Projections of Future Bristol Bay Salmon Prices
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Projections of Future Bristol Bay Salmon Prices by Gunnar Knapp Professor of Economics Institute of Social and Economic Research University of Alaska Anchorage 3211 Providence Drive Anchorage, Alaska 99508 907-786-7717 (telephone) 907-786-7739 (fax) [email protected] (email) Prepared for the Commercial Fisheries Entry Commission October 2004 This study is posted on the internet at www.iser.uaa.alaska.edu/iser/people/knapp and at www.cfec.state.ak.us. Projections of Future Bristol Bay Salmon Prices By Gunnar Knapp Professor of Economics Institute of Social and Economic Research University of Alaska Anchorage October 2004 EXECUTIVE SUMMARY The Commercial Fisheries Entry Commission (CFEC) requested this study for help in forecasting future ex-vessel prices of Bristol Bay sockeye salmon. CFEC plans to use the forecasts in analyzing the “optimum number” of limited entry permits in the Bristol Bay drift gillnet salmon fishery. The study describes markets for Bristol Bay sockeye salmon products and how market conditions affect ex-vessel prices. The study develops an equation for forecasting future sockeye salmon ex-vessel prices based on assumptions about future Bristol Bay harvests and future farmed salmon wholesale prices. This equation is used to forecast a range within which future sockeye salmon ex-vessel prices are likely to fall. EX-VESSEL PRICE TRENDS Average Ex-Vessel Price of Bristol Bay Sockeye Salmon $3.50 Ex-vessel prices for Bristol Bay sockeye $3.00 "Real price" salmon have (adjusted for inflation, expressed in 2003 dollars fluctuated widely $2.50 over the past three decades. “Real” $2.00 prices (adjusted for $/lb inflation) have $1.50 declined $1.00 significantly. Since 2000, prices have $0.50 averaged only about "Nominal price" (not adjusted for inflation) one-third the $0.00 average price level 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 of the 1980s. This study is posted on the internet at www.iser.uaa.alaska.edu/iser/people/knapp and at www.cfec.state.ak.us. Projections of Future Bristol Bay Salmon Prices, Executive Summary, page 1 BRISTOL BAY SALMON HARVESTS Bristol Bay sockeye Bristol Bay Salmon Harvests salmon harvests increased from depressed levels of 300.0 less than 50 million pounds 250.0 in the mid-1970s to more than 150 million pounds 200.0 annually for the years 150.0 All other 1989-1996. Since 1997, species sockeye salmon harvests Sockeye millions of pounds of millions have averaged much lower, 100.0 with harvests of less than 140 million pounds in 50.0 every year since 1997 except for 2004, and less 0.0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 than 75 million pounds in Source: Commercial Fisheries Entry Commission; ADFG. 1997, 1998 and 2002. BRISTOL BAY SHARE OF WORLD SALMON SUPPLY In 1980, total world salmon supply was less than 550 thousand tons, of which 98% was wild. By 2001 world supply had more than quadrupled to more than 2.2 million tons, 62% of which was farmed. World Salmon and Trout Supply In 1980, Bristol Bay 2,500,000 salmon accounted for 13% of world salmon supply, and the 2,000,000 Bristol Bay catch was a significant factor 1,500,000 Farmed trout affecting world Farmed salmon Other wild salmon salmon prices. By Other Alaska salmon metric tons metric 1,000,000 Bristol Bay wild salmon 2001, Bristol Bay accounted for only 2% of world salmon 500,000 supply, and Bristol Bay catch was a far 0 less important factor 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Note: "Other wild salmon" includes Lower 48, Canada, Russia & Japan. affecting world salmon prices. Projections of Future Bristol Bay Salmon Prices, Executive Summary, page 2 VALUE OF BRISTOL BAY SALMON HARVESTS The combined effect of a decline Average Ex-Vessel Value of Bristol Bay Salmon Harvests (all species) in prices and a decline in 350.0 "Real ex-vessel value" harvests has been a dramatic (adjusted for inflation, expressed in 2003 dollars 300.0 decline in the ex-vessel value of the Bristol Bay salmon fishery. 