Fisheries Committee on March 31st, 2009

[Linus Bungay]

I'd say that the inventory situation, from our perspective, is that we're slightly above where we would be in any other year. The biggest concern with that is about where we are going to sell our products in 2009. If any one of us processors—and we're all in it together—has inventory, it is going to greatly impact what the price is going to be in the marketplace come May 1.

We're going to be moving into the market in Europe, which traditionally buys a large portion of canner lobsters, the smaller-sized lobsters weighing less than one pound. It's a lobster product that allows the greatest volumes to go through processing plants. In most cases, it's really during a two-week period that the greatest majority of lobsters are harvested. It is really the only way for processors to be able to handle that product and get it safely through their facilities.

That pricing is going to be tremendously affected. I would suggest to you, based simply on inventories left over from 2008, that it will cause the prices to be 20% to 25% lower coming into the 2009 season.

[Scott Andrews, Liberal, Avalon, NL]

You just said, though, that your inventory now is about the same as it was last year.

[Linus Bungay]

I said it's slightly higher, but you have to think about the fact that I'm not the only processor. Collectively, whoever has the inventory, whether it's me or someone else, has to go through the same markets.

[Scott Andrews, Liberal, Avalon, NL]

When you say “slightly higher”, do you mean it is 20% higher, 10% higher than normal?

[Linus Bungay]

We're a private company, and I don't really want to divulge that type of information. I don't think it's healthy for the market to divulge that type of information. We've had one incident already this year in which we divulged that information, and the next week at Ocean Choice we could not handle the telephone calls from people saying, “So you're having a fire sale in the lobster business?” It's not really good for us to be talking about what kind of pressure this has on the markets, because once that information gets out in public, it will drive down the price.

[Scott Andrews, Liberal, Avalon, NL]

Since the fall, have you managed to move the inventory? Has this been an issue? How much effort have you put into moving the inventory this winter?

[Linus Bungay]

There's been tremendous effort to move all inventories. Fall inventory and spring inventory are two different types of inventory. Fall inventory is usually a market-size lobster that's processed mainly for the U.S. tails and meat market, whereas your spring season would be more of the whole cooked or whole raw and popsicle packs. They would be different markets. I would suggest there are very few processors who would be carrying inventory from the fall season.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

We're in a crisis, and obviously a research and development effort is not necessarily going to solve the 2009 season. But in terms of your product line, where is this going? Could you give us a forecast of what you think is going to happen in the spring of 2009 in the Atlantic industry? You are the biggest player, relatively speaking, except for Clearwater, and Clearwater just announced a $102 million write-down. What can we expect from this?

[Linus Bungay]

It's a very volatile situation. It's very difficult to say exactly how this is going to play out. I look back at the lobster pricing that occurred in Nova Scotia in December. Most of our customers would look at that pricing at $3.25 and say that lobster with a shore price of $3.25 is good value, a good buy, and the majority of the people can afford to purchase that lobster. Rather than purchasing some lower-grade meat products, they would see the health benefits in that.

If we're looking to move high-end value-added products at a price that's going to be feasible for fishermen to live with, the price is going to be much higher, but then we limit who we can market it to. If we can only market it to white tablecloth customers, for example, I would suggest to you that this market is probably, in the U.S. right now, down about 25% to 30%. In January and February, most of them would have seen close to a 50% reduction. I would suggest that in the springtime there's going to be a 25% to 30% reduction in white tablecloth.

So we have to ask ourselves whether we are marketing the product in a manner that's going to move it through volume and in specific markets, or marketing it as a value-added product. I would suggest that come the springtime, based on what happened out of the Southwest Nova season, we're going to be trying to move volume—and based on inventories from 2008.

[The Chair, Conservative, Rodney Weston]

Monsieur Lévesque.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

If I understand correctly, Ocean Choice is a very big player in this market. Is it the largest or second largest?

[Linus Bungay]

Yes, I think that's fair.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

This morning, witnesses talked to us about decisions made by the Government of Prince Edward Island.

To what extent do you have any influence over the government's decisions? Apparently, there are costs associated with protecting the fishermen of Prince Edward Island. Could this influence prevent the government from taking measures here?

[Linus Bungay]

I certainly would have no more control over the provincial governments than I have over this committee. I cannot influence a provincial government decision.

I would commend the government for forming a P.E.I. lobster round table dealing with P.E.I. issues. I would commend the fishermen and the other processors for coming to the table and working diligently to try to find some of the answers that this committee is also trying to find, with a slant towards P.E.I. stakeholders.

All stakeholders are at that table. I think ministers Campbell and LeClair have worked as hard as they can. I believe that fishers and harvesters on that committee have worked very hard, as well as processors. We try to find common areas to work in for the benefit of the industry, not for the benefit of Ocean Choice or any one company, and we don't influence anything.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

You talked about employing people to serve as middlemen or intermediaries between fishermen and companies. Considering the low prices that you can obtain for selling and marketing your products, wouldn't it be beneficial for the fishermen to have agents who are not middlemen, but employees of the company who can deal directly with him, without incurring any additional costs for the company? This would eliminate the intermediary fees that are probably costing fishermen a lot of money.

[Linus Bungay]

You're making the assumption that I can buy the same volume year after year, and that assumption has not been true for Ocean Choice. Our buy has dropped by more than 50% over the last three to five years, which means that my cost on the wharf has risen by 100%. On most of those wharves, we're dealing with the same commission buyer, so for us it's working together to take some cost out of the industry.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Indeed, it is the fisherman who loses the most. You have the same information, regardless of whether you are dealing with a an agent on commission, or a paid employee who deals directly with the company. It has the same impact on your income and the delivered price for lobster.

By eliminating the commission fees that you pay to middlemen, could you offer a better, slightly higher price, that would allow you to keep your fishermen and prevent their gradual decline on Prince Edward Island?

[Linus Bungay]

Again, sir, I would suggest that you're making the assumption that my costs with the commission buyer and the direct buyer are the same, or less. That is information we made a decision on, so I would suggest that the assumption is not correct.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

All right. Thank you.

[The Chair, Conservative, Rodney Weston]

Thank you.

Mr. Stoffer.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Thank you very much, Mr. Chairman.

Sir, thank you very much for coming today.

Sir, who is the major shareholder among the owners of Ocean Choice?

[Linus Bungay]

There are Martin and Blaine Sullivan, there's Ches Penney, and then there's an Icelandic partner, Visir.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

We have heard about the difficulty of accessing lines of credit. I don't know if it's easier or harder for a company of your size to access lines of credit. Which financial institution do you normally deal with, or are you allowed to divulge that information?

[Linus Bungay]

I'm guessing it would have been a better question for the president of the company to answer, but we deal with an Icelandic bank, and I don't think it's any easier for anyone, big or small these days, to get access to cash.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Did the Icelandic problems—and you know that they took over those banking systems—interrupt your flow of credit?