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HomeMy WebLinkAboutBristol Bay Development Study Vol. 1 Bristol Bay & It's Fisheries 1983BRISTOL BAY DEVELOPMENT STUDY VOLUME 1 BRISTOL BAY AND ITS FISHERIES Prepared For: Alaska Department Of Community & Regional Affairs (DCRA) ~*~, And x Bristol Bay Native Association TAMS TIPPETTS - ABBETT -Mc CARTHY- STRATTON A PROFESSIONAL CORPORATION ENGINEERS Mike Black Planner IV Alaska Dept. of Community and Regional Affairs Municipal and Regional Assistance Division P.O. Box 199041 Dillingham, AK 99576 Dear Mr. Black: We are pleased to submit herewith the final report of Volume l, Bristol Bay and Its' Fisheries, for the Bristol Bay Development Study. This volume presents a review of current and historical harvest levels, the number of participants involved, facilities used, revenues earned and the distribution of those revenues among the harvesting, processing, and transportation sectors of the industry, and the current economic condition of the Bristol Bay fisheries. We are very appreciative of your support as well as that of Jim Timmerman of the Bristol Bay Native Association. The assistance of all concerned is gratefully acknowledged. truly yours, TIPPETTS ETT- CARTHY-STRATTON Michael G. Horton, P.E. Project Manager 4791 BUSINESS PARK BOULEVARD, SUITE ONE - ANCHORAGE, ALASKA 99503 + TELEPHONE (907) 562-2822 BRISTOL BAY DEVELOPMENT STUDY VOLUME 1 BRISTOL BAY AND ITS FISHERIES Prepared For: Alaska Department Of Community & Regional Affairs (DCRA) And Bristol Bay Native Association “The Preparation of this Report was Financed by Funds from the State of Alaska, Administered by the Municipal and Regional Assistance Division, Department of Community and Regional Affairs.” A 2 es “a0le-£ 85 i TAMS We Paaressiw TIPPETTS-ABBETT-McCARTHY-S T R A T I O N @&@ ENGINEERS Wary —_— A PROFESSIONAL CORPORATION FRANK ORTH & ASSOCIATES, INC. CHAPTER 1 - CHAPTER 2 - RELATIONSHIP TO OTHER BRISTOL BAY STUDIES CHAPTER 3 - BRISTOL BAY COMMUNITIES AND ADMINISTRATIVE CHAPTER 4 - BRISTOL BAY DEVELOPMENT STUDY VOLUME I - BRISTOL BAY AND ITS FISHERIES TABLE OF CONTENTS STUDY GOALS AND OBJECTIVES Primary Objective Principal Study Requirements Secondary Tasks Other Considerations Study Format Evaluation of Local Herring Processing in Bristol Bay Bristol Bay Underdeveloped Commercial Fisheries Potential Salmon Quality Assessment Bristol Bay Household and Fishing Income Study Synthesis DISTRICTS REGIONAL ADMINISTRATION Bristol Bay Native Association Bristol Bay Native Corporation Bristol Bay Borough FISHERIES DISTRICTS Naknek-Kvichak Egegik Ugashik Nushagak Togiak THE COMMUNITIES Definition of Study Area Community Profiles THE FISHERY: HARVESTING SALMON HARVESTING Permits Vessels Gear Type Fishery Patterns Harvests Fluctuations in the Harvest Harvests by Fishery District THE HERRING HARVEST Herring Sac Roe Fishery Roe-on-Kelp Fishery The Fleet Harvests Future Harvests 1-4 oD at ed eh et ' WWnN N i = eye me | NN Ww 1 _ | ! WVU &WWNND = = EMO TANCE eae ae rs 1 me eat Tne eae =] 2] 2442 0NUNWWDd == NBWWWD CHAPTER 5 - HERRING CHAPTER 6 - CHAPTER 7 - CHAPTER 8 - THE FISHERY: PROCESSING AND PRODUCTS PAST TRENDS AND STRUCTURAL CHANGES IN THE REGIONAL INDUSTRY Salmon PROCESSING AND PRODUCTS SUMMARY SALMON PROCESSING WITHIN THE BRISTOL BAY REGION Freezing Canning Curing PROCESSING BRISTOL BAY SALMON OUTSIDE THE REGION Fresh Salmon Export by Air Brine Export PRODUCT DISTRIBUTION AND MARKETS Introduction PRODUCTS SUMMARY DISTRIBUTION AND MARKETS Frozen Salmon Fresh Salmon Canned Salmon TRANSPORTATION SYSTEMS TRANSPORTATION OVERVIEW FISHING FLEET SERVICE FACILITIES Boat Harbors Boat Storage Other Services MARINE CARGO TRANSPORT Shipping Services Docking Facilities AIR TRANSPORTATION Airports Services PRODUCT PRICES, MARGINS, REVENUES, AND EXPENDITURES PRODUCT PRICES Species and Product Forms Included Sources and Limitation of Price Data General Price Trends Prices for Specific Species/ Product Forms by Market Level Sockeye Salmon Pink Salmon Chum Salmon Coho Salmon f fe = NOOO SS tl is |=--0UR BWNDN = ao ' = i t-4 ee a =—--=-= © © aj Nas os = =e foocodeoMoomee) ~Twmoae 1 CHAPTER 9 - King Salmon Salmon Roe Togiak Herring Roe MARGINS EARNED AND THEIR USES Harvest Level Processor Level Retail Level Summary of Margin Analysis CATCHES AND REVENUES TO FISHERMEN Salmon Herring PROCESSING REVENUES AND EXPENDITURES CONDITION OF THE INDUSTRY INTRODUCTION Methods FINANCIAL AND INVESTMENT FACTORS Operating Returns Risk-Reward Relative to Other Investment Opportunities Road to Profitability MARKET FACTORS Supply and Demand Forces Exchange Rates Consumer Tasks STRUCTURAL FACTORS Vertical Integration Limited Entry Foreign Investment Economic Consolidation ATTITUDES OF FISHERMEN AND PROCESSORS RELEVANCE OF INDUSTRY CONDITION FOR PUBLIC INFRASTRUCTURE INVESTMENTS 8-12 8-12 8-12 8-12 8-14 8-15 8-21 8-23 8-26 8-26 8-26 8-31 Xe) | # tet NNRR 1 PREP Au RWOOo WOWOOWOVUOVDOVWODOOUOMO wwovwvw | rPrPOOAN ANAM 9-17 Table Number Died 5.6 uw . ~_ -oO WMDMDBOBDININYNAGVVNUNUW 6 © 0 @ 8 © 0. 0.0: j¢ 0 0.6 PBWNHAWNH HDHD —-—- Of @ oo @ ao oe . . . . ~“ a uw wo LIST OF TABLES Title Bristol Bay Development Plan - Study Communities Bristol Bay Salmon Fishery Permits By Residency 1975-1983 Fishing Vessel Registration By Keel Length, 1975 and 1982 Salmon Net Registration Area Vessel Homeport Bristol Bay Salmon Fishery Historical Harvests 1963-1983 Salmon Harvests By Fishery District Bristol Bay Herring Fishery Number of Participants 1967-1983 Commercial Herring Harvest - Togiak Districts 1967-1983 Bristol Bay Total Salmon Production by Product/ Process Form Total Salmon Production Inside Bristol Bay by Processing Form and Type of Plant Commercial production of Frozen Salmon By Species, 1963-82 Salmon Freezing Plans, 1982 Floating Processors/Operator's Active in Bristol Bay Districts Shore Based Canning Operations in Bristol Bay, 1982 Disposition of Salmon Shipped Unprocessed from Bristol Bay Air Fresh Export/Cash Buying Operations, 1982 B ine Export By Sea - 1982 Bristol Bay Brine Plants, 1982 Togiak Herring Roe Production, 1979-83 U.S. Salmon Exports - Canned Salmon Existing Transport Services - Bristol Bay Existing Docking Facilities - Bristol Bay Bristol Bay Airfields Price Data Sources Bristol Bay Product Prices, 1977 to 1983 Percentage Allocation of Harvest Margins Allocation of Marings at the Harvest Level (Bristol Bay Salmon Drift Gillnetters) Typical Processor Margin Allocations, Canned Sockeye Salmon, 1983 Typical Processor Margin Allocations, Frozen Sockeye Salmon, 1983 Processor Margin Allocations, Frozen Round Herring, 1982 Retail margin Allocations, Canned Pink Salmon Division of 1983 Gross Margins within and Between Vertical Market Levels Table Number 8.10 8.11 8.12 8.13 8.14 8.15 LIST OF TABLES Title Salmon Drift Gillnet Catches and Values by Residency, 1978-1981 Salmon Set Gillnet Catches and Values by Residency, 1978-1981 Herring Seine Catches and Values by Residency, 1978-1981 Herring Gillnet Catches and Values by Residency, 1978-1981 Estimated 1982 Income-Expenditure Flows From Processing Sector Direct Expenditures in Bristol Bay Economy Induced Expenditures Resulting from Initial Direct and Indirect Expenditure of Processing Sector Page 8-27 8-28 8-29 8-30 8-36 8-39 Figure No. ne GS 8 KSPNADU PWN uo 1 -. wo | nN 5=3 5-4 LIST OF FIGURES Title Location Map BBNA Administrative Area Fisheries Districts Naknek-Kvichak District Egegik District Ugashik District Nushagak District Togiak District Historical Distribution of Salmon Harvest by Species 1982 Bristol Bay Total Salmon by Product/Process Form and Type of Plant 1983 Bristol Bay Total Salmon by Product/Process Form and Type of Plant Salmon Production Outside Bristol Bay - All Species Final Product Form by Percent of Toal Production Bristol Bay Frozen Salmon - All Species Processing by Location Outside Bristol Bay Bristol Bay Canned Salmon - All Species Processing by Location Outside Bristol Bay Herring Roe Processing: Floaters and Shoreplants Bristol Bay Salmon Fishery Product Flow Chart Salmon Export Markets Distribution of Bristol Bay Salmon Major Distribution Channels - U.S. Fresh/Frozen Salmon Distribution of U.S. Frozen Salmon U.S. Salmon Exports - 1982 Fresh/ Frozen Major Channels of Distribution for U.S. Canned Salmon - 1982 U.S. Canned Salmon - Market Distribution U.S. Canned Salmon Exports - 1982 Factors Affecting Gross and Net Margins for Fishermen Factors Affecting Gross and Net Margins for Processor/Wholesaler/ Retailer/Exporter Conceptual Income-Expenditure Flows in Bristol Bay Economy from Processing Sector Direct Expenditures Follows Le} ft) o WWWWWWW a 1 PPWWDYD > 1 uo uo | uw 5-5 5-17 5-19 5-19 5-25 v.Gy Sy No = ano I a 8-13 8-33 CHAPTER 1 STUDY GOALS AND OBJECTIVES It is generally perceived that traditionally, the largest share of the economic benefits derived from the Bristol Bay fishing industry is not realized by residents of the region (shown in Figure 1-1) or the state. In order to understand why this is so and what might be done to increase the local and statewide share, the Alaska Department of Community and Regional Affairs (DCRA) and the Bristol Bay Native Association (BBNA) through a legislative appropriation have sponsored the preparation of the Bristol Bay Development Study as one of five Bristol Bay Fisheries Economic Enhancement Studies. The consultant team selected to prepare this study is composed of the firms of Tippetts-Abbett-McCarthy-Stratton (TAMS) and Frank Orth and Associates, Inc. (FO&A). Key objectives and study requirements are: Primary Objective @ To create a plan for public and private investment that will provide for the greatest return to the local and state economies from the Bristol Bay fishing industry. Principal Study Requirements e Identify public and private facility constraints and capa- city shortfalls inhibiting the industry. e Determine infrastructure improvements needed to accommodate harvesting and processing activities and delivery to mar- kets. e Describe and prioritize facility development requirements needed to support the Bristol Bay fishing industry and to 1-1 KOTZEBUE FAIRBANKS UNALAKLEET TAMS gSAND POINT FIGURE 1-1 TIPPETTS-ABBETT-McCARTHY-STRATTON &@ ENGINEERS ALASKA BRISTOL BAY STUDY AREA provide for a greater share of benefits to be retained within the region and the state. Recommendations to be presented include proposed general locations, design con- cerns and cost ranges. Secondary Tasks In order to achieve the principal study requirements a number of secondary but interrelated tasks were formulated, including: e Present a clear picture of the existing structure of the Bristol Bay fisheries and its participants. e Identify and analyze the principal fisheries products of the Bay and the market steps from the time of capture to whole- sale markets. e Identify the magnitude of the benefits derived from the Bristol Bay fishing industry that are not realized by local or state economies, commonly referred to as leakages or revenue drains. e@ Prepare a financial model of the principal Bristol Bay fisheries. e Present an inventory and capacity evaluation of existing infrastructure serving the fishery. @ Compare market demands with existing production capacities. e Investigate the feasibility of a seafood industrial park. e Formulate alternative development scenarios and evaluate the potential scenarios on the basis of economic viability and rate of return to the local economy. Other Considerations The role of the public sector in the fisheries industry both within and outside Alaska has traditionally been limited to Management of the fishery or assistance with development funding through financing support, marketing programs or infrastructure development. Harvesting, processing, transpor- tation and distribution has remained under the control of private enterprise, which is best able to respond to continuous fluctuations in supply and demand, and other factors which influence the prices of locally produced products. Any additional public sector participation in the economic development of the fishery must, therefore, be carefully evaluated in order to avoid direct competition with private industry. Opportunities must also be structured to ensure that those who need the benefits most are able to participate in the proposed development or program. Study Format The results of the study are presented in two volumes. Volume 1 presents an overview of the Bristol Bay fisheries, including the harvesting, processing, and marketing sectors, as well as existing transportation services and facilities and an analysis of product prices, industry revenues, and expenditures. Volume 2 describes the identified constraints to regional development of the fishery, including services as well as local and regional facilities. It presents options for the provision of facilities, analyzes them in terms of capital and O&M costs, potential revenues, and overall economic benefits, and includes a prioritization of recommended projects. CHAPTER 2 RELATIONSHIP TO OTHER BRISTOL BAY STUDIES This study has been prepared in conjunction with four other studies designed to complement the overall goal of integrated fisheries related economic development for the region. The scopes of work of those studies are: 1. Evaluation of Local Herring Processing in Bristol Bay Directed toward providing new market outlets for Togiak gill- netters, the study investigates the feasibility of organizing a locally managed profit making processing and/or marketing operation. 2. Bristol Bay Underdeveloped Commercial Fisheries Potential A test fishery and economic assessment is being conducted in two phases to evaluate the potential for utilization of the inshore bottomfish resource. Phase 1 consisted of an explora- tory fishing program to identify the most promising species for further sampling. Wherever practical the vessels chartered for the test fisheries are typical Bristol Bay models capable of being adapted to pair trawl, gillnet or longline techniques at minimum cost. Given sufficient funding beyond June 1984, biological, technological, economic and regulatory factors will be analyzed in detail for incorporation in the overall development plan. 3. Salmon Quality Assessment The recent shift from canned to fresh/frozen salmon products has placed a much heavier emphasis on quality control in the industry. The study evaluates existing handling and quality control techniques from harvesting to delivery to the consumer. Recommendations to improve unsatisfactory procedures are 2-1 evaluated in terms of their impact on costs, operations and market value. Those measures requiring either infrastructural or facility modifications are incorporated in the development study. 4. Bristol Bay Household and Fishing Income Study Research and data collection from the project provides informa- tion on earnings and costs for Bay residents. Interviews were conducted in 18 of the 29 communities and questionnaires were mailed to seven others. Of key importance to the development study is the assessment of the number of Bristol Bay residents gaining the major proportion of their income from fisheries activity. In this way development options can be structured to favor those groups most needing to increase their participation in the industry. Synthesis Results of the separate studies, where applicable, have been incorporated into the analyses presented in this study, in order to present an overall program for the fishery-related economic development of the region. CHAPTER 3 BRISTOL BAY COMMUNITIES AND ADMINISTRATIVE DISTRICTS The Bristol Bay region is divided into a number of districts covering social, native, fisheries and administrative func- tions. The varying roles of each class of district are dis- cussed below. REGIONAL ADMINISTRATION Bristol Bay Native Association (BBNA) The Bristol Bay Native Association is one of twelve regional associations within the state. Responsible for the social, educational, and economic well being of its members, the BBNA administration area covers 40,000 square miles as shown in Figure 3-l and includes a membership of approximately 3600 native Alaskans. The headquarters office of the association is located in Dillingham. Bristol Bay Native Corporation (BBNC) The Bristol Bay Native Corporation was formed in 1974 based upon the boundaries and membership of the Bristol Bay Native Association. The corporation was the primary vehicle under the Alaska Native Claims Settlement Act (ANCSA) by which land and money was to be distributed to Alaska natives. Each of the 29 Native villages in the region also organized to form separate village corporations as a result of ANCSA. Dillingham is the largest of the village corporations. 3-1 Cape Newenham BRISTOL BAY BOROUGH » A “aX Perryville g ay 3 {% on: > FIGURE 3-1 TAMS BRISTOL BAY TIPPETTS-ABBETT-McCARTHY-STRATTON @ ENGINEERS ALASKA. ADMINISTRATIVE AREA Bristol Bay Borough The villages of Naknek, South Naknek, King Salmon and sur- rounding lands form the area encompassed by the Bristol Bay Borough, shown in Figure 3-l. Incorporated in 1962, the second class borough provides police, fire, health, educational, sewers and road construction services, receiving revenues from state and federal levels in addition to property taxes and a 3 percent raw fish tax. FISHERIES DISTRICTS The Alaska Department of Fish and Game (ADF&G) are responsible for the management of nearly all commercial, sport and sub- sistence wildlife resources in the state (excluding only marine mammals) . To effectively administer the large area, Bristol Bay is divided into finfish statistical districts and also into five fisheries districts. These are shown in Figure 3-2 and include: Naknek - Kvichak The district, shown in Figure 3-3, includes the Kvichak River, Branch River and Naknek River systems. In recent history, the Naknek-Kvichak district has produced the largest commercial salmon catches in the region. Commercial fisheries activity typically begins around June 20th and peaks between July 1-10th. During a strong year up to 930 drift units and 390 set net units may be working the fishery. Activity declines rapidly after July 15th and only a few fishermen participate in the later pink and silver runs. Transportation and service centers in the district include Naknek, South Naknek and King Salmon. FISHERIES DISTRICTS @- TOGIAK DISTRICT @- NAKNEK-KVICHAK DISTRICT @-NUSHAGAK DISTRICT @-EGEGIK DISTRICT ©-UGASHIK DISTRICT TAMS TIPPETTS-ABBETT-McCARTHY-STRATTON @ ENGINEERS A PROFESSIONAL CORPORATION ALASKA PORT HEIDEN —_ FIGURE 3-2 BRISTOL BAY FISHERIES DISTRICTS KVICHAK TIPPETTS-ABBETT-McCARTHY-STRATTON @ ENGINEERS A PROFESSIONAL CORPORATION ALASKA BAY Source: ADF&G Copenhagen Creek Graveyard Creek Libbyville FIGURE 3-3 BRISTOL BAY FISHERIES NAKNEK-KVICHAK DISTRICT Egegik The Egegik fishery district, shown in Figure 3-4, is centered around Egegik Bay, at the mouth of the Egegik and King Salmon River drainages. Annual sockeye catches from the district have averaged 1.75 million fish with a record 6.7 million being harvested in 1983.* Landings usually begin in early June with catches remaining small until mid to late in the month when drift gillnetting gets underway. Peak activity is reached between the end of June and drops off dramatically after July 10th-15th. During the peak of the run up to 250 drift boats and 200 set net units are active in the district. Processing and limited services are available in Egegik. A large portion of the catch is delivered to floating processors or to facilities in the Naknek/South Naknek area. Ugashik The Ugashik District, shown in Figure 3-5, is situated along the northwest coast of the Alaska Penninsula approximately 50 miles south of Egegik. The district includes Ugashik Bay, the Ugashik River and the Mother Goose River System. Total salmon harvests are much lower than the other four Bristol Bay districts. During the 1983 season about 3 million sockeye were recorded (based on preliminary statistics), compared with an average of 0.47 million during the 1973 to 1982 seasons. Most of the catch is processed either by floating plants or at Egegik and Naknek. * provisional figures, ADF&G. 3-3 Source: ADF&G king Salmon River EGEGIKE BAY Goose / In Point FIGURE 3-4 TIPPETTS-ABBETT-McCARTHY-STRATTON i ENGINEERS BRISTOL BAY FISHERIES AAA EGEGIK DISTRICT TAMS TIPPETTS-ABBETT-McCARTHY-STRATTON A PROFESSIONAL CORPORATION ALASKA Smokey reek Dago Creek OGASHIK BAY ENGINEERS King Salmon Aver Cape Menshikof Source: ADF&G Pilot Point ‘Dog Salmon River FIGURE 3-5 BRISTOL BAY FISHERIES UGASHIK DISTRICT According to the 1980 Census, Ugashik village has only 13 year round residents and Pilot Point, the other community in the district, has a recorded population of 66 persons. Summer populations of both communities triple during the fishing season with the principal economic activities of all residents being dependent on the commercial fishery. Nushagak Shown in Figure 3-6, the Nushagak district includes Nushagak Bay south of the old village site of Nushagak. Several major Spawning rivers enter Nushagak Bay, including the Wood River, Igushik River, Snake River, and the Nuyakuk/Mulchatna/Nushagak Rivers System. The district is distinct from other Bristol Bay Management area districts by its production of significant harvests of king, chum and coho salmon in addition to sockeye. A significant even year run of pinks are also harvested. Annual total catches have averaged 4.34 million fish from 1973-1982 accounting for 32.13 percent of the Bristol Bay harvest. Coastal communities within the district include Dillingham, Clark's Point and Ekuk. Aleknagik is about 13 miles upstream on the Wood River. Facilities and services are centered in Dillingham. Togiak The most westerly district in the Bristol Bay Fisheries Manage- ment Area encompasses Togiak Bay and the Togiak River, as shown in Figure 3-7. Togiak average salmon harvests represent less than 5 percent of the total Bristol Bay catch. The district is Managed on a fixed fishing schedule of either four or five days per week with fishing periods being increased or shortened depending upon escapement. Source: ADF&G Igushik River Scale ; ' ee ee Repel 1012345 67 BMiles pit Protection P2 Point \ i ~~ s Pn \ ae ---—- . l eee oe . \ a 2 ae 3 \, _ Coffee @\ ey po Point \ ee By %, NUSHAGAK B\ 7 o “e)Clark's - 2 2\, BAY Ekuk Point / . \ /” Dillingham “A c\ Ekuk es A, ay Bluft \ ‘ \ \ "Se \ ote A Etolin Point TAMS FIGURE 3-6 TIPPETTS-ABBETT-McCARTHY-STRATTON i ENGINEERS BRISTOL BAY FISHERIES A PROFESSIONAL CORPORATION ALASKA NUSHAGAK DISTRICT Source: ADF&G Scale 5 O 5 10 I5 20 25 Miles GOODNEWS BAY KULUKAK BAY TOGIAK f Right Hand BAY Point Hagemeister Cape "~. Island Newenham Cape Constantine TAMS FIGURE 3-7 ee BRISTOL BAY FISHERIES ALASKA TOGIAK DISTRICT The district is also an important spawning habitat for herring. Although the fishery was almost non-existent eight years ago recent improvements in market conditions have caused a dramatic growth in recent years, resulting in a yield of 43.1 million pounds in 1982. Since the herring fishery takes place shortly before the Bristol Bay Salmon run, floating processors are able to take advantage of both runs and remain in the area for a longer period. THE COMMUNITIES Definition of Study Area As the focus of this study is on the fisheries-related develop- ment of the Bristol Bay area, the primary study region was limited to the area within the ADF&G Salmon Net Area Code (T). A number of coastal communities within the boundaries of the BBNA and BBNC region shown in Figure 3-1 are not participants in the Bristol Bay fisheries. It follows that any recommenda- tions derived from this study will therefore have only a minor impact on communities such as Chignik and Perryville and only limited relevance to those such as Port Heiden. For this study the Bristol Bay communities have therefore been categorized in Table 3.1 according to their level of participation in the fishery. Community Profiles Detailed descriptions of almost all the study communities can be found in the DCRA Community Profiles and are not repeated here. 3-5 Residence and working patterns vary considerably throughout the region. Table 3.1 shows a pattern of principal fisheries centers subject to large population increases in the summer, against inland or outlying communities whose summer populations decrease substantially as residents move to fish camps or to the areas of main fisheries activity. It can also be seen from the tables that with the exception of Dillingham and Togiak, all of the villages have permanent resident populations of less than 400 persons. 3-6 TABLE 3.1 BRISTOL BAY DEVELOPMENT PLAN - STUDY COMMUNITIES Resident Summer Population Population Fisheries Coastal Communities (BBNA-80) (Estimated) Center NAKNEK-KVICHAK FISHERIES DISTRICT Levelock 90 30 Portage Creek 80 ig King Salmon 200 1000 * Naknek 350 2500 * South Naknek 160 2500 ® EGEGIK FISHERIES DISTRICT Egegik L355 1100 * UGASHIK FISHERIES DISTRICT Ugashik 40 85 = Pilot Point 68 200 * NUSHAGAK FISHERIES DISTRICT Clark's Point 95 250 * Dillingham 1656 5000 * Ekuk 20 700 * TOGIAK FISHERIES DISTRICT Togiak 474 530 * INLAND COMMUNITIES Twin Hills 75 70 Manokotak 280 15 Ekwok 103 80 Aleknagik 227 150 Koliganek 142 100 New Stuyahok 300 *220 Igiugig 45 35 Iliamna 100 60 Kokhanok 101 70 Newhalen 106 20 Nondalton 250 100 Pedro Bay 45 30 COMMUNITIES OUTSIDE BRISTOL BAY FISHERIES AREA Chignik 80 900 * Chignik Lagoon 80 250 * Chignik Lake 120 30 Perryville 101 15 Port Heiden 81 45 Ivanof Bay 50 LS Total Population 5514 15567 3=7 CHAPTER 4 THE FISHERY: HARVESTING One of the first determinations of the study team was to select the fisheries to be included in the analyses in this study. A review of the historical harvest records for the Bristol Bay fisheries gave a very clear conclusion that salmon and herring would be the only species considered in the analyses, since those species make up almost the entire commercial catch of the area. For the sake of clarity the commercial fishery can be viewed as being composed of distinct but interrelated harvesting, pro- cessing, and marketing sectors. In this chapter the harvesting sector is reviewed, with analyses of historical and projected catches, the number and types of boats and equipment used, and the distribution of the activity within Bristol Bay. SALMON HARVESTING Permits Commercial salmon harvesting is a limited entry fishery regu- lated by the Commercial Fisheries Entry Commission (CFEC), and managed by the Alaskan Department of Fish and Game (ADF&G). As shown in Table 4.1, 1821 drift gill net permits and 959 set net permits were issued for the 1983 Bristol Bay salmon registra- tion area. Drift gill net vessels register to fish one of the Bay's five districts and must provide 48-hour notice to move to another district unless an emergency order is issued. TABLE 4.1 BRISTOL BAY SALMON FISHERY PERMITS BY RESIDENCY 1975-1983 Drift Net Set Net Totall Year 19752 1983 1975 1983 1975 1983 Resident 1216 1073 751 741 1967 Non-Resident 843 748 169 218 1012 Total 2059 1821 920 959 2979 2780 1 Total registration - not all permit holders fished. 