250.0 In twelve of the seventeen years 200.0 between 1979 and 1995, the real $/lb ex-vessel value of the Bristol 150.0 Bay salmon harvest exceeded 100.0 $200 million. During seven of "Nominal ex-vessel value" the eight years between 1997 and 50.0 (not adjusted for inflation) 2004, the real ex-vessel value of 0.0 the Bristol Bay harvest was less 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 than $80 million. BRISTOL BAY SALMON PRODUCTS AND MARKETS Almost all Bristol Bay sockeye salmon is processed into frozen or canned salmon. Very little is sold fresh. The relative share of canned production has increased in recent years. The combined result of lower harvests and a lower frozen share of production has been a dramatic decrease in frozen salmon production. Frozen and Canned Sockeye Salmon Production in Bristol Bay Most Bristol Bay frozen sockeye 160.0 salmon is exported to 140.0 Japan. Most Bristol Bay canned salmon is 120.0 exported to the 100.0 United Kingdom, Frozen 80.0 Canada and other Canned markets. Relatively millions of pounds millions 60.0 little Bristol Bay 40.0 sockeye salmon is consumed in the 20.0 United States 0.0 domestic market. 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: Commercial Operator Annual Report data. Excludes production from fish tendered out of Bristol Bay. FROZEN SOCKEYE SALMON MARKET The Japanese frozen salmon market is the most important market for Bristol Bay sockeye salmon. In the Japanese market, wild sockeye salmon competes directly with farmed coho salmon and farmed trout. The Japanese consider these species to be “red-fleshed” salmon. Projections of Future Bristol Bay Salmon Prices, Executive Summary, page 3 During the 1990s, Japanese imports of farmed Chilean coho and farmed Chilean and Norwegian trout grew rapidly, while imports of wild sockeye declined. As a result, the share of frozen sockeye in Japanese red-fleshed salmon imports declined from 77% in 1992 to just 21% in 2001. Japan imports sockeye salmon from Bristol Bay, Japanese "Red-Fleshed" Salmon Imports, May-April other parts of Alaska, 250000 Canada and Russia. Japanese imports of 200000 sockeye salmon from Bristol Bay and other parts All frozen Pacific salmon 150000 Frozen trout fillets of Alaska declined Frozen trout (excl. fillets) dramatically after 1995, Frozen coho metric tons metric Frozen sockeye while imports of sockeye 100000 from Russia increased. The Bristol Bay share of 50000 Japanese sockeye salmon imports fell from 59% in 0 1995 to only 27% in 2003. This, together with 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 increasing farmed salmon imports, caused the share of Bristol Bay sockeye in total red-fleshed salmon imports to fall from 33% in 1995 to only 6% in 2003. Japanese wholesale prices for sockeye salmon ranged between 1100 and 1500 yen/kilogram for most of the 1980s. In the 1990s, prices fell to much lower levels, and have been below 600 yen per kilogram for most of the past three years. Japanese Wholesale Price of Frozen Bristol Bay Sockeye Salmon (yen/kilo) Historically, Japanese 2000 wholesale prices have 1800 cycled over periods of 1-3 years. A major 1600 factor contributing to 1400 these price cycles has 1200 been variations in wild 1000 salmon harvests. yen/kilogram 800 Sockeye wholesale 600 prices have often risen 400 or fallen sharply in July, 200 when the total wild 0 sockeye harvest first becomes apparent. Jul-80 Jul-81 Jul-82 Jul-83 Jul-84 Jul-85 Jul-86 Jul-87 Jul-88 Jul-89 Jul-90 Jul-91 Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Projections of Future Bristol Bay Salmon Prices, Executive Summary, page 4 Historically there has Japanese Total "Red-Fleshed" Salmon Imports and Sockeye Wholesale Prices been an inverse relationship between total Total imports, May-April Average sockeye price, May-April Japanese imports of 250,000 1800 frozen “red-fleshed” 1600 200,000 salmon and average 1400 annual sockeye wholesale 1200 150,000 prices received by 1000 importers. Prices have 800 generally fallen when 100,000 Imports (metric tons) total imports have risen, 600 400 (yen/kilo) price wholesale Average and vice versa, resulting 50,000 in a “mirror-image” 200 relationship between total 0 0 imports and average annual sockeye prices. 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 The Japanese wholesale price received by importers determines what importers are willing (and able) to pay processors for frozen sockeye salmon in yen. The exchange rate between the yen and the dollar, in turn, determines how these yen prices convert to prices importers are willing (and able) to pay processors for frozen sockeye salmon in dollars.