary and accounting responsibility to its members for any authorized business activity engaged in for the benefit of its members. Making information available to coop members concerning that activity is the responsibility of the MSC Secretary. MSC is authorized to open bank accounts as needed for its operation as allowed for by a majority vote of its membership. Authorization to spend coop money may be vested in the Chairman and the limits for that authorization shall be determined by majority vote of the coop membership.
MSC shall not incur indebtedness for capital projects on behalf of the membership. This shall not preclude the establishment of business plans that incur costs related to utilities, transportation, and supplies.
The coop is authorized to develop seafood enterprise projects in a manner consistent with general member agreement. The coop is authorized to seek enterprise funding independently or in conjunction with the Village Council of Port Heiden and the City of Port Heiden. The coop is authorized to provide information to interested legal and business institutions regarding coop activities. The coop is authorized to sign general activity agreements and business related memorandums of understanding on behalf of its members provided authorization to do so is agreed to by a majority of its members and documented in writing during a coop meeting.
Limits to Authorization
Without re-establishing itself as a corporation, MSC is not authorized to enter into legally binding contracts on behalf of its members.
Rules of Conduct
By a vote of 2/3 of the cooperative membership officers may be removed for misconduct including the unauthorized conduction of business, breach of confidentiality, or failure to attend 3 meetings in a row. Members engaging in activities counter to the aims of MSC may also be removed from the coop by a 2/3 vote of the membership.
Signatory
The undersigned founding members agree to this charter document for the Meshik Seafood Cooperative:
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FAR WEST MARINE
907-235-6330 4540 Anderson — Homer AK 99603
Port Heiden Seafood Enterprise
Business and Marketing Development
Far West Marine is under contract with the Native Council of Port Heiden to develop
appropriate business planning for a seafood enterprise and to help secure funding for that project. Across the state and country there is a strong but not always visible network of support agencies to help in this work. These entities are variously associated with technical assistance, project planning, marketing outreach and development, operations
guidance, and financial procedures. There are also consultants involved in community
planning to provide focus for villages and enable the professional presentation of village
goals for economic development. Port Heiden is fortunate to have the services of the Business Development Center in King Salmon, the outreach programs of BBNA and
BBEDC, the educational opportunities for training at AVTEC, the marketing
development programs of ASMI and the business development guidance from places like the Alaska Business Development Center. Of particular interest are the grant programs
available for economic development in tribal communities. Port Heiden is and will remain actively engaged in harnessing that financial source and taking advantage of programs available through all the above listed groups.
Roughly speaking, the marketing of higher value seafood from Alaska can be divided
into the two categories of fresh and frozen. The business plan being adopted in Port Heiden calls for initial operations on fresh market King Salmon and Halibut with further capitalization for incremental growth conditioned on its success. Part of the Far West Marine contract is to develop markets for a variety of fresh market seafood available
around Port Heiden. While it is not difficult to line up seasonal buyers for high end products, longer term commitments to market a variety of products and product forms
from Port Heiden is our goal. Seafood price fluctuations make it nearly impossible to
project revenue streams at exact amounts. It is also counterproductive to long term relationship building with a seafood buyer when too much emphasis is placed on establishing next season’s prices. Port Heiden does not yet have an enterprise production
track record to show credibility and dependability that is absolutely necessary for
cementing those long term relationships.
The amount of professionalism that can be demonstrated by a harvesting and primary
processing group such as the Meshik Seafood Coop is critical. The questions most asked
by prospective seafood buyers have to do with quality control procedures starting at the
harvesting level and working up through the freighting process. To instill a level of
comfort in the buyers it is important that operations take place in a facility where ice is available and quality controls can be readily implemented. Constructing a processing
facility is critigal for the long term success of the Port Heiden enterprise.
42
We have been in market discussions for Port Heiden seafood primarily with Greg
Favretto — owner of FAVCO in Anchorage, Bob Sullivan — owner of Plitt Co. in Chicago,
and Kevin Hogan of the Auction Block in Homer. To the extent of their abilities to
commit so far ahead of the season, they have all expressed interest in purchasing Port
Heiden products at or above the prices listed in the pro-forma of the BBEDC application.
Far West has done business with FAVCO and Kevin Hogan in the past, both of whom are very reputable and long established businesses. Like practically all seafood buyers, these
companies do not issue written commitments to purchase seafood. For some lending
institutions and financial analysts this can present a problem when assessing the viability
of a business plan attached to a request for funding. On the other hand, these companies
are in the business solely to purchase seafood and their lack of written commitments
reflects primarily on the seasonal fluctuations in seafood values and not the production
capabilities of the primary producers or the quality of their products.
