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« February 2008 Table of Contents

Law and disorder

King crab market brimming with drama, controversy and a hazy future

The king crab legend grows worldwide as television cameras capture the blood, sweat and swears for each episode of the reality-show sensation, "Deadliest Catch." The gritty cable-TV program, set to air its fourth season this spring, has drawn substantial consumer attention to not only the grueling Bering Sea fishery, but also to seafood in general. In return, the salty Alaska skippers have attained celebrity status that now extends well beyond the United States.

During the show's rise to prime-time prominence, king crab became a seafood spectacle - but never more so than in 2007, when the U.S. king crab market was romanticized, politicized and criminalized. And three controversial issues that have plagued the seafood industry for years - fraudulent marketing, illegal/unreported fishing and imported versus domestic seafood - all came rushing to the fore.

Setting off a startling series of events in September, Arkadi Gontmakher, CEO of Global Fishing in Bellevue, Wash., reportedly the largest U.S. king crab importer, was arrested in Moscow on charges of money laundering and exporting poached crabs. To some industry insiders, the news wasn't a total surprise - of the more than 150 million pounds of king crabs that entered U.S. ports since 2005, a large portion were suspected to have originated from undocumented catches in Russia's Far East.

And on the same day that Gontmakher's arrest was front-page news in the Seattle Times, the newspaper also reported that Alaska crab boat captain Sig Hansen, who rose to notoriety on the hit TV show, agreed to endorse an imported king crab product marketed by Global Fishing and featuring a picture of the Hansen family boat, the Northwestern. Bitterness and backbiting within the prideful Alaska seafood industry soon followed and the show's faithful viewers took sides in various blogs. Some accused Hansen of "selling out" and "turning his back on" his fellow fishermen.

Within days, Alaska Rep. John Harris (R-Valdez) promptly called for an investigation into what he called "fraudulent marketing." Officials at Wal-Mart, which promoted the product at select stores, replied that the box had proper country-of-origin labeling; the retail giant also reiterated its commitment to sourcing sustainable seafood.

Hollywood executives would surely fight over such a script, but the real drama concerning the king crab's future in the United States will occur behind the scenes, somewhere in the Barents Sea or the Sea of Okhotsk, Russia's two vast and fruitful crab grounds. Due to widespread smuggling, unreported catches and lax law enforcement, Russia's crab stocks appear to be in peril - and the recently expanded U.S. king crab market is along for the ride.

"The Russians are worried about their resource and they should be," says Dave Keene, partner of The Crab Broker in Las Vegas, which exclusively markets Alaska crab to high-end foodservice customers throughout the United States and competes against imported product.

Aside from the ecological impact of depleting crab stocks, the chief concern among suppliers of both domestic and imported crabs is if the market expansion, fueled in recent years by mounting imports of Russian crabs, can continue. If the steady stream of king crab from Russia slows, Keene says, supply and price forecasts will be cloudy.

"Monstrous amounts of crab have been landed. For so many years [Russian] fishermen have taken everything that's come into the pot. It's surprising that the overall resource hasn't collapsed," says Keene. "I don't think imports of Russian crab out of the Far East are sustainable. They're just not. But they've taken huge strides to curtail illegal fishing and they're working with the Japanese to contain deliveries from boats that are fishing [illegally]."

From Russia with crabs

Russia's Fisheries Committee vowed in mid-December that "blossoming" crab smuggling from Russia to Pacific Rim nations (mainly Japan and Korea) would be terminated, beginning in 2008. Russia's Border Guard Service had also just completed "Crab 2007," a two-month operation designed to eliminate illegal fishing or at the very least send a warning to the worst offenders.

Additionally, Russia planned to ban king crab ( Paralithodes camtschaticus ) fishing in certain zones of the Sea of Okhotsk that had long supplied Japanese crab buyers. Russian news agencies reported in late December that 9,000 metric tons of illegally harvested live crabs entered the port of Wakkanai, Japan, in the first 10 months of 2007. For years, millions of pounds of undocumented crabs were unloaded in Japan and Korea, but those crabs - many destined for the United States - earned zero tax dollars for the Kremlin.

