Overview of the Atlantic Canada seafood industry: structure, markets, marketing Moncton February 23, 2007
Atlantic seafood industry worth $3 billion New Brunswick production from capture fisheries and marine aquaculture worth about $1 billion, that s 25% of the Canadian total $000s Value of seafood exports from the Atlantic Provinces and Quˇbec, 2006 1,200,000 1,000,000 800,000 600,000 400,000 200,000 NS NB PE QU NL 0 Value of exports Gardner Pinfold 2
Focus: how derive more value Getting the structure right: optimal harvesting and processing structure with a common aim of producing high quality products to diversified markets Improving the terms of trade: a more coordinated approach to limit the increasing market power of distributors Getting to the right market: product & market development to reduce exposure to commodity conditions Establishing the brand: healthy products/ clean environment/ sustainable harvesting practices Gardner Pinfold 3
Topics Industry overview Global supply and demand Resource status Harvesting Production and markets Issues and options Sector performance & challenges Gardner Pinfold 4
Crab: key statistics Crab 2006 $280 million landings $400 million exports 4,000 vessels 82 plants 22,000 employed Trends Resource Landings Price Export Outlook 2007 Gardner Pinfold 5
Shrimp: key statistics Shrimp 2005 $240 million landings $485 million export 470/13 vessels 20 plants 6,200 employed Trends Resource Landings Price Export Outlook 2007 Gardner Pinfold 6
Lobster: key statistics Lobster 2005 $600 million landings $1,000 million export 9,770 vessels 50 plants 35,000 employed Trends Resource Landings Price Export Outlook 2007 Gardner Pinfold 7
Key species $1.6 billion total landed value Three species dominate: lobster, crab & shrimp Lobster: decline & recovery Crab: cyclical growth & price instability Shrimp: steady revenue decline 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Atlantic fisheries, landed value by species ($000) 1990 1993 1996 1999 2002 2005 Lobster Crab Shrimp Scallop Groundfish Source: DFO Gardner Pinfold 8
Topics Industry overview Global supply and demand Resource status Harvesting Production and markets Issues and options Sector performance Gardner Pinfold 9
Global supply and demand Snow crab supply Steady at 150-170,000 t Canada produces 65% Five others produce 35% Alaska source of instability Substitutes influence prices Snow crab demand Two markets: US & Japan Food service & retail commodity in U.S. Mainly food service in Japan (sushi & sections) Demand price sensitive Coldwater shrimp supply Up 50% to 450,000 t since 98 Canada produces 40% Three others produce 45% Competing with 65 species 7% of global supply 6 MM t Coldwater shrimp demand Two markets: US & EU (UK) for C&P - mainly retail Japan & China for shell-on frozen - retail & restaurant Demand not keeping up with supply Gardner Pinfold 10
Global supply and demand: lobster and groundfish Lobster supply Steady at 80-90,000 t Canada produces 55% U.S. produces 45% High exploitation rate Canada processes 50-70% of U.S. catch Lobster demand U.S. consumes over 80% of total supply Live & processed at 50% each Demand is price sensitive Groundfish supply Declined from 12 to 7 million tonnes Cod/pollock main species Farmed finfish has substituted (tilapia/salmon) Groundfish demand U.S. & EU major markets Limited growth in frozen Fresh segment exhibits strongest growth Gardner Pinfold 11
Global snow crab supply stable 250 Global supply of snow crab, 1990-2005 200 000s tonnes 150 100 50 Other Japan Korea Greenland Russia Canada Alaska 0 90 92 94 96 98 00 02 04 Source: FAO, GINR, NMFS, DFO Gardner Pinfold 12
Coldwater shrimp supply increasing Global supply of coldwater shrimp, 1990-2004 500 450 400 000s tonnes 350 300 250 200 150 100 50 Other Iceland Greenland Norway Canada - Source: FAO 1990 1994 1998 2002 Gardner Pinfold 13
Lobster landings fairly stable Lobster landings: Canada and the U.S. 100,000 90,000 80,000 70,000 tonnes 60,000 50,000 40,000 30,000 20,000 10,000 0 1990 1993 1996 1999 2002 2005 Can US Total Gardner Pinfold 14
Farmed species substitute for reduced groundfish supply 16 14 12 10 8 6 4 2 0 Global "whitefish" supply 1988 1992 1996 2000 2004 Groundfish Flatfish Farmed fish Source: Groundfish Forum 2005 Gardner Pinfold 15
Topics Industry overview Global supply and demand Resource status Harvesting Production and markets Issues and options Sector performance Gardner Pinfold 16
