The Summit was called to order at 8:30 a.m. by Carey Bonnell, Managing Director, Canadian Centre for Fisheries Innovation, as Chair.

 

Welcome and opening remarks were given by Hon. Ron Chisholm, Nova Scotia Minister of Fisheries and Aquaculture.

 

Michael Gardner, Gardner-Pinfield Consulting, provided an overview of the lobster resource supply status in both the U.S. and Canada. Canadian lobster landings are in the 40-50,000 t. range with a value of $550-650 million. U.S. landings are 30-40,000 t. with a value of $400-500 million. Mr. Gardener reported that lobster landings in Canada have seen a decline and recovery to 40% over the years. He referred to the FRCC report, emphasizing the Council’s recommendations to allow for 50% maturity, reduce fishing effort and the need for better fishery data/research. Landings in PEI have been steady with a slight increase in 2006. Canadian lobster exports total approximately $1 billion with the U.S. accounting for 81% of Canadian exports. Live lobster account accounted for 50% of exports to U.S. until 2000, but are now down to 40% by value. Exports of frozen products grow with increasing demand for tails/claws. In recent years exports have been in flux, with a peak in 2002, a decline to 2005, recovery in 2006 and lower demand in 2007.

The U.S. exports 50-70% of landings to Canada, primarily for processing. Seventy per cent of New Brunswick processing is of U.S. lobster. He rising value of the Canadian dollar is weakening the lobster market. Canadian sales have dropped 40% in value since the exchange rate shift in 2002. U.S. and Canadian markets are closely integrated with the U.S. shore price greatly influenced by the Gulf processing sector. Price differences between provinces generally reflect size and product form. Canadian export prices vary from US$9-12/kg and have risen to US$14/kg. The live market is sensitive to quality. Mr. Gardener claims that the live market value chain shows low margins as does the frozen processed market due to low yields.

Competition favours harvesters, said Mr. Gardener, typically driving the shore price to 80% of the export price, with shippers paying 40-50% of their margin to buyers. The exploitation rate is of concern in most areas, he said, and Canada is dependent on the U.S. as its one major market. Processors and shippers generate low margins, relying heavily on imports of U.S. lobster. There is a strong need for product development in the processing sector. He said we must expect stable to lower U.S. prices with the high      exchange rate and there is a need to continue optimizing industry structure/capacity to restore financial health to tackle marketing issues. Canada must get the structure right, improve the terms of trade, get to the right markets and establish our brand in the marketplace.

 

Panel presentations were made by four fishers on the current issues facing lobster harvesters.

Francis Morrissey, Prince Edward Island, pointed to the problem of price, with shore prices dropping and harvesters’ operating costs increasing. He stated that in PEI we now have what is essentially a one-species fishery and we must do all we can to protect the resource and the future of the industry. Along with proper resource management regimes penalties must be more severe for illegal fishing, a practice that very mush hurts the industry. He also strongly supported the owner/operator and fleet separation policies as beneficial to the future of the industry and our coastal communities.

George Feltham, Newfoundland, pointed to the importance of the lobster fishery to Newfoundland and the real need to ensure its viability. He said there has been an over capacity in the Newfoundland lobster fishery since the groundfish moratorium of 1992. Protection of the species is vital and the Newfoundland fishery also faces enforcement problems. Vulnerability to the U.S. market poses continual problems. He also strongly endorsed the owner/operator and fleet separation policies as critical to protecting the future of the small boat fishery in Newfoundland.

Donald Walker, Quebec, spoke of reduced margins facing fishers with lower shore prices and the ever increasing costs of operations, a serious problem. He spoke further of the increased pressure being placed upon lobster stocks and worried about the future of the resource if early steps are not taken to ensure stock health.

Craig Prouty, Nova Scotia LFA-34, described how he is lobster dependent and concerned about falling prices and high exchange rates. He emphasized the effect of rising operating costs to harvesters and resultant lower margins. He also endorsed the owner/operator and fleet separation policies as beneficial to the future of the industry.

 

A panel of processors and shippers discussed current issues facing processors and shippers.

Jeff Malloy, Acadian Fishermen’s Co-operative Ltd., emphasized the need for improved communication within the industry, break down the mistrust between harvesters and processors. He explained how interest costs are a major factor in processors financial operations given the cyclical state of the industry. He explained how the need for cash flow led to price cutting and undercutting competition between processors, a detriment to the industry; processors find themselves having to sell a lot of product in a short period of time to meet financial obligations. He concluded by encouraging dialogue between processors and fisher groups.

