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International Sourcing: Iceland transformed

Seafood industry shifts focus from frozen to fresh

By Alda Möller, Ph.D.
January 01, 2007

Pure. Natural. Unspoiled. That's how the Icelandic Tourist Board describes the 40,000-square-mile island. The same can be said for the picturesque fishing villages, another recurring marketing theme for Iceland, whose economy is heavily dependent upon fisheries; seafood products comprise 60 percent of all commodity exports. And strict fisheries regulations ensure that the Icelanders will have a sustainable resource for future generations.

"Within the seafood world, Iceland is top of mind for high quality and has one of the best-managed fisheries in the world," says Tom Sherman, VP of marketing at Icelandic USA in Newport News, Va. "It is the 'gold standard' of cod and haddock supply."

U.S. seafood buyers have looked to Iceland ever since freezing plants were developed there in the 1940s. With Iceland-owned U.S. sales companies setting quality standards, the United States quickly became the major market for Icelandic cod and haddock fillets. Coldwater Seafood Corp., marketing products under the Icelandic brand, and Iceland Seafood Corp., which sold products under the Samband of Iceland brand, initially were the only two Icelandic companies licensed to export to the U.S. market.

Coldwater Seafood was founded in 1947 as a subsidiary of the Icelandic Freezing Plants Corp., which in turn was owned by a large number of freezing plants. Iceland Seafood, founded in 1951, was also under the ownership of a group of processors in Iceland. Both companies operated secondary processing plants in the United States with a network of brokers. Products from Iceland were their mainstay for a long time, but they gradually sourced more whitefish from major producers worldwide as seafood became a truly international business.

Iceland's seafood industry began to change in the 1990s, when export-license restrictions on seafood were lifted. Icelandic corporations were listed on the Icelandic Stock Exchange and processors sold most of their shares. Coldwater changed its name to Icelandic USA, and Iceland Seafood briefly became Samband of Iceland. F inally the two arch-competitors merged in 2005 under the Icelandic USA name, running processing plants in Newport News, Va., and Cambridge, Md. The company announced last month that the Maryland plant would close by year's end.

"There's been tremendous progress in every area of the company to consolidate itself and get at the synergies [originally] identified in the merger," says Sherman.

Those synergies include implementing a consistent information-technology platform across both companies, SKU rationalizing (paring down two product lists to a manageable number) and recently launching a new distribution center in Newport News.

"In many cases we were competing for raw materials and customer share; [the merger] eliminated a major competitor. We're not fighting against each other anymore," notes Sherman.

Today, a fair number of Iceland's exporters supply the U.S. market; major players in fishing and processing have become fully integrated companies with their own sales departments. With consolidation and other structural changes in Iceland and abroad, the past decade has been nothing short of a complete transformation.

 

Fresh revolution

Iceland's fisheries operate under an individual-transferable-quota system that became law in 1990, and before that the management system was with quotas based on total allowable catch (TAC). The ITQ system is well established but still does not seem to be near its basic goal of rebuilding Iceland's cod stocks, as evidenced in reports from the Marine Research Institute (MRI) of Iceland.

However, some in Iceland believe ITQs are working well for the country's seafood supply.

"The [ITQ] system has proven to be an important tool for securing sustainability of the fishing grounds around Iceland. It has also created stability for the seafood companies that are now operating in a much more stable environment, making them able to develop their business and become more profitable," says Ásmundur Gíslason, an international corporate banking analyst at Glitnir Bank, a leading financial group in Iceland that specializes in the seafood industry.

Cod, by far the most important species in Icelandic waters, represents almost 40 percent of seafood exports by value. In recent years, the annual catch has been close to 200,000 metric tons, and it is likely to remain at that level, according to scientists at the MRI, including Dr. Hjorleifsson, who discussed the state of Atlantic cod stocks at the recent Groundfish Forum in Lisbon, Portugal.

The positive news is that haddock recruitment has been good and the resource is quite strong, according to the MRI reports. Landings have doubled in the past four years and are estimated to reach 100,000 metric tons in 2006. In 2006, the haddock catch is therefore likely to reach 50 percent of the of the cod catch in terms of volume, the first time in 100 years of landing reports.

Europe has become a magnet for whitefish products from all over the world, including Alaska pollock, South American hake, New Zealand hoki and Icelandic products. Europe's whitefish demand, coupled with the weak U.S. dollar (against a strong British pound and euro) and price increases on the European market, led to a decline in Iceland's trade with United States, especially with respect to cod products. The United States accounted for 7 percent of Iceland's cod export value in 2005, down from 16 percent four years earlier. Haddock exports to the U.S. market were 32 percent of the total in 2005, down from 50 percent in 2001.

"In the last 10 years Europe has for the first time appeared as a real and competitive alternative to the North American market [for cod and haddock products from Iceland]," says Helgi Anton Eiriksson, global seafood director for Glitnir.

"Fresh loins to the UK and continental Europe are now the best options for many producers, and many plants have changed from traditional freezing plants to producing a significant share of the output into fresh products flown to Europe (and lesser extent to the United States)."

