Fisheries Committee on May 23rd, 2013

[The Chair, Conservative, Rodney Weston]

I'll call this meeting to order.

Before we move into our witness presentation today, there's one item of housekeeping that we need to clear up. I have a standard motion that has been circulated. I'm looking for a mover on that motion.

It has been moved by Ms. Davidson that the proposed budget in the amount of $1,600 for the committee's study of the lobster fishery be adopted.

(Motion agreed to)

Thank you very much.

I was trying to ask Georges what we do if the motion doesn't pass.

[Voices]

Oh, oh!

[The Chair, Conservative, Rodney Weston]

I'd like to start this morning by welcoming our guest, Mr. Irvine, to our committee.

Mr. Irvine, we appreciate you taking the time to come and meet with the committee, give us a presentation, and answer some questions for the committee members. As you can appreciate, with the situation of the lobster pricing, there are many questions that committee members have. We look forward to a great discussion here today.

Once again, thank you very much for being here, Mr. Irvine. I know that you have a presentation. You have provided a PowerPoint presentation, and I thank you very much for providing that as well. I believe that our clerk has advised you that we generally allow about 10 minutes for opening presentations, and then we'll move into questions.

There are time constraints on the questions that committee members have and on the answers. It's in the interest of fairness that we try to get in as many questions as possible. If I interrupt throughout the proceedings here today, please don't be offended. It's just in the interest of fairness and trying to ensure that everybody has the opportunity to ask as many questions as possible.

Having said all that, Mr. Irvine, I will turn the floor over to you. If you want to proceed with your presentation at this point in time, the floor is yours.

[Geoff Irvine, Executive Director, Lobster Council of Canada]

Thanks very much, Mr. Weston.

I apologize, I only speak English, so I'll do the presentation in English, but I understand it's being translated.

I'm delighted to be here. I know I have a short amount of time, so I'm going to go quickly through this. I'm going to give a top-level overview of what the Lobster Council is, what we do, where we came from, a brief overview about the industry, and then I'm going to dive right into some slides and graphs on the market, on volumes, on how the prices are built up, how prices are established, and things like that. I'm going to jump right into it.

The Lobster Council came together three-and-a-half years ago in a reaction to the last lobster crisis in 2007-08, when the Canadian dollar was strengthening dramatically. That's probably the single biggest factor in our industry. Prices were very low in that time as well, so the Lobster Council came together as a movement from the industry. Our governance is essentially half harvesters and half shippers, processors, and dealers, as well as the first nation community. So my board is basically half harvesters and half shippers and processors. So I work for both sides, if you will, of the industry.

We're funded by the five eastern provinces, with some core funding. We get money from DFO from time to time. We have project money that we make. We're a typical not-for-profit struggling organization. We introduced dues from our members last year. We have 55 active dues-paying members, and that includes all the harvesting associations, all the major companies, and many smaller companies.

We have seven real areas of focus in the Lobster Council. We were brought together essentially to promote Canadian lobster, but it turns out that's been one of the things we do the least of, unfortunately. Because of funding—and I'll get to that later—we spend a lot of time.... But we do actually spend some time doing that, leveraging money from the provinces and the federal government doing various things. We spend a lot of time on many market access issues—eco-certification, lobster husbandry issues in Germany, for example, whale entanglement—that are important. We try to communicate within the industry. We try to communicate issues out to our customers, all the good issues, and we keep the internal ones, all the challenging ones. We try to provide market research to the industry, so information about prices, information about landings.

Marketability I'm going to talk about later, but marketability is a big challenge. Branding, quality, shore price-setting mechanisms, these are all marketability issues. We're doing a lot of projects. We're in the middle of a traceability project for the lobster industry now and an automation project with five plants in P.E.I. and New Brunswick. We spend a large amount of time working with governments, both provincial and federal, and in the media.

I will describe the sector. Most of you know this, so I'll quickly run through it. There are 9,500 independent owner-operator harvesters; plus or minus 60 live shipper processors of which 99% of the volume would go through about 60 companies in five provinces. There are hundreds of shore dealers; hundreds of truckers; packaging-makers; 25,000 crew, plus or minus; over $1 billion in export sales last year; and what's very significant and important in this room, 25% of our $4 billion export of seafood is lobster.