2 First year following limited entry in 1974. Source: CFEC files. Vessels The salmon drift fleet is composed almost exclusively of vessels in the 30-32 foot length range since vessels longer than 32 feet are not permitted under state law. Smaller vessels are used for set net activity with almost all boats under 25 feet in length. Table 4.2 presents the size distri- bution of all vessels registered to participate in commercial salmon harvesting for the years 1975 and 1982. TABLE 4.2 FISHING VESSEL REGISTRATION BY KEEL LENGTH, 1975 and 19821 Keel Length in Feet Year To 25 Ft. 26-29 Ft. 30-32 Ft. Total 1975 455 243 944 1,642 19821 725 428 1,493 2,646 1 Does not incorporate some vessels which failed to register specifically for Bristol Bay. Source: ADF&G Files. Table 4.3 presents a distribution of boats by listed homeport according to CFEC files. The homeport listing does not neces- sarily indicate the vessel's owner is a resident of that community, but rather only that he has listed the community as the vessel's homeport. The homeport listing, however, does give an indication of vessel distribution among the districts even though as noted above, vessels transfer districts to follow the timing and strength of runs. Of approximately 2,650 vessels with licenses for the Bristol Bay commercial salmon net registration area 1,727 vessels listed Bristol Bay communities as homeport, about 482 list other Alaskan homeports and 342 vessels listed non-Alaska homeports. The remaining boats did not specify a homeport. Gear Type The drift gill net fleet dominates commercial salmon harvesting activity. For the 20-year period from 1961-1980 drift gear has been responsible for 89 percent of the harvest while set gear has been responsible for 11 percent. Fishery Patterns The salmon harvest is characterized by intense activity from mid-June through July, rapidly tapering off in August in preparation for the long winter. All vessels involved in Bristol Bay harvesting activity are either dry stored during the winter or they leave Bristol Bay at the end of the season. Each year after breakup, boats begin to return to the area or are launched from the various storage yards throughout the region. A number of the drift gill net boats also have permits for herring as a supplementary activity. By late May or early June, almost all boats in the fleet are in the region preparing for the season. TABLE 4.3 SALMON NET REGISTRATION AREA VESSEL HOMEPORT District/Community Naknek/Kvichak District Levelock King Salmon Naknek South Naknek Iguigig Iliamna Kokhanok Newhalen Pedro Bay Pederson Point District Total Egegik District Egegik Coffee Point District Total Ugashik District Ugashik Pilot Point District Total Nushagak District Aleknagik Clark's Point Clark's Slough Dillingham Ekuk Ekwok Manokotok New Stuyahok Portage Creek Koliganek Etolin Point Nushagak District Total Togiak District Togiak Twin Hills District Total Other Bristol Bay Region Locations Total Bristol Bay Homeports Other Alaskan Homeports Non-Alaskan Homeports Unspecified Homeports Total 4-4 Number of Boats 12 24 423 85 2 30 Prue 191 19 40 43 67 401 45 53 17 15 20 180 24 1, 482 342 95 2, 590 193 59 673 188 24 727 646 Harvests Salmon harvests from the Bristol Bay fishery for the last 20 years are shown in Table 4.4 and illustrated in Figure 4-1. It is evident that sockeye make up the majority of the salmon catch in the area. The Bristol Bay sockeye catch is also an important component of the total U.S. catch. For example, in 1981, the total catch of sockeye was 226 million pounds (NMFS, 1981). The Bristol Bay catch for the same year was 159 million pounds or over 70 percent of the entire nation's catch. The other four species contribute much smaller amounts to the total Bristol Bay catch, as can be seen from Figure 4-l. The second most abundant species harvested in Bristol Bay are chums. Pink salmon are significant only during even years. During odd years, such as 1983, pink salmon catches are mini- mal. The proportion of king and coho to the total harvest are relatively smallest in number, but kings particularly are an important part of the harvest due to their high price to the fishermen. In 1983, sockeye made up over 93 percent of the total harvest, with the remaining proportion contributed by chums, kings and coho with a minimal harvest of pinks. Fluctuations in the Harvest The harvest of salmon from Bristol Bay is not constant, but rather varies widely from year to year. This variation is caused by a combination of a number of factors. First, there are environmental factors which influence the survival of juvenile salmon in the fresh water streams, rivers and lakes where they are reared. Then there are oceanographic conditions into which the young salmon migrate and stay for most of their lives. Finally, there are economic factors and human actions that provide control over the level of human- induced mortality. FIGURE 4-1 HISTORICAL DISTRIBUTION OF SALMON HARVEST BY SPECIES ( 1963 - 83 ) SOURCE: ADF&G 1963 - 1972 KEY SPECIES AVERAGE HARVEST % OF TOTAL (x 1000 lbs) 1 Sockeye 46,155 85.7 2 King 2,063 3.8 3 Chum 3,353 6.3 4 Pink 1,995 3.7 5 Coho 283 0.5 Total 53,849 100.0 1973 - 1982 KEY SPECIES AVERAGE HARVEST % OF TOTAL (x 1000 lbs) 1 Sockeye 68,163 82.2 2 King 2,791 3.4 3 Chum 6,843 8.2 4 Pink 317 752 4.5 5 Coho 1,443 1.7 Total 82,992 100.0 1983 KEY SPECIES AVERAGE HARVEST % OF TOTAL (x 1000 lbs) 1 Sockeye 212,457 9355 2 King 4,285 1.9 3 Chum 9,829 4.3 4 Pink == = 5 Coho 790 0.3 Total 227,361 100.0 TAMS TIPPETTS-ABBETT-McCARTHY-STRATTON @ ENGINEERS YEAR 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 197.5 1976 1977 1978 1979 1980 1981 1982 1983 MEAN Source: SOCKEYE 14929907 29099824 109148575 56816844 27283599 15639954 35094999 101531753 57503922 14497398 5405386 7902378 26943477 34277681 32681796 58576020 126428775 133065778 159421914 96931232 212456940 67781908 ADF&G. CHUM 2331611 5697806 2523808 2574090 3239278 2291883 1964635 4235291 4399889 4267958 4859936 1889936 2050127 9037554 11826414 8338248 6166220 8066361 9884557 6312445 9828900 5589347 TABLE 4.4 BRISTOL BAY SALMON FISHERY HISTORICAL HARVESTS 1963-1983 (pounds) COHO KING 284708 821951 219378 1911643 50923 1649318 254565 1510704 376572 3721053 793679 1835897 569632 2460688 98532 2585402 80067 2718632 97699 1411784 382181 1013012 345586 1022874 398017 533858 202510 1632456 836277 2989045 707032 4577782 2276312 4534195 2439388 1881902 2004269 4542235 4841542 5186532 789960 4285320 902441 2641314 PINK 4648707 7727838 5807508 1370733 393771 3759912 3524246 16488640 8715791 5031120 2873413 ALL SPECIES TOTAL 18368177 41577358 113372624 68884041 34620502 26368921 40089954 109821711 64702510 20668610 11660515 14920686 29925479 48674447 48333532 88687722 139405502 154169220 175852975 118302871 227361120 79788424 ALL LESS SOCKEYE 3438270 12477534 4224049 12067197 7336903 10728967 4994955 8289958 7198588 6171212 6255129 7018308 2982002 14396766 15651736 30111702 12976727 21103442 16431061 21371639 14904180 12006516 Environmental conditions in the fresh water stages are an important determinant on the number of smolts which survive to reach the ocean. Important factors include: water temperature, water flow and turbidity, incidence of parasites, predation, water quality and feeding conditions. Oceanographic conditions determine survival and growth for the salmon as they grow to maturity. They also are an important determinant in the size of the adult salmon. Some of the important oceanographic factors are: ocean temperatures and currents, upwelling in the feeding areas, predation by other fishes, birds and marine mammals and incidence of parasites. All of the factors mentioned above have a direct effect on the size and survival of salmon. Bristol Bay salmon are blessed with very favorable conditions which in combination have made the area so phenomenally productive in recent years. Human related factors that are of importance to the salmon harvest may be classified into two groups. The first group includes factors that determine the level of fishing mortality during any given fishing season. Examples of such factors include the numbers of vessels in the fishery, the types of gear employed, and other components of the amount of fishing effort expended. The driving force behind all of these factors is the demand for processed salmon products from Bristol Bay, and the price these consumers are willing to pay. All of the other actions within this group, even factors such as fisher- men/processor negotiations, and strikes when these negotiations break down, have to operate within the ultimate constraints dictated by the tastes and preferences of the final consumers. The second group of human-related factors are management and regulatory actions. As an example, the salmon harvests have increased rapidly in recent years, due in part to the favorable impact of the Magnuson Fisheries Conservation and Management 4-7 Act (MFCMA). This regulation restricted foreign salmon fishing on the high seas thus reducing the catch of salmon returning to Bristol Bay and contributing to the high levels recently experienced. For the salmon industry, the list of management and regulatory agencies is an extensive one. Many of the management actions are aimed at controlling fishing effort (and therefore fishing mortality) to ensure preservation of the resource. Other types of management actions are directed at allocating access to the resource among different user groups. Examples of just a few of the agencies involved in regulating and managing the Bristol Bay fishery resources include the Alaska Department of Fish & Game, the North Pacific Fishery Management Council, the Inter- national North Pacific Fisheries Commission, the Food and Drug Administration, National Marine Fisheries Service, and the Division of Seafood and Animal Industries of the Alaska Depart- ment of Environmental Conservation. There are many other groups and agencies involved. Harvests by Fishery District To identify local and regional patterns within the Bristol Bay fishery the general fleet and harvest characteristics are allocated among the five fishery districts described in Chapter 3. Historical salmon catches by district are noted in Table a5 Naknek-Kvichak. Historically, the Naknek-Kvichak districts has produced the largest commercial salmon catches in the region. Sockeye harvests during the period 1973-1982 averaged 6.02 million fish per year, representing 59.60 percent of the Bristol Bay total. Total commercial salmon catches for the same period averaged 6.37 million fish per year, or 52.55 percent of the total Bristol Bay harvest. 4-8 TABLE 4.5 SALMON HARVESTS BY FISHERY DISTRICT Naknek- Kvichak Egegik Ugashik Nushagak Togiak Total Salmon Commercial Catch 1973-1982 Average Number 6,372,554 1,815,207 501,318 4,434,284 676,138 13,799,500 of Fish Percentage of 1973-1982 Average 46.18% 13.15% 3.63% 32.13% 4.90% 100% Record/Year 19,198,357 4,604,860 2,012,637 8,906,901 1,167,819 28,070,252 1963-1982 (1965) (1981) (1981) (1981) (1980) (1980) Sockeye Salmon Commercial Catch - 1973-1982 5,967,894 1,745,031 468 , 381 2,798,756 369,639 11,349,700 Average Percentage of 1973-1982 Average Sockeye 52.58% 15.37% 4.13% 24.66% 3.26% 100% Commercial Catch Record/Year 19,139,567 4,480,710 1,949,531 7,713,416 634,561 25,713,212 (1965) (1981) (1981) (1981) (1980) Sockeye Commercial Catch as Percentage of Total Salmon Commercial Catch 93.65% 95.97% 93.43% 63.11% 54.67% N/A by District 1973-1982 Average Source: ADF&G, TAMS Engineers. Commercial fisheries activity typically begins around June 20th and peaks between July 1-10th. During a strong year up to 930 drift units and 390 set net units may be working the fishery. Activity declines rapidly after July 15th and only a few fishermen participate in the later pink and silver runs. Fishing vessels offload their catches to tenders, who then deliver the fish to either floating processors, or to shore- based facilities or cash buyers in the Naknek/South Naknek area. During 1983 a total of 41 processors and buyers reported catches from the district. Egegik District. Annual sockeye catches from the district, shown in Figure 4-4, have averaged 1.75 million fish with a record 6.75 million being harvested in 1983.* Since 1973, the Egegik District annual harvests have represented an average of 15.37 percent of the Bristol Bay sockeye commercial catch, and 13.15 percent of the total Bristol Bay salmon commercial catch. Landings usually begin in early June with catches remaining small until mid to late in the month when drift gillnetting gets underway. Peak activity is reached about the end of June and drops off dramatically after July 10th to 15th. During the peak of the run up to 250 drift boats and 200 set net units are active in the district. In general, the fish are offloaded to tenders and are then delivered to shore-based processors in Egegik and Naknek/South Naknek, to cash buyers in Naknek/South Naknek, and to floating processors. Ugashik District. Total salmon harvests in the Ugashik Dis- trict are much lower than the other four Bristol Bay districts, * Provisional figures, ADF&G. averaging slightly less than 4 percent of the total Bristol Bay salmon harvest between 1973-1983. During the 1983 season 3.1 million sockeye were recorded, compared with an average of 0.47 million during the 1973 to 1982 seasons. With only one small shore based processor in the area, most of the catch is processed either by floating plants or at Dilling- ham, Naknek, or Egegik. Nushagak District. The Nushagak is distinct from other Bristol Bay Management area districts by its production of significant harvests of king, chum and coho salmon in addition to sockeye. A significant even year run of pinks are also harvested. Nushagak district historically has been the second most produc- tive district for sockeye salmon in the Bristol Bay Management Area. Annual total catches have averaged 4.34 million fish from 1973-1982 accounting for approximately 32 percent of the Bristol Bay harvest. Provisional catch statistics for 1983 are 5.3 million sockeye out of a total of 6.1 million salmon harvested. Processing facilities in Dillingham accommodate a major portion of the Nushagak catch, with the remainder delivered to cash buyers for processing outside the region or to floating plants. Togiak. Unlike the other Bristol Bay fishing districts, the Togiak district is managed according to a fixed fishing schedule. The salmon fishery is generally operated either four or five days per week, although fishing periods are increased or shortened depending upon escapement. Togiak average salmon harvests represent less than 5 percent of the total Bristol Bay catch. Provisional 1983 catch statistics indicate a sockeye catch of 584,000 fish out of a total Togiak district harvest of approximately 950,000. 4-11 Two shore-based canning companies operating in Togiak process .a portion of the district harvest. The remainder is either tendered to floating processors or flown to Dillingham or Naknek for processing or transshipment outside the region. THE HERRING HARVEST The herring fishery in Bristol Bay is short and intense, occur- ring in the spring, and occasionally impeded by ice. Although the Togiak district has long been known as an important spawn- ing habitat for herring, the area has only been established as a commercial fishery since 1967. During its first eight years of existence, with only 1-3 processors operating in the area, the fishery was relatively small. The herring sac roe fishery was closed down during the 1971 and 1976 seasons due to a lack of buying effort by seafood markets. A new-found interest in Alaska herring was the result of a greater market for the fish, a concurrent decline in world herring stocks, and the opportune timing of the herring run in relation to the Bristol Bay salmon fishery. Additionaly, when the value of the American dollar declined significantly in Japan, an exclusive market with highly attractive investment opportunities was created for Japanese buyers in the U.S. domestic seafood industry. Thus, both through arms-length market transactions as well as equity and/or debt investments in U.S. companies, the Japanese became the nearly exclusive buyer of Bristol Bay salmon. The harvest of herring, and the herring harvesting sector as an economic entity, is totally dependent on this source of demand for final product. Herring Sac Roe Fishery The principal focus of the commercial herring harvest has been the production of sac roe (herring eggs obtained from the harvested adult female) for export to Japan. Herring sac roe 4-12 is in great demand in Japan, and the Japanese and Siberian coasts have essentially been depleted of their herring stocks. Incidental herring production for bait and food markets comes from catches of spawned-out herring and from fish that are below the sac roe recovery rate. The Togiak fishery for sac roe and food/bait herring takes place during the end of April and the month of May. During 1967-1975, the herring sac roe and food/baits fishery produced between 55.2 to 269 thousand pounds of fish, an average volume of 152.1 thousand pounds of herring. Roe-on-Kelp Fishery Considered to be basically a cottage industry, another aspect of the herring fishery is the harvest of intertidal rockweed kelp for the collection of herring roe. Heavy concentrations of herring enter subtidal areas to spawn amidst the kelp beds. The rockweed kelp is harvested by methods restricted to hand- picking or handheld rakes, and the herring eggs are then retrieved. The Fleet For the 1983 Bay herring fishery approximately 250 gillnet and 150 purse seine permits were issued. Since the fishery is not subject to limited entry the only requirement for participation is the acquisition of a permit from ADF&G. Table 4.6 shows the number of vessels participating in the fishery since its beginning in 1967 to the present. Similar to the pattern for the harvest, the number of vessels partici- pating in the fishery has expanded rapidly since 1977. The number of gillnet vessels has increased from 43 in 1977 to 250 in 1983. The largest number of participants was 363 in 1980. 4-13 TABLE 4.6 BRISTOL BAY HERRING FISHERY NUMBER OF PARTICIPANTS 1967-1983 NUMBER OF VESSELS NUMBER OF FISHERMEN YEAR GILLNET PURSE SEINE HERRING ROE ON KELP 1967 27 1968 35 2 1 1969 22 1 3 1970 16 1 5 19711 - - 12 1972 18 1 i2 1973 26 1 10 1974 10 1 26 1975 39 - 44 19761 - - 49 1977 43 6 75 1978 40 25 160 1979 350 175 100 1980 363 140 78 1981 106 83 108 1982 200 135 214 19832 250 150 125 1 Herring sac roe fishery did not operate in 1971 and 1976. 2 preliminary ADF&G estimates. Source: Alaska Department of Fish & Game, Annual Management Report for 1982. 4-14 The number of seine vessels in the fishery has grown from 6 in 1977 to 150 in 1983 with the largest number of participants being 175 vessels in 1979. Almost all craft involved are also registered to fish salmon and therefore fall within the 32 foot limit restriction. Product is transferred to floating processors for freezing in the round or stripping prior to shipping to a Japanese dominated market. Receiving and transporting vessels are normally Japanese long liners returning from fisheries off the California and Oregon coasts. Harvests The commercial herring catch from the Togiak District is shown in Table 4.7 for the years from 1967 through 1983. The inshore roe fishery began in 1967. The fishery operated at relatively low catch levels until 1977 when it began to experience rapid growth as a result of expanded market opportunities. The gillnet catch has grown from 614,622 pounds landed in 1977 to the 1982 peak level of over 13 million pounds landed. From 1977 to 1983, the seine catch has grown from 4.9 million pounds to over 44 million pounds. The fishery for herring roe on kelp has experienced more modest growth from the initial harvest in 1968 of 54,600 pounds to 270,774 pounds in 1983. The peak harvest of roe on kelp was in 1979, when almost 415,000 pounds were harvested. A comparison of Tables 4.6 and 4.7 shows that the majority of the herring harvest is taken by purse seiners. Although gillnet vessels make up the largest share of the fleet, the seiners accounted for over 80 percent of the 1983 harvest, due to their larger fishing capability. 4-15 TABLE 4.7 BRISTOL BAY DEVELOPMENT STUDY COMMERCIAL HERRING HARVEST - TOGIAK DISTRICT 1967-1983 (LBS) ROE PURSE ON YEAR GILLNET SEINE KELP TOTAL 1967 269010 269010 1968 135608 45202 54600 235410 1969 36029 58785 10125 104939 1970 36934 18191 38855 93980 19711 - 0 51795 51795 1972 64386 95579 64165 224130 1973 101430 - 11596 113026 1974 39514 207446 125646 372606 1975 112455 - 111087 223542 19761 - - 295774 295774 19772 614622 4972848 275774 5863244 1978 1240092 14261058 327858 15829008 1979 8921430 13382145 414727 22718302 1980 6260083 32921003 189662 39370748 1981 4513547 20561713 378207 25453467 1982 13367504 29753476 234924 43355904 19833 9718493 44273136 270774 54262403 1 Fishery inoperative due to lack of buyers. 2 Gillnet and purse seine after 1977 are preliminary estimates. 3 Preliminary estimate ADF&G, F. Orth & Associates. Source: ADF&G Annual Management Report, 1982. 4-16 Future Harvests The herring harvest is predominantly composed of 4 year old stock, with a smaller proportion of 3 year old fish. If some Major disaster occurs to herring stocks, it would be indicated one year in advance by the lack of three year old fish in the harvest. The converse, however, is not necessarily true. If the harvest indicates a large abundance of 3 year old fish, that year class would not necessarily show up in great abundance the next year as 4 year old fish, due to predation and other factors. The actual strength of the herring run is not known until the aerial surveys of the spawning herring are completed just before the commercial season is opened. These initial estimates are then adjusted in-season based upon fishing results. The most reliable estimates of future abundance are based on the past trends in harvest levels, modified by known factors which will affect abundance. The herring harvests are expected to continue at a level similar to the 1983 harvest for at least the next few years, due to a conservative management approach. Since biologists are unsure of the total population size and the dynamics among sub-stocks which spawn in different areas, the exploitation rate is set to be a small percentage of the estimated harvestable population to ensure that overharvest does not occur. 4-17 CHAPTER 5 THE FISHERY: PROCESSING AND PRODUCTS PAST TRENDS AND STRUCTURAL CHANGES IN THE REGIONAL INDUSTRY Salmon Until very recently, Bristol Bay's commercial seafood produc-— tion was dominated by canned salmon processed at the region's shore-based cannery facilities. Commercial salmon canning was first established in Bristol Bay in 1884 with the construction of a salmon cannery at a Nushagak River site. By 1920, twenty- five salmon canneries and numerous salting stations were operating within the region. The mainstay of the region's seafood industry has been the large, self-sufficient cannery operations that employed local fishermen in a traditional “company store" relationship. Fishermen would focus their loyalties upon a single cannery to which they would exclusively deliver their harvests, in return for the assurance of a dependable buyer, fishing gear, vessels, fuel and storage provisions. Until recently, most of Bristol Bay's salmon canneries have been owned by operators from outside the region. The success of the commercial harvest and production of Bristol Bay salmon has been almost consistently cyclical, with healthy and poor returns occurring approximately every five years. Many of the local cannery operations were closed down in the late 1930's due to drastic declines in salmon returns, however, canned production continued to dominate the industry until the 1970's. In 1974, another severe decline in returning salmon stocks led federal and state governments to declare the Bristol Bay fishery an economic disaster area. The commercial seafood industry recovered following a transi- tion of economic growth that was aided by the financing of Processor profits, foreign investment, and the strengthened salmon runs of the Bristol Bay fishery. It was during this period that the current level of production capability of the region's shore-based facilities was reached. A significant shift within the local industry away from canned Production has largely precluded cannery expansion beyond the level reached during the 1970's. This shift has been attrib- uted to several market occurrences: @ An increased demand for frozen Alaskan salmon within the Japanese market. e Relatively low abundance of "canning" species in some years made opening a cannery for the season economically in- feasible. e The recent presence of floating processors and the competi- tion they present to the cannery companies by purchasing fish from local fishermen for the production of frozen salmon. e The recent presence of cash buyers and the competition they present to the cannery companies by purchasing salmon to export to processing plants outside the region. e A generally depressed market for canned salmon that was fueled by quality-control problems and a subsequent consumer disinterest in the product. These conditions, in combination with a history of lengthy price disputes between local fishermen and shore-based pro- cessors, have greatly diminished the historical influence of cannery operations over the local seafood industry. 5-2 In recent years frozen production and fresh salmon export has dramatically increased. Floating processors have contributed significantly to the region's processing capability. In 1978, only slightly over 10.5 million pounds of salmon was frozen in the region. By 1982, production of frozen salmon had increased sixfold to almost 68 million pounds, with 70 to 75 percent of the production performed on floating processors. In the years 1979-81 the region's shore-based processors were responsible for 63 to 65 percent of Bristol Bay's salmon production. In 1982, this figure dropped dramatically to 39 percent, attributable to price negotiation delays, depressed economic conditions within the seafood industry, and the well-publicized botulism contamination of Alaskan canned salmon. In 1983 canning accounted for slightly over half of the total production. In addition to reshaping the general character of Bristol Bay's seafood industry, events over the past two decades have also resulted in a substantial turnover in the ownership and opera- tion of shore-based facilities. Several of the well establish- ed operators have experienced severe financial difficulty and a few have been forced to close down operations. Other local cannery operators have responded to the recent trends and competition by diversifying their activities. Many shore-based facilities have been renovated, and cannery equipment has been supplemented with freezing accommodations, floating processor vessels and/or air export capabilities. The Whitney-Fidalgo cannery at Naknek is an example of this diversification. The operation has freezing floaters working in the waters of Naknek-Kvichak, Egegik and Ugashik districts, it airships fresh salmon from the bay area to its plant in Anchorage, and it exports brine-packed salmon by sea. Industry dynamics prevent a quantitative assessment of existing processing capacity constraints. The trend has been that 5-3 temporary constraints in one area of production have been quickly accommodated by another. While the number of floaters within a district will fluctuate throughout the fishing season in response to harvest and market conditions, the activities of floaters within each district has a large effect on the overall production capability of the entire region. Moreover, the transient nature of the floating operation means that regional processing capacity can be supplemented by additional floaters coming into the region if required. Many local operators presently work in multiple areas of production such as freezing, fresh salmon, canning and curing. As a result, the emphasis of processing effort by individual companies can be shifted as the markets dictate. PROCESSING AND PRODUCTS SUMMARY At present, the Bristol Bay commercial salmon harvest is either directly processed at facilities within the region, or it is exported to processing and distribution centers outside the Bay area. A summary of the total Bristol Bay salmon production, both inside and outside the region, is shown in Table 5.1. Processing distribution for the 1982 and 1983 harvest are shown graphically in Figures 5-1 and 5-2. In 1983, frozen round and dressed products by floating plants in the region made up the largest single component of the processing effort, accounting for about 34 percent of the total catch. Shore-based plants in the region froze 11 percent and canned another 29 percent of the harvest. About 23 percent of the total catch was shipped unprocessed to other regions for sale or processing. More detailed reviews of the Bristol Bay salmon processing effort both within the region and in other areas are discussed in the following sections. 