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America's dependence on foreign seafood grows

Chain seafood buyers set up shop overseas to cut costs, control quality

By Steven Hedlund
October 01, 2006

U.S. seafood buyers have a 
difficult job compared to 
other center-of-plate protein buyers: There are hundreds of seafood species caught and farmed in dozens of countries worldwide. Sourcing seafood in today's global economy 
requires a vast knowledge of trade politics, foreign relations, environmental and social issues, currency, geography and even biology. The task is complicated because the United States can't produce as much as seafood as it consumes. Nearly 90 percent of the U.S. edible-seafood supply is imported. Both wild- and farmed-seafood production have leveled off in this country, where fishing restrictions are tight and land and labor is expensive.

To better control supply, quality and costs, seafood buyers and suppliers alike are opening production facilities overseas or are forming exclusive relationships with foreign producers, or both.

This SeaFood Business special feature examines how U.S. seafood buyers and suppliers are embracing globalization and how innovation and policy have shaped the global seafood trade.

S ourcing seafood wasn't nearly as complicated in 1968 when Bill Darden and Joe Lee opened the first Red Lobster restaurant in Lakeland, Fla. The task entailed a handful of local suppliers and a handful of local species.

Today, the company Darden and Lee co-founded is the world's largest casual-dining company, operating more than 1,400 Red Lobster, Olive Garden, Smokey Bones Barbeque & Grill, Bahama Breeze and Seasons 52 restaurants throughout North America and serving 300 million meals a year.

To get this big, Darden Res­taurants started years ago working directly with a network of seafood suppliers worldwide to manage production costs and control supply and quality.

"Joe Lee began this process in the late '60s," says Bill Herzig, senior VP of purchasing for the Orlando, Fla., company. "This has been a long and proud tradition of Darden to work directly with our overseas suppliers to find the best in the world to work with.

"Our core purpose is to nourish and delight everyone we serve, so value and quality are two important components of our business philosophy," declares Herzig.

"We work with our suppliers to ensure we get great quality but also manage [production] costs wisely. This helps us to effectively manage our menu prices. We control the supply and quality of our seafood to ensure that our guests are served only the best.

"Quality assurance is an overarching challenge in the restaurant industry," he says. "To address this challenge, our quality-assurance team monitors and inspects the wild-harvest and aquaculture facilities we buy from to ensure compliance with Darden's food-safety and quality requirements."

Joey's Only Seafood Restaurants has sourced most of its seafood directly from Asia for 10 years and China for five years "to get better quality and save money," says Elgin Hanes, the Calgary, Alberta, company's VP of purchasing.

"You have to go directly to the source," explains Hanes, who travels to Asia regularly to visit Joey's Only's seafood vendors. "We spec all our products. By doing that, we know what we're getting."

Joey's Only sister company, TJ Distribution, imports seafood in large quantities and sells it to Sysco Corp. to be distributed to its 155 restaurants throughout Canada and the United States. This way, Joey's Only has greater control over supply and quality and, at the same time, saves money, says Hanes.

Also to save money, Joey's Only ships Alaska pollock to China to be processed. The difference between once-frozen Alaska pollock and twice-frozen Chinese pollock is 50 to 60 cents a pound, he says. The chain uses pollock for fish and chips, its signature menu item. The chain also uses cod, haddock and halibut in separate fish-and-chips menu items.

Unlike Darden and Joey's Only, McCormick & Schmick's Seafood Restaurants doesn't employ its own quality-assurance team overseas but rather relies on its network of about 50 suppliers worldwide to control the quality of the 
sea­food on the menus at its 64 upscale restaurants 
nationwide.

"We're reliant on our suppliers," says Bill King, VP of culinary development for the Portland, Ore., company. "Com­mu­nication is constant."

King says that without the tight relationships it maintains with its suppliers, McCormick & Schmick's wouldn't be able to menu more than 150 species of seafood from dozens of countries worldwide.

Each restaurant menus 65 to 80 species daily, 30 to 38 of which are fresh.

"We're all about diversity. It's how we started, having the most-diversified and freshest seafood in the marketplace," says King. "And when we want to broaden our offerings, we look to our suppliers for support, because they're directly involved" with production overseas.

"You just can't import seafood these days without employing people overseas," says Troy Turkin, executive VP of sales and marketing for Newport International, which imports shrimp, blue-swimming-crab meat, tilapia, mahimahi and grouper from Asia and Latin America.