I threw together a few slides just to show you our products. Live lobster, of course, represents about 40% of the billion dollars, so about $400 million of export. Lobster tails is a huge product, mostly produced in New Brunswick, but also P.E.I. and Nova Scotia and Quebec. Meat—if you produce tails, you have to produce meat. Lobster meat has become a very important product: frozen, pasteurized, fresh, hundreds of millions of dollars' worth. There are popsicle packs, a traditional product where you cook small lobster and pack it in brine. It's a very popular product in retail in Europe. Whole cooked product, these are usually also smaller lobster that are sold in casinos, and on cruise ships, and in Europe; and in the Far East it's a very important product as well.

Then a newer product is ultra-high pressure. There are three machines in the industry now, one each in the three maritime provinces, that produce this product. It's a very high-value raw product that uses a high-pressure machine to extract the meat. It's a very fascinating new product. Of course, there are lots of specialty products: retail claws, retail tails, retail meat, and then things like caviar, lobster oil. There are lots of different meat products.

Jumping right into the export value, this slide isn't up to date, but it's consistent, to show you year in and year out. If I took this back 15 years it would be same. The Americans are our biggest customer by tenfold, twentyfold. Some of that volume is re-exported through American airports, Logan and JFK, and some is sold frozen from there. But the first port of export is the U.S. You can see that after the U.S., China and Japan are very consistently our biggest customers, and it drops off very quickly after Italy into $4 million and $5 million a year.

By province, it's also important to know where the action is. New Brunswick is by far the biggest producer of lobster, nearly half a billion dollars last year, mostly processed tails, meat and whole cooks, and popsicles. Nova Scotia is a close second, but mostly all live. The live sector is mostly concentrated in Nova Scotia. Newfoundland, Quebec, P.E.I., and New Brunswick are generally the processing places. P.E.I. is third there with $134 million last year, mostly processed. Quebec is a steady $80 million, $75 million, mostly processed, but a lot of live as well. Also there is a growing processing sector in the Gaspé. Newfoundland is mostly an area where lobster is harvested and then sold to the Maritimes for resale, so they don't get much credit for what they export, because they export very little. You can see a total of $1 billion last year, $1 billion the year before, and because of the net value, because of the recession, it was $800 million before that.

Landings are the real story of our fishery. Look at the 2000 numbers—that's Canada in red and the U.S. in blue—in five-year increments. If you take it to last year—and I don't have that number—Canada is up 46% from the year 2000 in landings, and our friends in Maine are up 50%. So there have been dramatic increases in landings. This is the Maine number. Through the last 60 years they were very steady until about 1994, then Maine climbed up to 122 million pounds last year. That has had a big impact on us.

This is a slide that shows you the impact of that supply on the price. The red shows we have two peaks of supply every year, May and November, and you can see that year over year. This is 2007 to 2009 so it's a little dated, but after that it would just be higher. Maine is the blue. You can see that the Maine season mirrors our season, which is why we have such a vibrant processing sector. The processors can buy Maine raw material when they can't buy it from the Canadian fleets to augment their year of processing, but you see the downward trend in prices as the supply has gone up.

It's really important to put in context the Canadian situation. This is a slide produced in 2007 by Findus, the Scandinavian company, showing the global seafood value chain and where the money is—where value is earned and stays in global seafood. If you layer lobster over this, I would say it's very similar. The people who actually fish the product and farm the product maintain about a third of the value. First and secondary processing and then distributors are the other two-thirds. It's how food distribution works, whether we like it or not.

Now we'll dig right in to how the value is shared. This is all information that I sent you and this is all from the long-term value strategy that was produced in 2010, which is essentially what has framed our work for the last three years. This is updated to 2011 and shows that in the live sector, year in and year out, the harvesting sector receives 70% to 80% of the U.S. export price every year. I think I sent you data as well that backs this up about how the average of 79% of the U.S. export price in live is kept by the harvester.

