Alaska Salmon Value Chain
This bulletin examines the value chain of Alaska salmon as it is caught, processed, shipped, and sold to consumers. We also provide a comparison of total ex-vessel value and first wholesale value. These analyses are intended to offer perspective on the role of the various sectors that participate in getting Alaska salmon from 'boat to throat'. While the harvesting sector typically receives most of the attention and mainstream press coverage, it is just one of four important sectors involved in getting Alaska salmon to the end consumer.
We used public data available on ex-vessel and first wholesale values, plus anecdotal and private-research information for this analysis.
Commercial fishermen and salmon packers in the modern era of Alaska's salmon fishery (post-statehood) have a symbiotic relationship that has existed for over 50 years. The world has changed drastically during that time, but one constant has been the often-lively debate over grounds price versus wholesale price. Regardless of the history between the two stakeholders, each group must earn a sustainable level of profit for the other to remain in business.
Fishermen and processors are understandably secretive about their profits and no public data exists to identify the profit earned by individuals, private companies, or the industry as a whole. However, the State of Alaska does track the ex-vessel value and the first wholesale value of salmon products. This data is reported to the public by the Alaska Department of Fish and Game and by the Alaska Department of Revenue. Ex-vessel and first wholesale data are equivalent to revenue or total sales figures. These data are instructive, but do not account for the widely variable costs faced by fishermen and processors and thus should not be viewed as pure profit.
This bulletin is intended to illuminate the sectors' respective roles in the value chain and of necessity, is quite broad in scope. Data presented here generally applies to statewide averages or common products and where fishery-specific examples are used, fisheries are large-volume or have a large number of permit holders. Furthermore, statewide averages may not apply to all regions due to differences in volume, operating costs, and marketability. Finally, statutes that govern fishermen and processors in Alaska allow for competition and market-based prices.
Examples of Alaska Salmon Value Chain
This section contains examples of three value chains for three different Alaska salmon products. The first example, troll-caught Chinook salmon, represents a situation where fishermen receive a large share of the retail value (offset by trollers' low production volume).
The second example, frozen Bristol Bay sockeye fillets, represents an average scenario where fishermen receive 40 to 50 percent of the first wholesale value. The third example, tall canned pink salmon, represents a situation where fishermen receive a smaller share of the retail value (offset by seiners' high production volume).
Ex-vessel and first wholesale prices in the following examples are based on 2011 data collected by the Alaska Department of Fish and Game and by the Alaska Department of Revenue. In some cases ex-vessel or first wholesale prices have been adjusted slightly to reflect differences in product or gear type, where information specific to that situation was not available. Current retail prices may or may not be different than those shown in the examples, but this information is intended to apply to product caught during the 2011 season.
Distributors ship, store, sell, and occassionally process fish before selling it to retailers or restaurants. Sometimes these are independent companies and sometimes the processor or retailer maintains their own distribution business. Regardless of whether salmon are sold directly from a processor to a retailer or whether they are sold to distributors, all salmon products incur distribution costs. Distributor mark-ups can range from pennies per pound to over a dollar per pound, depending on the product. Distributor mark-ups have been estimated based on anecdotal and company-reported information about prices, storage costs, and shipping fees exists.
Retail prices have been estimated by SMIS staff based on observations about actual retail prices, some point-of-sale data, advertised sale prices, and assumptions made about waste and shrinkage.
Troll-caught Southeast Chinook Salmon
Based on available data from the 2011 season, trollers received roughly 35 to 45 percent of the total retail value of troll-caught Chinook salmon sold in grocery stores in the domestic market. This product represents the higher end, in terms of value retained by Alaska fishermen. However, it makes sense within the context of the troll fishery. The troll fishery is low-volume and boats perform primary processing by dressing fish on-board. Often a troll-caught Chinook will not be cut again until it reaches the retail level, and even then some are sold to consumers as whole fish.
A reader may be thinking, how can fishermen get 40 percent of the total retail value if a dressed Chinook gets sold to a processor for $4.60/lb and those fillets sell for $32/lb in a high-end retail store (here the fishermen retains only 14 percent)?
There are several answers. While some Chinook fillets sell for $32/lb at the extreme high end of the spectrum, most fish are sold in venues that would price a similar fish at $20/lb to $25/lb. All unsold fresh fish is eventually marked down, and this decreases the average price further. In addition, fillets must also be trimmed, some may be damaged or unmarketable, and all stores factor in some level of shrinkage. But the biggest reason for the difference is simple mechanics. One pound of dressed Chinook delivered to a processor only yields about 10 ounces or (0.6 lbs) of fillets. The retailer or secondary processor often buys the dressed fish but only sells the fillets, so of course they have to mark up the price of fillets to cover the parts of the fish they paid for but cannot sell.
In the end, one average pound of dressed Chinook salmon sold to a processor for $4.60 is equivalent to 0.63 pounds of fillets worth $11.50 at the retail level ($18.25 average retail price * 0.63 recovery rate). So based on the assumptions in this example, the fishermen received 40 percent of retail for their part in the value chain. This is more gross revenue than the processor and distributor combined, and even more than the retailer.
