« September 2012 Table of Contents
Top Species: Lobster
Ample North American supply keeps prices low, concerns high
By Joanne Friedrick
September 01, 2012
The 2012 season with its excess inventory and resulting low prices has been a reminder for the North American lobster industry that yes, you can have too much of a good thing.
As much as diners love lobster and relish an abundant supply, those who catch and distribute it are struggling to come to terms with this summer’s supply glut and what it means for their businesses.
The reason for this year’s banner catch goes back to last winter’s mild weather, says Tom Adams, president of Maine Coast, a seafood distributor in York, Maine. The higher-than-average temperatures kept the water warmer and influenced when lobsters began shedding their shells.
“Usually we don’t see shedders until July,” he says, but this year lobsters began molting in late May, about four to six weeks early.
Additionally, says Adams, mild temperatures influenced the Canadian catch, raising harvest numbers in late spring and contributing to the glut.
Prices fell as a result, with U.S. fisherman getting an average about $2.25 a pound, he says, though some claimed boat prices were as low as $1.70. Adams pays between $2.50 and $3 a pound, and then has to grade the catch to find what is shippable.
“We certainly have seen tremendous landings this season,” says Michael Tourkistas, president and CEO of East Coast Seafood in Lynn, Mass., which procures lobsters from Maine and Canada. “Matching the supply and demand issue is an inherent and long-standing challenge faced by all facets of the lobster industry. From boat to plate,” he says, “lobster remains a highly regarded and highly delicate operation to manage.”
One of the key issues with the glut of shedders, says Adams, is that these lobsters can’t be shipped long-distance because of their highly perishable nature, so they either are sent to processors in Maine or Canada, or are sold to retailers and restaurants to be consumed within New England.
Canada, U.S. face off
The fact that more Maine lobster has been heading to Canada’s processing plants has caused a backlash among Canadian fishermen, who before the start of their
summer season feared processors wouldn’t pay a fair price for their catch.
As a result, lobstermen in New Brunswick in early August set up blockades at processing plants, preventing trucks from bringing in U.S. lobster.
In the spring, says Geoff Irvine, executive director of the Lobster Council of Canada, processors were paying $4.50 to $5 (Canadian) a pound. But once the Maine softshells came onto the market they were paying just $2.50 to $3.
“The serious warming in the Gulf of Maine has brought lobsters to market earlier and in greater numbers,” says Irvine.
The blockades come from a “faction of harvesters in New Brunswick who are taking it out on Maine lobster,” says Irvine. “Everyone was happy through the end of June,” he says, but then the market became flooded with supply.
Both Maine and Canada have been addressing the issue, notes Irvine, but have taken slightly different approaches. He says Canada is more focused on addressing marketability issues, such as the quality of the catch, how prices are set and defining the brand.
Maine, he says, is concentrating more on promotion of lobster. And Adams, who recently attended a meeting put on by the Maine Department of Marine Resources that addressed the glut issue, says there is a push for a bigger, better marketing campaign.
“Marketing certainly helps,” says Adams, “but there’s only so much that can be sold in the spring. Processors can only take so much.”
Because of the issues with the protests in Canada, Adams has had to reconsider his own purchasing strategy. Typically, Maine Coast buys a boat run with about 50
percent being in shippable state, while the remainder goes to processing. “But I can’t buy a boat run without a home for the lesser-quality lobster,” he states.
Maine Coast processes about 2,000 pounds a day in-house, he says. That is small, however, compared with large-scale processors, most of which are now in Canada.
“Processing is a laborious process, and we don’t have a cheap labor force in the United States,” he says. Canada’s industry is partially subsidized by New Brunswick’s provincial government through aid for capital equipment purchases, which helps, notes Adams.
The processing sector has been under a lot of pressure, says Irvine, who adds it is hard to predict what will happen with meat and tail prices going forward. The hard-shell season shouldn’t be impacted, he says, nor should the soft-shell price issue carry over to Canada’s sales to the Far East and Europe.
“It’s a tough year for fishermen and dealers alike,” says Adams. Even though demand increased as summer rolled out, there has still been an overabundance of supply, so dealers are hoping moving more volume will help compensate for the lower price.
Maine Coast ships to Europe and Asia. But even those markets have tightened up, says Adams, either because of competition or Europe’s weak economy. The Europeans, he says, are becoming more focused on price because their customers are as well.
“Europe used to be a place to make more money,” says Adams, “but it’s just a place to move poundage for the same price now.”
East Coast Seafood exports about 70 percent of its supply to various countries. “Europe has always been a wonderful market for lobster and remains so,” says Tourkistas, “with Asia showing increased demand for various product forms.”
Still, he says, the United States remains the lobster industry’s biggest market and, with the global economic crisis, East Coast has placed more prominence in the American market.
Alexa Vodicka, progam officer from the Nova Scotia Department of Fisheries and Aquaculture, says Nova Scotia represents about 70 percent of Canada’s lobster harvest and about 80 percent is exported to the United States.