This is a slide that shows how a $4 shore price becomes a $9 retail item, and it's important that people review this carefully because this is how most products build up into the market. This is based on a $4 shore price, and you see the shore buyer who takes anywhere up to 50¢ to provide that service. The shipper has a margin in there, the distributor has their margin, and then the retailer has a typical retail margin. I saw lobster this morning down at Lapointe for $9.99. They would have a similar buildup to that $9.99 price here, even in Ottawa.

On the processing side it's a lot more complex because of yield. When you process a lobster, you're breaking it down from the shell into meat products, into tails. You don't sell the whole lobster when you're processing unless you're doing a whole product. This is a graph that shows, from 1998 until last year factoring in a 37% yield—which isn't exact but it's a factor that we decided to use—how that revenue is shared year in and year out. It ebbs and flows more in processing. Yield changes from year to year. If lobsters aren't fully meated when they're being processed, it can change the yield dramatically.

You see the distributor unit revenue is very consistent, because it has to be. Distributors—and I used to be one—if they can't make their margin on lobster, they'll sell something else. They'll trade crab, chicken, or whatever, so that distributor margin is very steady. The processor margin, as you can see, bounces around. There are good years and bad years. Unfortunately, the harvester is the one who generally takes the brunt of a downward market and you can see that in this slide.

How the price builds up for processed products, again, is complex because of yield, but you can see how a $3 to $4 dollar shore price becomes a $16 meat price. It's simply because of the yield factor. The amount of meat you take out of a lobster is 30% to 40%, so you have yield loss, buyer commission, fixed costs, variable costs, and you can see the gross margin for the distributor.

Drilling into the shore prices, I took a look at last year's shore prices to try to get a top-level view of how they're different in each DFO region. I took the gulf region, where the average last year was $4.05, as you can see; maritime region, $4.32; Quebec, $4.58; Newfoundland, $4.13; and Maine, $2.68, which was the real killer. That number in Maine is really what precipitated the collapse last year, and I'll be happy to speak about that later.

Breaking out of the gulf, because a lot of the issues today are in the gulf, because that fishery is going strong, you can see in each LFA.... I tried to break out the provinces by colour. I just picked colours, and I chose LFA 25 to be in blue because it's in the fall. But you see the differences in the spring fisheries, 23, 24, 26, and 27. Last year there were some differences, but not huge differences. The New Brunswick price is quite low, but there often is a top-up at the end of the season.

That's another thing to keep in mind when you hear about shore prices. There are all kinds of factors in play that even we don't understand. There are usually bonuses paid and there are top-ups paid for various reasons, which defy logic but happen all the time. So when you see these official numbers, you have to remember they're not always exactly accurate.

I provided some data on harvesters and net income because that's really what we're here to talk about. DFO did its last study in 2004 on net income for harvesters. This is by LFA, at the bottom of the graph, lobster fishing area. You see in 2004 most fishing fleets were in the black and some very nicely in the black. Then the recession hit, the Canadian dollar strengthened, and our landings went crazy. You can see that the 2009 numbers, which were not done by DFO but which were extrapolated for this study, show that most of the fleets were losing money by then.

So what are we doing about it? I have a couple of quick slides to go. In the Lobster Council we are focusing on our plan and working our plan. I'll talk about it afterwards, but the long-term value strategy gave us excellent recommendations. Then last year we did working groups that came up with a plan that you also have, the implementation plan with 26 points.

We've chosen this year to work on two major strategies. One is developing a Canadian lobster brand, a specific brand that we can all get behind and that can tell our story. Lobster in China, our biggest new market, is mostly sold as Boston lobster, and it's absolutely preposterous. It's Canadian lobster, by and large, mostly Canadian lobster, but they call it Boston lobster as a generic term. We need a brand that we can get behind.

The other is having quality grading standards at the first point of sale, which will reward harvesters, which will ensure better quality through the market, and which will allow us to stand behind our brand. These are our two major projects for this year.

