Maine ponders industry strategy as lobster protests continue in Canada

By Bill Trotter, BDN Staff
Posted Aug. 08, 2012, at 8:51 p.m.

ELLSWORTH, Maine — As protests in New Brunswick over Maine lobster imports have flared up and shipments across the border into Canada have slowed to a crawl, the commotion has injected new urgency into a persistent question in Maine: How can the state increase Maine’s processing capacity and keep more of the market value of Maine’s $334 million commercial lobster fishery?

A sizeable portion of lobster caught in Maine’s waters — some have said it’s as high as two-thirds at some points during the year — is shipped to Canada where Canadian firms cook and freeze the meat, packing it as lobster tails and other products. According to the Telegraph-Journal newspaper of Saint John, N.B., 80 percent of the $400 million worth of lobster products processed each year in the province is shipped to the United States.

Maine lobstermen this year have had to contend with the lowest prices they’ve been offered in decades due to a glut of soft-shelled lobsters. Such lobsters aren’t well suited for shipping live, which has been the traditional market for the the state’s lobster industry, and so generally have to be processed into cooked meat and frozen tails in order to meet market demand.

On Tuesday, Gov. Paul LePage issued a press release saying that, to help address the broader issue of relying on Canadian processors and to add more value to Maine’s catch, there should be more processing capacity in Maine. Canada has two dozen lobster processors, he said, while Maine has only three: Cozy Harbor Seafood of Portland, Linda Bean’s Perfect Maine in Rockland, and Shucks Maine Lobster in Richmond.

“That’s why my administration has been exploring ways to implement smart strategies that drive energy costs down and provide incentives to build more processing plants in the state,” LePage said. “The lobster industry is a critical component of our Maine heritage and economy. It deserves our attention.”

But John Norton, president and CEO of Cozy Harbor Seafood in Portland, said Wednesday that though he would love to reduce his energy bill, there are other costs he faces that are more onerous — costs that are not nearly as formidable for his Canadian competitors.

Norton said his firm spends about $350,000 a year on wastewater disposal costs and another $250,000 to $300,000 on health care expenses, which he expects will increase when elements of President Obama’s new health care plan go into effect in 2014. Canada has nationalized health care, he said, and their processors are allowed to release water byproduct from their processing operations back into the ocean.

“We do have expensive energy costs, but that’s not what determines how competitive our processing sector is,” Norton said. Wastewater and health care costs “far outstrip the energy cost issue,” he added.

There are other ways that Canadian processors have a competitive advantage over those in Maine and other states, according to Norton. The provincial government in New Brunswick subsidizes capital equipment costs, which can run up to $1 million dollars or more just for a high-end piece of equipment and another couple of million for a building to put it in. In Quebec, he added, processors get operating subsidies for their labor costs and for the amount of lobster they handle.

“That’s part of the equation,” Norton said of the competitive advantage enjoyed by Canadian processors. “To my knowledge, it’s not so much the federal government as it is the provincial governments.”

Canadians also have nonsubsidy related advantages, he said. They have a longer processing season, with different parts of the maritime provinces fishing at different times of the year. They also are permitted to process lobsters that are larger and smaller than the size limits in Maine, even though a new law adopted last year in Maine allows processors here to process large lobsters that show up in shipments from Canada. However, that law is set to sunset in 2013, Norton added.

Norton said his company employs 225 people on a seasonally fluctuating basis and likely will process eight million pounds of lobster this year. He said he would be happy to expand his firm, but that it doesn’t make sense to expand processing without also expanding the market of customers for lobster products.

He said there may not be much processing in Maine but he thinks the U.S. and Canada combined have too much processing capacity, spread out over an annual basis, for what the global lobster market can consistently support.

“If you don’t focus on marketing, more processors in Maine is just going to force the price down,” Norton said. “If you want to increase the price [fishermen are paid], then you have to increase the price people are willing to pay for the product, and that means expanding the market.”

A case in point, Norton said, is what happened to Live Lobster in the past year. Live Lobster, a lobster distribution firm based in Chelsea, Mass., last year opened its first processing facility in the Gouldsboro village of Prospect Harbor, in a former sardine cannery that it purchased from Bumble Bee Foods. The company also has buying stations in Phippsburg, Rockland, Spruce Head and Stonington.

Live Lobster, which operated in Maine as Lobster Web LLC, has been idle since March, since its checking accounts were frozen. The company is being sued by its bank and by a former company official for more than $3.5 million.

Norton said Antonio Bussone, Live Lobster’s president, got into the processing sector without first trying to seek out new markets and securing customers. As a result, Bussone had difficulty selling the lobster he processed and tried to reduce his price, which had a ripple effect on Maine’s other processors.

“He was one of the players who helped cause that,” Norton said. “He wasn’t the only one. Some of the Canadians were doing the same thing, but they’re subsidized. They could survive. He could not.”

Attempts Tuesday to contact Live Lobster officials for response to Norton’s comments were unsuccessful.

Norton added that because of the seasonal fluctuations of landings and the challenges of shipping live lobsters, both to processors and to other buyers, it can be an “extremely complex” and expensive business.

“You have to have market and you have to have capital,” he said. “Neophytes tend not to do well in that regard.”

John Hathway, president of Shucks Maine, agreed with Norton that improved marketing is necessary. He said that, despite the many subsidy advantages that Canadian processors have, there is one marketing strategy that will never be at their disposal. They can never market their lobster as a product of Maine.

“What we have that they don’t have is a great brand,” Hathaway said. “We just need to be innovative.”

Both Hathaway and Norton cited the wild salmon fishery in Alaska as a successful model. The salmon industry there greatly increased demand for its product through marketing and now it is widely available in supermarkets throughout the country, they said.

And as its market has expanded, Hathaway said, salmon has remained a premium product rather than just becoming a substitute for chicken or ground beef. Lobster, like wild salmon, will never be as plentiful as chicken or beef, he said, and so should be able to retain its premium status.

“In the U.S., the Maine brand is strong,” Hathaway. “There are huge untapped markets right here in this country.”

Hathaway was lukewarm to the idea of spending public money on improved marketing but according to Patrick Keliher, commissioner of Maine’s Department of Marine Resources, the state has been looking for several years into ways it might boost its generic marketing campaign for Maine lobster.

The Maine Lobster Promotion Council currently has an annual budget of $400,000 a year, Keliher said Wednesday, but DMR is looking into ways to assess an undetermined surcharge on lobster fishing, dealer and processor licenses that would raise as much as $3 million each year for marketing.

Reorganizing the lobster council also has been informally discussed, he said, but no concrete proposals have been submitted yet to the governor or Legislature.

Keliher said there is not universal support in the state’s lobster industry for the marketing surcharge concept, but many in the industry have said it could prove to be a good investment.

“If we do nothing, we’re going to get nothing,” the commissioner said.

Follow BDN reporter Bill Trotter on Twitter at @billtrotter.

http://bangordailynews.com/2012/08/08/business/maine-ponders-industry-strategy-as-lobster-protests-continue-in-canada/ printed on December 18, 2014