The Effect of Redused Landings on Fresh Fish Processing in New England
By Daniel Georgianna and Joel DirlamABSTRACT
Fresh fish processors buy whole fresh supplies from fishermen locally and at other New England ports, and they bring in fresh supplies from other parts of the US, from Canada and from other countries. They process the product (for example, cutting fish into fillets) and sell these products to wholesalers, retailers, restaurants, and other final users. When landings were plentiful in the past, most processing firms specialized in specific products, but a few firms, mostly in Boston and New Bedford, processed a wider assortment of fishery products to serve as a kind of one-stop shopping point for their customers.
Supply of fresh fishery products is highly volatile because most fish and shellfish are essentially captured in the wild. Farmed fishery products, a much less important source of supply, are also subject to far more variability than domestic livestock, fruit, or vegetables. Prices that processors pay at the dock and the prices they receive for their products, therefore, vary daily and sometimes hourly. Haggling defines the fresh fish business.
The fish business is also risky. Fresh fishery products are marketed under extreme time pressure and with incomplete information. Fresh fishery products must be sold within a week to 10 days to final users, who are very concerned about product quality. Yet wholesalers and others who buy from processors do not generally know product quality because most sales are made over the telephone and the product arrives after the sale has been agreed on. Buyers take serious risks with their suppliers, expecting high-quality product delivered on time. Processors and wholesalers selling in this market also take risks with their customers because they can't reclaim the product for bad debts. To avoid risk, customer loyalty develops between processors, their suppliers, and their buyers in the fresh fish business. Product quality and financial responsibility are the ties that bind fresh fish processors to their good customers and vice versa.
The expansion of the fishing industry that followed the 200-mile limit carried over into the fresh fish processing industry. Established firms in Boston, New Bedford, and Gloucester hired fish cutters, trimmers, packers, and other specialized tradespeople, and they paid good wages to prepare fresh fillets for the market. New firms sprang up in these ports, and in the smaller ports, especially on Cape Cod, new firms and fishing cooperatives tried their hand at cutting and marketing fresh fillets. Fresh fish was available on the docks, and fresh product was easy to sell to health-conscious consumers at high prices. Fishermen increased their catch of other products such as sea scallops, which are almost always shucked at sea, other high-valued species, such as lobster, and even lesser-valued products like herring and squid. Shoreside processors bought and processed or simply repackaged whatever fishermen landed and quickly sold the products on the wholesale market for high prices. Business was good.
When fishing began its downward spiral in the early 1980's, the fresh fish processing sector followed. Rising prices pushed revenues higher but not for long because higher prices generated consumer demand for substitute products. Prices for fishery products were limited by the prices of these substitutes.
The value of fresh processed products in Massachusetts reached its peak in 1986 at $261 million, but fell to $150 million by 1995, before recovering somewhat to $173 million in 1997. Adjusting these values for inflation by converting to 1997 dollars, shows a more dramatic decline. The real value of fresh product fell by more than 50 percent from its peak in 1986. Almost all the decline in fresh product value was in fresh fillets caused by the collapse of groundfish landings in New England.
Some firms have found it impossible to continue in business in the face of this drastic decline in supply of raw material and production. They liquidated. About 40 firms have left the processing sector since 1992, more than one-third of the firms in business then. Surviving firms adopted a wide assortment of strategies to stay in business. Fish processing and wholesaling firms-family businesses for several generations, with established goodwill and experience in meeting crises-were not likely to exit easily.
Surviving processors intensified their buying within New England, to ensure that they maintained at least their share of the dwindling landings. They went farther afield from their home port to establish new buying relationships. Processors adjusted their purchasing to the marketing innovation of display auctions that were recently established in New Bedford and Gloucester. These auctions were modeled on the Portland Fish Exchange, which had successfully modernized Maine's fishing industry a few years before. As supply continued to shrink, the surviving processors scoured the smaller ports for product, buying wherever they could, often in very small lots.
In addition, surviving processors imported more whole and processed fish. However, Canada, the traditional supplier of groundfish to the United States, has also suffered a sharp decline in landings. In 1991, Canada closed the Grand Banks, once the richest cod grounds in the world, to fishing for cod, and it has not allowed fishing for cod since. Imports of groundfish from Canada have largely been replaced by imports from Iceland and elsewhere. Fresh fish processors also brought in more fresh and frozen Pacific cod to process as fresh fillets.
Because they couldn't find enough traditional products to satisfy their customers, processors switched to different species and products before fishermen did. They persuaded their customers to buy substitutes, even though New England consumers in particular were reputed to have an indissoluble attachment to traditional species. Processors and wholesalers imported farmed salmon, shark, tilapia, mahi mahi, and orange roughy, and they brought products from other parts of the country, such as catfish from the South, to supply restaurants and retail fish counters in New England and elsewhere.
Some fresh fish processors exploited niches such as selling high-quality product directly to customers for special events, such as catered business cocktail parties, promotions, trade shows, and even private parties. Some processors stopped cutting fillets in order to save expenses and concentrated instead on using their business contacts and inside information to wholesale products without processing them.
All surviving processors paid more attention to the bottom line. Shortage of supply of raw material intensified competition in buying whole groundfish among fresh groundfish processors. Other costs also increased. Substantial new investment in both equipment and training was necessary to conform to new health regulations. Final demand prices at the retail level, however, didn't rise as much because competition from substitutes like chicken severely limited price increases for fishery products. Supermarkets improved their handling and marketing of fresh fish products, attracting customers rebelling against higher prices in specialized fish markets. Dozens of small fish markets went out of business. Processors sold less product to fish markets, where they had developed personal relations, sometimes over several generations, and more product to supermarkets, which operated on narrow margins of their own and traditionally drove hard bargains with their suppliers.
Most of these survival strategies favored Boston firms. Access to Logan Airport and access to the New England regional food wholesaling system in Boston gave them an advantage over processing firms in other ports. Access to raw material gave other ports an advantage during the boom in landings, but this advantage has disappeared with the decline in landings. New Bedford processors, who used to truck whole fish into the city from other ports, now process only the fish that is landed locally. Processors in Gloucester and other Massachusetts ports now process fillets for local customers and ship the rest whole to Boston for processing.
View Seafood Markets and Fishery Management: Conceptual and Empirical Issues Session
