Introduction to World Crab Markets

1
Introduction to World Crab Markets

• Maximizing Value from the Crab Fishery in
  Atlantic Canada
• John Sackton
• Seafood.com

2
Description of U.S. Crab Market

• Products
• Buyers
• Sources of Crab
• Market Structure
• Price History

3
Crab Products in U.S.

• Sections
• 3-5 oz
• 4 up
• 5-8 oz
• 8 up
• Ocean run

• Crabmeat
• 5 lb block
• 70 body 30 leg
• Specialty items
• Cocktail claws
• Snap and eat
• Scored sections

4
U.S. Buyers

• Retail
• Crab is promoted on specials
• Move large volumes
• Very price sensitive
• Out of Market over 4.00

• Foodservice
• Buffet Houses and Casinos Major Users
• Asian Buffet
• Heavy Seasonal Volume
• Small crab (3-5 oz) not economical for Buffet
• High Traffic Item

5
Sources of Crab for U.S. Market
6
Breakdown of CA Exports in 2002
7
U.S. Largest user of Canadian Crab
8
Canadian Crab Exports to US continue to increase
in volume and value
2000
2001
CA Avg Value 1999 3.11 2000 3.90 2001
3.19 2002 3.35
9
Greenland crab a small factor in U.S.market

• Shipments from other Provinces much greater than
  imports from Greenland
• Growth of Canadian imports have been faster than
  growth of Russian or Greenland crab imports to
  U.S.

10
Market Structure

• U.S. Importers
• Direct Sales by Canadian Processors
• Direct Sales to End Users (Darden, Sysco)
• Most distributors and retailers do not buy
  direct, but through importers who supply them
  other products

11
CA Market Share Stable in terms of world
production for 2002
12
US inventories and Prices
13
Price History
14
price history 1994-2002
15
World Supply in Recent Years
16
Japanese Crab Market

• Characteristics of the Japanese market
• Crab a necessity for many buyers
• Market has changed significantly over last few
  years
• Major disruptions caused by shutting down of
  Russian fishery
• Economy and Currency major factors for Japan
• Japanese companies own overseas plants in China
  and Thailand

17
Japanese Crab Products

• Live Crab
• Whole Frozen Crab
• Gas Frozen Sections
• Brine Frozen Sections

• Crabmeat
• Sushi merus meat
• Other picked crab meat

18
Japanese Buyers

• Major Importers set prices
• Japanese companies Processing in China also set
  prices
• Complex multi-layer distribution system starts
  with importers, who take financial risk

19
Market Structure

• Foodservice
• Vacation and luxury restaurants Hokkaido
• Sushi restaurants
• Retail
• Department stores
• Seasonal Gift occasions

20
Shipments to Japan recovered in 2002
21
Japan Snow Crab Supply Trends
Data Japan Marine Fisheries Assoc Seafood
Datasearch
22
End of Year Inventory in U.S. and Japan
23
Japanese Inventory Problems

• Problems selling high priced crab
• Consumers moving to lower quality items
• Took time for sellers to adjust

24
Japan Origin of Supply
Data Japan Marine Fisheries Assoc Seafood
Datasearch
25
Japan Supply and Price Trend
26
Japanese Crab Supply is Declining
27
Trend will continue due to Currency and Economy
28
World Production of Snow Crab

• Dramatic Change in past several years
• Collapse of Alaska
• Rise of Atlantic Canada
• Collapse of Russia
• Greenland also a factor

29
Landings by country in recent years
30
World Supply in Recent Years
31
Alaska Fishery

• Continues at Low level
• Generally Highest Quality Crab
• Undergoing restructuring and rationalization
  process, will go to Individual quotas with
  processor quotas
• Significant Japanese Ownership of plants
• Fishery is volatile, and can rebound

32
Canada

• Major increase in total production, especially in
  Newfoundland, but also in Nova Scotia.
• Primary source for Japanese
• Two types of crab Gulf crab and Newfoundland
  crab.
• Fishery is Volatile, can expect major changes in
  stock status
• Currently Worlds largest supplier

33
Greenland

• Quotas are not Harvested due to lack of
  processing capacity.
• Crab runs very large.
• Year round fishery
• Potential to increase landings

34
Closer review of price history

• Prices driven by supply
• High prices call out substitute products
• Changes in Supply Lead to Price volatility
• Customers lag in leaving market
• Once gone, hard for certain customers to return
• Examples crabmeat 2002, sections 2001

35
price history 1994-2002
36
U.S. and Japan Competition

• Importance of both markets to Canada
• Prices set by internal dynamics of market
• Prices also set by buying strategy
• Cash flow needs of producers
• Seasonality of price movements

37
Seasonality of Price movements

• Consistent pattern of price increases in the
  fall.
• Storage costs
• End of season, no need to buy new product
• Prices tend to rise in the fall

38
Newfoundland Experience

• 1997 Strike
• Caused by Market Crash
• Final Offer Arbitration put in place 1998
• In season adjustment of prices
• Third party independent market expert
• Successful in reducing volatility

39
Managing Market Declines

• Processor point of view
• Fisher point of view
• How to manage risk
• Newfoundland example

40
1999 to 2001 Experience Better than 1995 to 1998

• Peak to Trough Value
• 5-19-95 5.30 for 5-8 Sections
• 5-6-98 2.25 (58 Decline)
• 2-19-99 4.50 for 5-8 sections
• 8-29-01 3.25 (28 decline)
• Success reducing volatility in Sections, no
  precipitous market collapse.

41
New Problems Emerge

• Overcapacity of Processors
• Expansion of Licenses
• Entire Profits of Fishery depend on Crab

42
Price Premiums and market formula

• Initial formula from 1997
• Competition forced processors to pay premiums
• Situation not stable
• Some businesses will fail
• Negotiations underway

43
Outlook for 2003

• U.S. will have weak demand
• Japan will have a weak demand
• Prices will be pushed lower

44
Price Factors in 2003

• U.S. Buyers Pull back from Market due to Price
• Retailers not interested in crab
• Buffer Houses cannot buy over 4.00
• Everyone afraid of prices falling
• Buyers are paralyzed

• Japanese need Canadian crab
• May face weaker currency
• Do not want to price market too high
• Russian crab a question mark.

45
Conclusions

• Current Situation encourages Market Volatility in
  Canada
• Market volatility limits the size of the market
• If resource is stable, volatility keeps total
  return below long term potential.
• If resource is volatile, then stake holders get
  no benefit from long term value.
• Next year, fishery will not return its maximum
  economic value, but prices will remain high.