Salmon industry's changing currents.

For Alaska's salmon fishermen, processors and hatchery operators, 1991 was plagued by low prices, late returns and intra-industry quarreling. Here's a look at what the future holds.

In 1991 many Alaskan salmon fishermen tasted the death of their way of life. They weren't alone. Out-of-body experiences were reported by salmon producers and processors around the world. What they saw was a frightening spectacle of chaotic markets, strikes, plunging prices, a mountain of unsold product, bankruptcies, foreclosures, even burials at sea for truckloads of pink salmon.

Some fisheries analysts say dire straits should give way this year to slightly smoother sailing. Although predicting salmon prices makes tea-leaf reading seem like an exact science, fairly reliable signs indicate that prices may float upward. But the business of catching and selling salmon has probably changed for good.

Fishermen received 70 cents a pound for Bristol Bay sockeye (red) salmon in 1991, down from $2.25 a pound in the dreamy days of 1988, when a couple of reds were worth more than a barrel of North Slope crude. Alaska sockeye salmon had been the state's money fish, accounting in 1991 for 65 percent of the value of the entire salmon harvest and 36 percent of the weight.

World production of salmon in 1991 was 2.3 billion pounds, almost double the production of 10 years ago. Farmed salmon's market share has grown from 1 percent in 1980 to 30 percent. There's a tidal wave of fish out there.

Cheap, abundant salmon has created something of a paradox: Although low prices are causing suffering in the short-term, new consumer interest sparked by the bargains may bring stability to the Alaska salmon industry. Consumption is increasing, but not fast enough to use all the available salmon at anywhere near the prices sellers used to get. Japan, the world's largest salmon consumer, last year couldn't absorb the increased production at lofty 1988 prices.

Many Japanese importers lost lots of money as they slashed prices in early 1991 to sell expensive fish that they'd bought the year before. Burned by the expensive fish, and with cold storages still brimming with farmed coho salmon from Chile purchased during the winter, Japanese buyers last summer were looking for cheap sockeyes from North America.

Pink salmon fishermen fared worse. Although the fish returned in record numbers, fishermen received between 12 and 15 cents a pound, and many processors stopped buying as their canning lines clogged with late-arriving fish. Many fishermen claimed they were losing money. Some quit, tied up their boats, and sat out the rest of the dreary season. The value of limited entry permits in Prince William Sound plummeted.

Finger-pointing ensued. The Japanese were blamed for fixing prices, though credible evidence of illegal activity has not yet surfaced. Processors in Prince William Sound accused the aquaculture association of producing too many pink salmon, and the aquaculture managers and fishermen blamed the processors for not buying all their fish.

Fishermen and processors blamed the state for not allowing floating processors into the sound to take up the slack. The Alaska Department of Fish and Game was blamed for not opening the season earlier and farther out in the sound, which might have improved the quality of the pinks.

Much smaller in number, the wild pinks usually enter Prince William Sound first. But the runs were late, and wild pinks mingled with enormous numbers of returning hatchery fish, so Fish and Game delayed openings until escapement goals were reached for the wild pinks.

Nature was blamed for the late returns. Because the fish were more mature, deterioration was hastened, making them unsalable at any price. Nature also had something to do with the small size of the fish. Because processing lines are made for larger fish, that operation was more difficult. Also small fish don't sell as readily as larger ones.

The manager at one Prince William Sound hatchery describes the season as his worst nightmare come true. When the wreckage cleared, there were fewer solvent fishermen and processors in the state's traditionally richest fisheries.

And despite a record harvest of 711 million pounds of commercial salmon, the value of the catch had tumbled from a peak of $745 million in 1988 to $310 million in 1991. Pay for the resource was sliced by more than 50 percent.

Sockeye Prospects. Fishermen met in the off-season to discuss how the pieces of the fish business in Alaska might be restructured. Because Japan consumes approximately 40 percent of all the salmon produced in the United States, most of which is harvested in Alaska, all eyes are on Japan. Also, because farmed salmon is influencing salmon prices, the salmon farming industries, particularly those in Canada and Chile, are attracting attention.

Market analysts on both sides of the Pacific agree that one of the most important barometers is Japanese cold-storage salmon inventory. These holdings reflect supply and demand patterns, cluing buyers about how much Alaska salmon to buy and at what price.

Inventories of all species of salmon in Japan are down by about 7,000 tons, or about 6 percent from last year due to lower imports and brisk demand. Of special importance is the salmon in storage that's not under contract and which any processor or retailer can buy. The amount of salmon in this category -- a lot of it sockeye -- is believed to be less than 10,000 tons, fewer than last year, and may move fast during the winter months.

Following are several other positive indicators:

* In November 1991, a key month for spotting trends, sockeye salmon was selling in Japan wholesale markets for a price higher than last year's.