5-4 TABLE 5.1 BRISTOL BAY TOTAL SALMON PRODUCTION BY PRODUCT/PROCESS FORM (in thousands of pounds) Fresh Shipped Fresh Total % of Total Total Egg Unproc. to Plnts Shipped Frozen in Qured in Canned in Proc. Total Prod. Processed in Prod. fran Year Outside BB Proc. in BB Bristol Bay Bristol Bay Bristol Bay in BB of BB Salmon Bristol Bay BB Harvest 1965 4,486 0 391 61 109,792 110,244 114,730 0.96 3,086 1970 13,328 187 3,979 292 88,549 93,007 106,335 0.87 3,040 1975 5,136 585 909 32 23,039 24,565 29,701 0.83 872 1976 5,241 500 1,950 4 39,654 42,108 47,349 0.89 1,351 1977 4,806 363 16,852 2 26,310 43,527 48,334 0.90 1,573 1978 18,745 550 10,642 803 58,524 70,519 89,264 0.79 2,769 1979 43,563 600 42,907 3,806 53,122 100,435 143,998 0.70 5,032 1980 53,356 650 38,306 4,554 50,195 93,705 147,061 0.64 5,195 1981 48,687 700 54,655 5,134 62,483 122,972 171,659 0.72 6,010 1982 28,077 750 67,958 3,590 18,005 90, 303 118,380 0.76 4,489 1983 $2,318 759 103,084 5,224 65,975 175,043 227,361 0.77 8,191 Campiled by Frank Orth & Associates, Inc. Source: ADP&G Fisheries Management Data, Industry Sources. FIGURE 5-1 1982 BRISTOL BAY TOTAL SALMON PRODUCTION BY PRODUCT /PROCESS FORM AND TYPE OF PLANT (IN THOUSANDS OF POUNDS) TOTAL BB HARVEST (118,380) SOURCES: ADF&G DATA INDUSTRY SOURCES 99% INSIDE ALASKA FRESH SHIPPED FRESH SHIPPED PROCESSED FROM UNPROCESSED TO COMPILED BY FRANK ORTH & ASSOCIATES, INC. FROZEN IN CANNED BRISTOL BAY IN BB JOREPLANTS PLANTS OUTS: SH Al TSIDE BB 1% OUTSIDE (67,958) (18,005) (750) (28,077) ALASKA EGG PROD. FROZEN FLOATERS FROM BB (21,358) (50,969) HARVEST CANNED (5,496) FROZEN FROZEN FROZEN ROUND DRESSED (16,140) 4 { TIPPETTS-ABBETT-McCARTHY-STRATTON Mf ENGINEERS (43,324) | . DRESSED | FIGURE 5-2 1983 BRISTOL BAY TOTAL SALMON PRODUCTION BY PRODUCT /PROCESS FORM AND TYPE OF PLANT (IN THOUSANDS OF POUNDS) TOTAL BB HARVEST (227,361)1/ SOURCES: 1/PRELIMINARY ADF&G DATA INDUSTRY SOURCES 2/ESTIMATES BASED UPON 1982 RATIOS COMPILED BY FRANK ORTH & ASSOCIATES, INC. 98% INSIDE ALASKA FRESH SHIPPED FRESH SHIPPED FROZEN IN CANNED PROCESSED FROM UNPROCESSED TO BRISTOL BAY IN BB SHOREPLANTS PLANTS OUTSIDE BB 2% OUTSIDE (103,084) (65,975) (759) (52,318) ALASKA EGG PROD. FROZEN SHOREPLANTS FROM BB (19,688) FLOATERS (77,313) 2/ (25,771) 2/ HARVEST (8,191) CANNED (31,208) FROZEN FROZEN ROUND (23,194) L 4 TAMS TIPPETTS-ABBETT-McCARTHY-STRATTON @ ENGINEERS FROZEN FROZEN DRESSED ROUND (24,482) (1,288) DRESSED (64,119) ee = | SALMON PROCESSING WITHIN THE BRISTOL BAY REGION As shown in Table 5.2, salmon processing within the region essentially falls into two categories: @ processing performed at shore-based facilities (canning, freezing or curing) and, e processing performed aboard floating processor vessels (primarily freezing). The region's two major centers for cash buying and shore-based processing activities are at Dillingham in the Nushagak dis- trict and at Naknek/South Naknek in the Naknek-Kvichak dis- trict. For the most part, the remainder of the region's processing is performed aboard floating processor vessels which operate in the waters of all the Bristol Bay fishing districts during the fishing season. Dillingham has five major processing plants that freeze product and one that operates canned production. The major shore based processing plants in the Naknek/South Naknek area include Alaska Far East Corp.; Alaska Packers Association (ConAgra); Bumble Bee Seafoods; Nelbro Packing Co.; Red Salmon Co.; and Whitney Fidalgo. Other important shore based processing plants in the region include the Diamond-Beauty plant in Egegik; Columbia-Wards Fisheries in Ekuk; Queen Fisheries in Clarks Slough; and Togiak Fisheries in Togiak. Freezing Within the past few years the private sector has responded to market conditions by purchasing or contracting with floating Processors to operate in the region during the peak of the season, or by investing in additional freezing capacity in shore based facilities. Consequently, there has been a large increase in frozen salmon production, as shown in Table 5.2. 5-6 L-sS PRODUCT/ PROCESSING Frozen Floaters Shoreplants Total Canned Ploaters Shoreplants Total Cured Ploaters Shoreplants Total Production Ploaters Shoreplants Total Compiled by Frank Orth & Associates, Inc. 1965 NA Tio, BY PROCESSING FORM AND TYPE OF PLANT 1970 N/A N/A 1821 TABLE 5.2 TOTAL SALMON PRODUCTION INSIDE BRISTOL BAY (thousands of pounds) 1975 z > fj 35 1976 $$ ss a Source: ADF&G Fisheries Management Data, Industry Sources. Estimates based upon 1982 ratios. N/A indicates no data currently available. 1977 11,797 5,055 6,852 526 25,784 36,310 363 i 12,323 31,203 di 1978 a to © 6S SB 1979 3,654 152 3,806 34,976 64,859 1980 Be ww Rw ow : oO a ol 1981 1982 Frozen production accounted for 40 percent of the regional product in 1980. By 1982 this proportion is estimated to have increased to 75 percent; it declined in 1983 to an estimated 59 percent due to adverse market conditions for frozen production. A summary of the regional production of frozen products by species is shown in Table 5.3. The production of frozen sockeye generally follows a similar pattern to total frozen salmon production, with the exception of the 1983 frozen sockeye product which represented 80 percent of all sockeye processed in the region. This sharp increase has been attri- buted to the unusually large sockeye run in combination with limited shoreside canning capacity during the 1983 season. During the 1982 season, there were 46 processors engaged in salmon freezing activities in the Bristol Bay region. Eleven of these operations were at shore based plants and thirty six were based on floating processor vessels (A. Kemp Fisheries of Dillingham conducted freezing operations at a shore based Plant as well as aboard a floating processor). Six of the shore based facilities are also involved with canned salmon Production. Table 5.4 presents the locations and production of frozen salmon processors in Bristol Bay during 1982. Floating Processors. Floating processors are relatively new Participants in Bristol Bay's seafood industry. The presence of these operators signifies the changing character of the industry, away from a market predominantly oriented toward case pack production to one geared to both frozen and canned salmon Production. Between 70 and 80 percent of the region's frozen production is now carried out aboard floating processor vessels as shown in Table 5.2. Their use has become a standard prac- tice to accommodate salmon harvests which can exceed the capacity of the region's shore based facilities. By moving from district to district or operating in other regions and fisheries the floating processor also provides a better return 5-8 6-S TABLE 5.3 COMMERCIAL PRODUCTION OF FROZEN SALMON BY SPECIES, 1963-82(1) Production in Pounds Year Sockeye King Chum Pink Coho Total 1963 185,957 115,540 80,539 7 19,002 401,045 64 467,849 18,784 29,799 36 36 516,504 65 367,461 19,360 4,361 391,182 66 262,825 10 ,628 107,250 12 322 381,037 67 201,146 356,223 69,910 40,908 668,187 1968 99,120 184,222 48,485 331,827 69 421,248 353,256 6,537 7,669 788,710 70 3,234,500 535,159 175,504 33,368 50 3,978,581 71 1,812,864 356,422 115,388 12 40,925 2,325,611 72 54,571 362,653 60,466 790 24,308 502,788 1973 186,663 557,422 307,790 ll 98,115 1,150,001 74 147,475 281,821 7,212 113,241 582 550,331 75 101,751 230,045 133,339 444,344 909,479 76 883,620 570,837 163,030 215,176 117,603 1,950,266 77 586,098 1,155,791 336,283 258 235,607 2,314,037 1978 6,306,661 1,848,951 761,029 1,580,236 145,355 10,642,232 79 38,031,872 2,291,378 1,231,334 2,451 1,350,300 42,907,335 80 31,855,642 1,189,870 1,391,797 3,040,765 828,114 38,306,188 81 49,613,633 2,602,066 1,371,467 2,652 1,065,573 54,655,391 82 57,636,789 3,045,713 2,183,075 2,346,198 2,746,413 67,958,188 20-Year Average 9,622,887 804,307 429,230 732,982 3,582,613 11,581,446 1963-72 Average 710,754 231,225 69,824 6,841(2) 13,322 1,028 ,547(2) 1973-82 Average 18,535,020 1,377,389 788 ,636 1,459,123(2) 703,201 22,134,345(2) (1) Includes only fish processed in Bristol Bay. (2) Includes even years only. Source: ADF&G Fisheries Management Data. District Naknek-Kvichak Egegik Ugashik Nushagak Togiak TABLE 5.4 SALMON FREEZING PLANTS, 1982 Served by Number of Total Frozen Plants in: Floaters Production Naknek (3) 20 19,289,909 lbs South Naknek (1) Pederson Point (1) Egegik (2) Naknek (2) 16 8,664,913 lbs South Naknek (1) Pederson Point (1) Naknek (1) 19 5,204,963 lbs Dillingham (1) Dillingham (1) Ekuk (1) Naknek (1) 23 31,324,213 lbs South Naknek (1) Pederson Point (1) Togiak (1) Dillingham: 5 3,474,190 lbs Tendered to to Nushagak District for Freezing (1) Total 67,958,198 lbs 5-10 to the owner in terms of the amortization of capital costs. The number of floaters working in Bristol Bay varies from year to year depending on the preseason forecasts and market conditions. During the 1981 season 48 floaters were active in Bristol Bay and in 1982 about 45 floaters participated in the fishery. Table 5.5 presents a listing of the floating processors that were active in Bristol Bay during the 1982 season and the districts in which they worked. The presence of the floaters also has an important influence of the region's freezing capacity. The general trend in the industry appears to be providing increased capacity, utili- zation and mobility by using floating processors rather than investment in a shore-based plant that may be shut down most of the year. The use of floaters also influences facility and infrastructure requirements. Because fish are delivered to floaters at sea, the demand for fish docks to transfer fish to processing facilities is reduced. In an area like Bristol Bay with significant tidal variations the use of floating processors also has certain operational advantages. Under existing conditions almost all frozen production from both shore based plants and floating processors is delivered to Japanese trampers at sea. As a result, the need to hold product in a shore based cold storage plant is quite limited. However, the dependence of local processors on quick delivery to Japanese trampers limits their capacity to hold product in inventory in Bristol Bay for distribution to alternative markets. Processing capability and production capacity within the bay fluctuates dramatically as the result of individual production decisions among operators. The number of floaters operating at any one time affects capacity within a district 5-11 c1-S M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V M/V TABLE 5.5 Vessel/Operator Bering Trader Sea Alaska Sea Producer R.L. Resoff Alaska I Pribilof Aleutian Dragon Arctic Producer Francis Lee West I Bering Star Arctic Star Jeftfron Lafayette Western Pioneer Al-Ind-Esk-A-Sea Polar Bear Northland Harvester Barge Denali Alaska Enterprise Westward Wind Royal Sea Tempest bountiful Netpune Northern Endeavor Trident All Alaskan Bristol Monarch Arctic Lady Lady Pacific Scotch Cap Polar Shell Yardarm Knot Nicolle N. Jo Linda Cape St. Elias Arctic Fisher Teddy Tiger Hatsue Maru 68 (4 vessels) Ocean Champian Patricia Lee Great Alaska Haren I Polar Ice Alaska (A. Kemp Fisheries) (Alaska Packers) (Alaska Packers) (Alaska Packers) (Alaska Fisheries Co.) (Aleut Western Seafood) (American Eagle Seafoods) (ARPRO Company ) (Comeau International Sales) (Fish West Co.) (Icicle Seafoods) (Icicle Seafoods) (Jeffron Interprises) (Lafayette, Inc.) (Lafayette, Inc.) (Marine Enterprises) (North Coast Seafood Proc.) (Northland Sea Products) (Oceanic Seafoods) (Oceanic Seafoods) (Offshore Fisheries) (Offshore Fisheries) (Pan Alaska Fisheries) (Trident Seafoods) (Trident Seafoods) (Trident Seafoods) (Western Seas Fishermen's Coop) (Western Seas Fishermen's Coop) (All Alaskan Seafoods) (Bristol Monarch) (Comeau International Sales) (Comeau International Sales) (Scotch Cap Fisheries) (Sea Run Seafoods) (Whitney Fidalgo) (Can-Inter. Foods, Ltd.) (Can-Inter. Foods, Ltd.) (Double Star Fisheries) (Sea Fisher Products) (Swiftsure Fisheries) (Swiftsure Fisheries) (Alaska Herring Corp.) (Cold Sea Fisheries) (Daerim America) (Great Alaska Fish Co.) (Nuka Point Fisheries) (Polar Ice Seafoods) (Sterling Seafoods) Naknek/ Kvichak MK KK KKK OK KK KO FLOATING PROCESSORS/OPERATORS ACTIVE IN BRISTOL BAY DISTRICTS Egegik x xx KR KO RK x KKK Ed x x x Ugashik x xx Ke KK KK xx KK xX xx KKK <x Nushagak x KK ~ xx x KX * ~ xxx x KKK KK cured cured Togiak X cured and the region as a whole. Not all floaters are in the region for the entire season. As harvesting activity begins to decrease following the peak of the season, floaters begin to leave for other areas. Canning The production of canned salmon in the Bristol Bay region typically ranges between 60 and 70 million pounds every season, as shown in Table 5.2. The proportion of all salmon produced within Bristol Bay to be canned has fluctuated rather dramati- cally in recent years, however. In 1980, canning accounted for 54 percent of the region's production and remained relatively stable at 51 percent in 1981. By contrast, the canned pro- duction in 1982 represented only 20 percent of the Bristol Bay Product, a reflection of the canned salmon botulism incident that occurred before the season. Although the unusually large Salmon run in 1983 imposed production capacity constraints upon cannery operations, canned production recovered somewhat and accounted for 38 percent of the regional product. According to preliminary statistics, approximately 66 million pounds of salmon were canned in Bristol Bay canneries during the 1983 season. In general, the logistics of canned salmon Production are as follows: local canneries receive fish from tenders, can it and hold their case pack in inventory until shipping it from the region by barge service to Seattle for subsequent market distribution. Major shore based canning operations are located in each of the Bristol Bay fishing districts except Ugashik. As shown in Table 5.6, there were 12 shore based canneries located within Bristol Bay in 1982, with a total estimated daily processing capacity of about 685,000 fish per day. 5=13 rT-S TABLE 5.6 SHORE BASED CANNING OPERATIONS IN BRISTOL BAY, 1982 Operating Lines 1/4 72: 1 1982 Fishing District Location Cannery Pound Pound Pound Production Naknek-Kvichak South Naknek Alaska Packers, Assn. 4 2 2 104,304 T ** South Naknek Bumble Bee Seafoods 2 a Naknek Nelbro Packing Co. 1 3 1 Naknek Red Salmon Co. 2 2 Naknek Whitney Fidalgo Seafoods 1 1 Egegik Egegik Egegik Res. Develop 3 Egegik Egegik Seafoods al 1 27,861 T Ugashik Ugashik Briggs Way Co. 1 (5 oz glass) 186 T Nushagak Ekuk Columbia-Wards Fisheries af 3 Dillingham Peter Pan Seafoods 2 2 103,789 T Clark's Slough Queen Fisheries 1 2; iL Togiak Togiak Togiak Fisheries 1 1 10,500 T Totals 12 plants 25 20 17 246,640 T or 18,005,000 lbs *Does not include Briggs Way which packs salmon in 5 oz glass jars for mail orders. ** Tf = 48 1-lb talls. Most of the region's larger processing plants are essentially self-sufficient, with independent water supply systems, power generating facilities, and fuel storage capabilities. In fact, some of these plants occasionally supply utility services to the communities in which they are located. Capacity Constraints. Cannery operations in Bristol Bay are as intensive as the fishing activity itself. Most canneries work at least two shifts during the season to meet production targets. Although adequate capacity is available to meet production targets, the holding capacity for fresh fish is limited and if a bottleneck occurs because of cannery equipment problems or other reasons, fishermen might be put on limits until the cannery operation catches up with the backlog. It is generally acknowledged by industry sources that adequate canning capacity is available in Bristol Bay to meet production targets and market demand. It is not expected that there will be any significant increase in investment in canning capacity in the foreseeable future. In fact, canning capacity has actually declined in recent years, as the emphasis has shifted to freezing or flying out fresh salmon. Curing Cured production of commercial sockeye salmon in Bristol Bay typically has been responsible for about 3 percent of the total sockeye production, and has ranged from about 3.5 million pounds to almost 5 million pounds. In 1982 only five opera- tors engaged in commercial cured production in Bristol Bay, including two shore based operators and three floating plants. The production of cured salmon strengthened significantly with the strong 1983 salmon run. Approximately 5,333,000 pounds of salmon were cured in the region during this season up from 3.6 million pounds in 1982 and 5.1 million pounds in 1981. 5-15 The majority of Bristol Bay's cured product is salted, with a relatively insignificant amount of smoking being performed. Most cured production occurs aboard floating processors which transfer it directly at sea to foreign freighters. PROCESSING BRISTOL BAY SALMON OUTSIDE THE REGION In recent years a substantial portion of the salmon harvest has been transported outside the region for processing or sale to the fresh market. The exportation of salmon is performed primarily by the following two methods: e@ Fresh salmon are purchased by cash buyers who have it flown directly to processing centers elsewhere in Alaska (such as Anchorage, Kenai, or Kodiak). @ Raw salmon are placed in brine aboard tenders or other vessels and exported by sea (usually to Kodiak or Dutch Harbor) for subsequent processing. A summary of the final disposition of the product shipped fresh from the region is shown in Table 5.7 and illustrated in Figure 5-3. Of the total unprocessed salmon shipped to other areas in 1983, about 54 percent was transported by air. Fresh Salmon Export by Air In 1982, approximately 24.5 million pounds of salmon were exported fresh by air transportation, 20.5 million pounds of which was sockeye. Approximately 75 percent of the total fresh export was eventually processed as dressed frozen salmon, while 10 percent was canned. As a result of the heavy salmon run during the 1983 season, the fresh salmon market experienced an increase in activity. Approximately 29 million pounds of salmon were flown fresh 5-16 FPaon NO AZMowmv CHDH4Oa TNO AZMOBMV 100 90 80 70 60 50 40- 30 20 10 100 90 80 70 tO 60 50 40! 30 20 ie) FIGURE 5-3 SALMON PRODUCTION OUTSIDE BRISTOL BAY - ALL SPECIES FINAL PRODUCT FORM BY PERCENT OF TOTAL PRODUCTION AIR EXPORTED PRODUCT PRODUCT FORM BRINE EXPORTED PRODUCT ‘83 \X AW)JM KG PRODUCT FORM TIPPETTS-ABBETT-McCARTHY-STRATTON @ ENGINEERS " ‘TAMS A PROFESSIONAL CORPORATION ALASKA COMPILED BY FRANK ORTH & ASSOCIATES, INC. 1 = FROZEN ROUND 2 = FROZEN DRESSED 3 = CANNED 4 = FRESH £T-S TABLE 5.7 DISPOSITION OF SALMON SHIPPED UNPROCESSED FROM BRISTOL BAY (in thousands of pounds) Fresh Shipped Unprocessed Total By Sea By Sea Total By Air By Air By Air Egg Product of to Plants By Sea Ultimately Ultimately By Air Ultimately Ultimately Ultimately Fresh Shipped Year Outside BB In Brine Canned Frozen On Ice Canned Frozen Fresh Outside BB 1965 4,486 4,486 N/A N/A 0 N/A N/A N/A 135 1970 13,328 13,328 N/A N/A 0 N/A N/A N/A 400 1975 5,136 5,136 N/A N/A 0 N/A N/A N/A 154 1976 5,241 4,466 N/A N/A 775 N/A N/A N/A 157 1977 6,621 3,603 N/A N/A 3,018 N/A N/A N/A 199 1978 18,745 9,304 N/A N/A 9,441 N/A N/A N/A 562 1979 43,563 17,557 N/A N/A 26,005 N/A N/A N/A 1,307 1980 53,356 27,780 N/A N/A 25,575 N/A N/A N/A 1,601 1981 48,687 20,513 N/A N/A 28,174 N/A N/A N/A 1,461 1982 28,077 3,583 3,046 537 24,495 2,450 20,821 1,225 842 1983 52,318 23,864 22,671 1,193 28,454 8,537 18,495 1,422 1,592 Canpiled by Frank Orth & Associates, Inc. Source: ADF&G Fisheries Management Data and Industry Sources. Note: N/A indicates no data currently available. from the region with about 65 percent of this export processed as dressed frozen salmon, while 30 percent was eventually canned. A small portion of the salmon flown fresh from the region is subsequently marketed fresh. The modest yearly increase in the domestic fresh market for Bristol Bay salmon has been attri- buted to a general shift in consumer interest in seafood for its health and dietary benefits, in conjunction with the Marketing sector's strong effort at public awareness programs to promote seafood consumption. At present, however, there is a relatively limited domestic market for fresh Bristol Bay salmon due to the high cost of transportation. Moreover, a large number of the operators who market fresh salmon presently lack ownership or access to regional processing facilities and Must rely upon processing outside Bristol Bay. In 1982 and 1983, less than 1 percent of the total Bristol Bay harvest which was processed within the region went to market in fresh form. In 1982, approximately 3 million pounds of Bristol Bay salmon processed in western Alaska, Anchorage and Kenai was marketed fresh. More than 90 percent of the region's fresh salmon export is Processed within the State of Alaska. The major processing centers to receive Bristol Bay salmon are located in Anchorage, Kenai and Kodiak. Figures 5-4 and 5-5 present the salmon distribution by in-state region. During the 1982 season 33 operators/buyers were involved in exporting fresh product via air transport. Of these operators, 13 were also involved in processing within Bristol Bay while 20 strictly purchased fish and air exported from the region. The major locations of air export and cash buying activities within the region in 1982 are presented in Table 5.8. 5-18 FIGURE 5-4 BRISTOL BAY FROZEN SALMON - ALL SPECIES PROCESSING BY LOCATION OUTSIDE BRISTOL BAY Compiled by Frank Orth & Associates, Inc. a. 2h e. 26% f. 5% Key: a. Western Alaska Region North of Bristol Bay d. Kenai Region b. Alaska Penninsula Region e. Anchorage Region c. Kodiak/Central Region f. Prince William Sound Region g. S.E. Alaska and Outside Alaska Key: a. b. c. FIGURE 5-5 BRISTOL BAY CANNED SALMON - ALL SPECIES PROCESSING BY LOCATION OUTSIDE BRISTOL BAY Compiled by Frank Orth & Assoicates, Inc. 1982 b. 60% Western Alaska Region North of Bristol Bay Alaska Penninsula Region Kodiak/Central Region d. e. 1983 b. 45% d. 10% e. 10% f. 1% Kenai Region Anchorage Region Prince William Sound Region S.E. Alaska and Outside Alaska 6T-S District Naknek-Kvichak Egegik Ugashik Nushagak Togiak AIR FRESH EXPORT/CASH BUYING OPERATIONS, Fresh Exporters Based Within District Naknek (8) King Salmon (5) South Naknek (2) Pederson Point (1) Egegik Beach (1) Big Creek (1) Pilot Point (1) Dillingham (7) Ekuk Beach (1) Clark's Slough (1) Kululak Bay (1) Togiak (2) TABLE 5.8 1982 Total Total Fresh Exporters Number Air Based in Number of of Fresh Other Districts Floaters Operators Export Dillingham (1) 3 21 7,888,950 Ekuk Beach (1) King Salmon (3) 0 9 4,335,487 Anchorage (1) Naknek (2) South Naknek (1) King Salmon (2) 2 5 1, 677,219 Etolin Point (1) 3 15 9,007,606 Pederson Point (1) Naknek (1) Dillingham (2) 0 _5 2,338,322 Total 33 25,244,584 lbs lbs lbs lbs lbs lbs Cash buying operators frequently purchase fish for processing plants at Anchorage, Kenai or Kodiak that would otherwise not be active during the Bristol Bay salmon run. Some of the operators who process fish within the Bristol Bay region will export fish only when the salmon supply exceeds the processing capabilities of their locally based plants, or when company directives require that they do so. Industry sources have indicated that the air haul of salmon from the Bristol Bay region is due not so much to limited freezing capacity in the Bay area which could be supplemented by additional floating Processors, but. rather to utilize plants in other areas that would otherwise be idle or underutilized during the peak of the Bristol Bay harvest. Sources have also indicated that the cost of flying fish from Bristol Bay to Anchorage, Kenai and Kodiak is offset by the lower operating costs of plants in these areas compared to operating costs in the Bristol Bay region. Brine Export Some quantities of fresh salmon are also transported in brine or chilled seawater by tender vessels for processing in areas other than Bristol Bay. The quantities have fluctuated consid- erably in recent years. The number of operators and tenders involved in this practice in 1982, together with both the number of fish and pounds of product is shown in Table 5.9. In 1982, eight operators and 27 tender vessels were engaged in the brine export of salmon. Five of the eight brine export operations were run by shore based companies within the region, and seven were active in other forms of seafood production. The Markwood Packing Company based in the Nushagak district was the only operator to deal exclusively in brine exportation. The floater-based company tendered salmon in brine to Kushiro, Japan. The location and number of brine operations active in 1982 are shown in Table 5.10. 5-20 TABLE 5.9 BRINE EXPORT BY SEA - 19821,2 (in number of fish and pounds) Number Number District Operators Tenders Fish Pounds Naknek-Kvichak 2 3 119,091 137 7501 Egegik 2 9 115,406 754,879 Ugashik a 3 61,537 403,169 Nushagak 4 12 269,857 1,687,355 Togiak Total 8 27 565,891 3,582,904 lExport information extracted primarily from "Final Operations Report" (BB-CF/303), and from catch and production reports or fish tickets if unavailable in final report form. 2Most processors report mixed sockeye and chums and complete specie breakdown is generally not available until fish are final processed. ce-6 Number of District Operators Naknek-Kvichak 2 (3) Egegik 2 (9) Ugashik 3 (3) Nushagak 4 (12) Togiak Total (27) 8 5 shore based TABLE 5.10 BRISTOL BAY BRINE PLANTS, 1982 Operation/Location Kodiak King Crab/Pederson Point Western Seas Fishermen's Coop/ Floater Egegik Res. Develop/Egegik Kodiak King Crab/Pederson Point Kodiak King Crab/Pederson Point Pan Alaska Fisheries/Floater Whitney Fidalgo/Naknek-Floater Kodiak King Crab/Pederson Point Markwood Packing Corp/Floater Morpae, Inc./Dillingham-Floater Peter Pan Seafoods/Floater- Dillingham 7 active in other forms of seafood production tenders Tendered To Production Kodiak 737,501 lbs Anacortes, WA Kodiak 754,879 lbs Kodiak Kodiak 403,169 lbs Dutch Harbor Uyak (Kodiak) & Naknek Kodiak Kushiro, Japan Dutch Harbor 1,687,355 lbs King Cove (Kodiak) 3,582,904 lbs A total of 3.6 million pounds of salmon was tendered from Bristol Bay in 1982, primarily to Dutch harbor and the Kodiak Island area, with some export to Washington State and Japan. The 1982 volume of brine export as well as the number of participating operators and tenders represents a decrease from the 1981 season when 14 operators and 80 tender vessels exported 20.5 million pounds of brine-packed salmon from Bristol Bay. Similar to reductions in other forms of pro- duction during 1982, this decrease was a reflection of the discord between the local harvesting and processing sectors, as well as the botulism-contamination of canned Alaska salmon. According to preliminary statistics, the market for brine export had strengthened significantly in 1983 with the heavy salmon run. Approximately 24.4 million pounds of salmon (3.9 million pounds of which was sockeye) was transported from the region in brine. An estimated 95 percent of this export was eventually canned and about 5 percent was frozen. HERRING Although the Togiak herring run was first fished commercially in 1967, the year 1977 marked the beginning of the herring fishery's most significant period of steady growth when 5.6 million pounds of herring were harvested and six processors were operating in the area. By 1982, the herring catch had increased to 43.1 million pounds and the processing sector had grown to 33 operators. This success has carried over to the 1983 season, as preliminary statistics indicate that approxi- mately 54 million pounds of herring have been harvested in the fishery, with a roe recovery of about 475,000 pounds. Because the short, intense fishery takes place in the spring shortly before the Bristol Bay salmon run, processing companies have been able to move operations into Bristol Bay for the herring run, and have their floating processors conveniently prepared to continue working for the salmon season. 5-23 FIGURE 5-6 HERRING ROE PROCESSING SHOREPLANTS AND FLOATERS 95+% ON FLOATERS 0-5% IN SHORE- PLANTS SOURCE: FRANK ORTH & ASSOCIATES, INC. Due to the dramatic commercial growth since 1977 the Togiak District has become Alaska's most productive and valuable herring fishery. As shown in Figure 5-6, nearly all of the processing of the herring is performed on floating processors (in excess of ninety five percent according to industry sources). The great bulk of the production involves freezing the herring in the round, with the stripping being done in Japan, the major market. Twenty-six processors produced frozen round herring and sac roe in 1982 including 24 floating plants and 2 shore plants located in Togiak. A summary of herring roe recovery and total production for 1978-83 is shown in Table 5.11. After freezing, the product is shipped over the side in bulk by floaters loading directly onto Japanese freighters in the Bay. 5-24 Some herring roe products are also cured or exported from Bristol Bay via brine tender. In 1982, one floating processor produced cured sac roe, and six floaters exported product by brine tender. TABLE 5.11 TOGIAK HERRING ROE PRODUCTION, 1978-83 (thousands of pounds) Round Herring % Roe Sac Roe Roe on Kelp Total Roe Year Harvest Recover Production Production Production 1978 15,508 8.2 127 330 457 1979 22,304 8.6 192 415 607 1980 39,192 9.2 361 190 551 1981 25,075 9.1 228 378 606 1982 43,121 8.8 379 235 614 1983 53,992 8.8 475 271 746 Compiled by Frank Orth & Associates, Inc. Source: ADF&G Fisheries Management Data. CHAPTER 6 PRODUCT DISTRIBUTION AND MARKETS Introduction The Bristol Bay fishery is complex and as shown in Figure 6-1 involves a large number of local, statewide, national and international businesses through a harvesting, processing and distribution chain reaching all over the globe. Although the area is known for its salmon runs herring is harvested off Togiak and bottomfish potential is also being investigated. However, catches are completely dominated by the salmon har- vest, which in 1983 set new records at 37.27 million fish with an ex-vessel value of $143.7 million.