We believe there is a positive long term outlook for the Port Heiden operation particularly with expansion into value added and frozen products. Part of our research has been into new approaches to freezing and frozen product presentation. Those ideas are laid out clearly in one feasibility study included in the overall proposal. There continues to be increasing market interest in fast frozen product held at very low and well
controlled temperatures. Some of the increased cash flow necessary to attempt adding
freezer operations to the enterprise may have to be subsidized from fresh market operations. This is due to expected delays in marketing frozen product and cash short falls that commonly occur during a business ramp up phase. We believe the operation is well situated to absorb that risk when the time for expansion comes. We also anticipate
that establishing a track record in the fresh market operations will be of great help in marketing frozen and other value added products.
Port Heiden residents continue to show a strong degree of support for developing the
general seafood enterprise. We feel that the community has taken a balanced and
measured approach to the pace of development and that they have a realistic sense of the
responsibilities and difficulties involved in a long term commitment to enterprise growth.
Our mission is to continue providing a level of feasibility study support, market outreach,
product development research, and technical assistance for operations.
Mike Heimbuch
Far West Marine
43
Far West Marine
F Michael Heimbuch
Resume
Personal History
My story begins January 22, 1951 — son of Bonnie and Floyd Heimbuch who came to
Unalakleet as teachers in 1952. A year later we moved to Anchorage — gaining 4 more
siblings through the years and attending public schools. We homesteaded in Willow in
1960 and started commercial fishing in the summers in 1963. My folks continued in
education and I was a music and education major at the University of Alaska — Fairbanks.
I moved to the Kenai Peninsula in 1975 and have been here since.
I am married to my first wife — Frances Ann Heimbuch — and we own a home here in
Homer. My health is very good and I remain reasonably active in sports. As for hobbies —
I have been a musician all my life and continue as a jazz piano player and writer. I have
been a columnist for the Homer Tribune newspaper and am a frequent guest editorialist
on political issues in the Homer News.
I have been civically active — serving on the Port and Harbor advisory commission,
Homer Library board, Fish and Game advisory board, and am a long time participant in
Share the Spirit — a local charitable organization. I have no history of legal trouble. I am
familiar with the legislative process having worked as a resource aid for Rep. Gail
Phillips in 1993-1994, and have long been a participant in Board of Fisheries meetings.
As a result of education and experiences my communication, writing, and analytical skills
are very strong and I pride myself on working towards consensus building while bringing
clarity and focus to problem solving.
Work History
After leaving the University of Alaska in 1975 I began fishing year round for a number of
years until marriage and our children started coming along. When fishing became more
of a seasonal endeavor I had opportunity for some other sorts of work including part time
stints on a land survey crew, vessel and permit brokerage, electrical apprenticeship, and
other odd jobs. Later on I became involved in the following because of writing skills and
growing interest in civic activity.
1992 - Project manager for Tango Construction in a Russian Far East timber venture.
1993 - Administration for Tango Construction in Adak
1994 - Resource aid for Representative Gail Phillips
1995 - Resource issues and head writer for US Senate campaign of Dave Cuddy
1996 - Licensed for General Securities Representation and Sales
1999 - Information and Outreach coordinator — Homer Soil and Water District
2000 - Grant writer and project developer —- HSWD
2001 - Feasibility studies and general consultant — Alaska Marine Pilots
2002 - Seafood Enterprise Development — Port Heiden Native Council
44
Fisheries Experience
Salmon set-net fisherman — owner operator
Cook Inlet 1963-1979
False Pass — 1980-1982
Bristol Bay - 1985-1986
Prince William Sound - 1991
Salmon drift-net fisherman — owner operator
False Pass — 1983-1984
Cook Inlet — 1986-1987 and 1997-1999
Bristol Bay — 1992-1996
Prince William Sound 1988-1990
Herring Seine - Togiak, PWS, and Cook Inlet — 1977-1986
Herring Gillnet — Unalakleet — 1992-1993
Salmon Seine — PWS — 1977
Shrimp — Cook Inlet — 1976-1979
Crab — Cook Inlet, Kodiak — 1975-1978
Halibut Long line - Cook Inlet — 1986, 1997-1999 Adak — 2000-2001 Pacific Cod Jig fishery - Adak — 2000-2001
1982-1985 Lobbyist for Alaska Peninsula fishermen’s issues - Developed an averaging formula for Bristol Bay run assessment later adopted by ADFG
1985 Start-up processing and marketing operations for Franan Fisheries
1986-1987 Fisherman Cooperative development in Cook Inlet — Seasonal Seafoods
1988-1990 Founded the 200 member non-profit corporation — Prince William Alliance — a gillnet group formed to work on political and hatchery issues - Drafted the mission statement for the Prince William Sound Aquaculture Association. Provided testimony on behalf of PWSAC at successive Board of Fisheries Meetings
