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Catching seafood dollars in Alaska.

AH, THE FISHERIES SURROUNDING Alaska, source of immense wealth and a major cause of statehood. In 1988, more than 5.5 billion pounds of seafood bringing $1.5 billion to fishermen was taken from the waters off Alaska.

One of every eight Alaskan jobs in the private sector is involved directly in fisheries. In 1987, 45,000 Alaskans either commercially fished or worked for a seafood processor, and combined payroll accounted for one-sixth of the state's total private-sector economic base.

With this type of payroll and employment, it would be difficult to imagine that any of the New Forty-Niners are not involved. What is surprising is that only three, Sealaska, All Alaskan Seafoods, and Alaska Joint Venture Seafoods, are major seafood companies. Several others, however, garner a significant portion of their revenues from the seafood cornucopia.

The fisheries in and off Alaska always have been dominated by Outside interests, either from the Lower 48 or foreign countries. The early salmon canneries came from Washington. The businesses would sail up in the spring with workers, cans and all the supplies they needed. Later, some canneries became the nucleus for scores of towns along the coast.

Statehood was designed, in part, to increase local participation and management of the fisheries resources and affected communities. Throughout the early years of salmon management by the state, the introduction of limited entry fishing privileges and crab booms and busts, the seafood industry persisted and grew. Over time, Alaskans started to participate more, although not many were major corporate players.

Bottomfish or groundfish, the hot fishery of the eighties, began with virtually no U.S. participation, and nonAlaskan interests continue to dominate the major corporations. With few exceptions, fishing-only companies are small and processors typically are owned by foreigners or based in Seattle. But Alaskan companies are represented and are growing in number and size.

It's difficult to determine how many major seafood companies are Alaskan owned. Unlike retail industries, seafood companies do not need publicity to generate sales, and some firms are hesitant to discuss the scope of their operations and sacrifice the anonymity they enjoy. The Right Ingredients. Three of the most important items for the growth of a successful seafood business are stable fisheries resources, reliable markets and sufficient financing. It is the location of marketing channels and financing that have proven the greatest hindrance to building large Alaskan-owned and Alaska-based seafood companies.

The 49th state offers a broad fisheries resource base, but it is not stable. Shrimp stocks around Kodiak declined in the 1970s and have never recovered. King crab stocks around the state have peaked and waned with no good longterm prospects, but Bering Sea Tanner crab stocks are now at high levels.

Salmon harvests have increased in the recent past, although they vary year to year and area by area. Such factors as survival of the young, high-seas drift net interception and the vicissitudes of nature all affect salmon returns. Bottomfish stocks are healthy although the numbers of pollock in the Gulf of Alaska have declined dramatically and halibut numbers are decreasing.

Fishermen and processors have been able to survive only by switching between fisheries, scraping through hard times and by reorganizing through bankruptcies. Many of the shore-based processors had their roots as salmon trap companies before statehood.

The access to fish stocks is not different based on where a fisherman lives. Alaska limited entry permits, primarily for salmon and herring, were issued in the 1970s with the intent of ensuring fishing access and income to Alaskans. Many were given to fishermen from the Lower 48, and non-Alaskans have bought others.

By design, these fishing privileges must be owned by individuals rather than corporations, effectively precluding large companies based on salmon. Other salmon regulations limit vessel sizes. This has created a large fleet of boats too small to expand into lucrative bottomfish fisheries.

Most Alaskan seafood is exported to Pacific Rim nations, primarily Japan, and the markets for all seafood products have been good the last few years. 1988 saw record prices for salmon in most areas, as well as for preferred bottomfish species such as halibut and sablefish. According to recent research, that year's high salmon price can be explained primarily by the weak dollar. This was borne out in 1989, as the dollar strengthened and the price of salmon was cut as much as 50 percent.

Bottomfish compete on the world market, and their price depends on harvests by countries such as Canada, Iceland, the U.S.S.R., Poland and Japan. Lately, world harvests of cod and other bottomfish have been stable or decreasing, which helps the sale of fish caught off Alaska.

The fish distribution markets in some countries, especially Japan, are difficult to enter. The easiest access is through existing importers, often because of import quotas and quality concerns. Any company with established connections and distribution systems bas a distinct advantage. Capital Connections. The logical result of these types of barriers is foreign investment in the U.S. seafood industry. In particular, foreign investment has reached very high levels in the bottomfish industry. The North Pacific Fishery Management Council recently requested that the U.S. General Accounting Office investigate the industry. It is this appointed council, through its recommendations to the National Marine Fisheries Service and the Secretary of Commerce, which sets federal bottomfish regulations.

Figures describing foreign investment in Alaska's seafood industry are unavailable. But many Asian trading conglomerates have invested in U.S. processors as a means of ensuring fish supply. Nippon Suisan, a large Japanese company, has gone a direct route.

Through ownership of Great Land Seafood, the firm has built two surimi processing plants in the Aleutians. Nippon Suisan also recently completed a purchase of 20 percent of the stock of Arctic Alaska Seafoods, a publicly traded company. Seattle-based Arctic Alaska maintains a fleet of 22 harvesting and catcher/processor vessels and is by far the largest single player in the bottomfish fishery.