* Major international salmon markets are shown in Figure 6-2. With over 78 percent of the Bay fresh/frozen product being exported to Japan the industry is extremely sensitive to exchange rates, buyer bargaining postures and a number of buyer controlled factors which dictate ex-vessel price, quality standards and the general health of the fishery. Canned salmon export is more evenly balanced with Canada and England being the largest markets at approximately 27 percent each. Since the export of canned product absorbs less than 40 per- cent of the total Bristol Bay (and U.S.) pack the purchasing patterns of the major market areas dominate the industry to a much lesser extent than for the fresh/frozen market. * Preliminary figures, September 1983, ADF&G. FIGURE 6-1 BRISTOL BAY SALMON FISHERY PRODUCT FLOW CHART GILL NET SET NET DIRECT UNLOAD TENDER SHORE BASED PROCESSOR SOURCE: FRANK ORTH & ASSOCIATES, INC. CASH BUYER STATION FLOATING PROCESSOR FREEZE COLDSTORE AIR FREIGHT FRESH DIRECT TO MARKET VIA ANCHORAGE TO TRAMPER VESSEL TO DUTCH HARBOR TO OTHER SHORE BASED PROCESSORS TO SEATTLE TO JAPANESE TO US AND MARKET FOREIGN MARKETS FRESH/FROZEN — F/F SOURCE: NMFS, NOAA, DEPT. OF COMMERCE CANNED- © + pean? -— REP.of KOREA F/F ; ” 8 : FRANCE F/F 8 SWITZERLAND F/F NEW ZEALAND 8 TAMS TIPPETTS-ABBETT-McCARTHY-STRATTON i ENGINEERS FIGURE 6-2 A PROFESSIONAL CORPORATION ALASKA SALMON EXPORT MARKETS FIGURE 6-3 DISTRIBUTION OF BRISTOL BAY SALMON=1 983 CANNED 29% FRESH (AIR) EXPORT SOURCE: FRANK ORTH & ASSOCIATES, INC. 1. REPRESENTS PRODUCT FORM AT BRISTOL-BAY. SALMON MAY BE PROCESSED OR REPROCESSED AT OTHER LOCATIONS. 2. INCLUDES PRODUCT FLOWN TO OTHER ALASKAN PLANTS FOR PROCESSING. PRODUCTS SUMMARY A detailed discussion of processing and products is presented in Chapter 5 of this report. However, as a preface to the discussion of markets and product distribution the 1983 salmon Production by process/product is shown in Figure 6-3. Approximately 50 percent of the 1983 harvest was frozen while 21 percent was canned by processors in the region. Most of the product shipped out in brine or flown out of the Bay eventually enters the market in canned or frozen form. 6-2 The primary herring product is sac roe with some additional harvesting of roe on kelp. Essentially all of the catch is delivered to the Japanese market, although a small quantity of roe on kelp is flown out fresh to the domestic west coast market. DISTRIBUTION AND MARKETS Major markets for each of the primary product forms are de- scribed in the following paragraphs. Frozen Salmon Frozen salmon, once processed, takes several paths as its moves through the distribution network to its point of sale. A significant amount of salmon frozen in the Bay is bound for Asian markets, and is transferred to foreign freighters on site. The balance of frozen production destined for Asian markets, and that bound for domestic and European markets, is either loaded directly into freezer vans at the processing plant or offloading point (in the case of floating processors) for shipment to these markets, or enters cold storage. In the case of domestic sales, the ownership of product is transferred, on paper, from the processor, through the sales department or broker, to the wholesaler and/or distributor, then to institutional, food chain or retail markets, and finally, to the consumer. During this process, the fish may never leave its cold storage location until sold to the food chain, institutional or retail market. Additionally, the product may be reprocessed once, or even twice. Typical reprocessing operations include, partial thawing and heading and/or gutting, regrading, reglazing, repackaging, etc. It sometimes also involves such value-added processing as portion control and special packaging. 6-3 International sales of frozen salmon begin with processor's internal sales departments, or U.S. brokers and traders. As with domestic sales, the ownership of the product is most often transferred on paper before it leaves the cold storage or is shipped over the side. Frozen salmon is purchased by foreign brokers and buyers, or by agents, and ultimately enters the distribution network of the point of sale country. All foreign nations have varied and different internal distribution networks, and again, the U.S. frozen product may go through reprocessing as it works its way through the foreign network. Also, some amount of U.S. frozen salmon purchased internationally is re-exported to other foreign markets, especially after value-added reprocessing. A graphical representation of the major markets and distri- bution chain is shown in Figure 6-4. Export statistics for fresh/frozen salmon for the years 1976-82 are shown in Table 6.1. As shown in Figure 6-5, 12 percent of the frozen sockeye salmon produced in the U.S. in 1982 (182.7 million pounds) was distributed domestically, with the balance being exported. This compares with 49 percent of the total U.S. frozen salmon production (all species). The sockeye export product distri- bution was as follows: 1.3 percent to Canada; 1.2 percent to Europe; and 97.5 percent to Asia (predominantly Japan). The overall salmon export distribution for 1982 is shown in Figure 6-6. Fresh Salmon The great bulk of Bristol Bay salmon which is processed as fresh is marketed domestically. The product (king, coho, and on some occasions high-grade chum and sockeye) begins to FIGURE 6-4 MAJOR DISTRIBUTION CHANNELS - U.S. FRESH/FROZEN SALMON-1982 U.S. FRESH/FROZEN SALMON PRODUCTION REPUBLIC OF S. AFRICA PRIMARY WHOLESALERS 4 | SECONDARY WHOLESALERS INSTITUTIONAL SUPERMARKET INDEPENDENT MARKETS CHAINS RETAILERS SOURCE: NMFS, NOAA, DEPT. OF COMMERCE Destination 1976 Hong Kong N/A Republic of Korea N/A Japan 4,215 Canada 2,e0 United Kingdan 5,422 France 14,100 Netherlands 721. Belgium & Luxembourg 2,288 West Germany 1,714 Italy 400 Sweden 3,807 Denmark 1,703 Switzerland 108 Republic of So. Africa 49 Other 554 Total 38,418 1977 N/A N/A 31,854 5,466 3,622 12,883 1,772 1,783 1,810 434 3,934 1,772 252 110 467 65,559 TABLE 6.1 U.S. SALMON EXPORTS FRESH/FROZEN (Whole or Eviscerated) SALMON (in thousands of pounds) 1978 32 1,050 87,679 3,653 5,950 12,030 1,690 1,638 2,114 655 4,103 940 68 149 429 122,180 Sources: National Marine Fisheries Service, NOAA Fisheries of the United States, various years Department of Commerce National Food Producers Association 1979 78 409 93,458 6,445 6,497 17,123 1,493 2,747 2,700 812 5,972 1,443 125 148 566 140,160 1980 110 1,717 67,332 19,255 5,740 13,931 1,493 2,439 2,024 927 4,913 1,228 106 348 549 122,112 1981 117 5,366 130,890 24,223 8,488 17,609 2,153 2,526 1,044 576 35772 1,635 113 607 1,438 200,557 1982 236 5,196 196,113 9,035 6,402 17,283 1,831 2,512 1,262 599 6,197 1,846 61 1,265 5 250,543 % of '82 Exports 10 2.09 78.30 3.63 2.59 6.92 05 1,02 052 -26 2.47 76 04 252 01 100.00 FIGURE 6-5 DISTRIBUTION OF U.S. FROZEN SALMON -1982 SOCKEYE ALL SPECIES EXPORT DOMESTIC 51% 49% EXPORT 88% SOURCE: NMFS, FISHERIES OF THE UNITED STATES, U.S. CUSTOM SERVICE Move through the distribution network via in-house sales departments of the processors, and independent brokers and traders. Fresh salmon is destined for three markets: e retail stores and food chains; e restaurants; and e smokers. In all cases, it is air shipped from Bristol Bay, via Anchor- age, direct to the city of destination or closest major air- port. A modest amount of fresh production is transported by air to markets in Canada and Europe. 6-6 FIGURE 6-6 U.S. SALMON EXPORTS - 1982 FRESH / FROZEN ( WHOLE OR EVISCERATED ) JAPAN 78.3% TOTAL 250,543,000 LBS. SOURCE: NMFS, FISHERIES OF THE UNITED STATES, U.S. CUSTOMS SERVICE Canned Salmon Major distribution channels and markets for the U.S. canned salmon production are represented graphically in Figure 6-7. Canned salmon, once processed, reaches the point of sale, domestic or export, after being either shipped directly from the processor, or going first into warehousing primarily in Washington State. Processors, of course, try to avoid inven- torying the product, and work toward preseason contracts wherever possible. Domestic markets account for about 65 percent of overall sales, as shown in Figure 6-8. In the case of domestic sales, owner- ship of the product is again transferred on paper from the procesor, through the internal sales department or broker, to the wholesaler and/or distributor, then to institutional, food 67 FIGURE 6-7 MAJOR CHANNELS OF DISTRIBUTION FOR UNITED STATES CANNED SALMON - 1982 UNITED STATES CANNED SALMON PRODUCTION NORTH AMERICA UNITED STATES ea ASIA AUSTRALIASIA AUSTRALIA UNITED — os ITALY PRIMARY WHOLESALERS D SECONDARY WHOLESALERS INSTITUTIONAL INDEPENDENT MARKETS RETAILERS CONSUMERS | SOURCE: NMFS, NOAA, DEPT. OF COMMERCE SUPERMARKET CHAINS FIGURE 6-8 U.S. CANNED SALMON-MARKET DISTRIBUTION-1982 DOMESTIC MARKETS 65% EXPORT 35% TOTAL 117,126,000 LBS. SOURCE: COMPILED BY F.0.&8A. FROM DATA PROVIDED BY NMFS, NFPA, AND SEAFOOD INDUSTRY SOURCES chain or retail markets, and finally, to the consumer. As with frozen fish, the canned product may never leave storage until sold to the food chain, institutional or retail market. International sales of canned salmon begin with processor's internal sales departments, or U.S. brokers and traders. As with domestic sales, the product is most often transferred on paper before it leaves storage for shipment to the point of sale. The product is purchased by foreign brokers and buyers, or by agents, and ultimately enters the distribution network of the point of sale country. As with frozen salmon, all foreign 6-8 FIGURE 6-9 U.S. CANNED SALMON EXPORTS-1982 CANADA 27.5% UNITED KINGDOM TOTAL 117,126,000 LBS. SOURCE: COMPILED BY FO&A.FROM DATA PROVIDED BY NMFS AND NFPA countries have varied and different internal distribution networks for canned product. Also, some amount of U.S. canned salmon purchased internationally is re-exported to other foreign markets. Bristol Bay canned sockeye salmon production constitutes such a significant amount of the total U.S. production (96 percent in 1981 and 95.5 percent in 1982), that for this study it has been assumed that U.S. export figures reflect the distribution of this Bristol Bay product. Total U.S. canned salmon production statistics for 1976-82 are shown in Table 6.2. Of the canned sockeye exported in 1982, 14 percent went to Australia, 20 percent to Canada, 64.3 percent to Europe, 1 percent to Asia, and 0.7 percent to Africa and the Near East. The market distribution for all canned salmon product is shown in Figure 6-9. 6-9 Or-9 TABLE 6.2 U.S. SALMON EXPORTS — (in thousands of Destination 1976 1977 1978 1979 Korea N/A N/A 12 0 Japan 201 717 1,505 3,078 Canada 3,263 3,413 6,015 10,189 United Kingdom 9,353 8,174 9,840 18 ,296 Ireland N/A N/A 36 352 France 149 555 882 615 Netherlands 2,406 2,537 4,998 5,720 Belgium & Luxembourg 1,345 1,190 1,954 3,360 West Germany N/A N/A 20 35 Italy N/A N/A 65 328 Sweden N/A N/A 0 89 Denmark N/A N/A 0 54 Australia 2,218 3,457 5,231 6,698 New Zealand N/A N/A 406 380 Republic of So. Africa N/A N/A 361 356 Saudi Arabia N/A N/A 170 48 Other 653 1,232 1,018 1,121 Total 19 ,588 21,275 32,513 50,719 Total U.S. Pack 127,611 150,823 164,239 154,837 % U.S. Pack Exported 15.35 14.11 19.8 25.15 Sources: National Marine Fisheries Service, NOAA Fisheries of the United States, various years Department of Commerce CANNED SALMON pounds ) 1980 1 527 14,860 33,012 517 1,454 7,354 4,465 376 172 0 88 9,089 305 792 104 890 74 ,006 201,684 36 .69 1981 0 1,241 11,325 30,084 702 656 4,865 2,972 30 760 77 0 9,041 190 833 76 642 63,494 217,693 29.17 1982 20 1,001 11,325 11,200 182 3,367 5,041 2,612 34 283 120 234 4,246 117 86 361 928 41,157 117,126 35.0 % of '82 Exports 205 2.43 27.52 27.21 44 8.18 12.25 6.35 -08 +69 +29 57 10.32 +28 21 -88 2.25 100 .00 In general, the traditional canners feel their markets are holding steady. They report that they will produce canned Product (either inside or outside the Bay) in quantities consistent with the trends established over the last several years. 6-11 CHAPTER 7 TRANSPORTATION SYSTEMS The movement of freight and passengers into, within and out of the Bristol Bay region presents unique logistical problems due to the remote location, lack of overland access, limited facilities, and frequent weather restrictions on both marine and air travel. This chapter examines the transportation systems in the region as they affect and are utilized by the fishing industry, and focuses on the services provided, as well as the public and private facilities used. TRANSPORTATION OVERVIEW Both marine and air transport play a critical role in moving the fresh, frozen, or processed fish to intermediate or final distribution points. In general, harvested fish are delivered from the fishing vessels to tenders that, in turn, deliver the raw fish at sea to floating processors or to shorebased plants or buying stations. The tenders play an important role in the intensive harvesting activity, as they allow fishermen to minimize travel and delay time by collecting the catch from several vessels, and in some cases delivering supplies to the fishing boats. A number of the tenders also transport gear and supplies needed for the season to the processing plants, and during the season deliver frozen product from the processor direct to Japanese trampers. The fish delivered to floating processors are typically frozen and delivered to Japanese trampers at sea. The raw fish delivered to shore are primarily either frozen or canned at shorebased plants or transported fresh by air to Processing centers outside the region. The raw fish frozen at shorebased plants are generally transferred back to tenders for delivery to the Japanese trampers at sea. The salmon that are canned locally are generally warehoused until transported by barge to Seattle for subsequent market distribution. Both the frozen and canned product produced within the region is transported quite efficiently by marine mode. However, the fresh product to be transported by air to other processing areas (primarily Anchorage, Kodiak, and the Kenai Peninsula) often experiences capacity constraints and network bottlenecks. Typically fresh product is air lifted from the Bristol Bay region from either Dillingham airport for the West Bay dis- tricts and from King Salmon airport for the East Bay districts. Raw fish from the outlying areas are flown by small planes to either Dillingham or King Salmon where is is consolidated and loaded onto larger aircraft for flights outside the region. FISHING FLEET SERVICE FACILITIES Boat Harbors The Dillingham Boat Harbor is the only enclosed boat harbor available to the Bristol Bay fleet. The existing harbor was constructed by the Corps of Engineers in 1960-61 and consists of a rectangular basin, approximately 230,000 square feet in area, aligned along Scandinavian Creek near its mouth. Al- though over 500 boats have crowded into the harbor at a time, the basin was originally designed to provide moorage for about 150 vessels. The commercial fishing fleet operating out of Dillingham is extremely transient. Harbor use fluctuates dramatically during the fishing season. In general, the harbor is used intensely just prior to the fishing season as fishermen are launching and preparing their boats for the season. As the season draws to a close and the fleet returns, the harbor again becomes over- crowded as vessel owners wait to have their boats transferred to dry winter storage. During the season harbor usage drops significantly while the fleet is fishing, although many boats may use the harbor during closures as they come in to purchase supplies and make necessary repairs. Other boats receive supplies from tenders and tend to anchor in protected areas. The harbor is plagued with operational and maintenance problems resulting primarily from severe sedimentation. Other problems include the fire hazards, as well as inconvenience, caused by large numbers of boats rafting together; inadequate loading areas; damage to boats caused by sitting dry at low tides; and disruptions in harbor use caused by the Corps of Engineers dredge. The Corps has prepared a draft report tentatively recommending expansion of the harbor to double the available moorage to about 300 spaces. In addition, a winter entrance closure device is recommended to minimize sedimentation problems. The City of Dillingham is planning improvements to the electrical and sewage disposal services in the basin. Dillingham has also constructed a boat launch ramp and floating dock on the Wood River. Development of a boat harbor in Naknek was studied in 1969 by the Corps of Engineers. Two sites were evaluated, however, neither alternative showed a positive benefit cost ratio, which is a major criterion used by the Corps in evaluating the feasibility of projects. Boat Storage The private sector has been responding well to the demand for winter boat storage. Fishermen who contract to fish exclusively for one of the shore based processing plants generally are provided with winter storage as well as boat launching and retrieval service as part of their agreement. 13 In addition to winter storage at the processing plants a number of commercial boat storage yards have been developed by private firms. These yards are available at competitive rates depend- ing on the services provided, and they are used primarily by the independent fishermen. The Naknek Marine Center, for example, provides 228 outside boat storage spaces, 10 inside boat storage spaces, gear storage lockers, a launching ramp and plans to add showers, a laundromat, a gear supply office and various repair services. Examples of other private boat storage yards include A&D boat storage in Naknek, Charlie's Sport Shop yard in King Salmon and the PAL boat yard in Dillingham. A commercial boat yard is also available in Ekuk, and a number of open yards for local boat storage are available in some of the small communities. Other Services Many of the shore based processors provide moorage and off- season dry storage. However, few support services are avail- able in the Bristol Bay region for independent fishermen. No dockside fueling is available in the area. MARINE CARGO TRANSPORT Marine transportation is the principal means of moving cargo to and from the Bristol Bay region. With the exception of personal travel via fishing boats or small vessels, marine transportation in the Bristol Bay area is predominately cargo- oriented. Constraints to Bristol Bay's transport of waterborne commerce are ice conditions and shallow coastal water depths. While the relatively warm Alaska current keeps the southern coastal waters of the Aleutian Chain and the Alaska Peninsula ice free throughout the year, on the north side within Bristol Bay 7-4 localized freezing results in ice coverage in the bays and inlets. Consequently, the ports in the region are subject to winter closure, limiting navigation to the middle of April through the month of September. Port calls to Bristol Bay are usually restricted to shallow or medium draft vessels as a result of large tidal fluctuations, shoals and a lack of all-tide docking facilities in most communities. The existing docking facilities at the region's major ports in Dillingham and Naknek bare at low tide, forcing barges to rest on the bottom. Dillingham has become Bristol Bay's major “hub" center for the distribution of waterborne commerce. Most cargo is shipped directly from Seattle, with the exception of bulk fuel ship- ments which generally originate in California ports. The smaller Bristol Bay communities receive goods via trans- shipments, either by special arrangement or at the marine carrier's convenience. In general, marine transportation services to the communities having small cargo demands are infrequent and goods must be imported in bulk or be flown in at substantial cost. Shipping Services As shown in Table 7.1, common and contract cargo service is provided to the communities in the region by about 11 carriers. The quality of commercial shipping services is considered to be good, although quantitative conclusions about cargo movements are precluded by data constraints. For instance, many vessels calling at Bristol Bay ports are not subject to cargo reporting requirements. As such, there is little documented information on these vessels and annual volumes of cargo. Moveover, the documented vessel information that exists has been obtained by general reporting area rather than individual community. 5 Marine Transport Northland Services Foss Alaska Line (FAL) Pacific Alaska Line-west (PAL-West), a subsidiary of Crowley Maritime Corp. Sorenson's Barge Service Moody's Sea Scheduled Carrier Contract / Carrier ‘Scheduled Carrier Contract/ Garter Carrier Scheduled Carrier Scheduled Carrier Contract/ Charter Carrier Contract/ Charter Carrier Contract/ Charter Carrier TABLE 7.1 EXISTING TRANSPORT SERVICES BRISTOL BAY Intrastate Coastal Shipping Interstate Intrastate Coastal Shipping Intrastate Coastal shipping Interstate Intrastate Coastal Shipping Intrastate Coastal Shipping Lightering ‘Transporta~ tion DiLLingham South Naknek Dt1lingham Naknek South Naknek Dillingham South Naknek Dillingham South Naknek Dillingham Naknek ‘South Naknek DilLingham Naknek South Naknek Togiak Dillingham South Naknek Tkuk Seattle Various Seattle Seattle South side of Alaska Peninsula and out of Kodiak Bristol Bristol Alaskan Ports of Transshi, Dillingham, Naknek South Naknek Intermediate port calls (smaller than Dillingham, Naknek, South Naknek) when tonnage is large enough to be profitable Various Western Alaskan ports Unalaska Dutch Hartor, Kodiak and other Aleutian Chain ports Directly serves 12 carmnities in Western Alaska Ports around Kodiak, Alaskan Peninsula and Bristol Bay Various Bristol Bay ports Various Bristol Bay ports. Hauls cargo to the Tliama area via the Kvichak River Vessel Cceangoing tug end barge “Coastal and inland river tug and barge Oceangoing tug and barge “Coastal and inland river tug and barge Cceangoing tug and barge Oceangoing tug and barge Coastal and inland river tug and barge and lighterage Coastal and inland river tug and barge Lighterage ‘Type of Freight Hauled/ Other Activit: **General Cargo Contract/charter barge service to consolidate fishery products Both containerized and breakbulk cargo, Southbound cargo consists of canned salmon and other seafood enroute to the Pacific Northwest, Hauling fishery products to Unalaska for transshipment to Seattle or Japan General cargo General cargo In-bound freight is mostly cannery supplies; empty containers filled with fish products are shipped back to Kodiak or Unalaska Hauling fuel, etc. Hauls fuel and freight from Bristol Bay to Iliama ot Service 6-7 scheduled sailings per year to and from Alaska between April and September Contract/ charter barye service according to demand Scheduled freight ser vice from Seattle 4 times per year between May to August Contract/ charter ser- vice accord= ing to arrangement Daily sched= uled service Scheduled services Contract/ charter ser- vices accord ing to special arrangement Contract/ Charter ser= vice accord ing to special arrangement Contract/ Charter ser vices accord- ing to special arrangement, TABLE 7.1 (Cont'd) EXISTING TRANSPORT SERVICES BRISTOL BAY ‘Type of Bristol Bay Type of Frequency Marine Transport Type of Marine Communities Alaskan Ports Freight Hauled/ of Company Company Service Served Origin of Transshipment ve Type Other Activities Service Alaska Cargo Scheduled Interstate Dillingham Seattle Directly serves 8 © Cceangoing tug Containerized During the Lines Common Naknek western Alaskan and barge freight; a covered ice-free Carrier South Naknek communities barge for vehicles = season from including Dilling= deril to ham, Naknek, South October in 4 Naknek, Nome, and to 5 sched- Bethel uled sailings Contract/ = Intrastate Various Various Smaller Alaskan ‘Coastal and —-Containerized Contract/ Charter Coastal eraller hub ports called at inland river freight; a covered charter ser Carrier ‘Shipping camunities ports in by special tug and barge barge for vehicles vice by Alaska arrangement when special cargo volume is arrangement large enough to justify it. These maller communities are served via transshipments to ub and delivered by local carrier operations Alaska Shipping Contract/ Interstate Clark's Point beattle Southwestern Alaska Breakbulk Breakbulk and Operates hay Company (formerly Charter Egegik ports including the reefer ships refrigerated cargo thru Septen= Alaska Marine Carrier Naknek Alaska Peninsula, (the largest ber, approx- shipping) Togiak the Aleutian Chain, can accommodate imately once Chignik Kodiak and the 16 20-foot every 2-1/2 Pribilog Islands reefer contain= weeks. Call ers on deck) frequency to any one port ie irregular. western Pioneer Contract/ Interstate Naknek Seattle Southwestern Alaska Breakbulk Serves fish Service to Lines Charter Egegik ports including the reefer ships. processors. any one port Carrier Clark's Point Alaska Peninsula, (Each has a Incidentally is irregular. Togiak the Aleutian Chain capacity of carries north- Sails weekly Chignik and the Pribilot 500 tons or bound cargo from between April Islands 40,000 cubic — Seattle. and October, feet.) and every two weeks between November and March. Bristol Bay ports are called between June and August 15, ‘Sea-Land Scheduled Interstate The Chigniks Seattle Anchorage, Kodiak Deep-draft Tonnage. Line haul Call frequency ‘Common (line and Unalaska. container is between Seattle, is about once Carrier hauled to (Kodiak is Sea~ steamships Anchorage, Kodiak, per week. Japan) Land's southwest Onalaska and Japan = Four ships in Alaska operations the C4=x2 hub.) class provide services, Scheduled —Intrastate Forts along the A smaller Scheduling Camron Coastal Alaska Peninsula, freighter, varied to Carrier Shipping Aleutian Islands, the ALEUTIAN meet seasonal and Kodiak Island, DEVELOPER freight primarily trans- demand. porting tonnage transshipped through Unalaska/ Dutch Harbor or Kodiak. Bureau of Indian Non-profit Interstate —Togiak Seattle Serves about 60 General cargo General cargo Calls at each Affaire Supply self and Perryville remote villages in ship! the port about Program sustaining Lighterage ‘Twin Hills Alaska that are NORTHSTAR III, once a year, operation The Chignikes not usually called a converted at by comercial victory ship, carriers, including 455 feet long. various small ports ‘The ship is in southwestern equipped with Alaska. an LOM (Landing craft) The common carriers and linehaul contract tug and barge com- panies operating in the Bristol Bay region generally provide services on either a scheduled or contract/charter basis. Scheduled common carriers typically have established scheduled sailing dates and routes which they publish for public infor- mation. Most scheduled common carriers serving Bristol Bay have seasonal routes that originate in Seattle and call at various ports throughout Alaska. Contract or charter carriers do not have established route schedules and they provide cargo transport services by special arrangement. These services are most frequently used by major shippers such as canneries or petroleum companies to transport oversized or specialized freight as required. Scheduled and contract carriers are categorized according to the marine routes they follow. Three distinct marine routes can be identified: 1) Interstate routes, the longest routes followed, involve linehauls originating in an out-of-state location (usually Seattle or Tacoma) which make port calls at Alaskan marine commerce “hubs" such as Anchorage, Kodiak and Dutch Harbor. Interstate services are usually provided by oceangoing tug and barge combinations, container steamships, or bulk carriers. 