1991 Director in the Prince William Sound Set-net Association
1992-1996 Consultant for fisheries issues in Bristol Bay and Alaska Peninsula
2000-2001 Worked towards small boat fishery development in Adak
Mike Heimbuch
franan@xyz.net
45
NATIVE COUNCIL OF PORT HEIDEN
P.O. Box 49007
Port Heiden, Alaska 99549
(907) 837-2296 Fax (907) 837-2297
September 6, 2002
Jo E. Grove
Department of Community & Economic Development
Division of Community & Business Department
209 Forty Mile Ave.
Fairbanks, Alaska 99701
Re: | Meshik Seafood Cooperative-Enterprise Development
Dear Mr. Grove;
I am writing on behalf of the Native Council of Port Heiden. Commercial fishing is the main
source of income for our community. We have faced many years of fishing disasters in Bristol
Bay. We are unique in that we are looking for long-term solutions to our problems.
We believe that the funding from this grant will help to ensure our economic diversification and
enable long-term sustainability for our business ventures. This project will create a market our
locals can depend for fisheries and guarantee permanent job positions. The benefits from this
program will be long term for our community.
Sincerely,
James Christensen
Vice President
FO Box 742
Lake ard Peninsula Borough "2 Oaimen Slaske SM Business Development Cemter ne cor zac.
61.01.03
To Whom It May Concern:
The Lake and Peninsula Business Development Center, a regional nonprofit dedicated to economic revitalization in the Bristol Bay area, wishes to express its full support and lend its
promotional abilities to the Native Council of Port Heiden, City of Port Heiden, and Meshik Seafood Coop in their united effort to create an organized seafood enterprise in Port Heiden. Since the initial steps of this endeavor, the parties involved have vigorously researched the
viability of the project’s scope. and the Business Development Center concurs with the results of this research: the short and long term goals of a seafood processing enterprise in Port Heiden are feasible, the data sound, and the successful materialization of the Port Heiden Seafood Enterprise
attainable.
The benefits of permanent processing facilities located in a village environment, specifically Port
Heiden, cannot be overstated. The months of planning and organizing for this enterprise — months in which the Business Development Center has been involved in the project and kept
fully informed of progress — speak to the dedication of those collaborating towards developing an
enterprise that may serve as a fiinctional, efficient model for communities throughout the region
~ one that provides superior product, innovative workforce cooperative efforts, and sustainable
bottom lines
Addressing needs in response to yearly economic disaster is critical to the livelihood of our communities; innovation, local initiative with regional purpose, and efficiency as a process are
the tools with which our sustainability may be ensured. Port Heiden Seafood Enterprise is the
embodiment of these tools. It is the proper and rigorous and viable response to economic disaster
in our region. And it is a sound manifestation of how regional needs may be met. The Business
Development Center supports and will continue to support the development efforts of Port
Heiden Seafood Enterprise to the fullest of its abilities through collaboration, marketing and
business planning efforts, and project implementation, We look forward to its success.
Sincerely,
Gregory S. Vickrey
Business Development Specialist
Lake and Peninsula Business Development Center
City of Port Heiden PORT HEIDEN, ALASKA 99549
September 6, 2002
Jo E. Grove, Grant Manager
Dept. of Community & Economic Development
Division of Community & Business Dept.
209 Forty Mile Ave
Fairbanks, AK 99701
RE: Meshik Seafood Cooperative-Enterprise Development
To whom it may concern,
Upon reviewing the proposal of the above project, the City of Port Heiden is in full
support of the proposed Meshik Seafood Cooperative-Enterprise Development Project.
The project appears to be beneficial for the village and the future of our village and
members of the village.
Thank You
C. Lynn Carlson
Vice-Mayor
Meshik Seafood Coop
January 13, 2003
To: Bristol Bay Economic Development Corporation
Re: Resolution of Support
The Meshik Seafood Coop would like to express their full support for development of a
processing facility in Port Heiden. The proposal for funding of this project is being
submitted to you after much work and planning by the Native Council, City of Port
Heiden, and the Coop.
We believe this facility is exactly the type of economic development project our CDQ
program was intended to support. We ask that you give this project your highest
consideration.
Sincerely,
Emil Christensen
MSC president.