The Alaska Commercial Fishing and Agriculture Bank has a larger fisheries related portfolio than any other lending institution based in Alaska. Ed Crane, bank president, says, "Alaskans with enough money to invest don't turn to seafood, since there is so much risk. Instead, they have turned to other, safer businesses such as oil and tourism."

Businesses wishing to begin or expand seafood operations must look outside of Alaska for significant backing. Total investment in the industry is more than $3 billion, with another $900 million invested in limited entry permits.

Many seafood companies have turned to Seattle or foreign-based banks. Rainier Bank, based in Seattle, has invested in the seafood industry for more than 50 years. "Obviously the seafood business is volatile, but that is somewhat different than risky," says John Johnstone, vice president of Rainier. "Long ago, Rainier recognized that seafood is an integral part of the Northwest economy."

The Bank of Norway has financed several new catcher/processor vessels harvesting bottomfish. These boats were constructed or rebuilt in Norwegian shipyards. The Norwegian tie to Alaskan fisheries is natural, because many of the fishermen are Norwegian immigrants or of Norwegian decent. The activity also reflects Norwegian government subsidization of shipyards and employment.

Three of the New Forty-Niners are heavily or solely involved in the seafood industry. Each has evolved differently and become successful through different seafood cycles. Sealaska. A major seafood processor and distributor, and certainly the largest one based in Alaska, is Ocean Beauty Seafoods, a subsidiary of Sealaska Corp. Sealaska, the Southeast regional Native corporation, bought Ocean Beauty, a seafood processing firm specializing in salmon, in 1979.

Ross Soboleff, public relations officer for the company, says, "The purchase came from a commitment to enter industries familiar to the shareholders. We wanted to invest in industries that are important to the economy of the state and to the shareholders. Fishing is certainly one. It followed our commitment to invest in industries that are active rather than passive, such as oil leases."

Sealaska's financing employed funds awarded the firm in the Alaska Native Claims Settlement Act. Bryon Mallott, chairman of Sealaska, says, "Internally generated capital in Alaska to start-up or significantly expand in the fishing industry has always been a problem." He adds that although his firm has worked with Alaskan banks, a company of Sealaska's size relies on banks larger than Alaska's financial institutions.

During the past decade, Ocean Beauty has survived such calamities as crab stock collapses, low salmon returns and a salmon botulism scare. Yet, it has not needed to go beyond its internally generated funds. Part of this success can be traced to the diversity of the corporate structure and product lines.

The subsidiary owns harvesting and processing facilities from Bristol Bay to southern Oregon and utilizes salmon, crab and bottomfish. The major processing and distribution center is in Portland; additional distribution centers operate in five other western U.S. locations and japan. "The southern operations have pulled our fat out of the fire before," notes Mallott.

Sealaska's seafood subsidiary posted fiscal year 1989 revenues (April 1, 1988 to March 31, 1989) of $198 million, up from $187 million the previous year. Profits for FY 89 were $5.1 million, a decrease from $7 million in each of the two previous years.

Ocean Beauty continues to grow. Recently it re-entered the Bristol Bay salmon fishery with the purchase of the King Crab Co. freezer plant in Naknek. It is constructing a floating processor for the bottomfish fishery and upgrading existing processing plants. Ocean Beauty activity in the Pacific coast fisheries off Washington and Oregon is increasing, and it recently expanded its Salt Lake distribution center. "We take a conservative approach," says Mallott. "Our profit will come over time." All Alaskan Seafoods. This Alaskan seafood company began in 1976 with 10 Kodiak fishing boat owners thinking they could do a better job. The company was launched with one processor vessel, which harvested $4 million in sales. All Alaskan has switched from crab stocks around Kodiak to salmon, bottomfish and Bering Sea crab.

Revenues in 1988 hit $50.5 million. The firm operates three processors in Kodiak, Bristol Bay and the Bering Sea. A fourth processor is under construction. With growth has come the need for more financing. "Capital hasn't been available to Alaskans," says Lloyd Cannon, president of All Alaskan.

Recently Clearwater Fisheries, a Canadian company owned by European interests, bought one-third of All Alaskan. This is the same foreign company that bought controlling interest in Sitka Sound Seafoods in 1988.

Although All Alaskan's home base is in Kodiak, its largest office force operates in Seattle. "It makes us all sick to be down here instead of in Kodiak," says Cannon, an Alaskan and fisherman since 1945. "But few buyers come to Kodiak or even to Anchorage. Seattle has the buyers, business people, markets and shipyards. It is the seafood hub of the west coast. So, to move the volume of seafood we need to move, we have to be here. I wish we could find a way to get them to Alaska but we just haven't been able to." Alaska Joint Venture Seafoods. This firm is the youngest of the fishery based New Forty-Niners. The founders of AJVS saw an opportunity when the United States began to enter the bottomfish industry. Buying a new trawler, they established contacts and began making deliveries to Korean at-sea processors. They were among several joint venture fishermen stiffed by foreign buyers in the first years.