2) Intrastate coastal shipping routes originate in Alaska and call at various ports within the state. Marine vessels that follow intrastate coastal shipping routes are usually coastal and inland river tug and barge combinations. 3) Lightering transportation routes, the shortest courses followed by waterborne commerce carriers, are generally con- fined to the inshore and riverine areas of communities. Lighterage operators usually take freight ashore to villages lacking sufficient docking facilities by means of shallow draft coastal or riverine lighters. Marine transport has been the primary method for exporting canned seafood from Bristol Bay and for importing cannery and 7-8 other seafood processing supplies, although seafood plants also have tenders haul supplies at the beginning of the season. Docking Facilities The Bristol Bay Salmon Management Area has more than 26 public and private docking facilities within its boundaries. These piers and wharves are used for a variety of purposes including commercial fish handling, freight and fuel handling, and moorage of fishing fleet vessels and tenders. Many of the region's existing docking facilities are privately owned by local seafood processors and canneries. Public use of these facilities for cargo is usually a courtesy on the part of the owner, or because no other pier or wharf is available. The Bristol Bay wharves used for industrial purposes frequently have provisions for the handling and/or storage of gasoline, diesel oil, fuel oil and water. Some of the cannery complexes also are equipped with scowways or small marine railways, marine shops, gear and vessel storage facilities and cranes. Public wharves are available in Dillingham and Naknek, as well as in the small communities of Igiugig, Iliamna, Levelock and Pedro Bay. The Bristol Bay Borough Public Dock facility in Naknek includes a wharf, structured staging area and a dredged mooring basin. Dillingham's newly constructed City Container Dock and Staging Area has been designed to accommodate the Movements of heavy cargo. The new public docking facility in Aleknagik will include a city dock and approach, a wing break- water, and a launch ramp and turnaround area. The Alaska Department of Transportation and Public Facilities (DOT/PF) is currently investigating the feasibility of provid- ing docks at Clark's Point, Pilot Point, Port Heiden, and Manokotak. 7-9 Table 7.2 presents a descriptive inventory of existing docking facilities in the Bristol Bay region. Locations of each individual facility are presented on the community profile maps published by the Alaska Department of Community and Regional Affairs. AIR TRANSPORTATION Air facilities have become particularly important to Bristol Bay's seafood industry since the demand for fresh and frozen salmon dramatically increased in 1979. That year marked the beginning of the Bristol Bay "fish lift" in which tons of freshly harvested salmon was flown out of the region in World War II vintage cargo planes to domestic seafood processors and distributors in Anchorage, Kenai, and Kodiak. Airports The Bristol Bay region has two primary airports (Dillingham and King Salmon) and about 47 secondary airports in just about every village. While many of the region's air facilities have only marginal facilities, most are able to accommodate the fish lift activities during the intense three weeks of the salmon fishery. In fact, the greatest constraints to air transportation in the Bay area are probably due to uncontroll- able climatic situations such as reduced visibility caused by heavy fog or heavy seasonal winds. The region's major airports are located in King Salmon and Dillingham. Both airports are publicly owned and operated, with paved runways and relatively sophisticated navigation and landing aids and both are equipped with weather service stations. King Salmon serves as the primary air transportation center in the Bristol Bay and Aleutian Island network, and has become a major hub for Bristol Bay's fishing activities as well. 7-10 tii DISTRICT/COMMUNITY NAKNEK-KVICHAK Naknek and South Naknek King Salmon Iguigig Tlianmna Newhalen Pedro Bay TABLE 7.2 EXISTING DOCKING FACILITIES - BRISTOL BAY DUCKAGE OR WHARF DESCRIPTION New PuDlic Dock. The bristol Bay Borough Public Dock facflity includes a 198.5' by 49.5*° wharf with a 220 foot long approach pier and approximately 39,200 square feet of structured staging area constructed of steel pipe piles with a precast concrete deck. Fuel Dock. The Naknek fuel dock has a pier face Of approximately 200 teet in length and 25 feet in width. ‘The T-shaped pier is unfit for receiving heavy caryo, however it can accommodate light freight and the handling of oil. Cannery Docks. Several private cannery Gocks are located along the Naknek waterfront of the cannery buildings. These docks are mostly of timber construction and they bare alongside at low tide. The docks are used primarily for unloading salmon fran fishing vessels and fran tenders, and not for cammercial cargo operations. Federal ana State Docks. Kiny Salmon has a few small wharves that are used Dy the U.S. National Park Service, the U.S. Fish and Wildlife Service, and the Alaska Department of Fish and Game. Private Docks. A number of privately-owned docks for small sport fishing boats are located along the Kiny Salmon waterfront. Public Dock. A small public dock was constructed in 1980, which may De upjraded in the near future. Public Dock. In 1975, a small pudlic dock was constructed adjacent to the City road- house. The dock is used by snall craft owners fran Newhalen and Iliamna. Dock. The Alaska Department of Transportation and Public Facilities (DOT/PF) has canpleted a dock feasibility study for Newhalen. The proposed facilities include an 87-foot by 120 foot T-shaped cellular sheet pile floatiny dock and an 8U-foot by 15-foot Doat ramp. Public Dock. The Pedro Bay villaye council constructed a snall dock to be used by skiffs and small vessels. Private Docks. A few snall docks are privately Owned by Pedro Bay resicents. E Navigation to Naknek is only possible in the spring and summer. Vessels must have at least a medium draft and can operate in no less than half tide. The canneries alony the Naknek River maintain private marine railways which have a maximum capacity of 70 tons, a 10-foot draft, and a length of approximately 120 feet. Deep draft vessels must anchor at least 6 miles fram the river mouth. Barye service is not available. Extreme tidal fluctuations of 18.5 feet beyond South Naknek preclude navigation by vessels having drafts greater than 4 feet during low tide. Supplies are delivered by the Moody Barye Service and the Kvichak-Ilianna Transportation Canpany and liyhterea to shore. The City of Iliamna is planning the construction of a 478" main docking structure and Dreakwater to accomm- date laryer vessels and baryes. Goods are delivered by barye and lightered to shore. None of the villaye docks can accannodate Daryes. Goods are taken to shore by liyhteraye. OWNERSHIP: The Bristol Bay Borough Standard Oil (Chevron) Peter Pan Seafoods Whitney-Fidalgo ked Salmon bumble Bee Seafoods Dragnet Fisheries U.S. National Park Service U.S. Fish and Gane Wildlife Service Alaska Department of Fish and Game Village of Iyuigiy City of Ilianna City of Newhalen Pearo Bay Villaye Council CUsE TABLE 7.2 (Cont) EXISTING DOCKING FACILITIES - BRISTOL BAY DISTRICT/COMMUNITY GEGIK DISTRICT Egegik NUSHAGAK DISTRICT Dillingl Aleknagik DOCKAGE OR WHARF DESCRIPTION Cannery Docks. The village's two canneries maint tn private docks. One 80-foot long cannery wharf dries at low tide. Another pier measuring 70- by 40-feet has twin tanks located 10 feet off each side. Water depths off the pier reach between 6 to 11 feet. A cannery wharf is located across the Egegik River. The wharf extends 150 feet and has little water at its face. Although the cannery has been closed down, its marine railway is in operation, and it hauls tugs, barges and piledrivers fran the river for winter storage. Old Municipal Dock. The Dillingham Municipal Dock is the only public dock available to shore processors, independent fishermen and fish buyers. The existing dock is a timber wharf approximately 140-feet wide with a 180-foot wharf face. Depth alongside the dock bares at low tide. New City Dock. The newly-constructed City Container Dock and Staging Area consists of a T-shaped, concrete wharf with a 5U-foot by 150-foot dock approach, and a 78-foot by 210-foot wharf. The dock has been designed to accommodate the movement of 40-ton container loads. Cannery Docks. A number of cannery docks are located along the west side of the old Dillingham Municipal Dock. The water depths along the wharves bare during low tide. Most of the docks are constructed fran timber and are in poor repair. Fuel Dock. The Chevron fuel dock is located south of the Chevron fuel tanks, between the Peter Pan Seafoods plant and the old Dillingham Municipal Dock. City Dock. A new public docking facility under construction includes a city dock ard approach, a wing breakwater, a launch ramp, and turn-around area.. The L-shaped facility includes a dock measuring 20 feet by 100 feet located at the end of a 15-foot by 220-foot dock approach that extends west into Lake Aleknagik. The dock is be constructed of treated timber decking and steel “H" pilings. A 9S-foot long wing breakwater adjoins the dock at a 45-degree angle at the southern end. A launch ramp and an associated turn-around area are located inshore fran the dock to the south of the approach road. The launch ramp measures approximately 18 feet by 85 feet. Water and a 5-ton crane are available for use at the first pier. Gasoline and diesel are provided for local users only. A removable fish conveyor and three pile dolphins are located at Coffee Point. These facilities are removed when the fishing season is over. Since construction of the new City Dock the old municipal dock is used primarily by fish buyer tenders. OWNERSHIP Diamond E. Egeyik Seafoods City of Dillingham City of Dillingham Peter Pan Seafoods Dragnet Fisheries Chevron USA, Inc. City of Aleknayik StL DISTRICT/COMMUNITY Clark's Point Ekuk Levelock UGASHIK DISTRICT Ugashik Pilot Point TUGIAK DISTRICT Toylak TABLE 7.2 (Cont) EXISTING DOCKING FACILITIES - BRISTOL BAY DOCKAGE OR WHARF DESCRIPTION Suey Wharf. The Alaska Packer's Association cannery has a 175-foot wharf that extends into water having a high tide depth of 8 feet. The wharf is equipped with two cranes, one 20-ton and one 3-ton. Amarine railway for vessels up to 150 tons also is available. The cannery also has a temporary T-shaped pier with an 80-foot face that extends 90 feet into water having a depth of 13 feet at high tide. The pier is put into use during the cannery season (the cannery is currently inoperative). Cannery Dock. The Columbia Wards Fisheries cannery has a 50 foot long dock that provides about 7 feet alongside at high tide. Gasoline, diesel oil and fuel oil storage is provided for cannery use. The dock also has a small marine railway which can accommodate vessels weighing up to 60 tons. City Dock. Construction of a small city Sock begat in fall 1981 after a dock (measuring 26 feet by 70 feet) was Gestroyed in August 1980. Cannery Dock. A 200-foot long wharf extends fran the village cannery into waters that reach a depth of 14 feet at high tide. At halftide, the wharf is reported to be dry. Cannery Wharf. A cannery wharf extends 144 feet fran the entrance of Ugashik River at Pilot Point. The wharf is reported to be dry at low tide. The village lacks any docking facilities which can accommodate sizeable vessels. The only existing dock is very small, of timber construction, and it is used to unload salmon fran fishing vessels. NOTES DOT/PF is currently investigating the feasibility of a public dock at Clark's Point. The Crowley Maritime Corporation barge delivers freight to the cannery. The wharf contains a 2-ton crane. machine shop and scowway are located at the cannery. Water is available on the wharf. Small tenders beach their vessels for light hull repairs. Existing dock has deteriorated. Most cargo is delivered to a beach site. DOT/PF is currently investigating A machine shop and scowway are located at the cannery. Freight is brought into Togiak by barye or landing craft. The Sorensen Lighteraye fuel barge delivers freight from Dillingham, GoNeRSHIP Alaska Packer's Association (not in operation) Columbia wards Fishery City of Levelock Briggs-Way Cannery (Randy Briggs) Alaska Packers Association vTI<L TABLE 7.2 EXISTING DOCKING FACILITIES - BRISTOL BAY DISTRICT/COMMUNITY DOCKAGE OR WHARF DESCRIPTION Communities Outside Bristol Bay Salmon Management District ee Boundaries BBNA Alaska Peninsula Sub-Regi dhignit Cannery Wharves. 1) The village cannery is abadoned and in disrepair. 2) The Alaska Packers Assciation Cannery just west of the village has two wharves, one with a 62' face with alongside depths of approximately 18', and one with a 50' face with alongside depths of 21'. The wharves have a line of dolphins located on either side. The cannery dock is used by most vessels. Ivanoff Bay Cannery Wharf. A cannery dock is located niduay ‘along the northern shore of Ivanoff Bay. The dock has a depth of approximately 22 feet alongside. Small Boat Dock. A dilapidated dock can be used by small boats during high tide. Perryville Dock Feasbility Study. The Alaska DOT/PF has made recammendations for a dock feasibility study for Three Star Point at Perryville. Port Heiden The U.S. Army Corps of Engineers and Alaska DUT/PF have conducted a dock feasibility study for the community. Western Pioneer, Inc. barges stop at least once a month in Chignik enroute to servicing the rest of the South Aleutian Peninsula. The village lacks public dockage or harbor facilities. The Krystal Sea Barye fran Honer delivers freight DOT/PF is investigating the feasibility of a public dock at Port Heiden. OWNERSHIP Alaska Packers Assn. Although the King Salmon airport is publicly owned, the runway is shared with the U.S. Air Force. The asphalt-surfaced runway measures 8515 feet by 150 feet and accommodates aircraft weighing up to 136,000 pounds. The runway's strength, instru- mentation and length provide it with sufficient capacity for most commercial and military operation. The airport is also equipped with a 4995-foot crosswind runway, an airplane storage apron, and a 3000-foot float plane landing designation on the Naknek River. The Alaska Department of Transportation and Public Facilities (DOT/PF) has recently prepared a master -plan to guide the expansion of King Salmon Airport to the year 2000. Dillingham's public airport contains a runway measuring 6409 feet by 150 feet. The facility is equipped with navigation aids such as VORTAC and VASI, and a flight service station which provides runway and taxiway lighting and navigational aid via rotating beacon. The Alaska DOT/PF is in the process of formulating a master plan to enlarge the Dillingham facility. Other air facilities in the region vary from gravel surfaced runways to landing strips on village beaches. A summary of the airfields in the region is presented in Table 7.3. Services Commercial aviation services are available year-round at Bristol Bay's major airports on both a scheduled and contract basis. Major line haul services are available between the King Salmon and Dillingham airports and Anchorage International Airport. The three types of air carriers operating in Bristol Bay include scheduled carriers, contract or charter carriers and air taxi operators. t=15: Location NAKNEK-KVICHAK FISHERIES DISTRICT Levelock Portage Creek King Salmon Naknek South Naknek EGEGIK FISHERIES DISTRICT Egegik UGASHIK FISHERIES DISTRICT Ugashik Pilot Point NUSHAGAK FISHERIES DISTRICT Clark's Point Dillingham Ekuk TOGIAK FISHERIES DISTRICT Togiak INLAND COMMUNITIES Twin Hills Manokotak Ekwok Aleknagik Koliganek New Stuyahok Igiugig Iliamna Kokhanok Newhalen Nondalton Pedro Bay COMMUNITIES OUTSIDE BRISTOL BAY FISHERIES AREA Chignik Chignik Lagoon Chignik Lake Perryville Port Heiden Ivanof Bay Airstrip Gravel (G) Paved (P) Length (Ft) 2100 1900 8515 1700 3000 2100 3000 3500 2738 6404 1200 3040 2000 2600 2200 2000 2160 2700 4800 1600 2250 1800 2800 1700 2600 1800 1200 7-16 TABLE 7.3 BRISTOL BAY AIRFIELDS (G) (G) (P) (G) (G) (G) (G) (G) (G) (P) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) (G) Highway Link To: Naknek King Salmon Ekuk Aleknagik Clark's Pt Dillingham Newhalen Iliamna Notes Seaplane landing on Kvichak River Runway shared with U.S. Air Force Runway #2 to be lengthed to 2500' Seaplane landing on Naknek ‘River Constructed 1982-83 DOT/PF preparing master plan Privately owned Construction underway for 5000' runway Extension to 2500' planned Seaplane approach adjacent Runway to be extended & resurfaced Runway established but inoperative Dirt runway Scheduled carriers provide scheduled flights along established routes to the general public. Unless otherwise restricted, scheduled carriers may also provide charter and other special services. Scheduled carriers operating in the region include Wien Air Alaska, Air Pac, Inc., Kodiak Western Alaska Airlines, Inc., and Markair. Scheduled commuter air services are pro- vided by Sea Airmotive (Seair).1 Contract carriers offer private, for hire service of a continu- ing nature to select clientele, usually in return for a guaran- teed minimum payment. These operations are often conducted in small single and multi-engine aircraft, and in larger cargo aircraft made available on a general charter and contract service basis. Air taxi operators provide charter service to the general public from a specific base of operations. These operators are usually limited to using small aircraft with a certified gross takeoff weight of 12,500 pounds or less. Approximately 25 individual general aviation contract operators (either companies or proprietorships) offer air taxi charter and contract aviation services between various communities along the Aleutian Chain and the Bristol Bay area, and the rest of Alaska. Aviation activities in the region increase substantially during the summer fishing season with the fish haul. Air shipments actually began in earnest in 1979. Prior to that time, about 95 percent of the harvest was processed by local canneries, while the remaining 5 percent was either airshipped fresh, cured, or frozen. 1 Currently suspended due to labor dispute T=1L7 Because processing facilities in Anchorage, Kenai and Kodiak are largely underutilized during the peak of Bristol Bay's salmon fishery, cash buyers purchase the fish from independent Bristol Bay fishermen to air ship to outside processors. The aircraft involved in the fish lift from Bristol Bay during the peak harvest use the region's major airports as well as some of the smaller village airstrips. The fish-ferrying fleet consists mostly of aircraft such as Cessna 206's and World War II vintage aircraft including DC-3s, Lockheed Hercules C-199s, and Boeing Strato-cruisers. The larger aircraft are typically owned by private aviation companies and whole fleets of air- craft may be leased to processing companies for the airshipment of salmon between Bristol Bay communities and to processing plants in Anchorage, Cordova, Homer, Kenai and Kodiak. Smaller planes are often used to land on crude beach airstrips near set net sites where they are loaded with freshly caught salmon for transport to Dillingham or King Salmon. According to various processors and individuals knowledgeable about Bristol Bay's seafood industry, as many as 40 individual cargo planes hauled salmon from the region into Homer or Kenai for approximately $0.16 - $0.18 per pound in 1983. The activities of the fish-lift are every bit as frenetic and unrelenting as the actual salmon harvest. During the three weeks in June and July when the red salmon run peaks, the vintage cargo planes make several round trips each day, stopping only to load and unload fish, to be refueled or repaired, or to give the crew a respite between flights. Operators schedule loads according to aircraft capacity, delivery, pickup times, and destination. A typical trip consists of departure from King Salmon Airport, flying 40 miles to land on Eyegik's windblown beach, picking up 20,000 to 30,000 pounds of freshly harvested salmon, and flying 40 7-18 miles back to King Salmon Airport. From here, the cargo is transferred to tote storage containers and transshipped to Anchorage. Like the salmon harvest, the fish-ferrying operation terminates as abruptly as it begins. As soon as the sockeye salmon run has been harvested, most of the aviators in the fish-lift move on to other air shipping operations. 7-19 CHAPTER 8 PRODUCT PRICES, MARGINS, REVENUES, AND EXPENDITURES Fishing and processing in Bristol Bay provides the economic base of jobs and incomes for most of the inhabitants of the region. At the same time many of the people and firms partici- pating in the fishery are from other parts of Alaska, the lower 48, or even other countries. One of the primary goals of this study has been to document the extent to which the local region benefits from the fishery. To do that, product prices have been estimated at each step of the distribution chain from fisherman to retail; revenues to the fishermen and to processor/wholesalers have been allocated to local, other Alaska, and Lower 48 participants; and expendi- tures have likewise been estimated on a local/non-local basis. PRODUCT PRICES Species and Product Forms Included Based on the analyses presented in Chapters 4 and 5 the species and product forms of interest are the following: Sockeye salmon, canned and frozen Pink salmon, canned and frozen Chum salmon, canned and frozen Coho salmon, frozen King salmon, frozen Salmon roe Herring roe The price and margin levels investigated include: ex-vessel, processor or processor/broker, export, domestic wholesale, and domestic retail. Sources and Limitations of Price Data Few consistent sources of secondary data on seafood prices exist. Responsibility for collecting and publishing data is divided up among several federal, state, and private organiza- tions. Informed industry sources have been used in cases where published data is non-existent or of questionable validity. Data Limitations. In most instances, there is no such thing as "a price" for a certain species/product form, such as dressed, head-off salmon, or roe. Prices will vary depending on size, quality grade, harvest location, method of harvest and hand- ling, time of year, general market conditions, marketing skills of the seller, and other factors. Most of the prices presented here are the result of reducing very complex price determinants down into one number called an “annual price". Generalizations based on available prices can be extremely misleading, if not dangerous. The reader is thus cautioned not to draw inferences which the data cannot support. Specifically, the analysis presented is to be interpreted as representative only, because of (1) the generalized nature of the prices used and (2) the variation of costs across plants, based upon age of assets, type of assets, and volume of pro- duction. Any use of this material for public policy decisions would be inappropriate without specific analysis of the impacts of the proposed policy action on specific categories of busi- nesses at each level of the market. For example, some prices are reported monthly, and in order to obtain an annual price, the monthly prices were averaged. This annual price, however, is not always a true average price because the monthly prices have not always been weighed by the monthly volume of fish sold at a given price (because volumes sold at each price are not reported). Often, the more recent prices cited, such as the 1982 and 1983 prices, are less than 8-2 One year “averages" or spot prices. The retail price for canned red salmon reported for 1983 is a 10-month average, and the 1982 retail price for frozen red salmon is an unweighted average of two spot prices observed in two different cities (Atlanta and Denver) in March and April of 1982. To arrive at representative prices for frozen salmon products, an effort was made to determine "ocean run" prices; that is, prices for mixed size and quality grades. For example, the use of a frozen, number 1 bright, 6-9 pound chum price, a premium product, to represent frozen chum prices would be very mislead- ing as a representative price that processors receive for frozen chums. Since processing and distribution costs tend to be less related to size and grade categories, the use of such an unrepresenta- tive price can lead to-a very misleading portrayal of processor profitability. Such a misleading portrayal of profitability could be dangerous if used as a basis for planning or policy evaluation. The unsatisfactory state of price data, especially for the frozen market, is not likely to change in the near future. Given this reality, the best that could be hoped for, if a detailed analysis of profitability is needed for policy deci- sions, is to analyze the profitability of producing individual products, within specific size and grade categories. It would then be necessary to combine individual-product profitability analyses with the production mix in a particular area to evaluate the average profitability of processors in a given area. In this type of analysis, most of the complexity would shift to the cost side of the profitability equation, especial- ly to the allocation of fixed costs across individual products and the comparison of diverse types (and costs) of plant and equipment. Table 8.1 displays the sources of the various categories of price data used. In rare cases, multiple sources are available for a particular level of the market; but they seldom agree. With the exception of ex-vessel prices, data which are avail- able are generally not specific to Bristol Bay. An attempt has been made to adjust frozen prices at the processing and export levels to make them specific to Bristol Bay. Ex-Vessel Prices. ADF&G tracks ex-vessel salmon and herring prices in several parts of Alaska, including Bristol Bay. Ex-vessel salmon prices in Bristol Bay are negotiated through two active fisherman's groups: Alaska Independent Fishermen's Marketing Association (AIFMA) and Western Alaska Cooperative Marketing Association (WACMA). The ex-vessel prices used in this analysis are averages of the prices reported by these two organizations. These prices represent only the fixed base level price structure and do not include any subsequent addi- tional payments. The 1983 prices are preliminary ADF&G esti- Mates or from industry contacts. Ex-vessel prices for frozen salmon for 1982 and 1983 were obtained from industry sources. For sockeye and chum salmon, the ex-vessel price for fish to be frozen is different in some years than the price for fish to be canned. For the species and years in which this has occurred, the frozen ex-vessel prices are reported separately. Processor/Broker. The processor level purchases fish from fishermen, performs various value-added functions, and then sells it to brokers, wholesalers, and retailers. Canned prices for the years 1977-1982 were obtained from NMFS, which reports case prices by month and weighted yearly averages. The price per pound was found by dividing the 1 lb. tall, case price, by 48 pounds per case. YEAR DATA TYPE 1977 1978 1979 1980 1981 1982 1983 Ex-vessel (all) ADF&G ADF&G ADF&G ADF&G ADF&G ADF&G ADF&G Canned Salmon Processor/Broker NMFS 1 NMFS 1 NMFS 1 NMFS 1 NMFS 1 NMFS 1 ADR Export NA NA NA NA NMFS 2 NMFS 2 NMFS 2 Retail NMFS 3) NMFS 3) NMFS 3) NMFS 3) NMFS 3) NMFS 3_ MEFS 3 Frozen Salmon Processor FOA 1 FOA 1 FOA 1 FOA 1 FOA 1 FOA 1 FOA 1 Export NA NA NA NA NMFS 2. NMFS 2- NMFS 2 Wholesale—Japan TWMA ‘TWMA ‘TWMA ‘TWMA ‘TWMA IICL PF 1 Retail NA NA NA NA FOA 2 FOA 2 FOA 2 Salmon Roe Export NA NA NA NA NMFS 2 NMFS 2 NMFS 2 Wholesale-Japan TWMA TWMA ‘TWMA TWMA ‘TWMA IICL PF 1 Herring Roe Processor NA NA NA NA ADF&G PF 2 PF 2 Wholesale-Japan NA NA NA PF2 PF 2 PF 2 PF 2 ADF&G - Alaska Department of Fish and Game ADR - Alaska Department of Revenue data were adjusted to include broker commissions and sales discounts, in order to make the data comparable with data on gross prices in earlier years. NMFS 1 - Fishery Market News Report, Seattle NMFS 2 - Dr. Joe Terry from U.S. Customs Service Data NMFS 3 - Operation price Watch NMFS 4 - Fishery Market News Report, New York TWMA - Tokyo Wholesale Market Annual IICL - International Investment Consultants Limited (for DPRA) PF 1 - Pacific Fishing, October 1983 (selected spot prices) PF 2 - Pacific Fishing: 1983 Yearbook, Seafood Report (monthly) 1981-83, Japan Update (monthly) 1981-83. FOA 1 - Frank Orth & Associates, Inc., Industry Sources FOA 2 - Frank Orth & Associates, Inc., for DPRA, AK Salmon-Projected 1982 Market Conditions NA - Not Available Source: Frank Orth & Associates, Inc. 8-5 For 1983 canned salmon prices, data collected by the Alaska Department of Revenue during April 1983 through March 1984 (the period during which most 1983 salmon cases were sold) were used as a basis. These data are "net" prices. They represent the price per case received by the processors, after subtracting cash discounts and broker commission fees. In order to put these data on a comparable basis with the prices of earlier years, the 1983 prices were adjusted to include cash discounts and broker fees (approximately 6.5 percent of the price). The price per pound was found by dividing the one pound tall cases by 48 pounds per case, dividing the one-half pound cases by 24 pounds, and then calculating a weighted average. Wholesale. A consistent time series of wholesale prices for domestic markets are not available for canned or frozen salmon. Wholesale prices in Japan for 1977-81 herring and salmon roe were obtained from the Tokyo Central Wholesale Market Annual. The ranges for 1982 and 1983 were obtained from the weekly Foreign Fishery Information Release, NMFS. Export. Export prices are maintained by NMFS from U.S. Customs Service data. The prices used in this study were obtained from computer printouts made available by NMFS. A detailed break- down of salmon exports (fish and roe) by species and product form did not begin until 1981. Prior to this time all salmon exports were aggregated together. This source, with its present species detail refinement, is one of the most reliable for salmon price data, as quantitative and corresponding total value data are reported, thus allowing calculation of a true weighted average price. Retail. Retail prices for 1977 to 1983 canned salmon were obtained from Operation Price Watch, NMFS. This service tracks spot prices in 10 U.S. cities on a monthly basis. The prices reported in Table 8.2 are yearly unweighted averages. The 1983 prices are 10-month averages. 