Resource status: Canada Snow crab Stocks declined most areas No area has strong recruitment pulse Variation by area NE NL: long-term prospects uncertain S. Gulf: stock in declining phase N. Gulf: biomass begins to decline in 2007 ENS: stocks down recovery possible in 2007 Shrimp Stocks stable with uncertainty Outlook positive for major stocks Variation by area NE NL: stocks stable with positive/uncertain outlook & some decline in average size Gulf/Estuary: stocks strong but decline to long-term average biomass in 2006 & beyond ENS: unstable with decline in average size and biomass Gardner Pinfold 17
Resource status: Canada Lobster Mostly stable, declines in some areas No area shows strong growth Variation by area Northern gulf: stable Southern Gulf: decline Newfoundland: stable Nova Scotia: decline Groundfish No recovery most areas Science unable to predict when stocks may recover Variation by area Some recovery in 3Ps cod, Georges Bank haddock Small redfish fisheries off NL and NS Turbot fisheries in Gulf and off NL Gardner Pinfold 18
Topics Industry overview Global supply and demand Resource status Harvest Production and markets Issues and options Sector performance Gardner Pinfold 19
Crab landings reflect stock status Total down to 94,000 t in 2005 from 2003 peak of 106,800 t NL lands 47%, down from peak of 73% in 1999 Gulf lands 46% NS (SS) lands 7% tonnes 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: DFO Crab landings by province 1990 1993 1996 1999 2002 2005 NL NB NS QC PE Gardner Pinfold 20
Shrimp landings reflect stocks & market price 80% of catch in northeast NL waters NL landings up threefold since 1997 Other provinces remain steady or slight decline since 2003 Low price make the shrimp fishery a marginal or losing proposition 140 120 100 80 60 40 20 0 Atlantic Shrimp landings by province 1990 1992 1994 1996 1998 2000 2002 2004 NL NS Que NB Source: DFO Gardner Pinfold 21
Lobster landings declining in most areas Landings down by 15% from 2001 peak QC fairly stable Major decline in Northumberland Strait 35000 30000 25000 20000 15000 10000 5000 Lobster landings by province NS NB PEI QC NL 0 1990 1993 1996 1999 2002 2005 Source: DFO Gardner Pinfold 22
Crab shore prices at historic lows Peaked in 2004 with increase in Japanese & U.S. demand Dropped sharply in 2005 as customers resisted high distributor prices Stayed low in 2006 as inventories cleared $/lb Average snow crab shore prices 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 1990 1995 2000 2005 NS NB PE QC NL Source: DFO Gardner Pinfold 23
Crab prices sensitive to supply Swings: high of US$4.50/lb and low of US$2.25/lb Drop in 2005 due to speculation By mid-2006 price down to US$2.75 Upturn in Alaska landings may have played small role tonnes Crab landings and Canadian export price 160,000 12.00 140,000 10.00 120,000 100,000 8.00 80,000 6.00 60,000 4.00 40,000 20,000 2.00 0 0.00 1980 1985 1990 1995 2000 2005 Alaska landings (t) Canadian landings (t) Can. export price ($/kg) US$/kg Source: ADF&G, DFO, NMFS Gardner Pinfold 24
Crab price down by 50% since 2004 35% due to price drop 15% due to exchange rate US$ price likely to strengthen in 2007, but could be partially offset by weakening economy $/kg Monthly U.S. snow crab import price 16.00 14.00 12.00 10.00 8.00 6.00 4.00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 US$ price CAN$ price Source: NMFS and Bank of Canada Gardner Pinfold 25
Shrimp shore price at historic lows Shore price down by 50% over decade as global supply exceeds demand Shore price approaches breakeven level for harvesters Larger shrimp and stronger competition explain higher Québec price Inshore shrimp shore prices, 1990-2005 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 1990 1992 1994 1996 1998 2000 2002 2004 Source: DFO NL NB QC Gardner Pinfold 26
Shrimp price drop worsened by exchange rate Price decline reflects supply > demand & availability of substitutes US$ price down 33% since 1995 Stronger dollar means CDN$ price down 50% since 1995 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Monthly export price of C&P shrimp to the U.S. 1995 1997 1999 2001 2003 2005 U.S.$ price CAN$ price Source: NMFS Gardner Pinfold 27
Lobster market weakening, exchange rate cuts revenues US$ price starting to show some weakness after several years of steady growth CAN$ price shows downward trend since 2003 $/lb 12.00 10.00 8.00 6.00 4.00 2.00 Monthly average export price of live lobster to the U.S. 0.00 2002 2003 2004 2005 2006 jan jul jan jul jan jul jan jul jan jul Source: U.S. Dept. of Commerce and Bank of Canada CAN$/kg US$/kg Gardner Pinfold 28