The St. Petersburg, Fla., com-
pany's head biologist is in Asia, and, at press time, its quality-assurance team was auditing processing facilities in China, Vietnam and Indonesia. Newport's overseas employees are also responsible for ensuring the seafood the company purchases is accurately labeled.

"It's 'buyer beware,'" says Andy Walton, Newport's president. "You better know who you're dealing with [and that] you're selling 100 percent of what the label says it is."

Matt Fass, VP of Maritime Pro­ducts International, agrees. The Newport News, Va., company has employed a person in Asia since the early 1990s.

That agent works directly with the producers from which Maritime Products imports crawfish, scallops, flounder, basa and channel catfish. The firm also imports whiting and croaker from Latin America.

"You need to form partnerships, and you can't be adversarial," says Fass. "The relationships need to be sophisticated.

"We realized that with catfish, whether it's [channel catfish] or pangasius, we needed to be experts, not just suppliers," he explains.

Phil Walsh, director of business development for The Alfa Gamma Group, says a rising number of his retail customers are demanding traceability information, including how, when and where the fish is caught.

They're also requiring third-party audits to ensure the fish they buy is from a sustainable source and processed by workers who are of age (i.e. no child labor) and receive a living wage and medical benefits.

Walsh says it'd be difficult to meet retailers' demands if the Miami fishing company didn't directly control production. Alfa Gamma owns more than 100 longliners, three tuna seiners and three processing plants in Ecuador, Costa Rica and Panama. The company imports tuna, mahimahi, grouper, snapper, kingklip and corvina.

Retailers "don't want the 6 o'clock news on their doorstep," says Walsh, "and they want to do the right thing" environmentally and socially.

Retailers are also concerned about the bottom line, especially in the face of increased competition from big-box retailers such as Wal-Mart and Costco.

For example, one large South­eastern supermarket chain is "deconstructing its procurement practices" in 2007 and buying seafood directly from producers, whether foreign or domestic, to boost profit margins, notes Walsh.

The only way for them to boost profit margins, he says, "is to take links out of the supply chain."

Innovation vs. policy

The more links that are removed from the supply chain, the more involved U.S. restaurateurs and retailers become with production overseas.

"There's no reason this trend should change," says Audun Lem, fishery-industry officer for the United Nations' Food and Ag­riculture Organization in Rome.

"In a sense, the fisheries trade has always been globalized, and it's becoming more globalized."

Today's global seafood trade is the result of innovation and policy, says Jim Anderson, chairman of the University of Rhode Island's De­partment of Environment and Resource Economics and author of the book "The International Sea­food Trade," published in 2003.

For centuries, innovation has fueled the growth of the global seafood trade, beginning with advances in preservation methods, such as fermentation, salting and drying.

In the 19th and 20th centuries, canning, refrigeration and flash-freezing extended seafood's shelf life, making long-distance travel practical and inexpensive (see preservation timeline at left).

But no innovation has had a greater effect on the global seafood trade in the past few decades than aquaculture, which represented 43 percent of the global seafood supply in 2004, compared to just 9 percent in 1980, according to an FAO report released in September. About 100 billion pounds of farmed seafood worth $63 billion were consumed worldwide in 2004.

Rohana Subasinghe, a senior fishery-resources officer for the FAO in Rome, expects humans will be eating more farmed seafood than wild seafood by 2012.

The pressure on aquaculture continues to rise because wild-seafood production has leveled off, probably for good, says Suba­singhe. And the world's dependency on Asia continues to rise because the continent grew 92 percent of the world's farmed seafood in 2004; China alone raised 70 percent.

Much of what's farmed in Asia is processed there, too.

"It just makes sense," says Lem of the FAO. "It's just plain stupid to ship fish heads and guts overseas."

What's more, it's cheaper to process seafood in Asia, because land and labor are cheaper there than in North America and Europe, adds Lem.

Domesticating fisheries

Fisheries-management policy has fueled the growth of the global seafood trade as much as, if not more than, innovation since the mid-20th century (see policy timeline at right).

It all started with the domestication of fisheries in the 1950s, which forced countries to import seafood that they were no longer allowed to harvest off foreign shores, says Anderson of the University of Rhode Island.

In 1952, Ecuador, Peru and Chile claimed exclusive rights to waters within 200 nautical miles of their coastlines to keep foreign fishing fleets out.

