Alaska's Bristol Bay fishermen are taking a hard look at the decades-long structure of the region's salmon harvesting and processing system, and mulling potential options, including creating cooperative purchasing, marketing and logistics operations that would remove the fleet's dependence on processors.

The base ex-vessel price for Bristol Bay sockeye fell 65 cents per pound-- 48 percent -- from $1.35 (€1.13) in 2019 to $0.70 (€0.58) in 2020, the first time in five years the ex-vessel price dropped below the previous year's.

The uproar from fishermen last season was one of the reasons the Bristol Bay Regional Seafood Development Association (BBRSDA) released a white paper this month giving greater insight into the salmon fishery's price drop last year and options for the fleet to consider.

The white paper was created in direct response to the Bristol Bay salmon fleet reaching out to the BBRSDA about the price drop, Michael Jackson, vice president of the BBRSDA's board of directors, told IntraFish.

"The fleet was calling, texting, emailing, asking what could be done," he said.

No guarantees

Bristol Bay fishermen operate on what's called an "open ticket" system. That means every summer, Bristol Bay fishermen deliver fish to companies with no specific prior agreement on price, or with no price on a "fish ticket," essentially an invoice from fishermen to processors.

There is no contractual guarantee that ex-vessel prices will reflect downstream demand for Bristol Bay salmon, and outside of Silver Bay Seafoods, fishermen do not have any claim on downstream profits, according to the BBRSDA report.

But the lower price paid to fishermen in 2020 equates to a collective loss of $130 million (€109 million) in ex-vessel value compared to 2019, according to the BBRSDA.

"Many fishermen have received COVID relief funds and 'trade relief' payments, but that doesn’t really factor into what constitutes a fair price for fish or the other issues discussed in this paper," the white paper reads.

There’s a difference of roughly 40-50 cents between the 2020 average frozen fillet price and base ex-vessel price compared to previous years, according to market data from BBRSDA.

"This suggests the 2020 base price could have been 40 to 50 cents higher if fishermen were paid a similar share of first wholesale price as previous years," the BBRSDA white paper reads.

The BBRSDA writes fishermen could have been paid as high as $1.40 (€1.17) to $1.50 (€1.25) per pound, given the high value of salmon fillets at the retail level, where sales have surged during the pandemic.

"Past pricing relationships within the supply chain would suggest a much stronger (base) ex-vessel price than was paid out in 2020," the BBRSDA says.

PromoBox : Join our next Digital Event: Seafood Outlook 2021

An unusual year

But 2020 was also a much different year than the previous five years due to the pandemic.

Processors attributed the low price paid out last summer to higher operating costs due to COVID. It's estimated Alaska processors spent $50 million (€42 million) on COVID mitigation in 2020, according to BBRSDA. The association estimates the expenses in Bristol Bay equate to 7 to 12 cents per round pound of sockeye.

A historically compressed run also meant processors "could not achieve their preferred product mix and will miss out on some sales revenue as a result." That led to lower production of higher-value products, such as single-frozen fillets.

General economic uncertainty and falling farmed salmon prices going into the season also contributed to 2020's unusual market dynamics, with processors likely concerned about competing with low farmed Atlantic salmon prices.

The association also said Alaska seafood processors are seeing a trend of overall net revenue loss in recent years, which could be compounding the problem.

"Aside from Bristol Bay salmon and Bering Sea pollock, things were awful for processors in 2020 and weren’t good in 2019 either," the BBRSDA notes, adding 2020 was the lowest Alaska salmon harvest in non-Bristol Bay areas since 1979.

"Whether Bay fishermen like it or not, losses or poor performance in other business units must be offset somehow," the BBRSDA writes.

But those conditions still don't entirely explain 2020's major price drop.

"Basically, a decline of roughly $37 million in net processing revenue and perhaps $15 to $25 million in direct COVID costs for Bay operations doesn’t explain a $130 million drop in ex-vessel value, unless it’s needed to offset losses elsewhere," the white paper reads.

"Even if Bristol Bay processors do need to hold back earnings to cover poorer performance outside the Bay, it would appear likely that Bristol Bay fishermen will be paid some sort of significant retro (retroactive pay) ahead of next season. However, regardless of the numbers laid out above, there is no contractual requirement for processors to pay a sizable retro ahead of the 2021 season."

A new competitor?

While not advocating for any particular path, the white paper lays out three options for fleet members to consider.

The first option is to maintain the status quo as ex-vessel prices have generally risen for fishermen along with market value in recent years, with 2020 proving an anomaly.

The second is to negotiate and/or partner with processors, an option processors don't generally seem to be on board with.

The third option is to expand the fleet's market options and sales channels, with the potential to involve BBRSDA if members choose. Those ideas include creating a bulk purchasing program for direct marketers; creating a sales and/or logistics company to expand direct marketer capacity; partnering with a new processor offering a pricing agreement; or creating a new cooperative processing and sales company.

"Fishermen who choose to reject the status quo may decide, either through preference or necessity, to build up their own market access channels," BBRSDA writes.

"If a deal cannot be made, the only real alternative for change is to build your own road to the market. Obviously, this approach carries the most risk and requires an active role for many involved, but it is the only way that fishermen can choose to obtain a larger equity stake in the fishery’s performance than is currently available."

BBRSDA points out that processing companies are precluded by Alaska law from owning salmon production, but fishermen are not precluded from vertically integrating down the supply chain.

The only recent successful change to the status quo in Bristol Bay came, in fact, from a group of fishermen, who joined together in 2007 to create Silver Bay Seafoods, which began with one facility in Southeast Alaska. Silver Bay is now one of the more dominant Alaska salmon processors in the state, with six facilities. It also holds a partnership with, among others, Starkist, which is owned by Korean giant Dongwon. Dongwon holds a small share in Silver Bay as well.

Up to the fleet

Jackson reiterated that BBRSDA has only released the white paper to be informational, and that it is up to its fleet members as to whether they want to pursue alternatives to the status quo heading into the 2021 salmon fishing season.

"There were lots of things that caused financial uncertainty for processors," Jackson said of the 2020 season.

"It's easy to understand that, but on an emotional level, when you look at your check and it’s half the level of the year before, something needs to be done."

Jackson also emphasized fishermen are looking for more transparency from processors when it comes to determining a base price.

Jackson pointed to a conversation he had with a major processor that led to the company addressing its fleet about why the company paid such low prices last year.

"It allayed the concerns of fishermen in that fleet because they got to hear explanations and get answers," he said.

"Transparency helps allay fear. If no information comes out, there's a vacuum. For a year like this year, that vacuum is filled with uncertainty. Having the conversation certainly helped their fleet to understand some of the reason for the price drop."

Fisheries

Shades of Silver Bay? Bristol Bay salmon fishermen may forge their own path after $130 million loss