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Alaska’s Seafood Processing Industry

Providing strong economics from state waters


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Sprawled in towering stacks, thousands of cargo containers stuffed with the 2015 salmon pack surround the remodeled Port of Bristol Bay at Naknek. It’s 4 a.m. and the Seasonal 24/7 activity is in full force with tugs, barges, and fishing vessels at the dock—trucks, cranes, and forklifts moving containers across the dock like so many Legos.

Courtesy of the Port of Bristol Bay Harbor Master Robert McDermott

Alaska’s seafood processing industry is holding a steady course as 2015 winds down. Recognition of the industry has been growing over the last decade as economic analyses reflect a more inclusive view, counting both direct and indirect fiscal impacts. Studies also show the industry includes more Native Alaskan participation than ever.

Earlier this year a Maritime Workforce Development Plan was approved to bring more Alaskans into the sector. With a few hiccups, most species of commercially valuable fish caught in Alaska waters this year came from healthy and well managed stocks even as the volume and value of exports are on the rise. Again, Alaska ports took top spots in the national lineup of landings and values.

When the numbers are all in, the tax reports will show that the seafood processing industry will likely pay in excess of $290 million in various fees and taxes to the state coffers. Overall the economic scene is strong, representing billions of dollars in revenues, higher exports, and increasing job opportunities.

 

Average Yearly Jobs by Species Alaska, 2013

SOURCE: Alaska Department of Labor and Workforce Development, Research and Analysis Section

 

A Look Back

Seafood processing has been a staple of economic activity in Alaska waters for more than two hundred years: Whaling and fishing interests from Japan, Korea, Russia, and later the American “Boston Men” fished the North Pacific, Bering Sea, and even up into the Arctic waters. Cod fishing was the first major commercially targeted species in Alaska’s history, stretching back even before the cession of Russian America. San Francisco merchant Captain Matthew Turner pioneered the effort in the 1850s, bringing the first load of salt cod to the market. Cod fishing stations were established throughout Bristol Bay and the Aleutian Islands for salting the cod in the days prior to refrigeration.

Not long after the United States took possession, salmon became the red “gold” of the new territory. By the late 1880s canneries the size of small towns had sprouted up in Southeast Alaska, north along the coast, and up into Bristol Bay. Both salmon runs in the millions of fish and the efficacy of fish traps made for a thriving business. In the 1900s fleets of small fishing vessels were dispatched north annually from Seattle for halibut as well as cod and salmon.

Bilateral agreements with Japan and Russia over the abundant groundfish fisheries in the Bering Sea ended with the establishment of the Exclusive Economic Zone and the Fishery Conservation Zone in the 1980s. This enabled American seafood processors to lay exclusive claim to the world’s most productive and sustainable fishing grounds. Today the largest and most successful seafood processing interests are still based in Seattle where they dominate several fisheries like groundfish (pollock), salmon, and shellfish (crab). Halibut and herring round out the five commercial fisheries in Alaska.

 

Job Growth by Species | Alaska seafood harvesting, 2012-2013

SOURCE: Alaska Department of Labor and Workforce Development, Research and Analysis Section

 

CDQ Employment on a Steady Rise. Average monthly jobs, Alaska, 2000-2013

SOURCE: Alaska Department of Labor and Workforce Development, Research and Analysis Section

 

An Evolving Business

Today’s seafood processing company is complex, vertically integrated—operating every aspect of the business from fishing to processing to shipping to marketing—and run like a corporation. While small mom n’ pop outfits and local fishermen’s cooperatives proliferate in Alaska, they are dwarfed in volume by the established Seattle-based seafood corporations. CEO/CFO types with international reputations sit on the boards of most seafood companies. Debt and asset management have replaced talk of gear work and the latest high-tech navigational toys in these boardrooms. And with good reason. Modern processing plants, both at-sea and shore-based, are marvels of technology with processing lines managed by computers, sophisticated heading and gutting equipment, and complicated supply chains designed to deliver the freshest product from the sea to the consumer’s table within days, sometimes hours. All this top quality production costs companies millions to acquire—and many more millions to maintain the vessels, facilities, and workforce that make Alaska’s wild fisheries one of the best known brands on the world market.

Alaska is the breadbasket of Ballard, the part of Seattle where most of the fishing fleet ties up in the winter and many of the seafood processing companies have offices. However, in the age of globalization, many of the top processing companies are—on paper—mere divisions of huge global holding companies. For example, the venerable Alaska General Seafood Company, operating salmon canneries in Naknek and Ketchikan Alaska General Seafood Company is an affiliate of Canfisco, Canadian Fishing Company, which was subsumed into the Jim Pattison Group in 1984. This group is a diversified holding company made up of a plethora of businesses spanning media, food and beverage, entertainment, real estate, and agricultural equipment. The home office is in Vancouver, BC with holdings in both Canada and the United States. Pattison is listed as the second largest private company in Canada with upwards of $8.4 billion in total annual sales.