By the mid-70s, exclusive economic zones encompassed only about 30 percent of the globe's seas but yielded more than 90 percent of the world's 150-billion-pound seafood catch, notes Barbara Kwiatowska in her 1989 book "The 200-Mile Exclusive Economic Zone in the New Law of the Sea."

The United States became the 38th nation to implement an EEZ when it adopted the Magnuson-Stevens Fishery Conservation and Management Act in 1976. EEZs were recognized internationally 
by 1982.

Congress continued to encourage the development of domestic fisheries by enacting the Processor Preference Act in 1978 and the American Fisheries Promotion Act in 1980 and forming the National Fish and Seafood Promotion Coun­cil in 1986.

As a result, U.S. landings of edible-seafood products jumped from 3.7 billion pounds in 1980 to 7 billion pounds by 1990. Then they leveled off, exceeding 8 billion pounds only once, in 1993.

U.S. aquaculture production has also been flat at less than 1 billion pounds, about 75 percent of which is catfish.

Meanwhile, America's appetite for seafood continues to mushroom. U.S. per capita seafood consumption increased from 12.5 pounds in 1980 to 15 pounds by 1990 and reached a record 16.6 pounds in 2004, the latest figures available from the National Marine Fisheries Service.

To quench the burgeoning demand for seafood, U.S. suppliers turned to foreign product. From 1980 to 1990, U.S. imports of edible-seafood products increased 35 percent, to 2.9 billion pounds. By 2004, they neared 5 billion pounds, up 72 percent from 1990.

Unintentional consequences

The introduction of EEZs and the domestication of fisheries wasn't the only policy to alter the landscape for U.S. seafood buyers.

The General Agreement on Tariffs and Trade was adopted by 20 countries in 1947 to reduce or eliminate tariffs in an effort to promote international trade. The World Trade Organization was formed in 1995 to pick up where GATT left off. Today, the WTO has 150 member nations.

This year, Congress revoked the Byrd Amendment, which allows domestic companies to collect tariffs, and the U.S. Department of Com­merce stopped using a controversial practice called zeroing to calculate tariffs, after the WTO deemed both illegal.

"The worm has turned," says Greg Rushford, editor of The Rushford Report, a monthly news­letter on the politics of international trade, in Washington, Va. "The U.S. used to get away with preaching free trade and practicing the opposite. The U.S. has gotten away with a lot over the years. But that's changing."

Sometimes, policy unintentionally promotes the growth of the global seafood trade by dictating who buys what from where.

For example, Congress enacted the Jones Act, part of the Merchant Marine Act, in 1920 to domesticate the merchant-marine industry. Ac­cording to the law, only U.S. built, owned and crewed ships can transport goods between U.S. ports.

By shutting out foreign competition, the Jones Act raises the cost of shipping goods between U.S. ports. Often, it's cheaper to ship seafood from a foreign country to the United States than it is to do 
so between U.S. ports, explains Anderson.

The Jones Act "creates the incentive to go abroad," he says. "It's not just people trying to make a buck. It's people reacting to policy."

The same can be said for the tariffs the USDC slapped on shrimp from six Asian and Latin American countries in 2005, the outcome of an antidumping petition the domestic shrimp industry brought in 2003.

The tariffs didn't cover breaded shrimp. So, to avoid the tariffs, U.S. companies either moved their breading operations overseas or 
imported breaded shrimp instead 
of raw shrimp.

As a result, U.S. breaded-shrimp imports nearly tripled, to 98.3 million pounds, from 2004 to 2005. Meanwhile, total U.S. shrimp imports increased 2 percent, to 1.17 billion pounds, despite the tariffs.

"I don't see U.S. seafood imports slowing," says Anderson, "unless there's some major shift in political agenda."

It's clear that America's appetite for seafood will only grow. The country's Hispanic and aging Baby Boomer populations, who eat more seafood than the average American, are skyrocketing. And seafood is an ideal source of lean protein and heart-protective omega-3 fatty acids, which appeals to health-conscious Americans.

It's also apparent that demand for seafood is growing at a faster rate than U.S. wild- and farmed-seafood production.

The only way buyers like Darden, Joey's Only, McCormick & Schmick's and suppliers like New­port International, Maritime Pro­ducts and Alfa Gamma can satisfy their customers is to go overseas, where opportunities abound for buyers with a purchase order.

Associate Editor Steven Hedlund can be e-mailed at shedlund@divcom.com

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