Atlantic Canada lobster industry: structure & markets Lobster summit October 2007 Gardner Pinfold 1
The lobster industry - vital to communities in Canada & U.S. Canada Landings 40-50,000 t $550-650 million 9,770 vessels 50 plants 35,000 employed $1,000 million exports Canada exports 80% to U.S. U.S. Landings 30-40,000 t $400-500 million 7,500 vessels 4-5 plants 18,000 employed $150-200 million exports Canada imports 50-70% for processing & re-export Gardner Pinfold 2
Lobster is the key species in Atlantic Canada $1.6 billion total landed value Three species dominate: lobster, crab & shrimp Lobster: decline & recovery to 40% Crab: cyclical growth & price instability Shrimp: steady revenue decline $000s 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Atlantic Canada fisheries landed value by species, 1990-2004 1990 1992 1994 1996 1998 2000 2002 2004 2006 lobster crab shrimp scallop all other Gardner Pinfold 3
Canada & U.S. lobster supply Total fairly steady at 80-90,000 t Canada produces 55% U.S. produces 45% Slide in Canadian landings since 2001-2005, recovery in 2006 tonnes 60,000 50,000 40,000 30,000 20,000 10,000 0 Canadian and U.S. lobster landings, 1990 1992 1994 1996 1998 2000 2002 2004 2006 Canada United States Gardner Pinfold 4
The resource: a question of sustainability - FRCC Issues Uncertain abundance Low egg production High exploitation rate Poor stock size structure Excessive waste Inadequate research Poor effort control Illegal activities Recommendations Improve knowledge Allow 50% maturity Reduce fishing effort Reduce exploitation rates Adjust seasons Better fishery data/ research Measures to limit competition Improve MCS/sanctions Gardner Pinfold 5
Lobster landings by province NS up by 75% from mid- 1990s PEI steady with slight increase in 2006 NB steady with drop in early 2000s QC steady with slight decline in 2006 NL steady with slight increase in 2005 tonnes 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Lobster landings by province 1990 1992 1994 1996 1998 2000 2002 2004 2006 NS NB PE NL QC Gardner Pinfold 6
Lobster demand Lobster exports in Canada are approximately a $1 billion industry. US accounts for 81% of Canadian lobster exports, just over $800 million CDN. US 81% Canadian lobster exports, 2006 $1.0 billion Other 3% EU 13% Japan 3% Gardner Pinfold 7
Canadian lobster exports Live accounts for 50% until early 2000, now down to 40% by value Frozen products grow in absolute and relative terms with increasing demand for tails/claws 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Canadian lobster exports by product form 1997 2000 2003 2006 Live Frozen Prepared or preserved Gardner Pinfold 8
Expanding live lobster export trade between U.S. & Canada Increased since the early 1990s. Peaked in 2002 with just under 20,000 t. Declined 2002-2005 Rising US shore prices High inventories of processed lobster Recovered in 2006 Rising U.S. landings Favourable prices Lower demand in 2007 tonnes Live lobster trade, Canada and the U 1990-2006 25,000 20,000 15,000 10,000 5,000 0 1990 1995 2000 2005 Canadian export to US US export to Canad Gardner Pinfold 9
U.S. exports 50-70% of landings to Canada 10,000 U.S. lobster landings and live exports to Canada by month, 2003-2006 8,000 tonnes 6,000 4,000 2,000 0 Jan 2003. Source: NMFS apr jul oct Jan 2004. apr jul oct Jan 2005. U.S. landings apr jul oct Jan 2006. U.S. Exports to Canada apr jul oct Gardner Pinfold 10
Imported lobster from U.S. adds greatly to export value in NB Lobster landings by province Lobster exports by province $450,000 500,000 $400,000 $350,000 400,000 $000s $300,000 $250,000 $200,000 $150,000 $000s 300,000 200,000 $100,000 $50,000 100,000 $0 1990 1992 1994 1996 1998 2000 2002 2004 2006 NS NB PE NL QC 0 1997 2000 2003 2006 NB NS PEI QC NL Gardner Pinfold 11
Lobster market weakening, exchange rate cuts revenues US$ price starting to level off after several years of steady growth CAN$ price shows downward trend since 2003 due to exchange rate Weak supply in early 2007 led to price spike, but markets soft in second half with strong U.S. landings and weak Canadian demand $/lb 12.00 10.00 8.00 6.00 4.00 2.00 Monthly average export price of live lobster to the U.S. 2002 2003 2004 2005 2006 2007 0.00 jan jul jan jul jan jul jan jul jan jul jan jul Source: U.S. Dept. of Commerce and Bank of Canada CAN$/kg US$/kg Gardner Pinfold 12
Stronger Canadian dollar reduces industry revenue Canadian sales have dropped 40% in value due to exchange rate shift since 2002 U.S. dollar could be trading at or below par in near term CAN$/US$ 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1 0.9 Ja n- 02 J ul- 02 Ja n- 03 CAN/U.S. exchange rate J ul- 03 Ja n- 04 J ul- 04 Ja n- 05 J ul- 05 Ja n- 06 J ul- 06 Ja n- 07 J ul- 07? Gardner Pinfold 13
