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Trend Watch: Prices edge up

High demand, tight supplies driving seafood costs skyward

By Lauren Kramer
July 01, 2007

Wholesale seafood prices have risen steadily over the past decade, and processors have passed the costs onto their customers and struggled with a frequent dearth of raw material. Prices of unprocessed and packaged fish jumped 8 percent between February 2006 and February 2007, according to the Producer Price Index. Despite these price hikes, overall demand for seafood has remained strong, according to seafood processors.

In this commodity-driven business, changes in wholesale prices are passed through to the consumer by supermarkets, says Steve Lutz, executive VP of the Perishables Group in Chicago, which tracks retail seafood data from supermarkets across the United States.

"It's rare for supermarkets to have the desire or capability to shrink their margins without taking a loss, so generally speaking, when you see an increase in the wholesale price of a product, it will show up in the form of higher prices at the grocery store," says Lutz.

Retail finfish prices increased 9.2 percent for the 52 weeks ending March 31, 2007, according to Perishables Group. Salmon had one of the largest price increases at 19.6 percent. "That resulted in a negative 9.2 percent impact on volume," says Lutz. "Tilapia is interesting because this species held the line on pricing but drove a big 34 percent increase in volume. That was the big success story."

High prices have become the norm, says Stuart Altman, executive VP at processor and distributor Stavis Seafoods in Boston.

"It's natural economics that we have to adjust to whatever market conditions hold, and if our costs are rising, we have to raise our prices to sell the items," says Altman.

Stavis is certainly not the only seafood company raising prices.

"We had to raise our prices according to the market, but not without resistance from some customers," says Chris Lam, president and CEO of Joe Pucci & Sons in Hayward, Calif.

The company advised its customers to change their product mix according to market conditions, for example, by switching from black tigers to Mexican or domestic shrimp. The sharpest increase, says Lam, was in the price of Maine lobster, which escalated from $10 per pound wholesale to over $15 per pound before Valentine's Day.

The lobster price hike can be explained by a variety of factors, Lam says. "The cold weather affected the catch, and in addition, the demand and prices paid by the European market have been much stronger than the U.S. market. Also, the currency exchange rates have not been in our favor."

Another factor affecting seafood prices is good PR, says Michael Bavota, a seafood buyer with distributor Agar Supply in Taunton, Mass.

"The industry is doing a much better job of going out there and telling its story," says Bavota. "In the last few years, the media told the seafood stories for us, and they tended to focus on the negative. Now, the industry has done a good job of telling the positive stories, backed by science, and consumers are getting the message that seafood is healthy for them."

Lam agrees. "Have you seen the most recent Red Lobster advertisement? There are more seafood commercials on now than ever before."

Farmed salmon is one species that's grown both in popularity and price. "The price of salmon jumped dramatically in the past 18 months, increasing by 35 to 40 percent," says Jonathan Brown, president of Macknight Smoke House in Miami. "As a salmon purchaser, initially we were very concerned. How do we reflect that increase in raw material overnight?"

Brown responded by increasing efficiencies and raising prices.

"Some customers left us to change to another protein, but the majority of customers worked with us, and in the last 20 weeks, all we've seen is increases in sales, even with the price increase," says Brown.

"Now we're used to these prices and I'm comfortable with the prices where they are. I get a sense of comfort knowing the farmer is making good money, the market can sustain the price and our business can still be profitable, because we are."

Demand and price go hand in hand, says Charlie Nagle, president of John Nagle Co., a Boston seafood importer, wholesaler and distributor.

"We're seeing a general increase in demand, which has supported a bit of the price rise, but the increase in price is ahead of the demand. We're not seeing as much raw material available, which puts more pressure at the point of production," says Nagle

That's because China is vying for raw material, forcing U.S. processors to pay more if they want it, 
he adds.

"For now we're biting the bullet and paying higher prices," Nagle says. "There's no general game plan other than to be careful about who we sell stuff to and ensure we don't have too much at any given time, so if it doesn't sell well, we're not caught with inventory. We just have to be more cautious," he says.

"There are a lot more markets competing for fish now than ever before," says Altman. "If Japan or Europe are paying better prices for raw material than those offered in the United States, for example, they get it. The reason is globalization - logistics have improved, information gathering has improved and the Internet lets you offer your products to just about anyone around the world. That puts everyone on a more even footing."

At Joe Pucci, Lam is participating in sustainability and traceability programs, both of which will impact wholesale seafood prices, 
he predicts.

"We are working hard to obtain products that are harvested sustainably because we believe in maintaining a long-term supply for the industry," he says. "A sustainability program doesn't come without costs, but it's better for the industry and supply, and in the long run, if stocks and supply are well managed, prices might be more stable."

Wholesale seafood prices will continue to increase in the next few years, Altman predicts. Because many species are wild and there's a lot less of some species, supply will be tight.

"We're in an industry where we're selling a hunted animal," he says. "Due to the diminishing supply of this natural resource and the global increase in demand, it will get harder and harder to grow a seafood-based business in the future. The companies that evolve and change are the ones that will be successful."

 

Contributing Editor Lauren Kra m er lives in British Columbia

 

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