Thorn Tasker, AJVS chairman, says, "The first joint venture trips did not even pay at all! That taught us that we needed a marketing company with fixed prices and contracts." In 1984, a new company that owned no boats, Alaska Joint Venture Fisheries, began arranging joint-venture deliveries between U.S. fishermen and foreign processors.

In 1985, allocations of fish to U.S. processors increased. AJVS had its best joint-venture year in 1986 with revenues of $18.5 million, 90 percent of which came from joint-venture sales. By 1988, joint-venture harvests were declining and in 1989 they were cut in half. Yet 1988 revenues for the enterprise, which became AJVS again, increased to $20.5 million, with only 40 percent attributable to joint ventures.

AJVS grew with changes in the fisheries. The company now manages 12 harvesting boats and, as allocations switch from joint ventures to U.S. processors, is adding two catcher/processors. "We went after markets first and boats second," says Tasker. He reports the business is considering constructing a secondary processing plant.

Other Alaskan companies grew up in processing or harvesting. AJVS' different evolutionary route explains why, of all the large Alaskan seafood companies, AJVS is the only one based in Alaska with no offices in the Lower 48.

During its formative years, AJVS had trouble finding an Alaskan bank willing to lend it money and when it did, the service was poor. "We opened a Seattle office just to arrange and handle financing. Also the shipyards, brokers and a centralized industry are all down there," says Tasker.

"The gossip mill is down there, too. It's very important in this business to know who is going to deliver how much of what when, because it affects price. The drawback up here is that we are out of the loop. I can't learn as much in a coffee shop in Homer as I could in Seattle," he adds. Chasing Commerce. Alaskan firms have met success supplying fishermen with transportation, supplies, repairs and fuel. Maybe they are guided by the wisdom that the ones who really profited from the gold rushes were the merchants, not the miners.

The service industry existed when the major Alaskan fishery was salmon. But the short salmon seasons did not allow the growth of infrastructure or profits. Ed Rogers, director of charters for MarkAir says, "When the seasons were only two months long, operators would come up from the Lower 48, make a profit and leave. Now we are moving a lot of product all winter long. This makes the marginal operations of serving the fishing communities a profitable one."

The same can be said for fueling the fleets. Jim Burns, vice-president of marketing for Harbor Enterprises, says, "Our recent growth is directly related to servicing the fishing industry, especially in Dutch Harbor. We put our first fuel terminal in Dutch Harbor in 1984 and purchased one in Kodiak in 1986. The revenues speak for themselves." In 1985, Harbor Enterprises had revenues of $26 million. By 1988, revenues increased to $68.2 million.

Companies servicing the seafood industry include most of the New FortyNiners. Among them: Carr-Gottstein and Port West sell food to fishermen; Hickel Investment Co. and Bristol Bay Native Corp. lodge them; Alaska International Industries, Peninsula Airways and Reeve Aleutian Airways fly them to the fishing grounds; Northern Air Cargo airlifts their supplies and products; and Underwater Construction builds their docks and repairs their boats. More important, the New FortyNiners supply the fishermen and their families year-round in communities throughout the state.

The seafood industry's wages, $596 million in 1987, rank it first among basic industry sectors in Alaska. With 1 in 12 of all Alaskan residents employed in the seafood industry, its effects are felt in all sectors of the economy. If the fisheries were to stop overnight, state revenues would decrease only a little, but the resulting recession would make the recent one a mere blip in comparison.

Fortunately, there always will be fishing off Alaska and, therefore, always the opportunity for Alaskans to participate in, invest in, and supply the industry. The future of this participation is tied to the abundance of the different stocks and the world markets for fish, which are major concerns shared by management of the fishery related New Forty-Niners.

Many problems and controversies exist in the fisheries. Discussion of mariculture excites the business instincts of some, while terrifying others with thoughts of introduced diseases and genetic weakening of wild stocks. Incomplete stock assessments hinder the North Pacific Council's role in setting catch quotas. The council also is considering such controversial regulations as shore-based processing allocations and limited access fishing privileges in all fisheries. The bottomfish harvesting fleet has twice the catching capacity needed to harvest the fish, and the processing sector is rapidly approaching overcapacity.

Perhaps most disconcerting is the lack of a comprehensive state policy on fisheries. Says Tasker, "The state administration is not working with local industry. Kodiak and Dutch Harbor are booming because of the guys doing it, not because of the state." The rapid increase in the bottomfish fishing and processing sectors has occurred while the state has no master plan for shaping development or improving services. Although this is beginning to change, it might be too late to affect anything except post-hoc infrastructure development.

Even with all the caveats of doom and gloom, industry participants seem to think that the fishing industry will be a good business environment in the future. The scenario of the gold rush is worth remembering. As more and more fishermen attempt to harvest the same amount of fish, the race will intensify, as it has with salmon.

While salmon fishermen have done well in recent years, due to the exchange rate, it is the suppliers of goods who will continue to do well in the future. This same scenario promises to occur in the bottomfish and crab fisheries. But if Alaskan businesses and government can supply the needed support, they will all stand to benefit.
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Author:Tremaine, Richard
Publication:Alaska Business Monthly
Date:Oct 1, 1989
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