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The precarious export path.

After years of steady growth, Alaska's exports to the rest of the world are starting to sputter. While negative numbers in the first quarter of 1993 may be due to "cyclical" demand for commodity products, another conclusion is that substantially larger future growth will come from value we add to our trees, fish, oil and minerals. It's also possible that we may have to run faster to stay in the same place.

In 1992, Alaska exports reached about $4.8 billion. This figure includes about $1.7 million in air freight, a category consisting of stuff that lands at our international airports, sometimes gets shuffled into the belly of another jet freighter, and takes off for markets in Europe and Asia.

Alaska receives the most value from its other export categories: fish, timber, minerals and petroleum products. In 1992, Alaska exported more than $1.9 billion worth of fish; $550 million of timber products; $223 million of minerals and $365 million of petroleum products.

In the case of seafood, Japan purchased nearly 90 percent of our exports, and Korea accounted for about 6 percent.

Alaska's exports for the first quarter of 1993 are down 16 percent from the first quarter of 1992 and may show an overall decline by year's end, the first decline after six years of high growth. The primary reason for the slide is quota restrictions on crab and pollock, resulting in lower harvests. Another reason is the lingering recession in Europe and especially in Japan, the most important market for nearly all of our exports.

Seafood. Another factor in the seafood sector, down almost 30 percent in the first quarter, is that the "Americanization" of fisheries off Alaska's coast is now complete, and future growth must come from new markets and market channels, and from value-added products like salmon ham, chowder and microwavable entrees.

In the short term, lower prices help win back markets for Alaska wild salmon from producers of farmed salmon, such as Chile and Norway.

Coal. The value of Alaska's coal exports, down almost 32 percent in the first quarter, will probably end the year lower than in 1992. In order to keep Alaska coal competitive with Australian and other coal, Usibelli Coal Mine lowered prices to Suneel, its Korean customer. Alaska coal will be a tough sell until demand in Asia increases as expected later in the decade.

Petroleum Products. The value of petroleum products was down almost 12 percent. The situation may improve somewhat later this year if LNG prices stay firm. Volume may increase as Phillips Petroleum Co. and Marathon Oil Co. introduce larger LNG ships on the Alaska-Asia run.

Minerals. On the bright side, mineral exports were up 7.5 percent despite the shutdown of Juneau's Greens Creek silver mine because of low world silver prices. As inflation fears drive investors into gold, silver prices may get a boost later in the year.

A drag on mineral exports for the remainder of 1993 might be the cutbacks at Red Dog mine near Kotzebue because of low zinc prices. This is bad news because zinc accounts for 90 percent of Alaska's mineral exports. The economic malaise in Japan and Europe, coupled with the availability of cheap zinc from Kazakstan, will probably hurt Alaska's zinc exports for the rest of the year and beyond.

Air Freight. Following enormous growth during the last six years, air freight activity at Alaska's international airports fell by 6.2 percent in the first quarter. Things may turn around by the last quarter if the expected improvement takes place in the economy. But unless Japan's new government can agree on a big domestic stimulus package, imports will continue to suffer and so will the air freight business.

Timber. On a more positive note, exports of timber products climbed nearly 8.5 percent, reflecting tight supplies in the old growth forests of the Pacific Northwest. Gains are offset somewhat by the shutdown of the Sitka pulp mill. Alaska could use some fresh investment in value-added wood products.

New Paradigm. Some Alaskans can see the writing on the wall and are moving out of the old extract-and-sell paradigm. A fishermen's group in Homer, concerned about the recent trend of low prices, especially for salmon, sought new buyers in Japan.

Their search was successful, and they now receive substantially more for their Grade 1 fish than from their old buyers at the local processing plant. What's more, the new buyer invited the Homer group to sell -- for a premium price -- quality troll-caught salmon and other species in winter and spring, normally a slack time for fishermen.

Japanese consumers want lower food prices. The recent dramatic change in government was caused in part because Japanese consumers think they've been getting the shaft from big business in cahoots with government bureaucrats and crooked politicians.

The new skeptical Japanese buyer represents a rising trend -- a trend that's likely to grow, helping partially offset the trend of increasing production and flat or even declining prices paid to Alaska fishermen by big Japanese salmon-importing companies and other buyers.

Until now, consumer rights groups in Japan were really cheerleaders for Japanese manufacturers and retailers. But that's changing as a variety of consumer-cooperative supermarkets cut into market shares of the established retailers by competing on price and selection. Factory outlets with food sections are just around the corner.

Does more competition in Japan's retail food sector mean higher prices for Alaska seafood, which comprises about two-thirds of our exports (excluding the air freight category)? Not necessarily. It may result in greater demand for our seafood and more price stability. But it also could mean higher prices for fishermen who get part of the profit margin formerly split among the many middlemen who make up the backbone of the traditional and now much-criticized Japanese distribution system.

Not all fishermen in Alaska can find alternative buyers and markets for their premium catch. But there's plenty of opportunity for those willing to buck the "business as usual" in Japan and elsewhere.

Alaska's exports may have hit peak. But tracking markets changes and finding ways to take advantage of consumer of demands can show us a way up the slippery slope to the next summit.
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Author:Barry, Doug
Publication:Alaska Business Monthly
Date:Sep 1, 1993
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