The last side shows how you can help us at the federal level. We need help to help ourselves. We need a levy. We need some kind of a way to levy our industry, to raise money for marketing and promotion. We're not sure if we can do it federally, and we're not sure if we can do it provincially, but we need to find a way to levy ourselves. We know the industry is mostly behind the levy.

When we talked about 1¢ a pound a couple of years ago, most people got behind 1¢ a pound, which would be half a cent from the harvesters and half a cent from the selling side. It would give us $1 million a year for these things. We like the marketing and promotion dollars that come to us from Agriculture and Agri-Food Canada and from other places. That's excellent. That's super short term. We have some markets that can use a bump, the Far East especially.

A free trade agreement would be fantastic for the lobster sector. It would be fantastic for the lobster sector if the lobster tariffs that are said to be coming actually happen. The Canada brand program at Ag Canada is a fantastic program for lobster, for all seafood. We do great work with Ag Canada. We need support for these tougher marketability issues like branding and quality grading because they're difficult and the shore price issues are tough.

I'd also ask that we remember what we've learned, because we've been doing this for three-and-a-half years. We pretty much know what we need to do, but we need everybody pushing in the same direction, so we don't forget what we already know from all these reports.

Thank you. I hope that was good timing.

[The Chair, Conservative, Rodney Weston]

That was great. Thank you very much, Mr. Irvine.

We're going to start off with Mr. Woodworth.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Thank you very much, Mr. Chair, and thank you, Mr. Irvine.

This is a challenging issue for me. I have to say there is no lobster where I come from, and I have no particular axe to grind with anyone on it. I just want to understand the issues.

Let me begin with the issue of a levy. My impression is that the LCC is formed and supported through the provincial governments. Is that correct?

[Geoff Irvine]

Yes. In our first couple of years DFO was part of it, but in the last couple of years it's been provincial.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

My impression is that questions of marketing and basically everything that happens to the product after it hits the wharf are under provincial jurisdiction. Is that a correct statement?

[Geoff Irvine]

Correct.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

All right, so if we're talking about imposing a levy on processors and harvesters, my thinking is that the most the federal government could do would be to encourage the provinces to proceed with that. Am I on the right track?

[Geoff Irvine]

Essentially, you are correct, except that the federal government regulates harvesters. So there is an opportunity, if the harvesters agreed, to find a mechanism through the licence fees that the harvesters pay.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

So the federal government regulates only the harvesters and not the processors, distributors, or other people involved in the chain. Is that correct?

[Geoff Irvine]

Correct. We'd have to levy the buyers through the provinces.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

All right.

The second area I want to ask you about is the feedback you get from what I will call “harvesters” but you'd call “fishers”—the people who draw the lobster out of the water.

Your agency includes those folks as well as the processors and other people up the chain. Is that correct?

[Geoff Irvine]

Correct.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Do you get input from the harvesters about the current situation and how to deal with it?

[Geoff Irvine]

Oh, absolutely.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Okay, so when you make a recommendation to us, can we be confident that you're speaking on behalf of the harvesters?

[Geoff Irvine]

Absolutely.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

I assume, then, that they would be in support of the two-point plan you mentioned. Developing a quality grading program and a Canadian brand strategy would be top priorities for them as well as for everybody else in your association. Is that correct?

[Geoff Irvine]

Sure.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Okay.

The other area I want to ask you about, which I found rather intriguing even before you mentioned it, is the issue of the Maine lobster price of $2.68 in 2012. I was even more interested when you said that it precipitated a collapse. I need to tell you where I'm at in this. I understand there has been a market decrease in the price that harvesters are being paid for their product. Is that what you meant when you were talking about precipitating a collapse? Is that the collapse you were talking about?

[Geoff Irvine]

Yes, the Maine situation precipitated the LFA 25 crisis in August, September, and October.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Okay.

What do you mean by LFA 25?

[Geoff Irvine]

Sorry, lobster fishing area 25 is our only fishing area that fishes at that time of year in the gulf. Those Maine shedders—“shedder” meaning soft-shelled lobster—coming into the market earlier than ever dramatically impacted the shore price in Canada.