Lobster shore price closely tracks U.S. market Price differences by province reflect mainly size and product form Strong competition in NS and QC means low margins for shippers 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Average shore price of lobster by province 1990 1995 2000 2005 NS NB PEI QC NL Source: MPO Gardner Pinfold 29
Salmon market gains strength Salmon suffers long slide as supply exceeds demand Proximity to market and direct sales mean price premium for NB and BC Price began to turn the corner for Canadian producers in 2006 as suppliers to the U.S. shifted to EU in response to higher returns U.S. $/kg 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 U.S. import price, Atlantic salmon whole dressed, 1991 1994 1997 2000 2003 2006 Norway Chile Canada Gardner Pinfold 30
Exchange rate cuts salmon prices Steady 1990s price decline offset by rising exchange rate Weakening U.S. dollar causes sharp drop in CAN $ price after 2002 $/kg 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Annual average price of U.S. imports of Canadian whole dressed salmon 1991 1994 1997 2000 2003 2006 US $/kg CAN $/kg Gardner Pinfold 31
Topics Industry overview Global supply and demand Resource status Crab & shrimp harvest Production and markets Issues and options Sector performance Gardner Pinfold 32
Crab exported to two markets: United States & Japan $860 million industry in 2004 drops to $600 million in 2005 and about $400 million in 2006 Exports to China are processed for re-export to Japan $ millions 1000 900 800 700 600 500 400 300 200 100 0 Atlantic Canada total crab exports by market 1996 1998 2000 2002 2004 U.S. Japan China Total Source: Statistics Canada Gardner Pinfold 33
Crab: market and cash driven export Sold to distributors who take position in market Export pattern reflects commodity product & consumption pattern Low margins limit ability to inventory/ brand and develop market 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Crab landings and exports by month, 2005 J F M A M J J A S O N D exports landings Source: DFO and NMFS Gardner Pinfold 34
C&P shrimp exports by country $136 million industry in 2005 US is main market (55%) despite adverse exchange C&P shrimp faces 20% tariff entering EU millions de dollars 80 70 60 50 40 30 20 10 0 Source: Statistics Canada Atlanic shrimp C&P exports 1996 1999 2002 2005 United States United Kingdom Denmark Others Gardner Pinfold 35
Shrimp mainly a retail product Sold to customers on as needed basis Demand far less seasonal than crab Imposes high carrying costs Competes with many other shrimp species 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Jan Shrimp landings and C&P exports by month, 2004 & 2005 Mar Mai Jul Sep Nov Jan Mar Mai Jul Sep Nov NL Gulf Atlantic exports Source: DFO and Statistics Canada Gardner Pinfold 36
Lobster exports market and supply driven NB accounts for 60% of Canadian processed lobster exports Over 90% of NB exports goes to the U.S. Processing sector relies heavily on imports from U.S. $ millions 40 35 30 25 20 15 10 5 0 New Brunswick monthly lobster exports, 2005-2006 Dec Mar Jun Sep Dec Mar Jun Sep meat frozen live Gardner Pinfold 37
Topics Industry overview Global supply and demand Resource status Crab & shrimp harvest Production and markets Issues and options Sector performance Gardner Pinfold 38
Crab issues: control in hands of market Resource Markets Harvest Processing Cyclical abundance Low period in Gulf - long terms prospects uncertain Climate unknowns pose threat to sustainability Dependent on distributors in just two markets Commodity demand: price highly sensitive to supply Threat of substitutes: Alaska/other crab species Structured for short seasons: biology/fleet/economics Poor handling practices, gluts and poor quality Fleet viability an issue in some areas Structured to under-perform: capacity/competition Limited ability to influence harvest rate & quality Fragmented. Pressure to sell. Little scope to market Gardner Pinfold 39
Crab options: measures to enhance value Resource Markets Harvest Processing Improve scientific knowledge about the resource Resist pressure to increase exploitation rates & TACs Consider certification for eco-label Diversify into new market areas, eg, Europe Promote alternatives to commodity consumption Use consolidated/coordinated marketing approach Consider regional branding Stretch season to biological limits using price Invest in quality: vessels/holding and education Eliminate/limit financial support to industry Promote quality ethic and price/quality relationship Assess merits of ISO 14000 certification Gardner Pinfold 40