 Gilles LeBlanc, Westmoreland Fisheries, New Brunswick, emphasized value added issues. He said that New Brunswick buyers buy lobster everywhere with a lot of product coming from Maine. They are trying to sell lobster as an experience, rather than simply as a product. He raised numerous problems facing processors: exchange rate, seasonality, the market not being synchronized, the need to pre-sell, competition, labour shortage, the need for R&D, environmental changes, market concentration and increasing costs. He stated that industry must understand yield issues in the processing sector and that we must add more value to our product.

Stuart Lamont, Ferguson’s Lobster, Nova Scotia remarked that he could be a lobster dealer or a businessman, but not both. He said there are limits to the price the customer will accept and we have to adjust to the new world order: currency parity with the U.S. dollar. He stated that Canada must improve its logistics; improving timely, reliable, cost effective options. He complained about rollercoaster pricing and asked if the consumer is ever kept in mind. He warned of the greening of the industry and that the Canadian lobster industry must adjust to the program. He encouraged increased trust and transparency within the industry, getting the facts on the table and working together if there is to be an effective trickle down of wealth to the harvesting sector.

 

John Sackton, market analyst and owner of Seafood.com, provided an extensive review of the international market situation. He showed that North American lobster is the primary lobster species by volume, with production doubling in the past 25 years. Spiny lobster/ Rock lobster is the next largest category and has increased 40% in the past 25 years. Cold water lobster commands the highest price while warm water spiny lobster, sold as frozen tails, often attain higher prices that North American lobster.

North American lobster has the most variation in both product form and price. In the processing sector, a seven year average of exports shows 27% in frozen meat, 14% in popsicle packs and 56% frozen cooked and raw, including boiled in shell. He argued that for Canada to increase its product value we must increase value in the U.S. market.

Mr. Sackton stated that yield is the key to understanding processed lobster. Live lobster goes to a commodity market that is variable with supply and demand. Whole cooked product provides 86% yield while claw-knuckle leg meat provides 9% to 13% yield. Tails offer 20-24% yield. Yield issues make it important to “sell the shell” with products such as raw frozen tails and frozen raw split lobster body and tail.

If the shore price is $5.00 per pound, this translates to $13.51 per pound if processed into tails at 23% yield and meat at 14% yield. With canners, a 20 cent change in shore price is equal to $1.43 to $2.00 change in meat cost, 83 cents to $1.00 change in frozen tail price, and a 22 cent to 24 cent change in whole cooked price.

In summary, Mr. Sackton stated that live lobster sales are stagnant, the US market is less attractive due to currency issues and live markets are subject to over supply and price collapse. Any growth is likely to be in value-added products and non-U.S. export markets. Value-added products require stable raw material prices and the Canadian industry is not well structured to support growth in the processed lobster industry.

                                                                                                          

   Richard Stead, EU Seafood Counselor, Department of Foreign Affairs and International Trade, provided an overview of the European demand for live and processed lobster. He provided information on the topics of trade performance, market profiles of both live and processed lobster, concluding with recommendations of what Canada can do to improve its market value in the EU.

Import tariffs make Canadian products very expensive in Europe. While Canadian lobster products face tariffs as high as 20%, rock lobster from Cuba (the EU’s largest supplier of rock lobster) is duty free. There is also a problem with logistics in that, for cost reasons, Belgium is the entry point to the EU market. From there all product must be shipped to various destinations, affecting storage issues. Air transport is a serious cost issue. To meet this challenge research is being conducted on a water immersion system by ocean container with a 10,000 m.t. capacity at 50% of the cost of air transport.

There is strong consumer resistance in the EU to higher prices. If price goes beyond a certain point the consumer shifts to other, competitive products. Canada has a good reputation, however, considered a better lobster product than that of Maine in terms of value, continuity of supply, resource management and meeting market specifications. We need to build on Canada’s positive reputation at point of sale.

Dependence on a few small importers limits the ability to open new markets. These importers must offer credit terms to finance sales and other business problems can affect the entire supply to the market. At the same time, large retailers use lobster as a loss leader, selling soft shell lobster for euro 9.99/kg to generate store traffic. The retail consumer price barrier for hard shell lobster is euro 20/kg or $30 Canadian.