With increased haddock landings, the value and volume of this species have actually risen significantly on the U.S. market. Haddock became the No. 1 export from Iceland to the United States in 2005 in terms of value and volume. Cod, the undisputed king in the 60-year history of U.S. seafood trade with Iceland, took second place.

The appearance of Chinese frozen-fillet imports in Europe also contributed to Icelandic processors' focus on producing fresh product for that market. Icelanders pride themselves on fresh and once-frozen products; whole fish are not frozen and reprocessed in China. Fresh processing is now common at many large freezing plants in Iceland. Exports of fresh cod and haddock fillets and portions have tripled in the past 10 years, and it is estimated that 44 million pounds, valued at about $200 million, were exported in 2006, according to Statistics Iceland, the official bureau for Icelandic statistics.

Iceland's cod catch is divided among its processing industries: 44 percent goes to the freezing industry; 42 percent is processed into saltfish; and 14 percent is processed into fresh fillets and portions. Frozen fillets account for 51 percent of haddock raw materials, while fresh fillets and whole, gutted fish represent 24 percent of the market share.

The largest primary processors of frozen cod and haddock, in terms of quota allocation, are Brim, with a plant in Akureyri; Samherji, with a plant in Dalvik, and also frozen-at-sea (FAS) processing capabilities; Visir, with three plants, the largest in Husavik; Thorbjorn, with a plant in Grindavik, and FAS processing; HB Grandi with two cod and haddock plants, the larger in Akranes, and FAS processing; Fisk Seafood, with three plants, the largest in Saudarkrokur, and FAS processing. All six companies produce fresh and frozen fillets for the global market, and some are also large saltfish producers.

 

The frozen market

Frozen Iceland seafood products on the U.S. market are skinless and boneless FAS fillets and fillets from land-based producers. The FAS fillets are size-graded and interleaved, while the land-based processing is dedicated to IQF fillets and portions, with a significant production of cello-wrapped 5-pound packs - a form that's survived many generations of new-product development. There is also significant production of haddock-fillet blocks; for cod, fillet blocks are strictly a processing byproduct.

Approximately 11.5 million pounds of frozen cod was exported to the United States in 2005, down 60 percent from 2001. Land-produced fillets and IQF portions were still the main product category.

Frozen haddock exports show a much more positive trend. The total for haddock in 2005 was 17 million pounds, up about 90 percent from 8.9 million pounds in 2001. The chief products were land-produced fillets, but the supply of FAS fillets to the market doubled 
in volume.

Icelandic USA is the chief supplier of frozen cod and haddock products to the U.S. market, with an estimated 60 percent volume share in 2006.

The company's largest product categories are land-produced IQF fillets and 5-pound packs, followed by FAS fillets. Almost all of the products are sold to broadline foodservice distributors, historically the main market for both the 
company and the country's products in general, says Icelandic's Sherman. But in the past two years, the casual-dining and QSR categories have claimed an increasing part of Icelandic's business.

"We've done a better job adding value to the fillets out of Iceland," says Sherman.

Other suppliers of frozen products are the Icelandic Sales Agency, with about 7 percent volume share; Kambanes, with 5 percent volume share; Iceland Seafood, with 4 percent volume share; and a number of other smaller companies. These exporting companies sell to U.S. importers and brokers or have their own agents in the United States, including Legacy Seafood of Cranston, R.I., and F.W. Bryce of Gloucester, Mass.

 

Fresh haddock and cod

Fresh products are primarily skinless and boneless fillets, but also skin-on haddock fillets. Iceland's exports of fresh cod fillets to the United States are still small, at 2.5 million pounds, and declining. On the other hand, haddock exports 
are increasing rapidly, with the U.S. market expected to take 
6 million pounds in 2006, which is more than a third of Iceland's production of fresh haddock fillets.

The largest suppliers of fresh fillets to the United States are Saemark, with more than 50 percent of the volume, followed by Danica, the Iceland Freshfish Co. and Tros. All work directly with U.S. processors and distributors, such as Boston's North Coast Seafood, Aquanor Marketing and Slade Gorton & Co., which supply a wide range of fresh products for foodservice and retail. Daily product shipments arrive at airports in New York, Baltimore and Boston.

 

A "new" Icelandic

fish to consider

Atlantic pollock is a resource that may be almost forgotten in the U.S. market, although it was well known when supply was abundant 15 years ago.

The pollock stock in Icelandic waters has rebounded, according to MRI reports. Landings have doubled in four years and are likely to reach 80,000 metric tons in 2006. About 80 percent of the resource is FAS in the 8- to 16-ounce and 16- to 32-ounce fillet sizes.

Atlantic pollock has a firm texture and light-brown flesh color and is eminently suitable as a lower-price alternative to cod and haddock. Iceland exported more than 12,000 metric tons of FAS pollock fillets last year, mostly to Europe.

Fresh-fish marketing depends upon efficient supply-chain management, including reliable supply, a quick communication system and transportation to market. Icelandic processors have had all this in place for several years. Given this solid infrastructure and sound fisheries management, Iceland's transformation as a global supplier of fresh whitefish appears guaranteed.

 

Alda Möller is a s eafood industry 
consultant in Iceland

 

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