Zachary Scott, a Seattle-based investment banking firm that has served as the financial advisor on major US seafood acquisition deals, has given its verdict on the dire financial situation for Alaska processors following a major turndown in salmon prices this year.
Mark Working, co-founder and managing partner at Zachary Scott, said in a recent industry update that "Mother Nature and inflation conspired to create a perfect storm of negative conditions, and every salmon processor is currently in the thick of it."
Last year's harvest of Bristol Bay sockeye salmon hit a record 60 million fish, which had the horrible timing of moving into consumer markets in Europe and North America that were collapsing because of the pain inflation was inflicting on shoppers.
This year's sockeye harvest so far counted at 39 million fish is smaller, but the market still hasn't fully recovered. In addition, at the start of this season there was still millions of pounds of last year's fish in inventory for processors, most of it being low-quality No. 3 grade fish, the equivalent of ground beef.
"Currently, bloated balance sheets with tepid market demand and market prices that squeeze away margin leave processors in a challenged state," Working wrote in his recently published insight.
"Unless the market picks up and inventory can be unloaded, some processors won’t be able to borrow to operate at full strength for the 2024 season."
Salmon is the economic giant of Alaska seafood, the unprocessed catch representing nearly $1 billion (€944.6 million) in annual value, according to Working.
He added, however, that a smaller projection for Bristol Bay salmon in 2024 could improve processors' balance sheets, with less salmon on the market potentially lowering excess inventory from 2022 and this year.
But Working noted lower volumes mean higher unit costs, "which makes achieving profitability on the catch even more dependent on improved market dynamics."
Processors are struggling to "recharge" their balance sheets, he said, as they have been unable to sell off inventory from previous years at prices that result in a profit.
"Unless market prices tick up in the next year, processors and fishermen alike will get squeezed again on profits," he wrote. "The pressure will be to again keep grounds prices low and that will exacerbate the already tenuous relationship with fishermen."
Grounds prices refer to the ex-vessel price paid from processors to fishermen, which in 2023 fell to 50 cents per pound, dramatically less than last year when fishermen received a base price of $1.15 (€1.07) for Bristol Bay sockeye.
It will take some time and some additional capital to swallow the 2022 problem, possibly prompting more industry consolidation as processors yearn for greater efficiency, according to Working.
Another likely outcome will be the introduction of different models for establishing prices paid to fishermen, the end result being more transparency and predictability to fishermen, he said.
One of those potentially different models for the salmon industry is Alaska-based salmon processor Northline Seafoods, which is building what it is calling "the most sustainable and efficient mobile commercial salmon processing platform."
As the Alaska seafood industry has consolidated, Zachary Scott has served as a financial advisor to sellers, buyers, and capital sources throughout the industry.
Some major seafood transactions the company has worked on include the acquisition of Peter Pan Seafoods by Northwest Fish Company, McKinley Capital, and Renewable Resource Group; the merger and sale of Clipper Group, Ltd. and Blue North Fisheries to Bristol Bay Native Corporation and the merger of Ocean Beauty Seafoods and Icicle Seafoods.
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