Good morning.
I'm John Sackton. Just to give you a very brief background, I publish Seafood.com News and I'm a market analyst. I deal a lot with fish commodity prices. I've been involved with the Newfoundland crab fishery for about 12 years.
After a strike in 1998 or maybe 1997, I came in the following year because the province developed a final-offer selection process and wanted a third-party market analyst to report on crab prices in the U.S. and Japan. Those crab prices were used at that time by the FFAW and FANL to negotiate a formula that adjusted the prices to the boats. The rationale behind this was to get the season started without either side or either party taking excessive risk.
The history of the crab fishery, particularly with the heavy landings that occur towards the end of May, is that the prices invariably go down in the market from the start of the fishery in late April and May until the end of May or the beginning of June. If you know that these crab prices are going to go down, it's very hard to judge who's going to take the risk, so at that time the market-based formula was designed to adjust prices to the harvesters up or down, depending on the market performance. Adjustment was initially on a biweekly basis. Also, for most of those years there was a much more favourable Canadian dollar exchange rate in the U.S. market for crab exporters, and because of that there was room in the value of the commodity for all of this to adjust.
My role in terms of providing a market price that then adjusted actual vessel prices ended in 2008 or 2009. It ended in the first year that the U.S. and Canadian dollars got to parity, which I think was 2008. That put a tremendous amount of pressure on Canadian crab exporters, and the market-based formula in that year would have returned a crab price to harvesters below $1.50. I'm not quite sure how it was decided, but at that point there was certainly a feeling that the $1.50 price had to be maintained. As a result, the market-based formula was abandoned.
In that year, it so happened that if you took all of the prices into consideration, $1.50 was in fact a good, accurate price. Even though for a few weeks you might have seen $1.45, in other weeks you would have seen $1.55 or whatever, and it averaged out.
For the last two years I've been under contract from the province to do market monitoring for the crab markets and give a report at the end of the year, but I've had no involvement in directly providing information for price-setting.
The point I want to make is that I think a lot of the stress the industry's been under is directly related to the U.S. dollar exchange rate. When we had the price formula, the U.S. exchange rate was included as a factor in the formula. When the prices were changing every two weeks, often the biggest single factor in that change was the volatility of the exchange rate, and when the exchange rate moved towards parity, it made a very significant reduction in income to the entire industry.
Looking back at the last 10 or 12 years, my view is that when the exchange rates were favourable for exporters, it really provided the industry with a cushion to negotiate. There was room for processors to make money and there was room for harvesters to make money. Now that the cushion has been eroded and our dollar is at par, it's put an extreme amount of pressure on the industry.