"There's really no traceability system in place yet [in Russia]. I think that's what needs to be established," says Arni Thomson, executive director of the Alaska Crab Coalition in Seattle, which represents 40 boats in the king crab fleet. "It's gotta be tied to lawful fishing permits."

But by the time Russia vowed to crack down on smuggling and regain control of its fisheries, the surplus of Russian crabs had already expanded the U.S. market from its high-end niche status. The influx of product was sudden and staggering: From 2001 to 2004, U.S. king crab imports (more than 90 percent from Russia) averaged 22.6 million pounds, according to the National Marine Fisheries Service. That figure nearly doubled in 2005 to 41.5 million pounds and then vaulted

again to 
62.3 million 
pounds in 2006. Through

October 2007, imports totaled 56 million pounds, up nearly 5 percent from the same period in 2006.

Setting the tone for Russia's crackdown on poaching was the arrest of Gontmakher, an affluent businessman of Ukrainian descent who, by many accounts, lived a life of luxury in a Seattle suburb. (Global Fishing officials declined to be interviewed for this story.) So, for Russian officials wanting to send a clear message to its seemingly reckless industry, Gontmakher was an easy target, says Greg White, a Seattle crab-industry analyst and certified public accountant who represents Bering Sea crab fishermen in price negotiations.

"[Gontmakher] was made an example. Like Stalin said, you lop the head off the tallest poppy in the field," says White. "There were a number of factors that made him a fall guy. He lived large, too, and that type of conspicuousness did not play well in Russia. [The arrest] was part of an orchestrated campaign to cut back on illegal fishing; you could certainly make the case that a lot of illegally landed crab ended up in the United States."

If Russia holds its king crab production to its legal quota, which in 2007 was approximately 55,000 metric tons, White speculates that U.S. supplies will have nowhere to go but down, and prices will concurrently rise. Russian officials have estimated that poaching has pushed annual production over 150,000 metric tons.

"My strong sense is there's less crab now and it'll be even tighter in the future," White says. "If Russia succeeds with its [policies], you'll be looking at [high] prices for three to four years. They've beaten the heck out of that fishery. But there could be even better supplies in five years, if they leave the crabs alone now."

The abundance of imports since 2005 has allowed retailers, particularly large chains in the Pacific Northwest, to price 2-pound boxes of small king crab legs and claws for $17 to $20 each - products that once sold for close to $30. Several price points under $10 a pound, as low as $6.99, became common in a region that consumes a lot of crustaceans.

"There's no question, [king crab has] taken over the retail market for crab. At the price level, it's got some bite. It's everywhere out here: Fred Myers, QFC, Safeway. And it's driven by price," says White.

"Grocers like dressing up the case. Many retail stores use the seafood case as a selling point to show they are high-end grocery stores. Lobsters and crabs, bright red products - when you see those things it conveys that message. And [king crab is] still a relative bargain, compared to [snow crab]."

IFQs under fire

Alaska, which is highly regarded for its fishery-management practices, rationalized its king and snow crab fisheries in 2005, dividing the resources among the fisheries' historical participants - fishermen, processors and coastal communities (processors control about 85 percent of the total harvest, known as A shares). Typically, the bulk of Alaska king crab is exported to Japan, where it fetches the highest price; several of the largest quota-owning processors are subsidiaries of Japanese seafood conglomerates.

The first three seasons of rationalization accomplished at least two major goals: increasing safety within the commercial fishing fleet and product quality. By extending the season to roughly a month instead of the old three-day, derby-style fishery, fishermen could take more time and avoid the most dangerous Bering Sea conditions and processors were given increased time for proper handling.

But rationalization was criticized long before its inception (the program was modeled after Alaska's halibut and sablefish fishery management plans). Citizens and excluded fishermen still decry the privatization of a public resource. Captains want more shares for their crewmembers while processors say the price-arbitration process conducted after the season typically favors fishermen and only cuts into their profits.