The Canadian government and the lobster industry “will have to work hard and creatively to expand markets and increase the value for lobster,” she said. “Government will continue to protect this resource and manage it so the industry remains strong.”
Add value, push demand
For companies that are buying processed lobster to create value-added products, like Hancock Gourmet Lobster in Topsham, Maine, the perception would be that they are getting a price break and should be passing that along to their retail and direct-to-consumer customers.
But Cal Hancock, president, says she is paying more per pound this year than last year, although she’s not sure why. “I’m not sure why prices aren’t coming down,” she says, especially because a lot of the lobster is softshell.
Hancock, who buys from a Maine-based processor, says because there are so few processors in the state demand remains high and prices go with that. “It’s very frustrating,” she says. “We set our price and try to keep it for a year.”
Meanwhile, she says, customers who have heard about the lobster glut are wondering why she isn’t lowering prices.
She’s continuing to watch the market to see what happens with lobster supply and prices, she says. “I try to be tuned in, and I’m curious about how this all turns out.” Distributors and processors should fare OK, she says, “but it’s hard on the lobstermen.”
Hancock got into the value-added lobster business to help create a new market for lobster beyond selling traditional live lobster. “I started business in 2000 with just that point in mind (that few people were doing value-added products).”
The company now has more than 30 products. Hancock still sells some live lobsters, “but it’s a very small part of the business.”
Much of her business is direct to the consumer, although she is expanding both the retail for specialty food stores and foodservice. “We try to do something a little different,” she says of her product strategy, which ranges from traditional lobster bisque to lobster risotto to lobster mac and cheese. The newest introduction is a gluten-free lobster mac and cheese option.
East Coast’s Tourkistas has also seen value-added lobster products on the rise due to increased demand for convenience when enjoying lobster. “A positive for the industry, value-added maximizes efficiencies in production and helps to increase the value of lobster for all partners in the sales chain,” he says.
Live lobster remains a desired product, he adds, along with frozen forms like whole-cooked lobster and tails. Recently, East Coast introduced a pasteurized lobster product that is sold refrigerated, along with a new 1-pound bag of fully scored lobster claws that are sold frozen.
Of course, Maine and Canada aren’t the only sources of lobster. Brazil, South Africa and several South American countries are significant suppliers of warmwater product, along with Australia.
In 2011, the United States imported more than 3 million pounds of rock lobster from the Bahamas, more than 4.8 million pounds from Brazil, about 3.7 million pounds from Honduras and about 4 million pounds from Nicaragua. Australia is also an exporter to the United States, but at a much lower amount. In 2011, the United States imported about 780,000 pounds from Australia, and about 732,000 pounds from South Africa.
Barry Markman, owner of Mark Foods in New York, imports lobster tails from Australia, South Africa and Brazil. Despite the glut of North American product, he says it hasn’t yet impacted the markets he deals in, but says it could in the future.
Markman’s focus is also somewhat different than that for Canadian and Maine lobster, he says, noting he sells to white-tablecloth restaurants rather than retail or lower-priced restaurants. Spiny lobster from South Africa and Australia yields a higher meat-to-shell ratio and is considered a more consistent product, says Markman, which makes it attractive to restaurateurs.
Still, lobster imports from Western Australia have dropped considerably, he says, with just 200,000 pounds finding its way into the United States vs. 2 million a few years ago.
The change is due to increased demand for live lobsters in Asia, says Markman, along with changes in quotas and fishing practices that yield more exportable live lobsters.
The Western Australia rock lobster fishery recently moved to an individual transferrable quota (ITQ) system with the catch dramatically reduced compared to historic levels, says Ryan Fuller, export sales and production manager for Kailis Brothers in Canning Vale, Australia. As a result, he says, prices are strong. The sustainable catch for the fishery is evaluated each season by the governing body, he says.
Fuller concurs that most of the lobster is being exported live to China “and this percentage has increased (to 90 percent) since the introduction of the quota.” Western rock lobster is considered superior to most lobsters on the market in China, he notes, while the New Zealand and Southern Australia rock lobster are the only species that sell for higher prices.
Lobsters in Australia are landed on the West Coast from Bunbury to as far north as Kalbarri, says Fuller, “and the competition for securing product is always fierce.”
Northern Australia has yielded a consistent supply and price for the past several years and that has led to a steady market, says Markman.
Brazil’s season began in June with a catch that Brazilian suppliers say is 25 to 30 percent off from the previous year, says Markman. Prices have fluctuated, with beach prices rising recently, although they began the season down about 5 percent from last year, he says. The ex-warehouse wholesale prices for 12- to 14-ounce tails was $12.75 in early August.
As product from Honduras, Nicaragua and the Bahamas starts to arrive, Markman says he’ll be watching to see what happens with Brazil’s prices.
Contributing Editor Joanne Friedrick lives in Portland, Maine
Find other SeaFood Business articles with lobster here.