Mr. Stead concluded by emphasizing the need for Canada to promote Canadian lobster properly to the European consumer. He said that market peaks and valleys must be smoothed out and that Canadian processors stop competing against each other to produce the lowest possible price for a product that retailers need at Christmas and is only produced in on region of the world. In Europe lobster is positioned as a high end luxury product. New product development should see a shift away from canned lobster and the need for better presentation than a popsicle pack. Resource management is a serious concern given the influence of environmental groups on the EU consumer.

By taking advantage of what we have by explaining it to the customer and becoming better organized to address supply issues Canada will be able to attain greater market value in Europe, said Mr. Stead. We should set a minimum size for exports, address storage cost concerns for buyers of processed product, and introduce new products (tails) he argued. Frozen raw products are viewed as higher quality in Europe and marketers should consider language issues, especially in France.

 

Andrew Malison, Marks&Spencer, United Kingdom, provided an overview from the view of the U.K.’s largest fish retailer. He told the meeting that lobster and fish products are in direct competition with other proteins. At a certain price level the consumer will switch. M&S competition now is health food industry where organics and chemical free products are wanted. He asked what does the lobster industry stand for? The European consumer is concerned about sustainability within an era of climate change, discourages waste, wants fair retail and wholesale suppliers and is very concerned about health. For M&S this means an emphasis on more organic foods, more locally sourced foods, more fair-trade scheme suppliers and all wild fish products must be MSC certified sustainable by 2012.

Given that the Europe is increasingly an ethical market, retailers are capitalizing on provenance and health, and the importance of trust in the marketplace he asked how does the lobster industry meet these demands? He argued that a collaborative approach was required based upon lower volumes, higher cost, extensive production, niche marketing and higher value. The consumer much prefers fish caught daily by inshore fishers and this, combined with MSC certification and acting as a fair partner will see the Canadian lobster value increase in the EU.

 

Mike Powers, Red Lobster Restaurants, U.S., showed that of the $1.3 trillion spent on food and beverage in the U.S., $314 billion is spent on restaurant sales. He said the retail industry is moving toward standards established under certification programs, citing numerous programs now active around the world. He argued that consumers are petitioning governments to enhance laws pertaining to environmental and social justice. He said that partnerships can be developed with stakeholders to avoid negative impacts on ecosystems, communities and other unplanned activities.

He said that the casual and fine dining segments of the U.S restaurant industry will continue to grow and will require creative approaches to ensure an average meal price of $15.00. Consumers are sensitive to price when ordering restaurant meals and the industry needs to address growing media attention to food safety, resource management and sustainability.

 

John Sackton cited co-operation between the U.S. and Canada on the marketing of both blueberries and maple syrup, suggesting something similar could be dome with lobster. He observed that the Canadian lobster industry as a whole has structural issues, with the major problem being that the processing sector is of secondary consideration vis a vis the live market.

 

Federal DFO Deputy Minister Michelle d’Auray spoke to DFO’s acceptance of the Ocean to Plate approach and the certification process. She referred to the FRCC report and emphasized the federal government’s intent to implement a fleet-by-fleet approach to establishing reporting mechanisms, reducing fishing effort and improving governance.

 

Dr. Michael Tlusty, Director of Research, New England Aquarium, pointed to the change in industry attitude in the past ten years from an anti-green position to one of encouraging sustainability of the resource. He said there is now a seafood choices movement that includes consumer awareness, species campaigns, fisheries certification programs and market-based approaches. Environmental and humane groups are pressuring the fishing industry, governments and retailers to change fishing and processing practices and some have instituted rating systems for specific products. He encouraged the implementation of incremental change and the evaluation of both wild and farmed species. We must compare and rank sources and encourage fishery improvements through market mechanisms and direct collaboration with other industry sectors to provide consumer education.

He closed by stating that change will happen and the lobster industry needs to be proactive.

 

Steve Devitt, Tavel Certification (MSC), reviewed the MSC certification process (please refer to the previous report on MSC Certification). He raised the following concerns regarding possible certification of Atlantic lobster: stock relations not clearly defined; lack of fishery independent assessment tools; MLS less than 50% recruitment size; illegal fishing and misreporting; and harvest control rules are relatively static and not precautionary. Further, he pointed to the lack of co-operation between DFO and industry; management of the fishery is not transparent; lack of compliance with existing rules; and the race to fish. He suggested a careful approach to the certification process by first understanding the implications, do a pre-assessment as soon as possible and communicate early with stakeholders, science and resource managers.

 

The meeting then went to break-out groups to discuss a series of questions related to maximizing the value of the Atlantic lobster resource by meeting market demands on the water, on the boat, in the plant, for buyers and for consumers. A variety of issues and concerns were raised by representatives of the various sectors from each group.

