If you want to understand the weakening, frail condition of Alaska’s salmon processing industry, look no further than the creation of Silver Bay Seafoods in 2007.
Well, maybe that is not entirely fair, but few will argue that the company disrupted a processor-fishermen business model that hadn’t changed much since the late 1800s.
The magnitude of this change, in addition to the variability of Alaska’s wild salmon runs and the overcapacity of the state's aging processing infrastructure, has long-time processors such as Peter Pan Seafoods, which recently went up for sale, struggling to stay afloat.
A silver bullet?
Silver Bay began at a time when "salmon prices were very low, markets were not very strong and, as a consequence, a number of the seafood buyers were either laying off fishermen or putting catch limits on the boats they did have,” co-founder Rob Zuanich told IntraFish in a 2011 interview, just a few years after the company was founded.
Zuanich, who led the Purse Seine Vessel Owners Association (PSVOA), and Sitka-based Troy Denkinger started the company to assist those fishermen, he said.
Silver Bay is a corporation owned by fishermen, the majority of whom reside in Alaska. It operates plants in Sitka, Craig, False Pass, Valdez and Naknek, and is now in the process of acquiring Kodiak-based processor International Seafoods of Alaska (ISA).
"We wanted to form a company that would create the very best market for ... the fleet operating in Alaska," Zuanich. "[Our goal was] to build a plan that would allow our fishermen to catch as much fish as they could harvest and have plants that were able to process it."
"[Most other companies] just see the fishermen as a component of the manufacturing process," he said in the 2011 interview. "Whereas it's our reason for being, so we make all of our decisions predicated on what would be best for the fishing fleet. I think that translates into higher prices for fishermen and hopefully better markets."
This approach, many long-time Alaska salmon industry players say, tipped on its head the model that has dominated the relationship between Alaska salmon processors and fishermen for over 100 years.
It’s safe to say that the relationship between salmon fishermen and processors has traditionally been a “love-hate” affair: Fishermen complain processors never pay enough; processors argue they pay the most they can -- after all they have plants and companies to operate and a lot of up-front and recurring costs.
Keeping fishermen loyal to your company is always a challenge, but, conversely, fishermen need healthy processors. In the end, fishermen are overwhelmingly motivated by the price they receive for their fish. Silver Bay is known for paying more for fish, in addition to paying higher wages for processing factory workers, and Trident and other processors have had to match this compensation.
Salmon prices are highly variable, so it is hard to say unequivocally Silver Bay’s entry in Alaska has driven up prices. But click here and you will see that overall ex-vessel prices, the price paid to fishermen, have largely risen since around 2005, except for 2015 when they fell back sharply before climbing again.
Consensus: Times are tough
There is no doubt that times are tough for many Alaska salmon processors. Some executives say the past season was one of the worst in decades and has brought many processors to their knees. Critics blame the current state of affairs on the companies themselves, arguing that they neglected to invest in their plants for decades and now are suffering for it.
Maruha Nichiro has put Peter Pan on the block. And questions surround the fate of processors such as Ocean Beauty, Cooke-owned Icicle Seafoods and Marubeni-owned North Pacific Seafoods.
Most who participate in the sector will tell you a major rationalization and restructuring of the Alaska salmon processing industry is in motion.
But what is the value of some of the traditional salmon processors such as Ocean Beauty or Peter Pan? Most of them have old plants that lack automation. And it is hard to see where the money will come from to upgrade these plants, given the slim margins and less than stellar profits in recent years.
One thing most agree on is there is just too much salmon processing capacity in the state.
Collectively, Trident Seafoods Peter Pan, Silver Bay, Ocean Beauty, Icicle and North Pacific Seafoods operate 36 plants in Alaska, the overwhelming majority of which are salmon plants.
A striking example of this overcapacity is what has occurred in recent years on the Alaska peninsula. Last year, Silver Bay built a massive brand-new plant in False Pass, Alaska, next to the Bering Pacific Seafoods (BPS) plant, which is jointly owned by Trident Seafoods and the Aleutian Pribilof Island Community Development Association (APICDA). Just north of those facilities, Peter Pan, in 2019, rebuilt its processing plant in Port Moller, Alaska. The overall footprint of the new plant is 42,000 square feet: 19,000 for the main processing area and 13,000 for the cold storage.
While the investment in new plants is admirable, it might very well be foolish because many industry experts say the area just doesn't have enough fish to support the three facilities. Time will tell, of course, but many are expressing concern about the overcapacity not just on the peninsula but throughout the entire Alaska processing sector, especially for salmon.
This overcapacity, unfortunately, makes the processing assets of the weaker companies even less attractive to outside investors, such as private-equity groups.
In addition, when it comes to salmon at least, companies don’t have a guaranteed access to the resource in the same way the pollock fleets do, for example.
Processors get their fish from fishermen, who sell to them largely based on price and relationships, which makes the battle for fishermen's loyalty a cut-throat game.
Stronger processors such as Trident Seafoods and Silver Bay could buy up weaker competitors, effectively taking them off the table and perhaps boosting their product flow, margins and profits. Which may, in part, explain Silver Bay's recent purchase of ISA. Although in this case, the purchase appears more strategic because the company has no presence in Kodiak and the plant processes an array of whitefish in addition to salmon.
It is possible that some of these struggling processors could merge, but that seems like a short-term fix. More likely, companies will sell off parts of themselves. For example, Ocean Beauty might sell off some of its processing plants but keep its distribution and brand business.
Silver Bay itself is not immune to the problems facing the sector. While it is considered the largest or second largest salmon processor in Alaska, it's financial health, like all of the Alaska's processors, is unknown because it is not a public company and, therefore, is not required to report financials.
Much of Silver Bay's fish has traditionally gone to China for reprocessing, with the exception of its Bristol Bay value-added sockeye production. But the Chinese buying has slowed in recent years, and Russia provides an alternative for pinks and other salmon species.
Additionally, Silver Bay started out as an outsider, a disrupter, when it entered the industry more than a decade ago. But outsiders, as they succeed and grow, can face the same financial pressures of the more-established companies they sought to disrupt.
The company also gets criticized for not playing nice with brethren Alaska processors, but fishermen seem pleased, nonetheless. Silver Bay started in 2007 with 30 fishermen members, it is now roughly 600.
Again, it's not fair to lay the Alaska salmon processing sector's current troubles at the feet of Silver Bay. Many processors have declined to invest in their plants and in some parts of the state the runs aren't strong enough to support the processing capacity.
Nevertheless, there is plenty of trepidation in the ailing Alaska salmon sector right now, and one thing seems clear: The state’s 140-year-old salmon processing industry is likely to look a lot different a year from now than it does today.