8-6 Even though frozen salmon has been more common in retail Markets in recent years, it is not regularly available around the country so the prices are not tracked. Operation Price Watch tracks fresh salmon (steaks and fillets) but not frozen salmon. General Price Trends The prices of various salmon species/product forms are influ- enced by a number of factors that include: size of the run; carryover inventories from the previous year; the comparative costs of substitute foods, especially beef, poultry and pork; @ consumer preferences between product forms (such as an increasing demand for fresh/frozen) ; e the state of the U.S. economy and the economies of its trading partners in fishery products (principally Japan and Europe); @ the exchange rate between the U.S. dollar and the currencies of trading partners; @ the costs of various inputs into the harvesting, processing, and delivery activities; @ competitive conditions; @ the level of interest rates. The 1982 canned pink salmon botulism incident has affected both the canned and frozen salmon markets (all species) since then. Canned prices, except for reds, have dropped in general, and as production was shifted from canned to frozen, the frozen salmon markets have also softened. In 1983, the canned market improved due to a supply-demand imbalance favoring sellers. It should continue to improve in 1984, especially if the U.S. dollar weakens against foreign currencies. The frozen market was very weak in 1983, although some slight improvement occurred at year end. 1984 is a year of great uncertainty in frozen salmon markets. A rebound must await a reversal of the U.S. dollar and, perhaps, reduced domestic production in Japan. Prices for Specific Species/Product Forms by Market Level Product prices for 1977-83 are summarized in Table 8.2 and discussed in the following paragraphs. Sockeye Salmon Ex-vessel. Prices have recently fluctuated between a high of 80 cents per pound (canned)/$1.25 per pound (frozen) in 1979 and a low of 57 cents per pound (both canned and frozen) in 1980. The 1983 price per pound of 61 cents (canned and frozen) is almost the same as it was in 1977, 60 cents (canned and frozen). Canned. The importance of canned sockeyes, as measured by the case pack, has declined in recent years (1983 Yearbook of Pacific Fishing). Between 1981 and 1982, the canned pack in Alaska declined by 76 percent to around 300,000 cases, the smallest pack in the state's history. This was due, in part, to the botulism incident which affected all canned salmon production. In 1983, the ratio of canned sockeye to total sockeye was a low 17 percent, due, in part, to the large run which strained canning capacity, and expectations of a strong frozen market. Processor/broker prices have steadily risen from $1.85 per pound in 1977, to $2.36 per pound in 1982, and to $2.42 in 1983 (average price from April 1983 to March 1984). Inventories were at very low levels in early 1983. Export prices have fallen between 1981 and 1983, from $2.41 per pound to $2.28. Domestic retail prices for canned sockeye have steadily risen from an average price of $2.68 per pound in 1977 to $3.86 per pound in 1983 (average price for first 9 months). 8-8 TABLE 8.2 BRISTOL BAY PRODUCT PRICES, 1977 to 1983 SPECIES/FORM 1977 1978 1979 1980 1981 1982 1983 SOCKEYE-CANNED ($/.1b) Ex-vessel 0.60 0.68 0.80 0.57 0.70 0.67 0.61 Proc/Broker Ve85% |} /)/1-932)||/|250%) 7) 2426+ |))"2299)|1)||12-36)) 1/1) 12242) Export NA NA NA NA 2c4i) |) /3'2-33) ||)|)2328 Retail 2-68, || ||| 2283 +" ||3.00 ||||/3223) |||) '3240)||)| 3.46 ||| 3.86) SOCKEYE-FROZEN ($/.1b) Ex-vessel 0:60 0:68 1225 0.57. 0,75: 0:70. 0.61 Processor Zes6\. 2294) |)))) 2209 |)/)/'2530') 2525)! 12200) |) 175) Export NA NA 2240)! |)))) 1575.1) |//2502 |||) tB4)1) s58 Whole-Japan 2652) 5 3251» 3827.0 || 2241 |||) 2569 || | 280- ||| 2-72 Retail NA NA NA NA 2.80 2.65 2.50 PINK-CANNED ($/.1b) Ex-vessel 5347 //06931111/1 0533 11/1/(042511'//10-25111 0.22) 1/7110. 18) Proc/Broker 540) |||) ('1536)7)) 1546; ||| $563)) |) /9276: || | 1-53 |/)9/4s40 Export NA NA NA NA Leva, |) 1235.)|| 0240 Retail 2-03) ||| 2502) |! 4/2205) |))|/'2328\r> | 2046 «||| 2139 |||!2.04 PINK-FROZEN ($/.1b) Processor 0-89) |) |) /59598){))|)1525))|))/ 1515) |||) 4590) |//F1.00:||||'0.90 Export NA NA NA NA 1.06 0.85 0.88 Retail NA NA NA NA 1.49 1.99 1.49 CHUM-CANNED ($/.1b) Ex-vessel (0587) |) /?0-39)|)|//0.48)|)))/0534))))/[0.40:)/|/0.32))/))/0.30 Proc/Broker e231) )/)e20) 1.30 1249) 125310011233 1.19 Export NA NA NA NA O53 tats Retail NA NA NA NA 2-10) )|||/1576)||)) 1.78 CHUM-FROZEN ($/.1b) Ex-vessel 0°37 |/-10-39)/|| (0655) || 10234) || (0.40'|| | 0-32) 0.30 Processor 596: )1)1)2554))))/) 1579 190) )))) 15651111) 1-30 1.20 Export NA NA NA NA 1252)||/|| 1240 1.11 Retail NA NA NA NA 2639) ||) |/2235))||| 1239 COHO-FROZEN ($/.1b) Ex-vessel (0-53) ) (0265) ||)|\1/-03)/ 6/0357) ||| (0.5751||// 0570!|||/ 0.40 Processor 2216)| 2074) |||)\2-09 01 i692))|)| 2.901) h1)11280))|)))'1570 Export NA NA NA NA 1.08 1.75 1.44 Retail NA NA NA NA 3.47° 2.45 2.75 KING-FROZEN ($/.1b) Ex-vessel 0.65 0.60 0.78 0.51 $-20))|))|)/11590))/|| 10570! Processor 3.00 3.38 3.00 2.90 3.05 2.60 2.10 Export NA NA NA NA 2.56 2.46 1.98 Retail NA NA NA NA 3°62))|2/ 3.55) ||| 3250) SALMON ROE ($/.1b) Export NA NA NA NA 4.81)|| | 4.30) ||| |'3-82 Whole-Japan 8.04 10.06 9.31 7.38) ||||/'7.01)|||| 7215 ||)'6:00 HERRING ($/ton) Ex-vessel NA 400.00 680.00 260.00 360.00 400.00 360.00 Processor NA NA 15.00 NA 1200.00 1200.00 1250.00 Compiled by Frank Orth & Associates, Inc. from sources shown in Table 8.1. The data in this table should be reviewed and used by readers only in light of the qualifying statements presented in the text concerning the sources and limitations of the data. For technical reasons, market price data are of limited value for determining specific values by species, area, size, and grade. Frozen. Processor prices for frozen sockeye (4 to 6 pounds) have declined from a high of $2.94 per pound in 1978 to $1.75 in 1983. Export prices have also fallen, from $2.40 in 1979 to $1.58 in 1983. This decline can be accounted for, in part, by the large harvest in 1983 and generally poor market conditions, especially exchange rates. Wholesale prices in Japan have fluctuated from a high in 1978 of $3.27 a pound to $2.41 in 1980. Prices firmed to $2.89 in 1981 and slipped again in 1982 and 1983 to $2.80 and $2.72 respectively. Spot retail prices in 1981, 1982, and 1983 were $2.80, $2.65, and $2.50 respectively. Pink Salmon Ex-vessel. Prices for pinks (canned and frozen) have steadily declined from 34 cents per pound in 1977 to 18 cents in 1983. The large catch in 1981 and the botulism incident in 1982 contributed to the decline. Canned. Processor/broker prices for canned pinks rose from a low of $1.36 per pound in 1978 to $1.76 in 1981 and then declined to around $1.40 in 1983. Export prices also fell from $1.73 per pound in 1981 to $1.35 in 1982, but appear to have recovered somewhat to $1.41 in the first three quarters of 1983. Retail prices rose from $2.03 per pound in 1977 to $2.46 in 1981, and since then have declined to $2.39 in 1982 and $2.24 in the first 9 months of 1983. Frozen. Processor prices have risen from 89 cents per pound (3 to 5 pounds) in 1977 to $1.25 in 1979. In 1980, the price fell to $1.15 and fell again in 1981 to $1.10. This price decline continued through 1983 where frozen pink prices were approxi- mately $.90 for high grade product. Export prices have fallen from $1.06 in 1981 to .88 cents in 1983. A spot retail price observed in 1981 was $1.49, $1.99 in 1982, and $1.49 in 1983. 8-10 Chum Salmon Canned. Ex-vessel prices peaked in 1979 at 48 cents and have fallen to 30 cents in 1983, the lowest price since 1975. Processor/broker prices have risen from a low of $1.20 in 1978 to a high in 1981 of $1.53. Since then the price has fallen to $1.33 in 1982 and $1.19 in the first half of 1983. Export prices have fallen from $1.53 in 1980 to $1.17 in 1981 and $1.18 in 1982. Retail prices fell from $2.10 in 1981 to $1.76 in 1982 and $1.78 in 1983. Frozen. Ex-vessel prices peaked in 1979 at 55 cents and have since fallen to 30 cents in 1983, again the lowest price since 1975. Processor prices (6 to 9 pounds) peaked in 1978 at $2.54 and have since fallen to $1.65 in 1981 and to $1.20 in 1983. Export prices declined steadily from $1.52 in 1981, to $1.40 in 1982, and to $1.11 in 1983. A spot retail price in 1981 was $2.39, $2.35 in 1982. In 1983, grocery store specials as low as $1.39 were reported. Coho Salmon Frozen. Ex-vessel prices peaked in 1979 at $1.03 per pound and have fallen to 40 cents in 1983, the lowest since 1974. Processor prices (4 to 6 pounds) peaked in 1978 at $2.74 and then stayed around $2.00, plus or minus 10 cents, between 1979 and 1981. Processor price for 1982 was $1.80 and $1.70 in 1983. Export prices have fallen considerably from $1.88 in 1981 to $1.44 in 1983. A retail price (6 to 9 pounds) of $3.47 was reported in 1981. For 1982, a price of $2.45 was observed as well as a spot range of $3.99 to $4.99 for steaks. For 1983, on the New York retail market, prices have ranged from $2.20 to $4.53. Table 8.2 uses a price of $2.75 as representa- tive of where most sales occurred. 8-11 King Salmon Frozen. Ex-vessel prices have fluctuated considerably since 1977. 1983 ex-vessel price was approximately $.70 per pound with variations of plus or minus $.20 reported. Processor prices have also fluctuated. They have declined in each of the last three years, to $2.10 in 1983 for 11 to 18 pound brght fish. Export prices have dropped by over 20 percent, from $2.56 in 1981 to $1.98 in 1983. Spot retail prices have remained at around $3.50 over the past three years. Salmon Roe Ex-vessel prices are the same as those described above for canned and frozen salmon (i.e., roe prices are not negotiated separately from the price per pound for whole fish). Export prices, between 1981 and 1983, fell from $4.81 to $3.82 per pound, a decline of over 20 percent. Japanese wholesale prices shown in Table 8.2 represent high grades. They have fluctuated between a high of $10.06 in 1978 to a reported low of $6.00 in 1983. Togiak Herring Roe Ex-vessel prices have varied from a high of $680 per ton in 1979 to a low of $260 per ton in 1980. By 1982, the price had risen to $400 per ton, and declined to $360 per ton in 1983. Processor prices were $1200 per ton for frozen round product in 1981 and 1982, and $1250 per ton in 1983. MARGINS EARNED AND THEIR USES For many participants in the seafood marketing chain (har- vesters, processors, brokers, etc.), it is tempting to judge the "reasonableness" of prices received for raw or partly- processed product by comparing them to prices received by 8-12 others at higher levels of the marketing chain, for finished or partly-finished products. Such comparisons can be misleading, however, unless the observer accounts for the many technical factors and market costs which intervene to "consume" the gross Margin. Gross margin at any level of the chain is the difference between sales price (unit revenue) and purchase cost. Profit or loss (net margin) is the difference between gross margin and the costs associated with the technical (shrinkage, spoilage, theft, etc.) and market (direct labor, overhead costs, taxes, etc.) factors. Some of the more important technical factors and market costs are shown in Figures 8-1 and 8-2 for each level of the vertical chain. This section provides representative examples of the margins realized at each level for Bristol Bay, canned and frozen salmon (particularly sockeye), and for herring roe, using the price information presented above. The technical factors and Market costs which "consume" gross margin are specifically identified to the extent data have allowed, and to the extent it is possible to develop a "representative" case among all the diversity that exists in Bristol Bay. A 1982 study (Frank Orth & Associates, Inc. for DPRA) developed 1981 prices and margins for canned and frozen salmon in Alaska for various price scenarios (high, medium, and low). With canned sockeye salmon, the fisherman received a higher percen- tage of the retail price as the retail price rises from low to medium to high. For the processor it is just the opposite; the processor receives a greater percentage of the retail price as the price falls from high to low. This reflects the importance of fixed costs and overhead in the processors' cost structures. 8-13 Figure 8-1 FACTORS AFFECTING GROSS AND NET MARGINS FOR FISHERMEN TECHNICAL FACTORS e Fishing Skill of Skipper and Crew e@ Fishing Power of Boat Speed Hold Capacity Electronics e Permits and Licenses Owned SOURCE: F. ORTH & ASSOCIATES, INC. e@ Cost of Materials and Supplies Fuel Food Ice Bait Nets and Accessories Other (Administrative) e@ Cost of Services Purchased Insurance Repair and Maintenance Other (Administrative) e@ Value Added Payroll Crew Share Captain's Share Employee's Taxes Capital Costs Interest Depreciation Rent Tax and Licenses Net Profit RISK FACTORS Size, Location and Timing of Run Availability of a Market or Markets for Product Harvested Level of the Market Accounts Receivable Fishery Management Decisions Weather Accidents Figure 8-2 FACTORS AFFECTING GROSS AND NET MARGINS FOR PROCESSOR/WHOLESALER/RETAILER/EXPORTER TECHNICAL FACTORS Management Skill Plant Productivity (Labor and Equipment ) Recovery Rates or Yields Shrinkage Theft e@ Sales Expenses Cash Discount Brokerage Storage and Handling Labelling and Casing (Canned) Advertising/Pranotion RISK FACTORS Financing Availability and Cost Product Rejection/Returns Account Receivable Collections Product Liability Currency Exchange Rate Fluctuations Market Price Fluctuations Insurance e@ Variable Costs Raw Materials Wages (Direct Labor) Processing/Reprocessing Grading/Regrading Packaging Paper and Paperboard Metal Containers Ingredients Miscellaneous Supplies Energy Electricity Fuel Oil Transportation Tender Expense Freight to Seattle or Other Destination e@ Fixed Costs (Allocated Costs) Capital Costs Salaries Overhead Services Hired Office Supplies Rent Taxes e Profit or Loss SOURCE: F. ORTH & ASSOCIATES, INC. Harvest Level At the harvest level, two reports: Fisherman's Income Survey, Salmon and Herring Fisheries, Alaska Sea Grant, 1980; and Summary of Cost and Net Return Information for the Bristol Bay Drift Gill-net Fishery, Alaska Commercial Fisheries Entry Commission (ACFEC), 1979 were used to obtain a breakdown of vessel gross earnings (gross margin) among several expense categories. The data for the Income Survey were obtained in 1979 and included information specific for Bristol Bay Drift Gillnetters. The data for the Summary of Cost and Net Return study, also for Bristol Bay Drift Gillnetters, were obtained in 1976. The percentages allocated to each category can be obtained by averaging the data presented in the two reports, as shown in Table 8.3. TABLE 8.3 PERCENTAGE ALLOCATION OF HARVEST MARGINS Operating Expenses Percentage Rent/Tax/License 4.8 Services TS ie Materials 4.0 Crew Share 27.3 Total Operating Expenses 49.3 Opportunity Cost Investment 13.0 Permit 2.9 Total Opportunity Cost 15.9 Depreciation 9.6 Returns to Labor and Management 25.2 Total Allocations 100.0% 8-14 A more detailed breakdown of the fishermen gross earnings is presented in Table 8.4; these were derived solely from the CFEC study. When these two compilations (the Table 8.3, based on an average of both the Sea Grant and CFEC studies, and Table 8.4, which shows in detail the CFEC study alone) were compared to an earlier study (Penn, 1980) that had tabulated data on Pacific Salmon Gillnetters (not specific to Bristol Bay) for the years 1972 to 1977, several interesting contrasts resulted. In the Penn study, depreciation expenses averaged around 11 percent of ex-vessel price (in contrast to the average of 9.6 percent shown above and the 4.1 percent shown in CFEC study) and returns to labor and management averaged around 20 percent (in contrast to the 25.2 percent shown above and 27.6 percent shown in Table 8.4). The implications are that depreciation in the CFEC study (Table 8.4) may be understated and that West Coast gillnetters average a lower return to labor and management than Bristol Bay gillnetters. Processor Level Salmon. At the processor level, unit cost models were used to divide up margins between purchase price (ex-vessel), recovery cost, allocated fixed costs, variable costs, sales expense, general and administrative expense, interest expense and profit for canned and frozen salmon. An adjustment is made for the corresponding roe revenue received per pound of finished product sold (canned or frozen salmon). Table 8.5 is a detailed "representative" example for canned sockeye salmon, using 1983 price data. Table 8.6 is an example for dressed, heads-off frozen sockeyes using 1983 price data. The reader should note that it is extremely difficult to derive a representative margin analysis from all the diverse produc-— tion methods, transportation arrangements, and contractual arrangements existing in Bristol Bay. For this reason, Tables 8.5 and 8.6 are only intended to be indicative of how the gross 8=15 TABLE 8.4 ALLOCATION OF MARGINS AT THE HARVEST LEVEL, 1976 (Bristol Bay Salmon Drift Gillnetters) Operating Expenses Percent Materials Fuel 1.9 Galley 1.8 Special Clothes 0.8 4.5 Services Insurance 1.5 Dues 0.5 Moorage and Storage 0.3 Administration gt Vessel Repairs 5.1 Net Repairs 3.4 Travel and Freight 3.0 15.5 Rent/Tax/Licenses Rental and Leasing 3.2 License Fees 0.7 Borough Fish Tax 1.6 5.5 Crew Share g1.7 Opportunity Cost Investment 9. Holding Permit 2 Depreciation 4.1 TOTAL COSTS 72.4 Returns to Labor and Management 27.6 100.0% Source: Summary of Cost and Net Return Information for the Bristol Bay Drift Gill-Net Fishery, Commercial Fisheries Entry Commission, Juneau, Alaska, 1979. 8-16 margin is "consumed" within a representative processing organi- zation. As such, it does not represent any specific situation; however, it is useful for the limited purpose intended here. The diversity within the processing sector must be emphasized because of the importance of the differences for price and margin analysis. There is extreme variation when considering the experiences of specific processors. Contrary to informa- tion in Tables 8.5 and 8.6, there are many processors who incurred substantial losses in Bristol Bay due to their mix of all the variable factors: process forms, fish purchase prices, selling prices, location, volumes achieved (which can cause unit overhead, labor costs, and tendering costs to vary wide- ly), product grade out, roe grade out, recoveries, and markets served (location and values received). When purchase price and recovery costs have been separated out from variable costs for each product form, the remaining variable costs are about the same for each species. This explains why consumer-market price differences across species are reflected closely in ex-vessel prices. Herring Roe. Table 8.7 presents the margins for a typical herring processor. Over 95 percent of the herring destined for roe production is performed by floating processors who freeze the herring in the round. The boxed frozen herring is then delivered over the side to freighters, usually Japanese. The labor intensive stripping of the roe is then performed in Japan. The extreme variation in operating situations across processors observed in the salmon fishery also exists in the herring roe fishery. In fact, in the crucial area of volumes processed, this fishery tends to be even more variable across processors. Thus, the ranges for certain costs and profits (losses) are included in Table 8.7. 8-17 TABLE 8.5 PROCESSOR MARGIN ANALYSIS, CANNED SOCKEYE SALMON, 1983 (one-pound tall basis) AMOUNT PERCENT CATEGORY ($/POUND (of sale price)! Expenses Sales Expenses Cash Discount $0.05 1.9 Brokerage Fee 0.10 3.9 Storage, Handling Insurance 0.02 0.8 Labels & Casing 0.02 0.8 Total 0.19 4 Variable Costs Tender 0.12 4.6 Direct Labor 0.12 4.6 Packaging 0.18 6.9 Freight (to Seattle) 0.08 a el Miscellaneous 0.04 1.6 Total 0.54 20.8 Allocated Fixed Costs? 0.25-0.50 9.7-19.3 Raw Material Fish (round form) 0.61 23.6 Recovery & fish tax 0.27 10.4 Total 0.88 34.0 Other Expenses General Staff & Admin.2 0.10-0.30 3.9-11.6 Interest 0.08 3.1 Total 0.18 7.0-14.7 Total Expenses $2.04-2.49 78.8-96.1 Revenues Gross Sale Price} $2.42 93.4 Roe Revenue4 0.17 6.6 Total Revenues $2.59 100.0 TOTAL REVENUES $2.59 100.0 TOTAL EXPENSES -2.04 -78.8 PRE-TAX PROFIT (with Roe)5 $0.10-0.55 3.9-21.2 PRE-TAX PROFIT (without Roe)5 $(0.07)-0.38 (2.9)-15.7 Includes both the salmon price and the value of eggs. 2 Substantial variation acros plants based upon age of assets, type of assets, and volume of production. Includes the net sale price plus cash discounts and brokerage fees. Includes pro rata value of eggs from industry sources. 5 Unlike harvester margins, this margin analysis does not include opportunity cost on processor's investment. Note: Compiled by Frank Orth & Associates, Inc. from industry sources. The data in this table should be reviewed and used by readers only in light of the qualifying statements presented in the text concerning the sources and limitations of the data. > 8-18 TABLE 8.6 PROCESSOR MARGIN ANALYSIS, FROZEN SOCKEYE SALMON, 19831 AMOUNT PERCENT CATEGORY ($/POUND) (of sale price)2 Expenses Sales Expenses3 $0.05 2.9 Variable Costs Tender Om 15) 8.6 Direct Labor 0.14 8.0 Packaging & Miscellaneous 0.04 233 Freight3 0.05 2.9 Miscellaneous 0.04 2n3) Total 0.42 24.1 Allocated Fixed Costs 0.19 10.9 Raw Material Fish (round form) 0.61 34.9 Recovery & fish tax Oni25 lint Total 0.84 48.0 Other Expenses General Staff & Admin. 0.10 5.7 Interest3 0.02 rat Total 0.12 er) Total Expenses $1.62 92.6 Revenues Sale Price2 $1.60 91.4 Roe Revenue 0.15 8.6 Total Revenues $1.75 100.0 TOTAL REVENUES $1.75 100.0 TOTAL EXPENSES -1.62 -92.6 PRE-TAX PROFIT (with Roe) 4 $0.13 7.4 PRE-TAX PROFIT (without Roe)4 -0.02 -1.3 1 For frozen, dressed, head-off sockeye salmon. 2 Based principally on the export price; includes pro rata value of eggs. 3 Represents "average" for expense category for different modes of operation. 4 Unlike harvester margins, this margin analysis does not include opportunity cost on processor's investment. Source: Compiled by Frank Orth & Associates, Inc. from industry sources. B= L9 PROCESSOR MARGIN ALLOCATIONS, TABLE 8.7 FROZEN ROUND HERRING, 1982 AMOUNT PERCENT CATEGORY ($/TON) (of sale price) Expenses Grounds Costs Fish Cost Herring (round) $400 33.3 Recovery 20 1.7 Tender 150 12.5 Dock/Shipside Costs 30 2D Miscellaneous 50 4.2 Total 650 54.2 Freezing Costs* Labor 68 10.2 Shrinkage (5%) 32 one Total 100 E269 Overhead 200-600 16.7- 50.0 Total Expenses $950-1350 79 .2-112).5 Revenue 1100-1300 91.7-108.3 TOTAL REVENUE $1100-1300 91.7-108.3 TOTAL EXPENSES 950-1350 79.2-112.5 PRE-TAX PROFIT (LOSS) (250)- 350 (20.8)-29.2 Notes: 1. Based on midpoint price of $1200 per ton. 2. Variable only, includes no worker guarantees, housing costs, senior supervisory or maintenance personnel, etc. 3. Highly variable among freezing systems. 4. Includes items in footnote #2 plus a variable allocation to plant or ship overhead. The latter varies widely depending upon ability of allocate to other fisheries and upon the total production level achieved in each fishery. 5. Depends upon quality and roe percentage. Source: Compiled by Frank Orth & Associates, Inc. from industry sources. 8-20 Retail Level For salmon at the retail level, a study that examined retail margins for canned pink salmon and for fresh salmon steaks in the period 1972-77 was used (Penn, 1980). The data used in this study was not specific to any geographic area of the U.S. The results of this study were applied to 1983 retail pink and sockeye salmon margins and the 1982 retail chum salmon margin. By averaging the results obtained for the years covered by the study, the following percentages were derived for each retail expense category: Canned Fresh Pink Salmon Salmon Steaks Wholesale Cost 71.0% 84.7% Gross Earnings Variable Cost Te? Grd Fixed Cost 8.8 6.7 Profit 12.5 0.9 Total Value Added 29.0 L533 100.0% 100.0% The amounts presented in Table 8.8 are based on the canned Salmon percentages. The 1983 processor price would have been $1.59, or $.13 higher than the observed price of $1.46, to result in a retailer margin of 12.5 percent as revealed from Penn's study. With the actual price of $1.46, the retailer margin in 1983 was $.41 or 18.3 percent. This is apparently at the expense of processor/wholesaler margins. Any application of the results from Penn's study to frozen salmon would need to be qualified, because the retail costs of 8-21 TABLE 8.8 RETAIL MARGIN ALLOCATIONS, CANNED Variable Costs Merchandise Purchased (fish) Wages (direct) Miscellaneous Materials Fixed Costs Capital Costs Wages (general) Services Hired Rent Office Supplies Taxes Profit TOTAL 11972-1977 study percentages applied to 1983 retail price. 1972-77 Study Percent POF eee ono ~ co . ~ rFOONNO oe ee we NUM OA co . oo e N . wn 100.0% PINK SALMON 1972-77 Study Amount! ($/1b) 1983 Actual Amount 2 2Same except that actual (lower) 1983 purchase price is inserted. Source: LO 2=E OT, From Appendix Table 91, Levels", by Erwin Penn. 8-22 "NOAA Technical Memorandum NMFS OF 4, Cost Analyses of Fish Price Margins, At Different Production and Distribution (18.33%) selling fresh salmon are not the same as the retail costs of selling frozen salmon. Inventory turnover rates, refrigeration costs, and spoilage are examples of differences. Based on the information presented in Tables 8.4 through 8.6, general margin allocations are shown in Table 8.9 for all salmon species in 1983. As before, the information presented is representative of the general case, and will probably not exactly fit any harvestor's, processor's, or retailer's 1983 experience. Several things stand out from this analysis. First, retailer margins are substantially more attractive on canned product than on frozen product. Processor margins and harvester margins are variable across species and fluctuate from year to year. Second, the ratio of processor selling price to processor purchase price (cost) is not closely correlated with processor profit margins across species and process forms. This again highlights the importance of other costs, in addition to ex-vessel price, in determining processor profitability from any given sales price. Summary of Margin Analysis Tables 8.4 through 8.9 reflect the current state of margin research and its application to recent Bristol Bay experiences. Margins derived from the prior research and current price data are subject to many qualifications, however. While these compilations are certainly not exhaustive of all market layers for all Bristol Bay products, they are representative of the technical factors and market costs which enter to consume gross margins. 