Gutted and skinned

Another crisis in fishing rears its head. Is filleting the processing industry the answer? Ocean Choice International CEO Martin Sullivan contends there may not be a choice.

It’s been called the worst crisis to hit the fishing industry since the cod moratorium of the 1980s. Immediately following the provincial election last October, newly re-elected Newfoundland and Labrador Premier Kathy Dunderdale said: “We have overcapacity. We have structural problems in the fishery. Everybody is more than aware and has been for a very long time what the issues are.”

Simply put, too many people are chasing too few fish. But, of course, putting it simply doesn’t really address what is actually a complex issue. Because it’s not just about catching fish. The other half of the equation concerns what happens after the fish have been caught.

Since December 2011 seven fish processing plants in the province have toppled like dominoes, bringing real hardship to the communities of Black Tickle, Jackson’s Arm, Little Bay Islands, St. Bride’s, St. Lewis, Marystown and Port Union. Another plant is scheduled to close in Burin in December 2012 and the future of a shuttered plant in La Scie is uncertain, though the worst is expected. Provincial Minister of Fisheries and Aquaculture Darin King has gone on record as saying he believes Newfoundland and Labrador could see as many as 20 per cent of its fish processing plants close over the next five years.

The plants in Marystown and Port Union are owned by Ocean Choice International (OCI). OCI was formed in 2000 and started with a crab processing plant in St. Lawrence. Since then it has steadily grown through one acquisition after another. It doubled in size when it acquired the sales and licences of Fishery Products International in 2007 in a $158-million asset sale. The Marystown and Port Union plants, previously owned by Fishery Products International, were part of that transaction. OCI is now one of the largest seafood quota holders in the country with $250 million in sales of 100 million pounds of a large variety of seafood species per year. The company markets to 35 countries around the world.

An external audit found that the Marystown plant has lost $10 million over the last three years, making it completely unsustainable. The plant in Port Union was badly damaged by Hurricane Igor in 2010 and has been closed ever since because of a double whammy of high repair costs and declining shrimp quotas (a 40 per cent reduction since 2008), which would result in the plant operating for so few weeks a year that repairing and re-opening it wouldn’t be viable. Before they were closed, the Marystown plant employed 240 people seasonally and the Port Union plant, the small town’s only industry, employed 170 people.

The closings were particularly contentious. In January, OCI successfully sought a court injunction against workers who were blocking access to the Marystown plant and later in the month police were called in to deal with the volatile situation. During the same period, OCI hired replacement workers to crew the Newfoundland Lynx after unionized crewmembers were locked out in a labour dispute, leading to harsh confrontations between the workers and the company before the clash was settled. It’s kept OCI in the public eye for months as the controversies play out.

To OCI CEO Martin Sullivan, the problems the company and the workers face can be squarely attributed to a disjunction between a traditional way of operating and radically changed market conditions. While union representatives contend that the problem is that OCI is attempting to outsource fish processing overseas, Sullivan argues that the processing itself is the problem, no matter where it’s done. If the industry is to remain viable, changes have to be made.

Only 10 per cent of OCI’s product is sold in Canada. In fact, while the North American market remains stable, the percentage sold here has changed dramatically. Sullivan says that whereas 70 to 80 per cent of fish was exported to the United States in the 1980s when cod was king, last year that country only accounted for 25 per cent of their sales. And back in the ‘eighties, China wasn’t even on the marketing radar. Now that country accounts for 20 per cent of OCI’s market, a number that is expected to rise for the foreseeable future. More wealth is being generated in Asia, which now accounts for 35 per cent of OCI’s sales, and people there are increasingly able to afford expensive food. While China produces a lot of seafood there’s still plenty of room in the market for outside suppliers. Chinese seafood imports increased from $3.9 million U.S. in 2009 to $5 million U.S. in 2010. A recent report suggested that Chinese seafood consumption will climb from its current average of 12 kilograms per person to 36 kilograms per person by 2020. At the same time domestic seafood production is expected to decline due to overfishing and alternate use of coastal areas. All that adds up to opportunity and, as Sullivan points out, they have an obligation as a company to chase the best markets.

However, what the Asian market looks for in a product is materially different from what we’ve become accustomed to in North America. While the Canadian and American market is mainly interested in fillets and processed fish, China demands something else.

“In Asia, fish is sold as a whole fish,” explains Sullivan. “It shows the fish is fresh and of good quality. They’re very quality conscious and they’re willing to pay good money. They’re out-competing the rest of the market.”

And that’s one of the reasons plants are closing. As witnessed by the Marystown numbers, the company cannot make money selling processed redfish because any gains are offset by high gas prices and the high value of the Canadian dollar.

Sullivan believes the only viable alternative is to move into a year-round fishing industry rather than a seasonal one. A lot of processing will still be done on land, but plants will no longer process one species and then close when the season ends. They will simply move on to a different species or continue to process species that are harvested year round. More work will be done at sea as fish are processed on board as soon as they’re caught.

This is another bone of contention with labour leaders who see it as taking work away from land-based processing plants, but Sullivan insists, “What’s done on the vessel is what’s done on land. The labour is the same whether on land or at sea.”

The reality of the labour force also factors into the need for a new way of doing things. In the old model a typical worker would put in 500 to 600 hours in the plant, earning somewhere around $8,000 and then collecting about $15,000 in employment insurance benefits. It was never a lot of money and now it’s simply not enough.

“It’s a real demographic problem,” says Sullivan. “There are no young people coming into the plant because they don’t want work that’s part-time and seasonal.”

In one of their plants in Prince Edward Island, outside workers were brought in because they couldn’t get seasonal local workers. Multi-species processing plants and at-sea processing would alleviate the problem of finding seasonal, temporary workers. Multi-species processing plants would also result in better incomes.

“We need competitive wages to draw people into the industry,” says Sullivan.

In December 2011, OCI tried to strike a deal with the provincial government to export 75 per cent of its yellowtail f lounder catch without landing it for processing. In return the company would process the remainder of its quota, seven million pounds, at their plant in Fortune, doubling the workforce there to 110 and making operations year round. Amid outcries that OCI was simply trying to find a way to outsource processing overseas, the government turned them down and now the future of the Fortune plant is on hold. Meanwhile Sullivan says they’re forced to leave too many fish in the water and if they don’t fish their quotas someone else can come in and do so under the UN Convention on the Law of the Sea.

“It’s not all bad news,” Sullivan nonetheless insists. “Prices are strong around the world. Demand is increasing faster than supply and we expect that to continue because there’s only a finite number of fish. Shrimp and crab fishermen are doing well. But the industry is too seasonal on fishing and processing. Where we can get year-round fish, we should. We need to adjust to the new reality.”

Adjusting to that new reality also means pursuing sustainable practices, another thing their markets are increasingly insisting on. Even WalMart has announced that within two years all the seafood it sells must come from certified sources. Two thirds of OCI’s products are now certified as sustainable by the Marine Stewardship Council in the UK. Their goal is 85 to 90 per cent.

Sullivan sums up the position of his family-run business in simple terms. “We’re based in Newfoundland and selling around the world and creating good value. We grew up here. We plan to die here. But we do have challenges.”

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