Bristol Bay Sockeye Fillets
Based on available data from the 2011 season, a Bristol Bay gillnetter delivering chilled sockeye to a processor for fillet production probably grossed around 29 percent of the final retail value and about 45 percent of the first wholesale value. The processor takes a larger share in this example because they are adding more value and committing more capital. In addition to tendering, freezing, marketing, and shipping the salmon, they are also dressing and then filleting the fish. Filleting adds costs at the plant for the processor, but saves on freight costs and allows the processor to sell to a wider range of markets (because not all buyers are interested in buying whole, H&G fish).
Sockeye fillets often sell for $10/lb or more in a retail setting; however, they also can be found on special for $5.99/lb to $8.99/lb. Factoring in waste and shrinkage, the average 2011 retail price is estimated to be in the $8.00 to $9.00 range.
On average, processors can recover 53 pounds of skin-on fillets for every 100 pounds of round-weight salmon purchased from fishermen. Therefore, a typical 6.5 pound sockeye sold to a processor for $8.45 generates 3.45 pounds of skin-on fillets, worth an estimated $29.33 in retail value.
Tall Canned Pink Salmon
Based on available data from the 2011 season, a seiner delivering pink salmon to a processor for canned production probably grossed around 23 percent of the final retail value. Canned salmon uses raw product from high-volume fisheries with a lower average unit cost. For this reason, fishermen who sell to a processor for canning will probably retain a lower percentage of the total retail value but make up for lower prices (relative to other salmon species) by catching more fish.
For seiners, it is critically important to work with a processor that has the logistical capability to handle very large volumes of fish. Seiners and their processors work in the context of a high level of risk (and potential reward) associated with owning and mobilizing the large-scale harvest and production assets needed to make the most of a strong salmon return.
Compared to fishermen, processors generally receive a relatively higher share of the value because producing canned salmon is very capital intensive. As these examples show, when one segment adds more value, they generally take a bigger piece of the pie. Distributors' margins are lower for canned salmon due to higher volumes and the fact that it is a shelf-stable product. Retailers tallied average net sales of $0.99 per can in our example. However, canned salmon prices vary widely from store to store, brand to brand, and region to region.
On average, processors can turn 100 pounds of pink salmon into roughly 70 cans of pink salmon (tall-sized, 14.75oz). Therefore, if we assume the average retail value of a tall can of pink salmon is $2.90 and one pound of pink salmon sells to processor for $0.47/lb, then one pound of round-weight pink salmon is worth $2.03/lb at the retail level.
The example shown represents a simplified version of the canned salmon value chain, but the actual supply chain is more diverse. Canned salmon is sold under many different brands. Sometimes it is sold to a separate wholesale company who uses their own brand. Some processors may market product under their own brand, or a retailer may arrange product to be part of their "private label" stock. Therefore, the line between wholesaler, distributor, and retailer can be less structured than the example would suggest. The example shown, represents product canned/labeled by a processor, sold to a distributor, and then sold to a retailer.
Comparing Revenue of Fishermen and Processors
ASMI's Seafood Market Information Service team recently dissected public data from the Alaska Department of Fish and Game and the Alaska Department of Revenue to analyze the distribution of first wholesale value between processors and fishermen. When processors sells a processed product, their cost of raw product (paid to fishermen) is included in the price. This section examines the percentage of first wholesale value retained by fishermen and the percentage retained by processors (less payments to fishermen).
Our key findings are as follows:
- Between 2008 and 2011, Alaska salmon fishermen received an average 43 percent of the total first wholesale value of Alaska salmon. Processors received an average 57 percent of that value, after accounting for ex-vessel payments to fishermen.
- Fishermen generally received a higher share of the wholesale value in 2010 and 2011, 44.8 percent and 46.5 percent respectively.
- The annual first wholesale value of Alaska salmon increased by $574 million, from $843 million to $1.42 billion, between 2005 and 2011. Durng this time period, the share paid to fishermen increased by $326 million while the share retained by processors increased by $249 million. Therefore, these data suggest that as prices for Alaska salmon have increased, commercial fishermen have received a higher percentage of the increasing value.
Given the cost structure of the processing sector, this finding is not surprising. Salmon processors have a certain level of fixed costs which they must exceed each year in order to turn a profit. With higher total first wholesale values (generated in recent years), processors have more revenue to spend on fish supply and therefore are able to offer more competitive prices (especially in fisheries with larger volumes). Having enough supply to cover fixed costs is a crucial element in ex-vessel pricing strategies.
- Fishermen receive different shares of first wholesale value, depending on the species being harvested and on the gear type used. For Chinook, fishermen retained an average 73 percent of the first wholesale value while fishermen selling pink salmon retained an average of 34 percent between 2008 and 2011. Most Chinook are caught by trollers while most pink salmon are caught by seiners. Given the differences outlined in the examples above, this finding is not surprising. Fishermen selling sockeye, chum, and coho salmon received 45 to 49 percent of the first wholesale value during the same time period.
About the data
Processors submit data to the State of Alaska regarding the wholesale value of salmon as it leaves the state. Meanwhile, the gross earnings of fishermen are tracked via fish tickets. Even if every fish ticket does not have price on it, ADF&G is able to use those that do contain prices to get an average price for each fishery. In addition, processors submit a confidential "Commercial Operators Annual Report" each year to ADF&G. This report contains information on the ex-vessel and first wholesale value of all fish bought and sold by the processor within a calendar year. Data on individual processors is confidential but data for an entire region or species is typically not confidential.