This past summer Icicle Seafoods announced a purchase deal by an Indonesian corporation. Icicle is another iconic seafood processor that traces its roots back to the old Pacific American Fisheries cannery operating in the 1890s in Petersburg. A group of local fishermen purchased the facility in 1965 and renamed it Icicle Seafoods. In 2007 Icicle was acquired (read “leveraged buyout”) by Paine & Partners, a private equity firm specializing in food and agribusiness investing with headquarters in San Francisco and New York. The firm of Convergence Holdings and Dominion Catchers, owned by a wealthy Indonesian family, made a bid to purchase Icicle this summer, but following some legal difficulties the deal fell through. Paine & Partners plans to announce a resale later this year.

Despite the abundance of pollock in the Bering Sea, another major at-sea processor, American Seafoods—tagline: From the Ocean to the Plate—was pitching in rough fiscal seas for the second time in five years. In 2010 American Seafoods made a deal with the CDQ (Community Development Quota) Coastal Villages Region Fund to exchange the Northern Hawk, a 341-foot pollock factory trawler, and three freezer longliners for its equity shares in the company. Floating on refinancing, the company continued to upgrade its vessels. Today American Seafoods operates six high-tech factory trawlers that are “engineered to fully utilize the fishery resources of Alaska” according to their website. But the talk is not of mending cod ends or quibbling over the wholesale price of Pacific whiting. Rather, with a downgrade by Standard & Poor’s earlier this year and listing badly from $900 million in debt, the company has been scrambling to put together another salvage package.

In August American Seafoods Group announced in a press release that “it has closed a deleveraging recapitalization…including a significant equity capital infusion and a refinancing of the Company’s outstanding debt…establishing stable, long-term financing…strengthening its position as a leading provider of sustainable seafood products.” Simply put, in danger of defaulting on its debt, the company closed out some of its equity holdings, cashed out some noteholders at a discount, and raised more money from deeper pockets on an extended maturity schedule.

 

Harvesting Jobs by Region in Alaska, 2013

SOURCE: Alaska Department of Labor and Workforce Development, Research and Analysis Section

 

Alaska Participation

The Community Development Quota—an innovative mechanism to funnel back 10 percent of the of the total harvest quota value derived from federally managed fisheries in specific coastal regions—has created a whole new growth sector for Alaska Natives. These fisheries include shellfish, pollock, halibut, sablefish, mackerel, and cod. The six CDQs have sorted themselves out, like their sister ANCSA (Alaska Native Claims Settlement Act) for profit corporations and nonprofit organizations, into successful entities that invest money into economic development and training programs in sixty-five Western Alaska villages and towns.

Once among the most disadvantaged of rural residents, these regions are bursting out of the fiscal incubator. The influx of the CDQ allocations have funded infrastructure to accommodate more local industry, in turn providing more jobs. And, the jobs are for the people in the villages who have received scholarships, grants, and internships sponsored by the CDQs.

In just a little more than twenty years, the CDQ model has completely changed the business environment: now they invest in subsidiaries, scientific research, and joint ventures. These commercial efforts resulted in about $318 million in 2013 with assets of nearly $900 million. Some CDQ groups own their own catcher/processors, warehouses, and processing plants. Many are invested in other industries that also serve local needs.

Coastal Villages Region Fund created a Community Service Center which provides much needed maintenance and repair shops for outboard motors, all-terrain vehicles, snow machines, aluminum boats, and generators.

Norton Sound Economic Development Corporation serves nearly nine thousand residents in fifteen communities stretching from Little Diomede Island in the Bering Strait to Stebbins on the southern Norton Bay shore. Norton Sound Economic Development Corporation invests locally with a business grant of up to $35,000 to community residents to encourage innovative entrepreneurs while spurring job growth. Last year the competitive grant program received twenty-one proposals and funded four that included a repair shop in Brevig Mission, a café in Gambell, an ecotourism business in Teller, and a car dealership in Nome.

Clearly, the economic kick start provided by the CDQs has laid foundations for further growth. According to the Western Alaska Community Development Association (since disbanded) report, in 2011 alone more than $151 million had been invested in economic development and more than $2 million in “human capital investment.”

On the statewide level, an Alaska Maritime Workforce Development Plan was unveiled this year. The three year joint effort among the major seafood processors, the University of Alaska, and Alaska Fish and Game, and Labor and Workforce Development departments defined the sprawling maritime industry cluster within four distinct sectors: seafood harvesting, seafood processing, fisheries research and management, and marine support industries.

The plan is expected to boost training opportunities for Alaskans, enabling them to qualify for the higher paying jobs in the industry like metal fabrication, plant managers, engineers, and various mariner positions aboard vessels. These types of jobs provide longer term employment, good benefits, and higher wages. In the past, state efforts have aimed at getting Alaskans into entry level positions, which didn’t always result in their being able to move up the career ladder without additional education and training. When implemented this year, this plan aims to remedy that situation.

 

Harvesters Spread Statewide
Harvesting jobs by region, 2013

Note: The count of workers shown here represents those who worked at any time in 2013. Some may have worked in more than one borough and were counted more than once. Data may not be comparable to data provided in our “Residency of Alaska Workers” publication due to differences in methodology.

