« July 2007 Table of Contents 
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