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Clearwater hopes value adding will help move clam oversupply

With larger inventories and new VAP processing line in Canada, company shifts focus to higher-value clam products.

Dealing with unusually higher clam inventories, Canada-based Clearwater Seafoods is planning to grow distribution in the US and European markets with its natural, wild-caught Arctic surf clams in pre-cut and portioned sushi-ready slices.

This year started with high clam inventories because the country's entire total allowable catch (TAC) was harvested for the first time last year.

Clam inventory volume peaked in the fourth quarter of 2016 and decreased 14 percent in volume in the first quarter of 2017 through sales growth.

On the other hand, the sales value of clams increased slightly in the first quarter, since the inventory consists of higher-grade, larger-sized clams, which are easier to sell at higher prices.

“Normal inventory for clams for year-end would be $16 million (€14.5 million) to $20 million (€18.2 million) in a typical year and we’re well north of that right now,” said the company during last Thursday’s conference call. “We expect to be back in that range by the end of December 2017.”

This over-inventory will decline with increasing global demand, particularly with the Asian market’s peak sales season in the second half of the year, Clearwater executives said.

The company plans to expand distribution of its Arctic surf clam in the sushi sector and Asian grocery segments in particular with new value-added formats.

Clearwater's highest performing region for sales in the first quarter for clams was Asia, particularly China, where the company is gaining traction selling smaller clams.

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Up until this year, the company produced prime-cut, sushi-ready slices at its co-pack facility in Qingdao, China facility and distributed mainly in China, Japan and areas in that region, executives said. Government regulations in North America and Europe hindered clam exports from China after processing.

As a result, value-added, higher-value product was shut out of the North American and European markets.

"Since we didn’t catch enough clams to fulfill all customer demands, we didn’t focus on selling prime-cut, sushi-ready clams into those markets, but now with all this clam supply, we put the processing capacity into our Canadian-based facility so it can be exported with no regulation issues to Europe and North America," the executives added.

Clearwater installed a new CAD 3.6 million (€2.6 million/$2.7 million) value-added processing line at its Grand Bank, Newfoundland-based facility.

The facility “will allow us to do more processing in-season and have less storage of live animals to be processed later … this will be cost savings for us and allow us to offset any pricing we’re not able to realize out in the marketplace.”

The company recently marketed its natural, wild-caught Arctic surf clams in pre-cut and portioned sushi-ready slices at the Brussels seafood show.

Also benefiting the company’s clam outlook this year is the fact it is harvesting all quota with three vessels instead of four.

“The cost per sea day and catch rate proceeding are positive relative to what we would have budgeted for 2017," executives said.

Shrimp struggles

On the other end of the spectrum is coldwater shrimp, which this year will be hit by lower quotas and one less available vessel.

Frozen-at-sea (FAS) shrimp sales volumes were 25 percent lower in the first quarter due to "difficult harvesting conditions."

Canada's Department of Fisheries and Oceans’ (DFO) decision to reduce the Northern shrimp fishery quota in the first quarter will also make for a challenging year.

“Also we’re refitting one of our two shrimp vessels this year," executives noted. "Our 2017 standpoint, we will not have a significant amount of unused harvesting capacity. 2018, we might. There are active negotiations with other parties in the industry as we speak.”

In March, the DFO's northern shrimp quota was lower and Clearwater’s quota was reduced by 2,332 metric tons.

"The reduction was anticipated by management and further reductions are possible as the species finds ecological balance with the return of cod, a natural predator of shrimp, to this fishery," said Clearwater executives.

Scallops

Also seeing a quota cut last year was sea scallops. This year is starting off strong with scallop catch rates higher than the first quarter last year.

“We are getting strong catch rates for our scallop businesses and that is resulting in higher inventory levels and that is a good thing because these are the products we’re going to be selling through the second quarter and the rest of the year,” said the company. It added the scallop sizes from its harvest so far are on the smaller side.

Europe is Clearwater's largest frozen-at-sea scallop market.

“Typically after Memorial day weekend, the sea scallop prices tend to head back up again,” said the company, adding it’s seeing growing demand in Asia. “We remain cautiously optimistic about our ability to maintain our prices and grow them in some particular geographic areas like China.

“The prices our Canadian sea scallops move at usually make them less accessible to the Chinese market. But as incomes improve and appetite for premium seafood in that market grows, it’s now one of our fastest-growing markets for sea scallops. That may put pressure on what we allocate to the rest of the world.”

Export markets

No single customer represents more than 5 percent of company sales.

The company aims to grow Asian distribution with all species but mainly Artic surf clam, live lobster, brown crab and whelk.

“In China, we expect to benefit from expansion of foodservice distribution into more tier-2 cities, retail distribution in tier-1 cities and rapid growth of e-commerce," executives said.

In the first quarter, Clearwater rolled out of another phase of e-commerce partnerships in the China market, selling clams, shrimp, scallops and lobster directly to consumers. It also launched RFID-enabled boxes on retail products in Asian markets as an anti-counterfeiting measure.

European sales increased 16.2 percent to CAD 55.8 million (€37.2 million/$41 million) for 2017 primarily due to higher sales volumes for sea and Argentine scallops, cooked and peeled shrimp and langoustines, partially offset by a lower available supply of coldwater shrimp.

UK subsidiary MacDuff will see an anticipated 10 percent growth in volume compared to 2016.

The company said European political upheaval such as Brexit and other geopolitical events hasn't impacted operations or markets so far.

“The Brexit announcement resulted in a devaluation of the pound and that was favorable to us," executives said. "After that major terrorist attack in France, we did see around Christmas time a change in foodservice patterns but it was temporary and it came back within two weeks.”

More than 80 percent of its MacDuff exports go into markets outside of the UK and “all of our costs were incurred in pound sterling which was favorable.” 

Inventory and quota

Clearwater is the largest holder of shellfish quotas and licenses within Canada and maintains the widest selection of Marine Stewardship Council (MSC)-certified species of any shellfish harvester worldwide.

“We don't have any long term contracts with our major species and customers and sometimes pricing decisions are even made on a daily basis," the company said.

Clearwater expects to see a significant reduction in inventory of CAD 15 million (€10 million/$11 million) by the end of the year, primarily related to the clam inventory. 

“I think that early indications are that if we are not able to pass on all the higher shore prices, we’ll be able to pass on a significant portion of those," the company said. "We budgeted for the higher shore prices coming into the year; it was a good lesson we learned from 2016."

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