First published in the MLA newsletter, January, 2011.
A report commissioned by the newly formed Lobster Council of Canada and released in November concludes that Atlantic Canada lobstermen and processors should radically revise how they market their product if they hope to improve the price paid for lobster. “This is the first major marketing study of the overall lobster industry in Canada that has analyzed how the structure impacts the financial returns to all partners in the value chain,” Geoff Irvine, executive director of the council, said in an e-mail message.
The report, prepared by Gardner Pinfold, Consulting Economists Ltd., noted in its executive summary that the global recession coupled with the rise in the value of the Canadian dollar against the U.S. dollar has had a negative impact on the lobster industry. However, the report goes on to say that the “issues affecting the industry are both broader and deeper than this. … These issues may be summed up in two words: marketability and marketing. One cannot successfully or sustainably exist independently of the other. Currently, they represent areas of weakness.”
The reasons for this weakness will sound remarkably familiar to those who have studied the Moseley report, released by Governor Baldacci’s task force on the Economic Sustainability of the Maine Lobster Industry in April, 2009. The Canadian report states that the Atlantic Canada lobster industry “is highly fragmented, with thousands of vessels trying to maximize their share of the resource and competing for buyers, and hundreds of shippers and processors trying to secure raw materials and then often engaging in destructive competition in product markets. The industry presents a disorganized and weak face to large and powerful customers. Both factors contribute to lower prices. In short, this billion-dollar industry is structured to under-perform.”
The report is full of revealing facts about the Atlantic Canada lobster industry. For instance, Canada supplies fully one-third of the 170,000 metric tons [375 million pounds] of lobster sold globally each year. It exports its lobsters to 55 countries with exports to the United States accounting for 80% of that total. The shift in the exchange rate between Canada and the United States resulted in the Canadian lobster industry losing 35 to 40% of its revenues on U.S. sales by 2006 when compared to 2000. This decline occurred despite the fact that lobster landings in the U.S. and Canada have increased by 25% since 2003.
To get more money for the product, harvesters and processors must develop a new relationship with each other, argues the report’s authors. “The harvesting and shipping/processing sectors do not work in collaboration to maximize the value of the resource…. The relationship is characterized by a lack of trust by harvesters and the widespread belief that shippers and processors collude to fix prices.” The processors themselves undercut each other to gain large customers, leading to price instability.
Improving lobster marketability is key to increasing the product’s value, the report states. To do that, the authors suggest tackling four main issues: supply, pricing, quality and industry structure. “The supply objective is increased control over the flow of supply to support price stability in the short run and rising prices in the long run. Greater control also reduces cost-intensive gluts. This is a focus on managing for supply consistency based on disciplined cooperation and smart competition.” How do you limit supply? Reduce the number of traps in the water and the number of times they can be pulled.
To improve quality, the industry should develop graded product and uniform handling practices to ensure a consistently good product. The price objective is to increase shore and market prices within a “sustainable and reasonable” range. To boost demand will require developing lobster products priced for three specific segments of the market.
Another recommendation suggests that the Atlantic Canada lobster industry should begin to work hard on developing its brand. “Canada is a dominant supplier in the U.S., and yet must deal with low recognition because most consumers believe all lobster is from Maine. In addition, the industry is aware of the need to decrease its reliance on the U.S. by diversifying its market portfolio.”
Irvine said that Council members are setting up two working groups to review the report’s recommendations. “I would expect pilot projects would be our way forward, focusing on some of the marketing (branding, generic marketing, regional specific efforts) and marketability (quality grading, shore price setting) issues raised in the study,” he said.
Thus far, he added, response to the report has been mostly positive from both the harvesters and processors. “Nobody is happy with the shore price model we currently use to set prices to the harvesters and very few are happy with the returns they are receiving for their efforts in this industry so there is an overwhelming interest to try to work more cooperatively for the good of all,” Irvine said.
He acknowledged that making real change in the traditional sales structure for Atlantic lobster will be difficult. “But I believe the time is right to move forward on some of these recommendations and time will tell if the industry has the will to make it happen. With the Lobster Council in place and a duly represented forum in place for debate the internal capacity is there to build consensus and make recommendations to governments and regulatory bodies and that is what we intend to do.”
The recommendations of the report will be challenging to implement. Before the start of this season, Canadian lobstermen considered taking Sunday’s off as a way to slow supply into the market. Though a majority of lobstermen supported this recommendation, the vote resulting in less than the 60% strong majority industry leaders decided was necessary to implement this recommendation.