8-23 TABLE 8.9 DIVISION OF 1983 GROSS MARGINS WITHIN AND BETWEEN VERTICAL MARKET LEVELS HARVESTING LEVEL OPERATING OPPORTUNITY DEPRECIATION RETURNS TO EX-VESSEL1 FORM/SPECIES EXPENSES COST. EXPENSE LABOR/MGMT PRICE CANNED Red Salmon 0.30 0.10 0.06 0.15 0.61 Pink 0.10 0.03 0.02 0.04 0.18 Chum 0.15. 0.05 0.03 0.08 0.30 FROZEN : Red Salmon 0.30 0.10 0.06 0.15 0.61 Pink 0.10 0.03 0.02 0.04 0.18 Chun 0.15 0.05 0.03 0.08 0.30 Coho 0.20 0.06 0.04 0.10 0.40 King 0.35 0.11 0.07 0.18 0.70 PROCESSOR LEVEL PURCHASE+ VARIABLE FIXED SALES GENL/ADMN SALES FORM/SPECIES PRICE COST. Cost. EXPENSES & INTEREST PROFIT PRICE CANNED Red Salmon 0.88 0.54 0.38 0.19 0.28 0.15 2.42 Pink 0.30 0.59 0.38 0.13 0.13 0.13 1.40 Chum 0.46 0.58 0.38 0.11 0.13 -0.47 1.19 FROZEN Red Salmon 0.84 0.42 0.19 0.05 0.12 0.13 1.75 Pink 0.28 0.42 0.19 0.05 0.12 0.16 0.90 Chum 0.43 0.42 0.19 0.06 0.12 0.02 1.20 Coho 0.56 0.42 0.19 0.09 0.12 0.32 1.70 King 0.96 0.42 0.19 0.11 0.12 0.31 2.10 RETAIL LEVEL PURCHASE VARIABLE FIXED SALES FORM/SPECIES PRICE Cost COST PROFIT PRICE CANNED Red Salmon 2.42 0.39 0.43 0.62 3.86 Pink 1.40 0.21 0.25 0.38 2.24 Chum 1.19 0.15 0.17 0.25 1.76 FROZEN Red Salmon 1.75 0.33 0.38 0.05 2.50 Pink 0.90 0.26 0.30 0.04 1.49 Chum 1.20 0.08 0.10 0.01 1.39 Coho 1.70 0.46 0.53 0.06 2.75 King 2.10 0.62 0.70 0.08 3.50 Source: Frank Orth & Associates. 1 Harvesting ex-vessel price per pound and processor purchase price per pound are not identical in that a portion of the product is discarded during processing. The data in this table should be reviewed and used only in light of the qualifying statements presented in the text concerning the sources and limitations of the data. Retail margins are calculated as a fixed percentage of retail price, rather than as a residual of market value and known expenses. The reason for this approach is that actual expense data at the retail level are not available. The fixed percentages came from Erwin Penn, Cost Analysis of Fish Margins, 1972-1977, at Different Production and Distribution Levels, NOAA Technical Memorandum NMFS No 4, 1980. With the exception of the harvesting level, it is probably accurate to say that all vertical levels of the industry are receiving net margins, or profit, of roughly competitive proportions. There are certainly variations from year to year, and area to area, but these "profit pockets" are usually quickly closed by competitive forces. Given the fact that they are in the most speculative position in the market chain (Sandwiched between resource risks and Market risks), processor's returns at any point in time should be viewed in light of the risks assumed. One has only to observe the wide variation among processors' survivability and profitability in a given year, and from one year to the next, to gain respect for the above-normal risks assumed by any business which invests capital in the industry. Viewed his- torically, there has been a continuous turnover of ownership of processing assets, and of dominant positions enjoyed by individual firms, since the industry's earliest years. If anything, this trend has become even more extreme in recent years, since about 1979. The harvesting sector is unique in that it is the only sector in which the maximum number of competitors is limited by regulation. This provides the opportunity, and the accom- panying market dynamics, to achieve substantially improved margins for extended periods, when market conditions are favorable, or when fish are plentiful, and especially when both conditions occur at once. The above-competitive margins enjoyed by harvesters under favorable conditions, and the relative insulation from competitive pressures under unfavor- able conditions, tends to be capitalized by the market in the market value of permits. New entrants into the fishery are paying values which reflect the opportunity to earn above normal margins. From the perspective of a permit buyer, the rate of return on his/her investment will be at roughly competitive levels. From 8-25 the seller's perspective, the additional value earned upon sale of the permit becomes personal wealth. If permits remain with “first generation" holders, their personal wealth is higher than it otherwise would be by the asset (market) value of the permit. CATCHES AND REVENUES TO FISHERMEN This section of the report analyzes the catch levels and ex-vessel values for the fisheries in Bristol Bay. For the fishermen working in the region, the catches and revenues are allocated among the residency classifications of: non-Alaskans; Bristol Bay residents; and fishermen living in Alaska but outside the Bristol Bay area. The definitions for what con- stitutes residency are determined by the Commercial Fisheries Entry Commission. Salmon The division of catches and revenues for drift and set gill- netters by residency class is shown in Tables 8.10 and 8.11. The highest component of the salmon drift gillnet catch and value has consistently been the non-Alaskan resident fishermen. In contrast, the non-Alaskan resident fishermen make up the smallest component of the set gillnet catches and ex-vessel value. In the set net fishery, the Bristol Bay residents consistently harvest the largest proportion of the catch. Herring Bristol Bay herring fishery catches and values are summarized in Table 8.12 and 8.13. The herring seine fishery accounts for the largest proportion of the catch. "Other Alaskan Residents" from Kenai, Homer, Kodiak and Petersburg account for the largest component of the seine harvest and value, with the smallest component being harvested by Bristol Bay residents. 8-26 L@-& RESTDENCY! CATEGORY Non-Alaskan Residents Bristol Bay Residents Other Alaskan Residents SALMON DRIFT GILLNET CATCHES AND VALUES BY TABLE 8.10 RESIDENCY, 1978-1981 1978 1979 1980 1981 # OF DOLLAR # OF DOLLAR # OF DOLLAR # OF DOLLAR CATCHES VALUE CATCHES VALUE CATCHES VALUE CATCHES VALUE 36,070,051 23,708,930 67,344,070 68,356,267 66,471,643 36,924,703 74,738,821 57,874,936 30,577,576 17,813,581 31,660,402 30,851,610 38,346,473 20,229,021 43,058,339 33,188,892 11,599,958 7,273,008 21,213,062 21,171,407 27,197,324 14,826,243 30,114,912 23,273,197 lResidency classifications according to CFEC definitions. Source: Run date June 14, 1983. Commercial Fisheries Entry Commission (CFEC) data files GXGHO170-R04 and GXGH0170-R02. Data compiled by Frank Orth & Associates, Inc., September 1983. 87-8 TABLE 8.11 SALMON SET GILLNET CATCHES AND VALUES BY RESIDENCY, 1978-1981 1 1978 1979 1980 1981 RESIDENCY # OF DOLLAR # OF DOLLAR # OF DOLLAR # OF DOLLAR CATEGORY CATCHES VALUE CATCHES VALUE CATCHES VALUE CATCHES VALUE Non-Alaskan Residents 1,891,771 1,240,020 4,086,746 4,150,379 5,296,005 2,924,922 6,998 ,505 5,381,424 Bristol Bay Residents 5,469,583 3,517,488 8,659,940 8,741,950 9,327,548 5,109,361 12,672,371 9,706,268 Other Alaskan Residents 2,275,735 1,427,893 4,103,757 4,161,813 6,074,687 3,357,550 6,775,723 5,508 ,968 1 Residency classifications according to CFEC definitions. Source: Commercial Fisheries Entry Commission (CFEC) data files GXGHO170-R04 and GXGH0O170-RO2. Run date June 14, 1983. Data compiled by Frank Orth & Associates, Inc., September 1983. 67-8 TABLE 8,12 HERRING SEINE CATCHES AND VALUES BY RESIDENCY, 1978-1981 1 1978 1979 1980 1981 RESIDENCY # OF DOLLAR # OF DOLLAR # OF DOLLAR # OF DOLLAR CATEGORY CATCHES VALUE CATCHES VALUE CATCHES VALUE CATCHES VALUE Non-Alaskan Residents 2,588,785 456,580 4,753,094 1,437,061 8,566,114 1,120,023 5,126,171 881,151 Bristol Bay Residents 454,414 77,250 569,032 184,935 429,560 73,806 629,927 112,141 Other Alaskan , Residents 11,148,777 1,988,760 13,663,878 5,012,505 26,511,0224 3,817,799 18,824,165 3,824,239 lResidency classifications according to CFEC definitions. Source: Commercial Fisheries Entry Commission (CFEC) data files GXGH0170-R04 and GXGHO170-R02, Run date June 14, 1983. Data compiled by Frank Orth & Associates, Inc., September 1983. 0€-8 TABLE 8,13 HERRING GILLNET CATCHES AND VALUES BY RESIDENCY, 1978-1981 1 1978 1979 1980 1981 RESIDENCY # OF DOLLAR # OF DOLLAR # OF DOLLAR # OF DOLLAR CATEGORY CATCHES VALUE CATCHES VALUE CATCHES VALUE CATCHES VALUE Non-Alaskan Residents 752,283 487,436 5,870,554 1,821,668 5,872,703 561,542 7,150,008 1,128,838 Bristol Bay Residents 154,520 26,268 2,123,715 680,291 575,997 52,582 1,694,862 287,433 Other Alaskan Residents 59,201 14,327 3,485,808 1,370,425 8,854,6784 1,075,755 12,298,383 1,865,164 lResidency classifications according to CFEC definitions. Source: Commercial Fisheries Entry Commission (CFEC) data files GXGHO170-R04 and GXGH0170-R02. Run date June 14, 1983. Data compiled by Frank Orth & Associates, Inc., September 1983, Fishermen from.the ports of Kodiak, Homer, and Petersburg are Major participants in the fishery. The herring gillnet catches made by Alaskan fishermen from outside the Bristol Bay area are also the largest component of the total catch, particularly in recent years. Fishermen from the ports of Nome, Bethel, Anchorage and Kodiak are major participants in this fishery. The proportional value to each category for the herring gillnet fishery has changed radically since the fishery started in 1978. During the first two years, the non-Alaskan residents took the largest proportion of the total catch value. This situation reversed during 1980 and 1981 with the other Alaskan residents taking a larger proportion. The value of the catch landed by Bristol Bay residents has fluctuated, but is by far the smallest proportion of the three residency categories. PROCESSING REVENUES AND EXPENDITURES This section presents an analysis of the income-expenditure flows of the processing sector in Bristol Bay. The purpose of the analysis is to provide a basis for understanding the economic importance of processing-sector activities within the Bristol Bay region. There are several alternative means for measuring an industry's importance in a particular geographic area. These methodolo- gies, complex and subject to certain limitations, include economic-base analysis, input-output analysis, flow-of-funds analysis, and detailed industry descriptions. This section is based upon a combination of detailed industry information and economic-base concepts. The data presented and the estimates derived are not intended to be exact. Rather, they are intended to provide a factual perspective of the processing sector's economic impact in 1982. The factors derived could be applied to total processor revenue 8-31 in other years as long as the underlying structure and operat-— ing conditions do not change significantly. The analysis is explicit to allow the reader the ability to update or revise underlying assumptions to match different conditions in the future or a different perspective of current conditions. Conceptual Background The estimation of an industry's or sector's economic contribu- tion to an area is a complex and expensive undertaking. In almost all cases, shortcuts are used to avoid prohibitive time and/or budget constraints. These shortcuts primarily involve making assumptions concerning key economic or business factors. Without assumptions, the expense of economic research and analysis would be prohibitive. It is customary, therefore, to use existing information where possible, even though extensions or extrapolations from known information into the unknown are often required. When existing information is not available, primary research is normally used for the most crucial and difficult-to-estimate missing information, if afordable. The remainder of missing information is estimated with the aid of assumptions. In the analysis presented in this section, most assumptions were made in the area of local expenditure and re-expenditure of funds in the Bristol Bay economy. These assumptions were tied to known values or derived from economic theory, especial- ly economic-base methodology. Figure 8-3 shows a conceptual "network" or “model" for the Bristol Bay fisheries, processing- sector expenditure component. The processing-sector income-expenditure flows for 1982, as measured in this section of the report, follow the "line of causation" shown below: Ba32 PROCESSOR REVENUE (PRODUCTION * SALES PRICES) ---> PROCESSOR EXPENDITURE CATEGORIES ---> DIRECT EXPENDITURES IN BRISTOL BAY ---> INDIRECT EXPENDITURES IN BRISTOL BAY ---> INDUCED EXPENDI- TURES IN BRISTOL BAY ---> MULTIPLIER EFFECT IN BRISTOL BAY REGION ECONOMY (SUCCESSIVE ROUNDS OF EXPENDITURE OF LOCAL INCOME). The expenditures of the processing sector in the Bristol Bay economy are considered as direct basic-sector expenditures. The recipients of these payments are respending a certain portion of these payments in support of their involvement in basic-sector production; these are called indirect basic-sector expenditures in Figure 8-3. Finally, the recipients of income from direct and indirect basic-sector expenditures respend a portion of their income in the Bristol Bay economy in support of their own personal consumption expenditures. These expendi- tures are variously called “nonbasic," or “support-sector" or "induced" expenditures. They travel through the economy in successively smaller and smaller cycles as expenditures become income, part of which is respent locally, with a portion becoming local income, part of which is again respent, etc. The production of salmon and herring are broken into "processed in Bristol Bay" and “processed outside Bristol Bay" categories. This breakout is essential because a significant percentage of the harvest is "exported" to other areas for processing. Obviously, processing outside the Bay has a different impact on the Bay than processing inside the Bay. Similarly, a significant proportion of frozen production occurs on floaters. Estimates of expenditure impacts for the direct labor, other variable expenses, overhead expenses, and profit categories, were adjusted to allow for the "leakages" from the income-expenditure stream that are associated with production by floaters. 8-33 FIGURE 8-3 CONCEPTUAL INCOME-EXPENDITURE FLOWS IN BRISTOL BAY ECONOMY FROM PROCESSING SECTOR DIRECT EXPENDITURES DIRECT EXPENDITURES INDIRECT EXPENDITURES INDUCED EXPENDITURES ——OUTSIDE BUSINESSES-X —--LOCAL LABOR -—— —-}-— —SAVINGS-X —--LOCAL BUSINESSES —-—-— —--OUTSIDE BUSINESSES-X * —- OUTSIDE BUSINESSES-X —--LOCAL LABOR --- —--LOCAL BUSINESSES —— — ~-LOCAL LABOR -- —--LOCAL BUSINESSES -—--+-- —-LOCAL BUSINESSES = —~—-—~—-ETC. —--PROFITS --- —-PROFITS -- PROCESSORS -— - —--LOCAL LABOR oo —--LOCAL BUSINESSES ——— ---OUTSIDE BUSINESSES ——— —--OUTSIDE BUSINESSES-X —--PROFITS ——-OUTSIDE LABOR-X -X = NO FURTHER INCOME-EXPENDITURE FLOW IN BRISTOL BAY. INDIRECT EXPENDITURES BY OUTSIDE BUSINESSES REPRESENT OUTSIDE SERVICE BUSINESSES WHICH SUPPORT THE PROCESSING SECTOR. PREPARED BY: FRANK ORTH & ASSOCIATES , INC. For 1982, total estimated processor revenue derived from the Bristol Bay harvest was $212.8 million. Of this amount, $168.2 million was derived from production that occurred in the Bay in floaters and shore plants. $44.7 million of processing sector estimated revenue was derived from Bristol Bay salmon that were Processed outside the Bay. The revenue estimates also include herring and are based on the assumption that all herring is frozen in the Bay. In the lower left portion of Table 8.14, the categories of expenditures for a processor producing canned and frozen (salmon and herring) products are shown. These estimates were derived from unit cost models presented earlier. Note that there are no separate estimates for fresh, cured, or roe. The unit cost model for frozen was applied to the small amounts of production in these categories. Next, the "“WCFs" (or weighted average cost factors) were derived to obtain a single cost factor for allocating direct processor expenditures while maintaining the relative importance of the cost of canned, frozen dressed salmon, and frozen round herring. In 1982, the relative importance of frozen dressed sockeye was unusually large. due to the market's reaction to the botulism incident. The strength of this category is reflected in the WCFs. The dollar cost by cost category was then derived. In the case of fishermen and tendermen, processor expenditures (as reflected in the weighted cost factor) were derived from the total processor revenue received from Bristol Bay production, or $212.8 million. For the other categories of processor expenditures, the WCF was applied to the processor revenue derived from the “inside the Bay" category only. The differ- ence in treatment of these expenditure categories is intended to reflect the reality of where the funds are spent by pro- cessors (that is, where the economic impact of the expenditures would be felt) for each type of expenditure. Since all har- 8-34 vesting and most tendering occurs within the Bay, these cate- gories of processor expenditure were derived from the total processor revenue category. The column "$COST BY COST CATEGORY" should be interpreted as the proportion of total (applicable) revenue which is spent on each cost category. The amount spent on each cost category is not necessarily spent in the Bristol Bay economy. Typically, only a portion of any category of expenditure is spent within the region. In the case of expenditures on raw product, data compiled for other sections of this report were used to esti- Mate the percent of raw product expenditures by processors which become direct expenditures in the Bristol Bay economy. Based on the assumption that, on the average, fishermen from the "Bristol Bay Residents" category spend 80 percent of their income in the local economy, "Other Alaska Residents" spend 10 percent of their income locally, and that "Non-Alaskan Residents" spend five percent of their incomes locally, the weighted average direct expenditure percentage for fishermen was determined to be 28.91 percent. For the other categories of processor expenditures, shown in the second column in the lower right segment of Table 8.14 "PERCENT DIRECT EXPND. IN BRISTOL BAY", an assumed fraction of the fishermen percentage was used, as there are no primary data available for this estimate. As mentioned above, the percent of local direct expenditure associated with the other categories of processor expenditures are expressed as a fraction of the fishermen direct expenditure category. The fractions used were: .15 (of .2891) for direct labor (= .0723); .125 for other variable costs (= .0361); .20 for overhead (= .0578); .10 for profit (= .0289). Inter- pretation of these percentages for direct labor, for example, is as follows: The direct labor category will spend 7.23 8-35 9€-8 1982 1962 1982 SALMON REN TUTAL oD AL OLAST DULNDITUKE CATEDRIES CANE ror reesn CRED SJSTUTAL «OE TUTAL RERAING ses Round Los. Prood. in 6B (thousands) 18,005 €7,958 750 3,590 - 90,303 43,121 133,424 hound Lbs, Procd. Outside BB (thousands) $496 21,358 1,223 ° - 2,07 - 28,077 Total Round Los. Pron B8 (thousands) 23,501 89,316 1,973 3,590 - 126,380 43,122 262,502 Finished Los, Prood, in B8 (thousands) 11,703 $0,569 432,693 3,424 69,352 40,965 120,316 Finisted Las. Prood, Outside BB (thousands) 3,572 16,019 917 ° 1,065 21,573 - 21,573 Total Finished Lbs. fron BB (thousands) 15,276 66,987 1,480 2, 683 4¥9 90,926 40,965 132, 689 Estimated Weighted Average Price (§/1b) /1/ 2.07 1.93 1.93 1.93 - 4.30 0.60 - Estimated Total Revenue in BB (thousands) 24,215 98,356 1,085 5,196 126,652 14,725 143,576 24,579 168,155 Estimated Total Revernve Outside BB (thousands) 7,392 30,912 1,770 ° 40,073 4,578 44,652 - 44,651 Total Estinated Revenue ($/thousands) 31,606 129,267 2,856 5,196 268,925 19,303 228 24,579 212,807 (COST FACTORS wor 72/ Raw raterial Cost rer) 48 3s 0.42 Tender Expense +047 +086 +125 0.09 Direct Labor +087 208 +102 0.08 Urner Variable Costs 9 2125 +094 0.12 Overhead +167 178 225 0.20 Profit +208 2051 079 0.08 Total 1,00 1,00 1,00 1.00 AJ weerage price for tresh and cured are assured to be the save as the weighted average price of frozen, 72] WC ~ Weighted average cost factor. 73/ Tis colum is derived by allocating total processor revenve by the weighted average cost factor for each of the cost catezories shom. These allocations serve as the basis for estimating processor direct exerditures In the Bristol by econory. tote that 212.8 million sérves as the revenve base for the rav material cost and tender expense rovs, whereas 168.2 million serves as the base for the other processor This is done to avoid expenditures made by processors on outside the Bay ‘The first tuo categories are logically based on total processing sector expenditures since perditure categories (ros). processing. all harvesting and most tendering occurs inside the Bristol Bay area, JA/ Indaced expenditures are expenditures by residents fran incore received as a result of direct and indirect emenditures in the bristol Bay econry that directly and indirectly core fran processing sector activity in the Bay. b:cause induced expenditures occur in multiple successive cycles, there is a multiplier effect. A multiplier effect of 1.33 (1/1-.25, shere .25 represents the fraction of local incare spent on locally produced goods ani services) has teen allowed for in the estimates contained in this colum. Source: Compiled by Frank Orth & Associates, Inc. fram Alaska Oupartmnt of Fish 6 Gare Data, Internal File! and: Industry Contacts. PERCONT Poca PERNT Tor. TUTAL $ ost DIRECT TOTAL INDIRECT TUTAL INDUCED LOCAL ALL CATE BY OMT aNd, IN worl Don. In LOCAL EPID, IN IND.CED cones caTeooRY sRISTOL pirect BRISTOL INDIRECT BRISTOL xPOITR. OF LiCAL BL BY BOPANDITRE war enorme, BAY ae DeoITR, 90,104 28.91 26,066 40 10,413 3 12,155 48,619 19,918 20.92 5,758 40 2,303 2s 2,687 10,748 13,959 7.23 1,009 40 404 25 oy 20,686 3.61 ua “0 29 2s 49 1,395 33,478 5.78 1,935 40 ™ 2s 903 3,615 13,096 2.89 79 0 ist 2 7 707 191,240 - 35,674 = 14,350 - 16,741 66,965 TABLE 8.14 ESTIMATED 1982 INCOME-EXPENDITURE FLOWS FROM PROCESSING SECTOR DIRECT EXPENDITURES IN BRISTOL BAY ECONOMY (Thousands of 1982 Dollars) percent of the receipts it obtains from the processing sector's expenditures on direct labor, directly in the Bristol Bay economy. The estimated percentages shown are based primarily on the fact that most direct labor used by shore plants is imported for the season, and virtually all direct labor used on floaters is non-local. As with any estimate, the accuracy of this estimate of percent direct expenditure, and the estimates for the other categories of expenditure, are debatable. However, they appear to be reasonable given the information that is available. The "TOTAL" row of the right-hand side of Table 8.14 is inter- preted as follows: Of the $212.8 million of processor revenue from Bristol Bay production, $191.2 million is spent on produc- tion that is physically located in the Bristol Bay area. Of this $191.2 million, $35.9 million is estimated to be spent directly in the Bristol Bay area by the recipients of the processors' expenditures. Of the $35.9 million that is spent directly by the recipients, $14.4 million, or 40 percent, is estimated to be respent by or in local businesses, as indirect basic-sector expenditures (that is, in support of the proces- sing sector's activities in Bristol Bay). Total local induced expenditure requires more explanation. it is estimated to be $16.7 million. This is derived by summing the direct and indirect expenditures in the Bay ($35.9 + $14.4 = $50.3) and dividing this sum by the expression (1 - the "non-leakage factor") and then subtracting the direct and indirect expenditure of $50.3. The "non-leakage factor," which is estimated to be roughly .25, is the amount of local expendi- ture which does not leak out in the form of: 1) savings by residents; 2) imports of goods and services by local support- sector businesses 3) and direct imports by resident consumers (say, in the form of catalog purchases). In other words, the leakages in their various forms are assumed to be roughly 75 percent of local expenditures, leaving 25 percent to recirculate in the local economy. The implicit multiplier [1/(1-.25) = 1.33] means that for every dollar spent in the Bristol Bay economy directly as a result of the activity of the processing sector, or indirectly as a result of the expenditures of local businesses who support the processing sector, there will ultimately be an additional $.33 spent on local production. This will result in local income of $1.33 for every $1.00 of direct and indirect expenditures. The logic of this process is shown in Table 8.15, where the cycles of expenditure that result in total cumulative induced expenditures of $16.7 million are defined. This process probably works itself out fully before the next season gets underway. The total effect in Bristol Bay, therefore, is estimated by the total column in Table 8.14. Of the initial injections of direct and indirect expenditures of $50.3 mil- lion, there is a total local impact of $70.0 million. This is roughly equivalent to one-third of the entire processing sector revenue derived from Bristol Bay operations. 8-38 6€-8 TABLE 8.15 INDUCED EXPENDITURES RESULTING FROM INITIAL DIRECT AND INDIRECT EXPENDITURES OF PROCESSING SECTOR Local Direct Local Expenditure Local Direct Local Indirect and Indirect Induced Total Local Cycle Expenditure Expenditure Expenditure Expenditure Expenditure First Round 35,874.00 14,350.00 50,224.00 -- 50,224.00 Second Round -- ~- -- 12,556.00 12,556.00 Third Round -- i -- 3,139.00 3,139.00 Fourth Round = —— = 784,75 784.75 Fifth Round eee ao == 196.19 196.19 Sixth Round a -- cor 49.05 49.05 Seventh Round —— —— a 12.26 12226 All Other Rounds oe ee aaa 3.40 4.09 Total All Rounds 35,874.00 14,350.00 50,224.00 16,741.00 66,965.00 Compiled by Frank Orth & Associates, Inc. CHAPTER 9 CONDITION OF THE INDUSTRY INTRODUCTION The purpose of this chapter is to present an overview of the current status of the Alaska seafood industry and specifically the Bristol Bay sector of the industry. This will serve as a backdrop against which to evaluate the economic effects of policy decisions concerning infrastructure. It is a reality of economics that even the most well-intentioned policy actions can have perverse or undesired side effects if the economic conditions are not understood or heeded. One caution to the reader is in order in reading this section. The Alaska seafood industry and the Bristol Bay industry are very complex and diverse economic structures. There are no generalizations which apply to all, and sometimes there is so much diversity as to defy generalization completely. Yet, a description of the industry's condition requires that one generalize on most subjects to an extent which is uncomfort- able. Many industry participants may share this discomfort as they come across generalizations that do not seem to apply to them. This is an unfortunate and unavoidable result of any attempt to describe a complex and diverse economic environment. Methods The methods used to prepare this section were to combine four sources of information to obtain a balanced perspective of where the Bristol Bay industry is and where it is going in the next several years. The sources were: 1. Information and analysis performed under other sections of this study. In particular, sections of this report con- taining description and analysis of the harvesting sector, 9-1 processing sector, prices and margins, fishermen income- expenditure patterns, and processor expenditure patterns were utilized. 2. Information and perspective of industry participants representing all vertical sectors of the fishery obtained in the course of performing the work in #1 above. 