Source: Alaska Department of Labor and Workforce Development, Research and Analysis Section

 

Top Volume Ports

The nation’s top ten commercial fishing ports ranked by the National Oceanic and Atmospheric Administration for the past few decades have always included a few in Alaska. In 2013, seven of the top ten commercial fishery landings totaling some $822 million were in Alaska.

Inching up in the rankings is Naknek-King Salmon, which National Oceanic Atmospheric Administration ranked fourth in 2010, located at the mouth of the Naknek River in Bristol Bay’s lush salmon spawning neighborhood. The 2015 numbers won’t be available for awhile yet, however, given the record salmon run this past summer and the extensive infrastructure development by the Port of Bristol Bay, this port may be nudging out other Aleutian ports for third place.

The Bristol Bay Borough’s investment in the expansion of the Port of Bristol Bay over the past five years paid off in the speed of deliveries when a record run of 58 million sockeye salmon came in this past summer. The $16 million expansion consisted of three main segments: replacing the existing piling dock, grading down an entire hill side that backed on the port, and expanding the platform dock. With the hill reused as fill for the enlarged dock, more containers could be staged at the port level instead of being trucked up the hill to other storage areas. This increased the turnaround time, allowing more containers to be moved in shorter bursts of time. With six offshore processors and sixteen shore-based plants operating 24/7 for the season, dock time and container parking are critical, especially for refrigerated containers carrying prime headed/gutted sockeye fillets.

Still, all that activity hasn’t paid off quite as well for either fishermen or processors. The Alaska Department of Fish and Game reported in the salmon season summary that this year’s Bristol Bay sockeye salmon was 12 percent above the forecast of 52 million. The fish, smaller by an average of a half a pound than in previous years, were a wee bit late, causing some nail biting. The commercial harvest of all salmon species in the bay ranked the second highest in the past twenty years at 36.7 million fish. Fish and Game gave a preliminary ex-vessel value for the run at $94.8 million based on $0.50 per pound for sockeye and Chinook. Analysts expect the final price to settle at $0.75 per pound; however, this is only 50 percent of last years $1.50 per pound. Volume alone won’t compensate for that price point.

Factors determining the price of fish vary with currency fluctuations, other Pacific Northwest salmon runs, and the size of the fish—to name only a few factors. This year, with an abundance of slightly smaller fish, a failed Frasier River run, and differences in the dollar and yen, the global wholesale salmon market isn’t as robust as last year.

 

Time Certain: Exports and Taxes

Alaska exports for 2014 topped $5.5 billion, the second highest year. The US Census Bureau reported in February that nearly half of those exports were seafood products at $2.26 billion, up 2.1 percent over 2013. That number does not include the amount of seafood shipped to Seattle and other West Coast ports for further processing. In contrast, mineral ores exported totaled $1.75 billion and energy exports (Cook Inlet LNG exports to Japan) a paltry $551.9 million.

Alaska’s seafood industry contributes in excess of $250 million annually in taxes and fees, coming from city/borough landings, state fees, federal fuel taxes, and documentation according to a report from United Fishermen of Alaska, a Juneau-based group. One of the first taxes of the territory was the 1899 Fisheries Business tax. Of the Alaska Department of Revenue Fisheries Business Tax at $44.2 million and the Resource Landing Tax at $13.4 million, 50 percent is shared with the communities and boroughs in which the product was landed.

Other local “raw fish” taxes collected at specific ports contribute about $25 million to the home coffers plus local property taxes, dock, and harbor fees. Research, marketing, and development taxes total $20 million. A harvester/processor corporate income tax levied up to 9.4 percent was estimated at close to $3 million for 2013. State commercial fishery permit fees, vessel registrations, and crew license fees raise another $10 million.

Federal fisheries fees of about $11 million include IFQ Cost Recovery Fees and the Observer Program. Unemployment Insurance taxes paid by processors for wage earners totaled $14.7 million. Processors also pay the usual business license fees and Alaska Department of Environmental Conservation permit fees. Another substantial source of income for the state is a marine fuel tax of $0.05 per gallon. This amounted to over $5.5 million with at least half of those taxes being paid by commercial fishers. This represents only some of dizzying array of seafood processing revenue streams.

Commercial seafood processing is embedded in the Alaska economy in a way no other raw resource extraction industry can match. It is the economic multiplier of the state driving other support sectors like tourism and transportation, providing employment growth, and local infrastructure. The seafood industry is so pervasive it is almost anonymous. From individuals at fish camp to villages and towns that depend on the revenues of fish taxes to the Seattle and New York financiers buying and selling multi-million dollar businesses, everyone is affected by the financial waves the industry generates in Alaska. As the largest private employer, record or reduced harvests have definite financial consequences at state and local levels. As long as the forces of sustainability prevail in commercial fisheries management, the industry will continue to contribute to the economic health of the state long beyond 2015.

 

 

This article first appeared in the November 2015 print edition of Alaska Business Monthly.

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