* Japan's autumn harvest of chum salmon, which sometimes are substituted for sockeye, dropped 15 percent.

* Japan isn't expected to buy any more Chilean coho salmon -- also a substitute for Alaska sockeye -- this winter than was purchased last year. The Chileans announced that they would maintain production levels at about 12,000 tons, most believed to be destined for Japan. By contrast, Japan buys more than 50,000 tons of salmon from Alaska.

In future years, Chile is expected to increase production and exports. Japanese ownership of Chilean salmon farms will motivate future interest in production from the South American nation.

* Japanese buyers are paying about 20 percent more than last year for Chilean cohos, or silver salmon. Part of the increase is due to the lower inventory situation.

* Norway is cutting farmed salmon production by 15 percent in 1992. A further cut may follow in 1993 if prices don't firm. Imports of fresh Norwegian salmon by Japan are still relatively small, but growing.

* A poor return of sockeyes is predicted for the Fraser River in British Columbia. Japanese buyers in 1991 didn't aggressively start purchasing Alaska sockeyes until later in the season when it was clear that sockeyes from the Fraser would be down 15 percent over 1990.

* Dollar/yen exchange rate fluctuations will probably not put less money in the pockets of Alaska fishermen. Currency fluctuations lowered prices paid to fishermen in 1989, but raised them in 1990. The dollar is likely to remain steady against the yen through the 1992 salmon season.

On the negative side, even though inventories are down, an uncomfortably large supply of North American cohos remains in cold storage. If the price of Alaska sockeye were to jump during the next couple of months, consumers might substitute the cheaper cohos, thus driving down demand for the remaining sockeyes.

Also, if considerable stocks of sockeye remain in cold storage at the end of March -- the close of Japan's fiscal year -- wholesalers may unload the remaining sockeyes at bargain prices, lowering wholesale, and perhaps retail, prices just in time for the summer rush of Alaska reds. Lower prices in Japan may mean lower grounds prices -- those paid to fishermen -- even though the cold storages are bare.

The fate of up to 50,000 tons of Norwegian farmed salmon that were frozen when world markets couldn't absorb the glut of fresh product that Norway produced could hurt markets also. Japan is being courted as a possible buyer.

In 1991 Japan imported 9,000 tons of sockeye from Russia, up from a mere 200 tons in 1990. Although the Russians pose no major threat to prices for Alaska sockeye this year, the iron curtain has gone up on a salmon resource that in size eventually could rival Alaska's.

Another problem may be slack demand for salmon in the U.S. market, which still absorbs about 40 percent of the Alaska catch. A February article in Consumer Reports magazine warned the public not to eat salmon more than once a week. Later in the month, federal investigations of fish processing plants highlighted sloppy industry practices.

Pink Prospects. The outlook for pinks isn't very rosy, particularly in light of the inventory of canned salmon -- the way most pinks end up. U.S. and other consumers would have to eat canned pink salmon like peanut butter for those inventories to be drawn down. George Berkompas of the Seattle-based National Food Processors Association says the current canned salmon inventory amounts to a supply adequate for somewhere between three and four years.

The stability of processors in Prince William Sound also is bad news for that commercial fishing area. After two canneries went bust last season, the other canneries couldn't handle the last-minute influx of pinks and stopped buying, leaving fishermen with fish but no markets.

Heather McCarty, spokeswoman for the Prince William Sound Aquaculture Corp. (PWSAC), fears another glut of pinks, unless the state allows factory trawlers to participate in the fishery.

The trawler companies are knocking on the door. In addition to looking for an invitation from the state, they're asking the North Pacific Fisheries Management Council to switch the groundfish season from a June to a September start. This would allow the floating processors to steam into Prince William Sound, churning out pink salmon fillets, surimi and a variety of other value-added products that could increase the price paid to fishermen, according to McCarty and Stuart Looney, chief executive of Seattle-based Royal Seafoods. The proposal to change the season was voted down at a council meeting in November, but trawler companies are expected to ask again.

Shore-based processors in the sound are opposed to the entry of the trawlers. They argue that the trawlers will hurt or kill what's left of their business. The shore-based companies propose instead that fishermen be allowed to catch fish earlier to avoid overwhelming processing facilities with short intense harvests.

The problem, says McCarty, is that the market won't absorb all the canned salmon. New markets have to be developed for pink salmon products. Until that happens, PWSAC is maintaining production levels of pinks at its hatcheries, while attempting to increase efforts to ranch higher-value sockeyes and cohos.