3. Interviews with senior executives of seafood processing companies operating in the Bristol Bay fisheries. These interviews focused on companies who participate in the salmon fisheries. Both shore plants and floaters are represented as are canneries and freezing operations. Some of the operators also participate in the herring fishery. 4. Information and analysis from the “Seafood Quality Improve- ment Study" which is part of the overall study program of the Alaska Department of Community and Regional Affairs as described in Chapter 2. FINANCIAL AND INVESTMENT FACTORS Operating Returns Harvesters in Alaska salmon fisheries have experienced highly- variable results depending on species mix; areas fished; size of capital investments in permits, vessels, and gear; and on personal productivity and luck. In general, fishermen have been experiencing declining ex-vessel values over the past several years along with increasing quantities. Declining values are due to market factors, discussed below, and in- creased abundance. Harvesters specializing in a specific fishery are the most vulnerable. Crab harvesters in particular have been devastated by a decline in abundance. Southeast Alaska harvesters have 9-2 been reasonably well off in recent years, as have Bristol Bay fishermen. These areas have experienced increased abundance so that despite declining values they have made respectable returns. Southcentral Alaska, especially Kodiak, Cook Inlet, and Prince William Sound, has not fared as well. A mix of circumstances, including declining values, lack of abundance in some fisheries, and price disputes leading to strikes, has been responsible. A specific category of Bristol Bay fishermen (this category is found in all fisheries) has not enjoyed the generally good returns. This category includes those who have purchased permits at high values which had already capitalized the good returns associated with high ex-vessel prices, high abundance, or both. It also includes those who have purchased "cadillac" vessels and financed them at high interest rates. It is an unfortunate reality that the economic adjustments that are taking their toll on ex-vessel values will continue to work against this category of fishermen. If a combination of low values and low abundance are experienced, many of these fisher- men may be forced out of the fishery. In other words, the market will reward those fishermen who have invested conser- vatively with superior risk-reward performance. The processing section is being disciplined by the same forces, although changing economic realities exert their influence more powerfully and more quickly on this sector. They are then passed back to the harvesting sector with a lag. As with fishermen, processors who are geographically specialized, or who produce only one process form, are at much greater market risk than those who are more diversified. In Bristol Bay, processors who produce only frozen salmon have been expecially hard hit by declining values. To aggravate their condition, many of this group are floaters who are “cash 9-3 buyers" and have been paying the highest prices for their raw material. Canneries have been much less affected, due to the relatively good market conditions for canned sockeye (canned pink salmon processing is another matter). Many shore plants produce both process forms and thus have more flexibility to adjust production according to expected market conditions. Such processors, especially those who guessed right on the canning market, enjoyed relatively good operating results in 1983. These companies are especially vulnerable to low abundance because of the heavy investment associated with combined operations. Overall, over the past three to five years, Bristol Bay pro- cessors have not enjoyed good returns on investment due to the level of ex-vessel prices relative to declining values for frozen product. The heavy influx of floaters, which may seem to contradict this conclusion, reflects the high abundance combined with a willingness by many to speculate that the frozen market would turn around. The decline of crab resources has also contributed to this influx. Risk-Reward Relative to Other Investment Opportunities The processing sector of the Alaska seafood industry generally has been characterized by low return on investment since at least as early as 1979. The cumulative effect of this is beginning to reveal itself at an accelerating rate. Unless underlying economic conditions change, there may be additional bankruptcies, and replacement capital will be increasingly scarce. In general, the Alaska fisheries industry is experi- encing a flight of capital unlike that seen in many years. Evidence of this includes: e The bankruptcy of numerous firms since the NEFCO liquidation in 1980. The departure from the industry of many large firms who have investment options in other industries and who have found Alaska fisheries to produce relatively unattractive rates of return and risk. Examples abound, including AMFAC (Pacific Pearl), Castle and Cooke, Inc. (Pan Alaska), and Del Monte (Alaska Packers). In contrast, only one large diversified firm has invested in the industry since 1979 and it has apparently been losing money. In many cases the assets of the departing firms are operated by a buying firm which has purchased the assets at highly dis- counted values (the sellers are willing to sell at highly-discounted values to get out). In a few cases, these assets have been, or are about to be, closed or sold in a second round of discounted divestitures. The departure of Japanese investors and investment capital. This is occurring in both British Columbia and Alaska. The heavy investment activity by Alaska Native Corpora- tions, village and regional, in Alaska fisheries over the last five years has generally not been profitable and new investment activity has slowed, stopped, or is being reversed. For example, the Bristol Bay Native Corporation's purchase and subsequent sale of Peter Pan Seafoods. Financial institutions have suffered heavy losses on fisheries investments and they are now very conserva- tive toward even pack financing opportunities. The number of plants for sale, both floaters and shore plants, has been increasing steadily over the last few years. In every known case, plants have sold at significant discounts from book value. Discounts 9-5 appear to be getting deeper, the number of plants for sale is increasing, and the average time on the market before sale is on average still increasing. Road to Profitability Before Alaska seafood processing becomes generally attractive as an investment opportunity, some underlying economic condi- tions will have to change. These conditions include declining cost of raw materials relative to finished product prices, lower value of the U.S. dollar relative to the Japanese yen and European trading partners, lower real interest rates, and the low cost of fixed plant and equipment. The latter is assured by the painful discounting process discussed above. The other factors will also likely occur, although their timing is very unpredictable. The decline of raw material costs reflects the effects side of a cause and effect relationship. With the exception of years when market forces firm to levels above expectations held by most fishermen and processors prior to and during the season, the relatively poor bargaining position (market power) of processors in recent years generates low margins on high volume and very low or negative margins on low volume. This is especially true in periods of declining prices for finished products, as has occurred steadily over the past several years. This is the cause side. High raw material costs relative to finished product prices causes low return on investment. This, in turn, causes demand for raw material to fall through a decline in the number and aggressiveness of buyers. The effect is eventually a decline in raw material costs relative to finished product prices. (Note: This relative change can occur on increasing or decreasing absolute prices at both levels.) Such declines in relative prices will lead to improved returns on investment and the gradual cycle of im- proved relative prices for fishermen will begin again. 9-6 Based on the apparent flight of capital from the seafood Processing industry that is underway, it would appear that continued reductions in ex-vessel prices are possible. This possibility is likely to remain unless the U.S. dollar begins to decline in value and/or the real interest rate in the U.S. economy declines significantly for an extended period. Both of these phenomena are tied together through the federal deficit. The deficit keeps interest rates high, which in turn keeps the demand for dollars high (to purchase dollar-denominated liquid investments yielding high rates of return), which in turn keeps the value of the dollar high. This is an over-simplified description, but is is essentially correct. The processing sector of the Alaska seafood industry will at some point become an attractive investment opportunity again. However, there are likely to be more painful adjustments in both the processing and harvesting sectors before conditions are sufficiently reversed to stimulate recovery. During this period, conditions will favor harvesters and processors who purchased their fixed assets conservatively at attractive values, who are managed by experienced investor-owners, and who have well-established marketing networks. Processors who exhibit all of these conditions will likely gain market share relative to their competitors through an asset ownership consolidation process. Similar consolidation at the harvesting level is impeded by limited entry. However, fishermen associa-— tions whose members are financially sound should be able to maintain their bargaining strength. MARKET FACTORS Supply and Demand Forces In general, supplies of salmon have been increasing relative to demand for salmon. The principal supply factor has been an increase in natural abundance in most production areas of the 9—7 world. This, in turn, has brought increased supplies to consumers. Supply increases from Bristol Bay alone have been substantial, as shown in other sections of this report. Also, due to increases in supplies of pinks and chums, the supply of roe, a major value source, has been increasing steadily in recent years. On the demand side, the demand has decreased while “quantity demanded" has increased. That is, at previously higher price levels, supply levels would not be purchased due to decreasing market demand. As a result, the market price falls to absorb the amounts being supplied. The fall in market price caused the quantity demanded to increase as consumers are attracted by the falling price. The apparent decline in demand results primarily from un- favorable exchange rates and changing consumer tastes as explained in the following paragraphs. Exchange Rates The cost of Alaska seafood products to foreign buyers moves in the same direction as the value of the U.S. dollar on the international foreign exchange market, and in the opposite direction to the value of foreign currency relative to the dollar. In recent years, the value of the dollar has been increasing relative to the currencies of most of Alaska's fish Product trading partners. The increased cost of dollars, say for example from the perspective of a Japanese importer who has to convert yen to dollars to buy Alaska fish products, means increased cost of Alaska fish to the Japanese consumer. The consumer, in turn, reduces consumption of Alaska product due to the now increased cost in yen. Future exchange rate movements are very uncertain. Should the dollar decline in value, it would greatly improve the outlook for Alaska fisheries. It depends to a large degree, on when, and if, the federal government adopts a program to control deficit spending. Consumer Tastes In the U.S. market, it would appear that at best changing tastes and preferences of consumers have had a slightly positive influence on demand and price. The changes are only slight because they are mostly isolated to the demand for white-fleshed fish. Some of this preference has probably rubbed off on salmon demand however. In the Japanese market, changes in tastes and preferences are working against seafood consumption. There has been a long- term trend of reduced per capita consumption of fish relative to other protein sources. This trend, however, may be caused by a number of forces in addition to changes in tastes, and it is occurring for a very high relative and absolute level of per capita fish consumption (exactly the opposite of the U.S. market of a positive trend from a very low relative and absolute level). The sources of change in Japanese consumption patterns are not uncontroversial. However, there is some agreement on the following factors: @ Increasing westernization of Japan. The youth of Japan in particular attempt to emulate American dress, music, and eating habits. @ Increased awareness of and sensitivity to salt in the diet. This sensitivity is working against products based on salt processing in general and roe consumption in particular. e@e Change in age structure of Japanese population in combination with the first factor mentioned above. Gradually, more traditional consumption patterns will be replaced by newer patterns as the yen purchasing power shifts to newer generations. STRUCTURAL FACTORS This section will address what are generally perceived to be the key structural issues that affect the economic condition of the Bristol Bay fishing industry. These are vertical integration, limited entry, foreign investment, and possible economic consolidation. Vertical Integration Vertical integration of some sort exists in every industry in the economy. In its most complete form, it involves the combination of ownership of different vertical functions that are part of the production of a given product or service into a single ownership and control structure. In its least developed form, vertical integration involves arms-length contractually- based (oral or written) transactions among parties at different vertical levels. This form can be referred to as contractual vertical integration. Ownership/control integration is at one extreme and contractual integration is at the other. Economic and technological factors, as well as legal-insti- tutional factors, determine the type and mix of vertical coordination which is experienced in a given industry. It is possible for contractual and ownership/control forms to co-exist in the same industry. The significance of vertical integration is found in economic efficiency, reduced uncer- tainty and risk, and quality assurance. Basically, what matters is how well the type of integration that exists accomplishes the required coordination among vertical levels. 9-10 If it achieves vertical coordination well, the extraction, production, and distribution levels work efficiently together to support buyer satisfaction and achieve competitive producer profitability and risk at all levels of the chain. Most observers of the Alaska seafood industry, and the Bristol Bay fishery in particular, do not feel that vertical coordi- nation works as it should. Since the prevailing economic structure is not vertically integrated in the ownership/control sense, many observers conclude that this form of integration would improve economic efficiency, quality assurance, and the profit-risk mix. However, there are several factors working against the ownership/control form of vertical integration. First, past experience suggests that vertical integration backward by processors into the ownership of boats has not worked especially well. It has added to investment require- ments and increased the financial risks associated with fluc- tuations in natural abundance. The control gains are muted by the fact that hired fishermen are not generally willing to fish during strikes and because hired skippers do not have as much incentive to perform as owner-manager vessels. Limited entry has obviously not contributed to the potential for backward ownership/control integration. Also based on past experience, vertical integration forward by fishermen into processing has not worked better than indepen- dent, arms-length relationships. One reason for this is the high risk of processing, and the business skills required for success in processing, exist no matter who owns or controls the processing venture. There is very little in harvesting busi- ness skill that carries over into processing. Another reason that forward owner/control integration has not worked especially well exists even in the few successful fishermen-owned processing ventures. This is the inherent a-11 conflict of interest faced by the fisherman whose fishing business is negotiating with the processing business he par- tially owns. The fisherman looks to his harvesting business as the principal source of income. Involvement in the processing business is typically viewed as a means for skimming the margin of the next vertical level of the industry. Because the risk-reward relationship in processing is generally less favorable and the percentage of individual income derived from processing is less than the percent derived from fishing, fishermen frequently place the interests of their harvesting business first. This reality often mutes the potential of forward ownership/control to spread risk, reduce cost, improve quality, etc. A fishermen production cooperative (a group which is formed principally to directly market fish caught by the group's members, and which performs fish processing in order to facili- tate marketing) is another possible form of vertical integra- tion. At the present time, there are no major vertically- integrated, salmon producing cooperatives operating in Bristol Bay. Nevertheless, it is probable that producer cooperatives will be formed by groups of Bristol Bay fishermen, as a result of the desire by harvesters to receive a better price. Suc- cessful performance by cooperatives in Prince William Sound and Southeastern Alaska may encourage this development. It is important not to oversell the benefit that results from the formation of such a cooperative. The processing and distribution businesses are very demanding businesses, with their own risks, capital requirements, and management require- ments. Considering that members will be risking their equity investment in the cooperative, participation in a co-op is not a decision to be made lightly. Management, production, finance, and marketing expertise all have to be in place for the co-op to have a chance to succeed. Contractual methods for achieving greater vertical coordination may evolve given that ownership/control forms have not worked well in achieving improved economic efficiency, reduced risk, or improved quality. The three-year price contract is seen by some aS an example of contractual vertical coordination. If this agreement is utilized by the parties who are contractually committed, it will be an example of use of contractual means to achieve improved vertical coordination concerning product pricing. In the process, it will improve efficiency, reduce business uncertainty, and spread marketing risk. If it is renegotiated, or not honored in its present form, it will probably fail to have these desirable economic effects. Limited Entry Limited entry is an important structural issue to many harvest- ers and processors. From an economic perspective it may prove to be of only limited importance, however. For it to have the intended effect, it must stabilize fishing productivity, either per unit or through a reduction in the number of units. There is little evidence that it has stabilized productivity per unit, although it has definitely stabilized the number of units below what would exist given the recent increases in stock abundance. Limited entry will not necessarily prevent economic distress in an environment of declining fish prices. This is especially true of fishermen who purchased limited-entry permits at prices which have fully capitalized expected income levels associated with formerly high fish prices, or who have borrowed at high interest rates, as discussed previously. Overall, limited entry does not appear to be especially rele- vant to the present economic condition of the industry, except to the extent that it may have dampened competitive forces within the harvesting sector itself, and thereby caused further 9-13 erosion of processor margins. It may be more relevant to the development of unrealistic expectations within the harvesting sector that may have led to optimistic investment decisions in permits and vessels. Foreign Investment Due to poor economic returns, it is not unlikely that the influx of foreign capital into Alaska seafood companies has all but dried up. It is common knowledge that many Alaska processing companies are owned or partially owned by Japanese companies. It is also generally agreed that many Japanese companies have found their investments and/or product pur- chasing activities in Alaska to be economically unrewarding in recent years. Processing firm executives use such phrases as: "they have had a bitter experience," "they have walked away from a very large investment," "many are getting ready to walk (away) completely," and "almost all Japanese companies would like to get out of Alaska," in describing the attitude of Japanese firms who have Alaska and British Columbia invest- ments. The low value of the yen against the dollar raises the cost of Alaska investments. If the companies were profitable, the low value of the yen would enchance profitability, as high-valued dollars from profits in Alaska processors are sent abroad and converted to yen. The opposite is equally true, that if the company is incurring losses the impact of those losses is exacerbated by the unfavorable exchange rate. The next several years may be crucial to whether or not many of the Japanese fishing and trading companies continue their ownership participation in the Alaska seafood industry. If they do not, and if real interest rates in the U.S. do not decline, there may well be a period of negative net investment in the industry. The only apparent exception to these trends are successful west coast Canadian companies who may be looking to Alaska to obtain supplies of raw material, semi-processed material, and full processing capability to feed existing marketing capacity. For these companies, it may make good economic sense to buy facil- ities at their present highly-discounted values. From a long-term perspective this may be part of a general consolida- tion that appears to be occurring. Economic Consolidation Economic consolidation is defined as a concentration in the ownership of productive assets, or in the output of an in- dustry, or both, in fewer entities of ownership and control. It often occurs during or after a period of economic distress, in which the values at which productive assets were acquired no longer represent their current market values due to changes in underlying economic conditions. In such circumstances, firms whose economic health is main- tained for whatever reason (e.g., superior management, luck, location, historical position, etc.) may have an opportunity to obtain ownership of additional productive assets at prices which will allow them to earn a favorable return on the acquired assets under the depressed economic conditions. This is the economic process that allows productive assets to remain in production under new ownership. In rarer cases, the assets may be acquired for the purpose of not operating them, as a means of increasing the return on existing assets of companies that are already in production. There are signs, most of which have been discussed above, that a period of consolidation of ownership may be underway. It is also possible that some production facilities will not be operated by existing owners until the expected rate-of-return vs. risk relationships improves. This is a form of consolida- 9-15 tion because it results in a consolidation of production in the fewer plants remaining open. Finally, some of the investment forces working toward entry of new competitors and against consolidation in recent years appear to have been spent. Examples of these forces include the investment activities of Alaska Resources Corporation, Alaska Commercial Fishing and Agriculture Bank, and various Alaska native corporations. Many of these expansionary investments have not been successful in absolute terms, and few have been successful relative to other ways to invest risk capital. It is only the latter demanding measure of success that will induce new investors. ATTITUDES OF FISHERMEN AND PROCESSORS There is a history of adversarial relationships between many fishermen and many processors in Bristol Bay. Adversarial feelings appear to exist here to a greater degree than in other harvesting districts in the state. Adversarial dealings reduce the ability for vertical coordina- tion to exist, and thereby increase risk and uncertainty and reduce the operating efficiency and profitability to both levels of the vertical chain. Both sectors, by pursuing business policies that detract from vertical coordination, impose costs that may be unacceptable during difficult times. Conflict may well become too expensive, if the present un- favorable economic conditions continue for an extended period. Adversarial attitudes are of complex and uncertain origin. They often seem to have more historical relevance than being the result of present economic conditions. Their exis- tence has made the recent adverse market conditions more difficult to respond to constructively. RELEVANCE OF INDUSTRY CONDITION FOR PUBLIC INFRASTRUCTURE INVESTMENTS A distinction should be made between public and private infra- structure investment. Private investment is made essentially to increase profitability. Given the industry's current condition, it is unlikely that companies will be initiating new private infrastructure projects and some may even defer normal maintenance and repair. Similarly, the harvesting sector is not likely to increase its investments in increased fishing power or greater comfort and safety as long as fish values remain depressed. Public infrastructure investment decisions are made for more complex reasons and the process of making them is more complex. They are usually undertaken to support private sector develop- ment. The present industry condition suggests that public infrastructure investments should be carefully evaluated in terms of their financial impact on processors and harvesters. Any program having significant private financial impacts may hasten or cause the departure of harvesters or processors. Likewise, any program that would induce the entry of new competition on a partially subsidized basis might have the same result. Past experience suggests that this form of new entry is not sustainable and that most such businesses will perish quickly. This ultimately produces two negative impacts: One occurs initially when marginally profitable entities go out of business because of the new competition. The second occurs later when the new entrants leave the business because of their inability to compete. These, unfortunately, can be the result of infrastructure investments that require private capital or create expenses for private businesses, when these investments occur in a distressed situation. In contrast, if the underly- ing economic conditions are healthy, such investments can encourage growth in private investment, which is, of course, the usual intent. As indicated in Chapter 1, the primary objective of the Bristol Bay Development Study is to create a plan for public and private investment that will provide for the greatest return to the local and state economies from the Bristol Bay fishing industry. Given the current economic condition of the in- dustry, public investment in facilities and infrastructure development may result in only minimal additional fishery- related private investment in the region. A development plan is nonetheless important to alleviate certain operational constraints and improve efficiency within the various sectors of the industry. Consequently, Volume 2 of this Bristol Bay Development Study evaluates the infrastructure improvements needed to improve the efficiency of harvesting and processing activities and delivery to markets. It also investigates the feasibility of a seafood industrial park and regional cold storage facility. 9-18