 

Russell A. Dorey, business consultant, provided an overview of how banks view the lobster industry, particularly the processing sector. He stated that lobster processing is capital intensive with processors servicing a 12-month overhead on six months operation and require large loans in the spring for operating credit. The cost of raw material is 80% of total costs and processors must finance required inventory. Banks recognize the many variables in the industry but look for standard business information with no surprises. Banks will lend up to 50% of inventory value and up to 75% on qualified accounts receivable, with customer financing the rest. He recommended product diversification, developing strategic approaches to marketing, leveraging assets and the development of trust and communication between clients and the banks.

John Sackton, Seafood.com, spoke on the issue of using market intelligence for lobster price negotiations. He reviewed the situation facing harvesters in that they are  

   provided with little or no end user market information. Landings come in large numbers over short periods and buyers take all grades and sizes despite the disparity of value for different grades and sizes. He asked whether increased competition at the wharf really maximizes value to harvesters. Reflecting the burst in landings he argued that processors are competitive but have little interest in investing in value added or market expansion. The current market structure is heavily tied to the live market and price differences are limited to hard/soft shell and canners vs. markets. To increase long-term value he said harvesters must find a way to support sales for processed and value-added products.

Mr. Sackton stated that too much lobster is sold as a “down market” item and that American lobster must be repositioned to take advantage of the high end seafood market. Only with market intelligence and transparency can harvesters get paid for this higher value.

Mr. Sackton reviewed a number of marketing schemes already in place for other species in other areas and concluded with the following:

·        Recognize that the market sets the price for lobsters,

·        Understand the elements that add or detract from value of lobster,

·        Timely reports on end-user product forms and prices are essential, and

·        There should be a mechanism for adjustment of prices based on final sales.

 

He recapped factors that could be in a report that would affect prices such as

yield, exchange rates, product going to different areas, bonuses, etc. He suggested a more minimalist approach in the beginning might be advantageous. Such an approach would include work on voluntary live inventory reporting only, market reports on product for once or twice a year, and create a pilot project that would pay bonuses based on final sales value with a small group of harvesters who commit their product.

 

            A panel discussion including Blaine Sullivan, Ocean Choice International, Tony Jabbour, Clearwater, Eugene O’Leary, Canso fisher, Doug MacRae, Canadian Gold Seafood, Jan Spinney, Orion Seafood Group, and Laurence Cook, Bay of Fundy fisher discussed options for increasing the value from the Atlantic lobster fishery. Mr. Sullivan recommended the industry adopt a model similar to Newfoundland’s “final offer solution.” Mr. Jabbour stated his company wanted negotiations with fishers. With today’s $4.00 lobster he argued for the elimination of commission buyers, raised the need to be MSC certified and that we must focus on market information. He stated that fishermen have the power and challenged the harvesting sector to provide more leadership within the industry. Mr. O’Leary emphasized the need for much better science to be conducted on the resource, Ms. Spinney spoke of the need for value-added product development and Mr. Cook reviewed resource management proposals.

                                                                                                         

                Dane Somers, Maine Lobster Promotion Council, provided a case study on crating an organization to build industry development. The MLPC started in 1991, funded by license surcharges, was composed of nine members representing harvesters, processors and the public from each of three regions plus a commissioner as an ex-officio member. At first the council looked at local markets, public relations, media support, promotional literature and local advertising. In the mid-nineties it changes to a more independent status and broadened its scope to focus on national programs, international trade shows and missions, and consumer research. Since then it has evolved into broader industry support as an industry advocate in legislative support, education and information, and research and business development. It is now looking at competition in the global arena, brand development and funding/investment issues. The council’s focus is to encourage active involvement of all parties in the supply chain to build product value and to develop a dynamic, active marketing model for global brand development.

 

            The audience was asked to participate in an extensive survey on its perception of various issues facing the industry in its attempt to increase lobster value. The survey utilized immediate audience response technology that showed responses by sector to all participants. It was obvious that in many areas there exist major differences of opinion between the harvesting and processing sectors, especially on resource management and cost issues.

 

            The summit concluded with a wrap up by Michael Gardener who reviewed the survey results and Carey Bonnell encouraged the participants to seriously consider next steps in developing a value-added approach.

 

 

 

Harvesters – 87

Processors/Live Shippers – 54

Federal Government – 26

Provincial Governments – 17

Other – 41

 

Total – 225

 

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