JAPAN'S JANUARY THROUGH OCTOBER SALMON IMPORTS
                    Metric tons, 000
Country              1990       1991
United States     109,865     82,209
Canada             17,348     15,888
Chile               9,388     12,905
Soviet Union        1,494      7,120
China               1,029      1,047
Norway                495        564
Source: Japan Fisheries Association

Producing fish for markets that don't exist is a problem that perhaps reflects Alaska's upside down view of the world. But cutting production in Alaska may play into the hands of other fish ranchers and farmers around the world, which see cuts by competitors as opportunities to increase their market share at Alaska's expense. Clearly, problems in Prince William Sound will not be fixed by quick or easy solutions.

Changing Course. The explosion in worldwide salmon has put fresh farmed fish in the fast lane when it comes to setting prices and reeling in new customers. The shakeouts of the last year will, to an even greater extent than before, pit more cost-efficient farmers against Alaska's romantic -- but perhaps less efficient -- ways of fishing and doing business.

University of Alaska economists agree that the Alaska salmon industry is undergoing a period of change that probably will leave it more competitive and innovative. Other predictions suggest the sun is setting on the Alaska commercial salmon fishery and that within five years it may nose-dive from its present position as one of the state's largest renewable resource industries.

Sandy Tavanis, a fish processor and member of the governor's Alaska Salmon Strategy Task Force, thinks both scenarios are equally plausible. That the industry is at a turning point is beyond question. The question for Tavanis is whether Alaska will swim against or with the rising tide.

She thinks that Alaskans must first develop a kind of emotional and attitudinal integration somewhat akin to the way the Japanese, and increasingly the Europeans, are vertically integrating their seafood industries. She acknowledges that this won't be easy given such factors as the mythology of the "Last Frontier," the fisherman as lonely hunter, the psychic distance between producers and their markets, and the adversarial posture of fishermen, processors and other components of the system.

Says Tavanis, "We all have to bury the hatchets, bury the old skeletons in the closet, heal the old wounds. It won't happen this year, but it's got to happen soon if we're to remain a credible player in the global market."

Some processors, fishermen and hatchery managers have started to talk guardedly about different ways to share the risks and rewards of the fishery. One scheme would provide fishermen with a percentage of the grounds price, then later a percentage of the wholesale price. If prices rise as the season progresses, fishermen can claim a piece of the expanded pie.

Another suggested approach would resolve the problem that occurred when buyers last year were reluctant to make early-season offers. It would enable fishermen to sell fish on an "open ticket," with the price left blank until the market creates more information and prices start to move. Some fishermen complain, however, that those among them who are the higher cost operators -- those with huge loans for fish permits and boats -- can't roll with the uncertainties, and that in any case, the very existence of cheap fish may quickly drive them out of business.

Tavanis and other processors point to another problem involved with squeezing more money from the resource. They insist that profit margins are so low that there's little left over to invest in new product forms and more marketing. While acknowledging that some small Alaska processors have developed niche markets for products such as fillets, steaks and microwaveable single-serving entrees, Tavanis says the industry in general needs to develop and launch innovative products.

Fishermen -- who are being asked to accept lower initial prices and reap rewards later in the form of profit sharing -- say that processors earned big incomes at their expense in the 1970s and will do it again if given the chance. Tavanis responds that while there was once some justification for mistrust, many problems have been solved during the past 20 years. What's needed now, she says, is complete openness and trust.

The problem in Prince William Sound may require extensive conflict resolution. The state is charged with managing the resource for "maximum economic benefit." But this concept is fuzzy, and critics claim that the whole management scheme, including the means for setting hatchery production goals, is seriously out of sync with the realities of the marketplace. Critics also blame smaller fish, poor-quality fish, and shrinking seasons on divergent management goals.

In January, the Salmon Strategy Task Force released its findings. Among recommendations was a quick survey to assess the capacity of processors in the sound to handle another huge return of pink salmon. More coordination among agencies involved in managing the fishery and a greater emphasis on markets and marketing also were advised.

Fishermen were counseled to start talking prices with processors earlier in the season. The task force also recommended that a mediator be stationed in Bristol Bay in an effort to avoid another possible strike. One problem with these steps, though, is that last year little information was available on which to base pricing decisions until well after the fishing had begun.

With powerful market forces challenging the underlying assumptions of an entire industry, profound changes appear inevitable.

Fisheries banker Ed Crane is a member of the Salmon Strategy Task Force. He points out that Alaska has managed the salmon fishery to achieve many goals, not the least of which is the social goal: to allow as many people as possible to make a living catching salmon. That goal, along with other aspects of the salmon business in Alaska, may now be incompatible with borderless market forces.

Will Alaska wind up in the backwash of a farmed seafood machine now building up a head of steam around the world?

That's possible, say industry analysts. But another plausible alternative is a leaner, more united, more competitive Alaska.

Doug Barry is deputy director of the Alaska Center for International Business, University of Alaska Anchorage. ACIB's Glen Fowler and Eric Downey assisted in preparing this article.