U.S. and Canadian markets closely integrated Average shore price shifts strongly correlated U.S. shore price greatly influenced by Gulf processing sector demand and U.S. market Price differences by province reflect mainly size and product form 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Lobster shore prices, Canada and U.S. 1990-2005 CAN$/kg 1990 1992 1994 1996 1998 2000 2002 2004 Source: DFO and NMFS tonnes Nova Scotia PEI U.S. total landings 90,000 60,000 30,000 0 Gardner Pinfold 14
Supply and price - live market Canadian export price varies US$9-12/kg, rising to US$14/kg in 2005 Relative stability due to complementary seasons But prices can spike and dive tonnes 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Canadian and US lobster seasons limit price movement 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 US$/kg 0 jan apr jul oct jan apr jul oct 0.00 US (t) Canada (t) US$/kg Gardner Pinfold 15
Live market sensitive to quality Landings, exports and prices, live lobster 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 tonnes jan apr jul oct jan apr jul oct US$/kg 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Live exports to U.S. U.S. landings US landed value US$/kg Canadian landings (market) Export value US$/kg Source: DFO and U.S. Dept. of Commerce Gardner Pinfold 16
Live lobster value chain showing prices and margins at each stage of the market PRODUCT FLOW PRICE FLOW CONSUMER FOOD SERVICE RETAILER $10.00-12.00/lb BROKER DISTRIBUTOR $9.00-9.50/lb Margin: $.25 Cost: $.25 SHIPPER $8.50-9.00/lb Margin: $.25-.50 Cost: $1.00-1.50 BUYER $7.00-7.25/lb Margin: $.20-.25 Cost: $.30-.50 HARVESTER $6.50/lb Gardner Pinfold 17
Processed lobster (frozen) value chain showing prices and margins PRODUCT FLOW PRICE FLOW CONSUMER FOOD SERVICE RETAIL $20.00-24.00/lb BROKER DISTRIBUTOR $16.25-17.50/lb Margin: $.25 Cost: $.25 PROCESSOR $15.75-17.00/lb Margin: $.25-.50 Cost: $15.50-16.50 AGENT $5.50-5.75/lb Margin: $.20-.25 Cost: $.30-.50 HARVESTER $5.00/lb Gardner Pinfold 18
Competition favours harvesters Competition typically drives shore price to 80% of export price Shippers pay 40-50% of margin to buyers CAN$/kg Harvester and shipper shares of live lobster export price 20.00 15.00 10.00 5.00 0.00 1990 1994 1998 2002 2006 shipper harvester Gardner Pinfold 19
Lobster issues: Highly competitive industry Resource Markets Harvest Process/ship Overall abundance stable or declining slightly High exploitation rate in most areas a concern Unknowns pose threat to sustainability Dependent on one major market - U.S. Price sensitive to supply/state of economy Rising concern from animal rights activists Structured for short seasons: fleet/economics Good handling practices but highly peaked supply Strong competition means high shore price Generates low margins: capacity/competition Relies heavily on imports of U.S. lobster Need product development in processed sector Gardner Pinfold 20
Lobster options measures to enhance value Resource Markets Harvest Process/ship Improve scientific knowledge about the resource Reduce harvesting pressure/exploitation rate Introduce increased minimum legal size/eco-label? Diversify into new market areas: EU & Far East Develop consolidated marketing approach Market the environment & and optimal quality Ensure vessels have best holding methods Extend fishery over the season Quality-based pricing in port market Eliminate/limit financial support to industry Ensure adequate holding capacity to time the market Promote product/market development Gardner Pinfold 21
Lobster: short-term prospects Increasing supply puts downward pressure on price Weakening U.S. economy puts downward pressure on price - key factor for second half 2007 Canadian processing sector relies heavily on U.S. landings, keeps upward pressure on price in live market Expect stable to lower U.S. prices, with continued high exchange rate Need to continue optimizing industry structure/capacity to restore financial health to tackle marketing issues Gardner Pinfold 22
Challenges Getting the structure right: optimal harvesting and processing structure with a common aim of producing high quality products to diversified markets Improving the terms of trade: a more coordinated approach to limit the increasing market power of distributors Getting to the right market: product & market development to reduce exposure to commodity conditions Establishing the brand: healthy products/ clean environment/ sustainable harvesting practices Gardner Pinfold 23