Introduction to World Crab Markets

1. Introduction to World Crab Markets Maximizing Value from the Crab Fishery in Atlantic Canada John Sackton Seafood.com

2. Description of U.S. Crab Market • Products • Buyers • Sources of Crab • Market Structure • Price History

3. Sections 3-5 oz 4 up 5-8 oz 8 up Ocean run Crabmeat 5 lb block 70% body 30% leg Specialty items Cocktail claws Snap and eat Scored sections Crab Products in U.S.

4. Retail Crab is promoted on specials Move large volumes Very price sensitive Out of Market over $4.00 Foodservice Buffet Houses and Casinos Major Users Asian Buffet Heavy Seasonal Volume Small crab (3-5 oz) not economical for Buffet High Traffic Item U.S. Buyers

5. Sources of Crab for U.S. Market

6. Breakdown of CA Exports in 2002

7. U.S. Largest user of Canadian Crab

8. Canadian Crab Exports to US continue to increase in volume and value 2000 2001 CA Avg Value 1999: $3.11 2000: $3.90 2001: $3.19 2002: $3.35

9. Greenland crab a small factor in U.S.market • Shipments from other Provinces much greater than imports from Greenland • Growth of Canadian imports have been faster than growth of Russian or Greenland crab imports to U.S.

10. Market Structure • U.S. Importers • Direct Sales by Canadian Processors • Direct Sales to End Users (Darden, Sysco) • Most distributors and retailers do not buy direct, but through importers who supply them other products

11. CA Market Share Stable in terms of world production for 2002

12. US inventories and Prices

13. Price History

14. price history 1994-2002

15. World Supply in Recent Years

16. Japanese Crab Market • Characteristics of the Japanese market • Crab a necessity for many buyers • Market has changed significantly over last few years • Major disruptions caused by shutting down of Russian fishery • Economy and Currency major factors for Japan • Japanese companies own overseas plants in China and Thailand

17. Live Crab Whole Frozen Crab Gas Frozen Sections Brine Frozen Sections Crabmeat Sushi merus meat Other picked crab meat Japanese Crab Products

18. Japanese Buyers • Major Importers set prices • Japanese companies Processing in China also set prices • Complex multi-layer distribution system starts with importers, who take financial risk

19. Market Structure • Foodservice • Vacation and luxury restaurants: Hokkaido • Sushi restaurants • Retail • Department stores • Seasonal Gift occasions

20. Shipments to Japan recovered in 2002

21. Japan: Snow Crab Supply Trends Data: Japan Marine Fisheries Assoc; Seafood Datasearch

22. End of Year Inventory in U.S. and Japan

23. Japanese Inventory Problems • Problems selling high priced crab • Consumers moving to lower quality items • Took time for sellers to adjust

24. Japan: Origin of Supply Data: Japan Marine Fisheries Assoc; Seafood Datasearch

25. Japan Supply and Price Trend

26. Japanese Crab Supply is Declining

27. Trend will continue due to Currency and Economy

28. World Production of Snow Crab • Dramatic Change in past several years • Collapse of Alaska • Rise of Atlantic Canada • Collapse of Russia • Greenland also a factor

29. Landings by country in recent years

30. World Supply in Recent Years

31. Alaska Fishery • Continues at Low level • Generally Highest Quality Crab • Undergoing restructuring and rationalization process, will go to Individual quotas with processor quotas • Significant Japanese Ownership of plants • Fishery is volatile, and can rebound

32. Canada • Major increase in total production, especially in Newfoundland, but also in Nova Scotia. • Primary source for Japanese • Two types of crab: Gulf crab and Newfoundland crab. • Fishery is Volatile, can expect major changes in stock status • Currently World’s largest supplier

33. Greenland • Quotas are not Harvested due to lack of processing capacity. • Crab runs very large. • Year round fishery • Potential to increase landings

34. Closer review of price history • Prices driven by supply • High prices call out substitute products • Changes in Supply Lead to Price volatility • Customers lag in leaving market • Once gone, hard for certain customers to return • Examples: crabmeat 2002, sections 2001

35. price history 1994-2002

36. U.S. and Japan Competition • Importance of both markets to Canada • Prices set by internal dynamics of market • Prices also set by buying strategy • Cash flow needs of producers • Seasonality of price movements

37. Seasonality of Price movements • Consistent pattern of price increases in the fall. • Storage costs • End of season, no need to buy new product • Prices tend to rise in the fall

38. Newfoundland Experience • 1997 Strike • Caused by Market Crash • Final Offer Arbitration put in place 1998 • In season adjustment of prices • Third party independent market expert • Successful in reducing volatility

39. Managing Market Declines • Processor point of view • Fisher point of view • How to manage risk • Newfoundland example

40. 1999 to 2001 Experience Better than 1995 to 1998 • Peak to Trough Value • 5-19-95 $5.30 for 5-8 Sections • 5-6-98 $2.25 (58 % Decline) • 2-19-99 $4.50 for 5-8 sections • 8-29-01 $3.25 (28% decline) • Success reducing volatility in Sections, no precipitous market collapse.

41. New Problems Emerge • Overcapacity of Processors • Expansion of Licenses • Entire Profits of Fishery depend on Crab

42. Price Premiums and market formula • Initial formula from 1997 • Competition forced processors to pay premiums • Situation not stable • Some businesses will fail • Negotiations underway

43. Outlook for 2003 • U.S. will have weak demand • Japan will have a weak demand • Prices will be pushed lower

44. U.S. Buyers Pull back from Market due to Price Retailers not interested in crab Buffer Houses cannot buy over $4.00 Everyone afraid of prices falling Buyers are paralyzed Japanese need Canadian crab May face weaker currency Do not want to price market too high Russian crab a question mark. Price Factors in 2003

45. Conclusions • Current Situation encourages Market Volatility in Canada • Market volatility limits the size of the market • If resource is stable, volatility keeps total return below long term potential. • If resource is volatile, then stake holders get no benefit from long term value. • Next year, fishery will not return its maximum economic value, but prices will remain high.