1192202
Native Council of Port Heiden Custom Report October 2001 through September 2002
Oct '01 - Sep ‘02
income
4110 - Grants 681,139.25 4180 - Part Heiden Vilage Council 11,080.00 4190 : Reimbursements Expense 12,011.61
Totat income 704,156.86
Expenac Contractual 45,957.54 6110 - Bank Service 121.00 $120 - Donation 3,200.00 6180 - Insurance 8,829.00 6196 - Payroli Expenses. 196,788.16 6210 - Postage & Freight 25,002.19 6230 - Reimbursd Expenses 49,000.00 6240 - Rental 10,165.00 6260 - Subscription 3,866.95 6270 : Supplies 61,793.90 6280 - Talephone 6196.31 6290 - Travel & Perdiem 32,402.07 6330 « Council Stipend $00.00 8999 - Uncategorized Expenses §18.00 Buildin - Building Materials 5,708.74 Lawyer : Lawyer 3,872.00 Total Expense 451,920.86
Net Income 252,230.00
le Keabruts
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BURNS CONSULTING SERVICES
Grant writing, Community-based strategic planning,
document preparetion, Envirenmental Program Development
Penny Burns
tay 1244 Summit Avenue Phone: (360) 875-4013 P.O. Box 694 Fax: (360) 875-4013 South Bend, WA 98586 email: burns@techiine.com
November 20, 2002
To: whom it may concern
Re: Port Heiden Strategic Plan
Sirs,
Burvs Consulting Services, Inc. is in the process of finalizing a community-based comprehensive strategic plan for the community of Port Heiden, Alaska. Over the last few years, this village has been engaged in an internal assessment of their strengths, needs, and vision of where they want to be over time. Our work has been to help them produce a planning document that shows evidence of purpose and clarity of focus within the community,
While this document is still in draft form, there are concepts within it that are clearly discernable at this Stage. One of those is recognition of the important tie between local seafood resources and future economic development.
The community is on record supporting projects which offer opportunity for expansion of local business. One inclusion in their plan is the construction of a community cold storage facility for that purpose. This concept enjoys wide support in Port Heiden, as well as in neighboring communities.
We ask that you give full consideration to funding this facility as a consistent and integral part of their long term planning process.
aR Bane
Penny R. Burns President
Alaska State Legislature
Representative Carl E. Moses
SESSION
State Capitol Building
Juneau, Alaska 99801-1182
Phone: (907) 465-4451
800-898-4451
Fax: (907) 465-3445
INTERIM
P.O. Box 730
Unalaska, Alaska 99685
Member Phone: (907) 581-2275
House Finance Committee Fax: (907) 581-4949
November 11, 2002
Mr. Dean Stewart
USDA Rural Development
800 W. Evergreen, Suite 201
Palmer, AK 99645
Dear Mr. Stewart:
As a state representative from an area hit hard by the downturn in the salmon industry,
I have a strong interest in promoting ideas that have the potential to strengthen local economies.
The Native Council of Port Heiden has informed me of their intent to move forward on a variety
of economic development options. These are supported in part through their qualified access to local CDQ funds from the Bristol Bay Economic Development Corporation.
A cooperative is in the process of being formed by the Native Council of Port Heiden to fully integrate the local labor force into shared harvesting / processing / marketing efforts. This
concept has merit as a possible model for other communities, and should be supported as they explore the feasibility of enterprise expansion.
I have been asked to review this dynamic idea, and tender support for the seafood co- operative funding request submitted to your office by the council, and I enthusiastically do so. This development and feasibility proposal fits well with their long-term goals. I support any such
plan which will contribute to a stable and sustainable growth curve for this community, and I en- courage your favorable review of their request.
Sincerely,
Cok S,Meew
Representative Carl E. Moses
(new) House District 37
ADAK * AKUTAN * AMCHITKA * ATKA * ATTU * BELKOFSKI * CHERNOFSKI * CHIGNIK * CHIGNIK LAGOON ¢ CHIGNIK LAKE * COLD BAY
DUTCH HARBOR * EGEGIK * FALSE PASS * IGIUGIG « ILIAMNA * IVANOF BAY * KING COVE * KING SALMON * KOKHANOK * KOKHANOK BAY * LEVELOCK
NAKNEK * NELSON LAGOON * NEWHALEN * NIKOLSKI * NONDALTON * PEDRO BAY * PERRYVILLE * PILOT POINT * PORT ALSWORTH + PORT HEIDEN
PORT MOLLER * SAND POINT * SHEMYA * SQUAW HARBOR * SOUTH NAKNEK * ST. GEORGE ISLAND * ST. PAUL ISLAND * UGASHIK * UNALASKA * UNGA
ALASKA STATE LEGISLATURE
REPRESENTATIVE DREW SCALZI
State Capitol, Juneau
Alaska 99801-1182
OFFICIAL BUSINESS (907) 465-2689; (800) 665-2689
Fax: (907) 465-3472
Email: Representative_Drew_Scalzi@legis.state.ak.us
October 8, 2002
To Whom it May Concern:
As co-chair of Alaska’s House of Representatives Resources Committee and chair of the state’s
Salmon Task Force Finance Subcommittee, I am very aware of the dire need to bring economic
opportunity to our coastal fishing communities, all of which are suffering from the downturn in
Alaska’s salmon fishing industry. Much committee discussion has been held on implementing
“value-added” processing and other innovative opportunities at the fishing source to increase the
return of the salmon product.
