Guest Column: Lobster outlook positive, consolidation taking place

First published in Landings, June, 2015.

John Sackton is the publisher of SeafoodNews.com. Photo courtesy of J. Sackton.

John Sackton is the publisher of SeafoodNews.com. Photo courtesy of J. Sackton.

The multi-year high points of lobster landings are continuing both in Maine and Canada. Maine lobster landings were 123.6 million pounds in 2014, making this the first time in more than 100 years of records that landings have exceeded 100 million pounds four years in a row.

Canada

Canada’s landings will be about 185 million pounds for 2015, probably a record. Landings for southwestern Nova Scotia (Lobster Fishing Areas 33 and 34 from Halifax to Yarmouth and the Bay of Fundy) were the highest in over 200 years of record keeping. About 13 million pounds were landed on the south coast of Nova Scotia, and 55 million pounds in the winter fishery in LFA 34 (Yarmouth) from November to May.

Meanwhile, the May and June season in the Gulf of St. Lawrence was delayed by 11 days due to heavy ice in local harbors, but fishing has now started. Canner prices in PEI were around $4.25/pound ($CA), with markets at $4.75 CA.

The most important thing to happen in lobster markets this month was the lack of heavy landings in Canada prior to Mother’s Day. Traditionally this holiday kicks off the Canadian sales season for live lobster but this year the fishery was too late. As a result, many packers are having to find additional customers for the lobsters that they otherwise would have sold on Mother’s Day.

Because prices were very high over the spring, there was not much inventory. But since May 12th, prices have been dropping like a rock. This is a normal seasonal adjustment, perhaps accelerated by the lack of sales on Mother’s Day.

Maine

So what is the outlook in Maine? One of the biggest changes in recent years has been the growth of lobster processing in Maine. This has attracted a lot of deep-pocketed companies, like Mazzetta, the largest shrimp importer in the U.S.; Chicken of the Sea, owned by Thai Union, which has taken over Orion; and Harbor Seafood. They are competing with established Maine companies like East Coast/ Paturel.

This increase in processing capacity will force processors to bid for lobster supply and will help stabilize the price.

Despite the overwhelming presence of the lobster industry in Maine, in the global seafood market North American lobster has been a niche player until recently. The sale of Orion marks a turning point in the industry, because it shows that lobster is becoming more of a mainstream seafood product rather than a niche product.

Most Maine lobsters were sold to the tourist trade, and most Canadian frozen lobsters were sold to Darden Restaurants, Las Vegas casinos and other big North American buyers.

This changed after the financial crisis of 2009. With the financial collapse, the lobster market also collapsed. That led to a period of extremely low prices that ended up attracting a number of new users and buyers to lobster. Many restaurants that never would have thought of using lobster began to do so. Over time, this expansion of the market helped to correct the price, and prices began moving up again.

Asia

At the same time, the Australian spiny lobster fishery, which had been the key supplier of lobsters to China, suffered a big drop in production. It sent the Chinese looking for new sources, and they began buying North American lobster.

At first it was a hard sell. The Chinese prize lobster as a “dragon prawn” as the dragon is the most prestigious creature in Chinese culture. But North American lobster had claws, unlike spiny lobster. And the Chinese did not know what to do with them. Instead of reminding them of a dragon, the North American lobster reminded them of a crab. This led to it being sold at a lower price than spiny lobster, which still persists today.

But just as the low prices in 2009-2010 expanded the U.S. market, the lower prices in China drastically expanded the Chinese market. In 2014, for the first time, the total legal imports of North American lobster surpassed those of spiny lobster in China.

In terms of grey market imports [the shadowy smuggling trade prominent in Asia], things are booming. Canadians and some U.S. companies are shipping huge quantities of lobster to Vietnam, where it is then carried across the border into China. For example, from January to March of this year, the U.S. exported 2.8 million pounds of lobster to China and Vietnam versus 1.48 million pounds for the same period in 2014. But the share going through Vietnam increased to 35% this year, from about 5% last year. Lobsters brought from Vietnam to China don’t have to have duties paid on them.

China’s appetite for lobster appears here to stay. The crackdown on luxury spending by government officials has hurt sales of Australian lobster, but supported sales of North American lobster. Furthermore, the prices are such that many ordinary Chinese restaurants now serve lobster.

In short, prices this summer will likely come down to normal levels, possibly a little higher than last year unless there is some hiccup in landings. But the market has expanded to take care of the record high landings, and this bodes well for the future, both this year and in the next five years as well.