"There's groaning on both sides," says The Crab Broker's Keene. "Fishermen are the big winners. Every time they've arbitrated post-season they've won, despite the paucity of their case. And processors are disenchanted with the way the system is working. None have made any money the last two years."

Thomson of the Alaska Crab Coalition says there's been a growing clamor for change to rationalization from crewmen, skippers, processors and communities. "The dynamic is changing," he says, but the North Pacific Fishery Management Council in December opted for the status quo, ensuring that the quota system will remain intact for the foreseeable future.

"There's a lot of complexities to the system - it's not an easy system to understand," Thomson says. "Legal guidance is key to stay within antitrust guidelines."

Andy Hillstrand, who skippers the F/V Time Bandit during snow crab season, while his brother Johnathan captains during the king crab harvest, says the fisheries are safer, but not because of rationalization.

"There used to be 270 boats with three days to fish. Now we got a month, but we're still up against the gun," says Hillstrand, a regular character on "Deadliest Catch." "There's only 67 boats now, and they're the best boats on the water, so safety is obviously [improved]. But it was getting safer before IFQs, thanks to the Coast Guard, which worked on its relationship with us."

The Deadliest phenomenon

Because The Crab Broker in Las Vegas sells only Alaska king crabs to its high-end foodservice customers, the company hitched its marketing wagons to the success of "Deadliest Catch" by developing business and personal relationships with the fishermen and launching an offshoot of the show called "Bad Boys of the Bering Sea." Skippers such as Keith Colburn of The Wizard and the Hillstrand brothers have attended charity dinners around the country at Crab Broker customers such as Barnacle Bill's in Sarasota, Fla., and Bob Chinn's Crab House in Wheeling, Ill., to sign autographs and meet their fans.

A unique marketing opportunity the crab supplier devised was offering individual boatloads of crabs to restaurants, which can in turn promote the relationship with a boat featured on the hit show. After taking three of his chefs to Dutch Harbor, Alaska, Wade Wiestling, VP of culinary development for The Oceanaire Seafood Room of Minneapolis, in December purchased about 40,000 pounds of crab clusters harvested by the Time Bandit to supply his 14-unit chain.

"It made sense from a marketing and sustainability standpoint to 'bite off more than we can chew' with Alaska crab, because it is an important fishery and it's a limited harvesting season," says Wiestling. "We knew the quality and the way it was processed would be a great story for our staff on the floor. Seemed like the right thing to do."

Deno Roumanidakis, director of operations for Bob Chinn's Crab House, one of the largest independent restaurants in the United States, buys about 150,000 pounds of king crab clusters annually, as well as 12,000 pounds of whole-cooked crab. "I sell a lot of crab," Roumanidakis deadpans, adding that king crab remains the No. 1 item on Bob Chinn's menu, despite the higher cost of the Alaska product. The restaurant has also purchased king crabs from two vessels featured on "Deadliest Catch" and has hosted meet-and-greets with a few of the celebrity captains.

"We educate our guests about Russian crabs," says Roumanidakis. "Where do they get them? From the grocery store. Not here, not unless something crazy happened. We're committed to Alaska crab."

Supermarket freezers stocked with marked-down imported legs and claws are indeed the current face of the king crab market. Domestic and imported crabs tend to move in separate circles - with suppliers competing over price, quality and politics - but the fates of the price-sensitive commodities are linked, for better or worse. When Sig Hansen replied to the critics of his divisive endorsement, he claimed his objective was to build the market.

"By using the exposure we've been lucky enough to have, and popularizing king crab throughout the world, hopefully we can boost demand for the product and increase the price fishermen receive here in Alaska!" Hansen said in a posting on his Web site.

The overarching question hinges on supply and whether the king of all crustaceans can continue its transition from white-tablecloth restaurants to big-box retailers like Costco and Wal-Mart for the long term. If Russia's law-enforcement efforts are as effective as promised, the market expansion might be short-lived.

Assistant Editor James Wright can be 
e-mailed at jwright@divcom.com