Availability and access to high quality seafood resources in coastal Alaska communities
indicates a potential for small-scale economic development. Each new and innovative
opportunity for economic development within the seafood industries of our small communities
must be considered. I am very excited and supportive of grant opportunities that would reduce
the initial cost to fishing communities, most of which have seen little economic benefit from
commercial fishing in a number of years.
In difficult marketing times there is also a need to rethink the business models that have guided
industry in the past. When communities show a willingness to embrace new enterprise methods
and produce the feasibility studies and business plans to support new thinking, it is beneficial for
government and private agencies to support these efforts.
Whether through lack of experience with financial institutions or general disenfranchisement
from mainstream commerce, the wherewithal of many small communities to supply initial
funding for economic projects is limited. We ask that you give favorable consideration to those
grant requests for projects which have a reasonable chance of becoming model projects for
successful enterprise development.
Sincerely,
Representative Drew’Scalzi
DS:ph
PeENAIR
The Spivit of Alaska
September 13, 2002
Alaska Dept of Community & Economic Development
P. O. Box 110809
Juneau, Ak 99811
Dear sir/madam:
My company has been an integral part of the peoples' lives
in Bristol Bay and the Alaska Peninsula for over forty years.
As such I am well aware of the need to find new programs to
assist the people affected by the severe salmon industry problems
Specifically I have been asked to support the development
of a seafood based enterprise at Port Heiden. Members of my
family have lived in that community for years, and I recognize
that there is an ample supply of seafood resources.
Like all coastal communities struggling during the market
weakness faced by the salmon industry, the development of new
ideas and business models will be a necessary factor in the
restructuring of local economy.
Port Heiden could be a promising location for building
a strong local industry based on seafood harvest, processing,
& marketing, but there is work to be done along the lines of
labor force integration and feasibility studies to support their
ideas for incremental growth.
So I would ask you to give serious consideration to funding
their initial request for set up and feasibility studies.
Orin D Seyb
President
6100 Boeing Avenue * Anchorage, Alaska 99502 « (907) 243-2485 » Fax 243-6848 * www.penair.com
Peninsula Airways, Inc. D/B/A PENAIR
SROM : JACKS PHONE NO. : 30 “i wo A at # i) tw nN) -4 Nov. 13 2a@2 11:35AM P1
JACKS NEW MESHIK MALI.
PO BOX 49110
PORT HEIDEN AK 99549
PHONE (907) 837-2217 FAX (907) 837-2227
mare319S50@gci.net
November 13, 2002
USDA
RURAL DEVELOPMENT
PALMER, AK
DEAR SIR,
1 WOULD LIKE TO VOICE MY SUPPORT FOR THE MESHIK SEAFOOD COOPERATIVE
PROJECT GETTING UNDERWAY IN PORT HEIDEN, AS A LONG TIME RESIDENT AND STORE
OWNER HERE | AM WELL AWARE OF WHAT ECONOMIC SENEFITS WILL COME TO THIS
VILLAGE WHEN LOCAL SEAFOOD PROCESSING FACILITIES ARE FULLY DEVELOPED. THE
LOSS OF FISH BUYING MARKFT3 DURING OUR KING AND SILVER SALMON SEASONS OVER
THE LAST FEW YEARS HAS HAD A BAD EFFECT, DEVELOPING A LOCAL INDUSTRY THAT
CAN PROCESS AND SPILL OUR VARIED LOCAL SEAFOOR RESOURCES WOULD BE HELPFUL
TO MY STORE ANI3 ANY OL HEK. BUSINESS ASSOCIATED WITH THE COMMUNITY.
SINCERELY
JACK WELBOURNE
JACKS NEW MESHIK MALL
PORT HEIDEN, AK