With overstuffed markets and high-volume harvests ahead, Alaska’s Bristol Bay salmon industry may be nearing the bottom edge of financial solvency.
Bristol Bay fishermen and processors still haven’t recovered from the low prices of last year, leaving them to embrace a reality that harvest volumes can’t fix.
Springtime in Alaska marks “retro season,” when processors typically pay out bonuses on top of the previous year’s ex-vessel base prices to fishermen with the highest production in terms of pounds of salmon or to all fishermen in their fleets when they’ve made a windfall in profits from the year’s salmon pack.
This year, however, retro payouts have been dismal, with news of USD 0.10 (EUR 0.09) per pound payments from only a few processors and handed out to only a handful of fishermen whose catches comprised the extreme upper percentile in terms of production. In the world of fishing, reality generally spawns rumor, and the supposition of continued low prices has left fishermen and processors worried about how long they can stay afloat.
Though the financial bottom line varies widely among fishermen, a common denominator since the inception of the limited-entry program in the 1970s has been their independence from processors. Before that, fishermen contracted with processors to fish cannery-owned boats. In the half-century since permits were awarded to individual fishermen, the relationship between the two has been an “us-and-them” conversation, with fishermen often suspicious that processors maintain disproportionately higher profit margins by offering meager ex-vessel prices.
But, current market conditions are threatening the independence and solidarity that fishermen have struggled so hard to maintain. In this latest twist of fisheries economics, fishers and processors may need to become business bedfellows to satisfy billions of dollars tied up in loans.
Banks offer short-term, line-of-credit money to processors for their annual purchase of salmon on the fishing grounds, but they’ve also lent long-term money to the processors, who, in recent years, have sub-granted loans to fishermen for new boats, startup costs, and other financial help.
Going into this year’s season and beyond, cheap fish won’t service loan payments predicated upon higher prices throughout the salmon distribution chain. So, the question looms: How long can the lending tower stand before it topples and the ultimate financiers call in the notes?
“The problem you have is that you’re coming off this aberration of several years of huge runs and good prices,” said Lela Klingert, president of the Alaska Commercial Fishing and Agriculture Bank (CFAB) in Anchorage, Alaska. Klingert, whose CFAB tenure spans 37 years, remembers when loans in the 1980s and 1990s were limited to startup costs in the weeks leading up to the seasons' kickoff dates.
In the years since, processors extended millions of dollars to fishermen for the construction of new boats and other financial aspects of their operations. In times of big runs, healthy end markets, and ex-vessel competition among buyers, granting money to fishermen provided processors with increased loyalty to their companies. The new boats also supplied increased production for processors who were willing to lend.
The craze for building new, go-fast shallow draft boats was equally tempting to fishermen wanting to up their seasonal production by fishing the super-shallow waters of the incoming tides. However, the fact that private banks and many other lending institutions don’t honor the limited-entry permits as collateral in securing capital loans contributed to the trend in fishermen borrowing money from processors.
Another factor contributing to the overall debt in the Bristol Bay fishery were the low-interest loans issued by the U.S. government as part of its response to the Covid-19-related economic crisis. The U.S. Small Business Administration’s Paycheck Protection Program loans kicked USD 263 million (EUR 243 million) into Alaska’s finfish industries in 2020.
Not that the industry will revert to cannery-owned boats, but rising to the level of healthy profitability may call for symbiosis between fishermen and processors like both sides have never known. On the production end, fishermen can’t make ends meet at ex-vessel prices of USD 0.50 (EUR 0.46) per pound. Though fuel costs in the short duration of the Bristol Bay fishery aren’t as significant as in year-round fisheries with long running times to the grounds, insurance, boat payments, and other expenses have many skippers hobbled to the point of selling out if something doesn’t change.
“I think this year is kind of going to be a tell-all for us,” Klingert said. “It’s really going to show the cracks in the foundation if something isn’t a little bit better.”
Last year’s costs for one fisherman owning a drift fishing operation included a USD 26,000 (EUR 24,000) boat payment and another USD 13,000 (EUR 12,000) for insurance. Add to that boat storage fees, fuel, repairs, incidental costs, airline tickets and food for the crew, and the break-even point out on the water equates to around 110,000 pounds of sockeye. And that’s assuming no mishaps (grounding, capsizing) or mechanical breakdowns.
“How do you make the payment on a USD 1.2 million [EUR 1.1 million] boat with USD 0.50 [EUR 0.46] fish?” asked Harry Moore, a longtime Bristol Bay fisherman who grew up in Naknek, Alaska.
Processors, on the other hand, fear that paying more at the docks cuts into a paper-thin margin of profit as they incur costs associated with processing, packaging, shipping, and monthly fees for cold-storage holdings. Though major Bristol Bay processors declined interviews for this story, one representative of the processing sector, who requested anonymity, warned of the risk of holdover inventories going into successive seasons. Two worries going into this year’s season will be paying off pack loans and liquidation of last year’s inventories.
Klingert, who’s been involved with lending money to Alaska’s seafood industry through nearly four decades, has seen highs and lows in ex-vessel prices, from USD 0.50 per pound to USD 3.00 (EUR 2.78) per pound. She was around for the strike in 1981, the price-fixing lawsuit of the 1990s and a lot of other economic antics that have taken place in Bristol Bay’s salmon fishery.
“This isn’t the first rodeo for anybody who’s been in the fisheries a while,” Klingert said. “We’re going to come out of it, but we’re going to look different, and not everybody’s going to survive.”
For starters, fishermen needing smaller amounts of start-up money from processors for fuel, hardware, and other goods can expect to pay interest rates two points above prime at the ends of their seasons.
“They’re clobbering anybody who’s using that overnight money,” Moore said.
Though the immediate concerns ride on making cash flow in the upcoming year, a simultaneous discussion has been how to make Bristol Bay salmon move through end markets at a price point that sustains the industry. One approach lies with convincing customers that the quality of the Bristol Bay fish is superior among farmed salmon and other direct competitors.
In the guise of improving quality, fishermen who’ve borrowed money to upgrade to refrigerated sea water (RSW) chilling systems on their boats worry that a continued focus on production won’t settle the Bay’s financial woes anytime soon. Like other years, this year’s retro settlements were based on the highest poundages delivered by fishermen, and many contend that sends a confusing message to the fleet.
A typical tactic among some top producers is to set their nets in shallow waters with their boats void of chilled water so that the boats draw less water. The problem with maintaining quality is that the skippers don’t tank down the boats with chilled water until after the fish have been picked; the hold is filled with hot salmon until they drive their boats to deeper water. That lag time between when the fish come from the net and their internal organs cool to 36 degrees Fahrenheit can be hours and compromises the quality of the fillets.
By contrast, other skippers tank their boats and fire up their RSW systems before they set, and each fish lands in refrigerated water the moment it is removed from the net.
“The [retro] bonus gives the incentives to catch more fish, but the processors base it on the guys who don’t take good care of their fish,” longtime Bristol Bay drift Marty “Mulchatna” Chevalier said. “It just doesn’t make sense to me to reward people who are bringing in lower-quality fish.”
Back to those pre-season retro rumors, the word on the docks is that one major processor will offer a USD 0.30 (EUR 0.28) premium over the base price for salmon on loads with gut temperatures testing out between 32 and 38 degrees Fahrenheit. Though it won’t solve all the financial conundrums going into the 2024 season, many believe it’s a step in the right direction.
“When you have times like this it leads to people becoming innovative and creative,” Klingert said. “And we start looking at different ways to deal with the product.”
Reporting by Charlie Ess
