« November 2007 Table of Contents
Seafood supply chain survives while U.S. dollar
By James Wright
November 01, 2007
Five years ago, when East Coast Seafood in Lynn, Mass.,
it calls the world's largest lobster-holding pen on
New Brunswick, it seemed like a shrewd
investment. At the time,
the Canadian dollar was worth only
about 62 cents in U.S. currency,
so the lobster exporter paid
its Canadian employees the equivalent
of $7 an hour.
But on Sept. 20, the Canadian dollar had rallied to a
30-year high and, well ahead of forecasts, reached 1:1 parity
with its U.S. counterpart (it moved slightly ahead of the U.S.
dollar soon after).
As a result, the average wage paid to
those employees is now about $11 an hour.
"When you see the difference, you can imagine what the cost
of operating has done," says President and CEO Michael
Tourkistas, who founded the company in 1981. "If we had known
[the currencies would shift], maybe we wouldn't have been so
eager to open on the Canadian side."
Lobster buyers are among those keeping as close an eye on
the Canadian dollar, nicknamed the "loonie," as they are on
supplies from both Canada and the United States. Because the
two countries' cultures and economies are so closely tied -
Canada is the United States' largest trading partner - the
recent shift in currency values is significant.
While global currencies undergo cyclical changes, seafood
companies are finding that the U.S. dollar no longer provides
the advantages that it did in years past. And for some, their
bottom line is suffering.
Conversely, Canadian exporters are finding themselves better
positioned to lure in European buyers as the euro also
continues to distance itself from the dollar ($1.41 at press
time in mid-October). But the overriding opinion of many U.S.
importers and Canadian seafood suppliers whose primary market
is the United States is that the diminishing dollar is simply
bad for business.
"The guys in Canada are taking a beating right now," says
industry analyst Howard Johnson of H.M. Johnson &
Associates in Jacksonville, Ore. "If you're a [U.S.] pollock
exporter, you're doing pretty good; those selling into Europe
have a competitive advantage because they can even cut their
price and still [make a profit]. But overall, [seafood] prices
are rising and the soft dollar is a big contributor."
Johnson, who annually compiles U.S. per-capita consumption
figures for the National Fisheries Institute of McLean, Va.,
worries that higher seafood prices will slow U.S. consumption,
which in 2006 reached 16.5 pounds, the second highest total on
record. That's because more than 80 percent of the U.S. seafood
supply is imported, he says. Other industry experts share
"In general, the weakening dollar is bad news for U.S.
seafood consumers since the U.S. market is heavily dependent on
imports," adds Ásmunder Gíslason, a seafood industry analyst
with the Icelandic banking conglomerate Glitnir. He adds that
currency values can dictate where some of the world's most
popular seafood products end up.
"An example of change one can expect to see is exports of
salmon products from Chile. It is likely that increased effort
will be put into seeking alternative markets for these products
to compensate for the weaker prices obtained in [the United
States]," adds Gíslason. "These efforts will be affecting the
supply from Chile to markets in Europe and other places. The
weakening of the U.S. dollar thus not only affects the U.S.
The U.S. dollar has slipped against many global currencies,
most notably the loonie and the euro, which is used in 13
European nations. But even traditionally weaker currencies like
the Thai baht and the New Zealand dollar have posted gains
against the U.S. dollar in recent years (see chart, p. 25).
Jim Anderson, Ph.D., professor at the University of Rhode
Island and editor of Seafood Market Analyst in Wakefield, R.I.,
says that a sinking dollar and high dependence on imports could
force seafood prices up even higher.
"It's hard to say whether
depreciation in U.S. currency
will cause [foreign] suppliers to lower their prices, or if
[U.S.] prices have to rise. It all depends on who has the
market power," says Anderson.
"The countries with diversified portfolios, so to speak, are
in a stronger position to say, 'Too bad, United States,' and
sell it elsewhere. The countries where [the United States is]
the only buyer are the ones that may cut their prices."
'Don't get caught blind'
To offset losses in currency exchange, many U.S. seafood
buyers focus their purchasing efforts on regions like South
America and Southeast Asia, where the U.S. dollar remains
strong. Still, Canadian seafood retains a strong presence in
the U.S. market, but the financial climate is forcing Canadian
seafood processors, already wrestling with rising costs of
labor, fuel and raw materials (see International Sourcing, p.
30), to implement strategies to remain competitive.
Colin MacDonald, CEO of Clearwater Seafoods, a scallop and
lobster supplier in Bedford, Nova Scotia, says 90 percent of
the company's sales are in foreign currencies, with 40 percent
destined for the U.S. market. Rising fuel and labor costs
packaged with inflation and the weakened U.S. dollar have
prompted Clearwater to get "more productive with its assets,"
says MacDonald. In short: To make money, you must spend
"There's four levers you can pull: Increase your volume,
lower your costs, increase your yields and [provide] greater
value to the consumer so they'll pay you more for your
product," says MacDonald. "We've done them all and all of them
required significant investment."