Shrimp issues: market awash in shrimp Resource Markets Harvest Processing Stocks stable with some uncertainty Stocks benefit from ecosystem change Concentrated market dependence (C&P/Shell-on) Supply consistently running ahead of demand Price weakness will continue/ product characteristics Quality: many vessels not designed for shrimp fishery Poor returns limit scope for fleet upgrading Overcapitalized/limited ability to influence harvest rate High inventory carrying costs - distress selling Weak financial position & limited scope for optimism Gardner Pinfold 41
Shrimp options: measures to enhance value Resource Markets Harvest Processing Improve scientific knowledge about the resource Resist pressure to increase exploitation rates & TACs MSC/eco-label important for EU market Target new market areas, eg, S. Europe/US/Far East Continue action to eliminate EU tariff Develop consolidated marketing/ regional branding Extend season to practical limits Restructure fleet with fewer vessels, better technology Eliminate/limit financial support to industry Cut capacity from sector, promote 8-month season Promote product/market development Gardner Pinfold 42
Lobster issues: Highly competitive industry Resource Markets Harvest Processing/ shipping Overall abundance stable or declining slightly High exploitation rate in most areas a concern Unknowns pose threat to sustainability Dependent on one major market - U.S. Price sensitive to supply/state of economy Rising concern from animal rights activists Structured for short seasons: fleet/economics Good handling practices but highly peaked supply Strong competition means high shore price Generates low margins: capacity/competition Relies heavily on imports of U.S. lobster Need product development in processed sector Gardner Pinfold 43
Lobster options measures to enhance value Resource Markets Harvest Processing Improve scientific knowledge about the resource Reduce harvesting pressure/exploitation rate Introduce increased minimum legal size/eco-label? Diversify into new market areas: EU & Far East Develop consolidated marketing approach Market the environment & and optimal quality Ensure vessels have best holding methods Extend fishery over the season Remove any obstacles to competition at port market Eliminate/limit financial support to industry Ensure adequate holding capacity to time the market Promote product/market development Gardner Pinfold 44
Topics Industry overview Global supply and demand Resource status Crab & shrimp harvest Production and markets Issues and options Sector performance Gardner Pinfold 45
Crab short-term prospects Relatively stable harvest level for near term contributes to price strength Short season & glut/quality issues could be worse in 2007 as harvesters try to recover from two bad years Market outlook promising for 2007, full recovery may be held back by weak US economy Processors continue to be caught between supply-driven harvest and commodity-led demand Need to find a way to reduce cash flow pressures to allow focus on product and market development Gardner Pinfold 46
Shrimp short-term prospects Limited prospects for price recovery in near term unless supply drops or markets expand Weak harvesting and processing returns unless costs are reduced & marketing enhanced Improvement in quality/yield tied to more appropriate harvesting technology - difficult to achieve given low prices & poor returns Improved returns tied to more disciplined marketing approach and market development in US, Far East and Europe Need to focus on optimizing industry structure/capacity to restore financial health to tackle marketing issues Gardner Pinfold 47
Lobster: short-term prospects Decline in supply puts upward pressure on price Weakening U.S. economy puts downward pressure on price - key factor for 2007 Processing sector relies heavily on U.S. landings, keeps upward pressure on price in live market Expect stable to lower U.S. prices, with some further weakening of U.S. dollar. Need to continue optimizing industry structure/capacity to restore financial health to tackle marketing issues Gardner Pinfold 48
Challenges Getting the structure right: optimal harvesting and processing structure with a common aim of producing high quality products to diversified markets Improving the terms of trade: a more coordinated approach to limit the increasing market power of distributors Getting to the right market: product & market development to reduce exposure to commodity conditions Establishing the brand: healthy products/ clean environment/ sustainable harvesting practices Gardner Pinfold 49