First of all, Mr. Chairman, let me apologize on behalf of Mr. Sullivan, who was supposed to make this presentation today. Unfortunately, the weather was not cooperative.
Good evening, members of the committee. My name is Linus Bungay, and I am the operations manager for Ocean Choice International on Prince Edward Island. May I say for the record that Ocean Choice management is very pleased the committee is taking an interest in learning about and helping to solve some of the systemic problems and issues affecting the lobster industry of Atlantic Canada and Prince Edward Island, in particular.
Many of these issues have plagued us for some time. They have become much more difficult because of the global economic crisis, because the seafood industry now operates on a global basis. My company has its head offices in St. John's, Newfoundland. Ocean Choice International came to Prince Edward Island five years ago when we bought the assets of Polar Foods from the government of the province. Since then we have invested over $11 million in technology and other improvements to our facility in Souris at the eastern end of the province.
We have not asked for, nor have we received, any government funding for our initial purchase or in the improvements we have made. We are now the largest processor of lobster on Prince Edward Island and the second largest private employer in the province. Our annual payroll to staff and production workers averages about $8 million to $9 million a year. Our operation is unionized.The United Food and Commercial Workers represent our workers. Our production workers are covered by a contract, receiving health benefits and vacation pay.
We buy lobster from more than 300 fishermen sailing from P.E.l. harbours. As well, we buy lobster from fishermen in Newfoundland and Labrador, Nova Scotia, New Brunswick, and Maine, all told, about 10 to 13 million pounds depending on the year.
We put more lobster products on the international market each year than any other processor in Atlantic Canada. We market our own product, with sales offices in Asia, Europe, and North America. Our processing season extends from May to February. We market our products to more than 20 countries around the world, with our most important market in the United States. When you add in our local expenditures for supplies and the rentals and living expenses paid by over 200 imported workers from other provinces and foreign countries, you get some idea of the economic contribution we make to the town of Souris, to eastern P.E.l., and to the provincial economy.
Lobster processors are truly the middle men in the production and marketing chain that begins with fishermen landing their catch on the wharf and ends with sales of lobster products around the globe. The current market for lobster products can best be described as unstable and extremely price sensitive. The lobster processor is caught between those global market realities and increasing production costs, a dwindling labour supply, and the need for fair returns to fishers. Overriding those pressures is the need to preserve and maintain a sustainable resource. We are sailing into stormy seas. To quote one independent seafood industry analyst, "The seafood industry is about to see much more fallout from the credit crunch.” To use a word that is coming into use in discussing the global economic upheaval, this will be a reset year for the lobster industry in Atlantic Canada.
Traditionally the lobster fisherman has hauled his 300 traps six days of the week during his season. He catches as many legal size lobsters as he can and sells them on the wharf of his home harbour for as much as he can get for his catch to one or another of the buyers representing various companies. There are issues about consistent high quality on the shore that must be sorted out. We believe there should be more quality consistency and that a better grading system should be installed. The fisherman's work is done after the product is landed. The work of the processor then begins.
Bear in mind that about 75% of the lobsters landed on P.E.l. are canner size, weighing up to one pound. There is no other buyer for these animals other than the processors. They are too small for the live market in the restaurant trade. The industry has always operated on an assumption that every fisherman will have an immediate market for all his catch. That notion is based on the presumption that processors will buy every fish they can and process what they cannot immediately sell for inventory. That inventory, in turn, is financed by lines of credit used to pay for the raw product. It is what is known in other industries as bridge financing.
You are all familiar with what has happened to credit with banks and other sources. Credit is harder to get and in many cases is simply not available if it is to be used to finance inventory.
John Sackton writes in his daily online Seafood News that “...there has been a tremendous de-leveraging of bank and insurance company exposure to credit risk”. He is talking here about the recent reluctance of banks and insurers to accept receivables as collateral against risk. It puts enormous pressure on processors to make quick sales, as companies try to bring in enough cash dollars to cover expenses. It also puts downward pressure on the amount of lobster being bought by processors, as well as the prices being paid by them for their raw product.
Our industry needs to be viable, so it can bring more technical innovation to the industry. At Ocean Choice, we have invested in high-pressure processing technology. It subjects lobster to pressure, which separates claw and knuckle meat from the hard shell without breaking up the meat. There are companies with the expertise required to develop machinery that can go one step further with pressure technology, to break and shake meat from the claw in a single operation. Development of this innovation would cost hundreds of thousands of dollars for the prototype. That is a huge investment for a single processing company to make and bear the full cost. Those who followed would get the benefit of such an expenditure.
Human resources is another key issue: the dwindling population in rural areas, creating a scarcity of older workers, and the reluctance of many better-educated young people to replace older workers retiring from the industry. We bring in more than 200 workers each year from Newfoundland and Labrador and from the other Atlantic provinces and foreign workers from Russia, China, and this year from Thailand as well. And we will still have difficulty getting all the workers we need.
The industry needs investment in research and development to come up with new products to meet changing consumer demands and to assist in using all parts of the lobster. We appreciate the investment governments are making in marketing Atlantic Canadian lobster. It is a start, but it is not the answer to our systemic problems.
Lobster has always been portrayed as a luxury, a discretionary food, and has been priced accordingly. That discretionary market has suffered severe impacts, especially in the United States, where lobster has been taken off many restaurant menus and where restaurant chains are closing outlets or advertising complete meals under $10.
In reality, there are several niche markets, not just one. We need to be able to serve them all with our value-added products, from McDonald's to up-scale restaurants to take-home gourmet meals from the supermarket. There is a huge market for a lobster dinner priced under $10—if anybody can figure out how to prepare one and still make a profit.
We need a sustainable resource to make a sustainable industry that will provide a living for fishermen and their families and the production workers in our facility and preserve a shoreline society with thriving communities. We believe it can be done and that we can have a profitable, prosperous industry.
To achieve that, we need to rethink the industry. We must improve quality. We must be consistent with our quality standards. We need more innovation, more research, and more research and development. We must look into the viability of longer seasons with fewer fishermen making a better living fishing more traps. We should strive for an industry requiring fewer workers who make better pay. A sustainable industry must also be a profitable industry. We have too many under-financed companies now.
These are some of the matters that Ocean Choice, as one processor, has taken under consideration. I'm prepared to answer any questions that you might have.