To fetch higher prices for lobster products, Tourkistas says
East Coast's 60-40-percentage sales split to Europe and the
United States, respectively, may have to widen even
"With Europe, we haven't seen any drastic change because the
euro has also strengthened, offsetting the gains in the
Canadian dollar," says Tourkistas. "The [Canadian] dollar
itself has not hurt us. In terms of [U.S. sales], it's
disastrous. So you just button down, try to reduce your costs
and make adjustments to survive."
A worst-case scenario for a seafood supplier during economic
swings is being locked in at a selling price that was
negotiated months before. Lucrative contracts with large retail
or foodservice buyers can turn from boon to bust before the
"You can suffer in existing long-term agreements," says Dana
Staples, North American sales rep for the Barry Group in Corner
Brook, Newfoundland. "If you agreed to sell to Red Lobster at,
let's say, $20 [a pound] for lobster tails back in May, now
that lobster tail is now costing you at least 5 percent more to
The loonie's rise didn't happen overnight, Staples adds, but
parity with the U.S. dollar was reached about three months
before projections. One way the Barry Group avoids the pitfalls
of shifting currencies is holding less product in inventory,
which allows the company the flexibility to make price
adjustments over the course of the year.
"It's part of doing business in the world now," says
Staples. "It's no different than the price of oil going up by
50 cents a barrel. The big thing is that you don't get caught
One safeguard many suppliers find valuable when currency
shifts occur is having diversi-
"The U.S. dollar is going into the tubes, but if you have a
diversity of sales to other countries you can offset the
difference," says Staples. "Seafood is becoming more and more
difficult to make a profit. We're not creating new business,
we're just stealing it from each other. [As an industry] we're
not going out and finding new customer bases and developing new
profitable items. We're still 20 years behind the poultry
While the weak U.S. dollar weighs heavily on the minds of
some North American seafood buyers and suppliers, one lobster
distributor downplays the importance of currency strength and
its impact on day-to-
"Everybody's talking about the exchange rate right now, but
you don't know who to believe. Some [U.S. dealers] used to make
all their money on Canadian lobsters on the exchange rate -
sort of playing with the bank," says Pete McAleney, owner of
New Meadows Lobster in Portland, Maine.
"We need each other. We need [Canadian lobsters] in the
wintertime and when they hit like hell in May and June. When
their season closes, they can hold the lobsters for their own
use but when September rolls around they have to start buying
Maine stuff. It's a wash. I really don't understand the problem
right now. We're businessmen; we all make money."
When Johnson of H.M. Johnson & Associates recently
consulted with a shellfish-marketing group in Prince Edward
Island, Canada, his advice was simple.
"I told them, 'Go buy a ticket to Europe,'" Johnson
Apparently, pollock suppliers have already taken that trip.
Pollock exports through August totaled 238.7 million pounds
(including roe), up 23.4 percent from the same period last
year. Germany and the Netherlands imported 71.5 million pounds
and 42.5 million pounds of frozen pollock fillets,
respectively, through the first eight months of this year,
according to the National Marine Fisheries Service.
However, because the 3-billion-pound U.S. pollock harvest is
fully utilized, suppliers say there's a ceiling on market
growth. So to maximize profits, pollock suppliers need to make
key decisions before processing, says Merle Knapp, VP of sales
and marketing for Glacier Fish Co. in Seattle. Glacier is a
major exporter of surimi to Japan, where the yen has remained
on relatively equal footing with the U.S. dollar.
"You have to go back to round fish and ask, 'Do we make
surimi for Japan or cello blocks for Europe where we might get
a higher price?' The two markets feed off each other; as one
market rises, the other rises and vice versa," says Knapp.
"It's a just a question of which one does first."
The currency in which seafood commodities are traded
internationally is mostly based on tradition, Knapp says,
although that can be negotiated. So investing in a foreign
currency has become standard practice for importers and
"Somebody's gotta hedge, you know," Knapp says. "We always
hedge on the yen. Any good business has a plan in place for
In theory, the depreciating U.S. dollar will increase
opportunities for exports and reduce the ballooning seafood
trade deficit, says Anderson of the University of Rhode
"But seafood is a special case," he adds. "If the price of
imported seafood goes up, then maybe the domestic market
improves; it doesn't necessarily create an incentive to export.
Maybe the Japanese can pay more, but so can the U.S. consumer.
There might be better opportunities in the domestic market
because the cheap [imported] stuff isn't as cheap."
Where U.S. seafood consumers will see the greatest impact of
currency depreciation will be in retail cases, says Anderson,
adding that an economic recession is possible as early as 2008.
But if retail prices continue to rise, consumers may choose to
forego seafood altogether.
"It's reasonable for [retailers] to absorb some increase in
cost and not pass it on to the consumer. But too much
volatility is not good for shaping consumer habits, like buying
salmon once a week," Anderson says. "Habit and stability are
important characteristics of building a market; you want the
stuff on the shelves every day."
Assistant Editor James Wright can be