The law of supply and demand has not been repealed.
After lobster prices plunged rapidly during the crucial fall season last year to levels not seen for at least a decade, something seemed terribly wrong in Maine’s lobster industry. No one could remember when prices to fisherman fell from over $4 per pound to as low as $2 per pound in the space of a few short weeks. It was like watching the bottom drop out of international financial markets, and in fact, the two events were not unrelated.
Lobstermen responded to falling prices by curtailing their fishing days to the extent possible and then pulling their traps out of the water to end their seasons early. With so little harvesting, supplies dropped by early January and guess what? Prices shot up to between $5 and $6 per pound, rewarding those few fishermen with traps still in the water.
The sickening lobster price collapse of this fall prompted Gov. John Baldacci to appoint a Task Force on the Economic Sustainability of Maine’s Lobster Industry, on which I sit, to offer recommendations on how the lobster industry might restructure itself to improve its profitability and sustainability. This effort is not merely an abstract exercise as far as island communities are concerned. Island communities are approximately 20 times more dependent on the lobster fishery as other communities according to Island Indicators, a report compiled by the Island Institute.
The lobster task force is hiring marketing expertise to compile relevant information and in addition will take testimony from panels of harvesters, dealers, processors, academics and community members during the month of February. One piece of homework that Dane Somers of Maine’s Lobster Promotion Council circulated to the task force is a report on the structure, economics and competitiveness of the Canadian lobster industry in comparison to its American counterpart published in March 2006. The report, “Benchmarking Study on Canadian Lobster,” is highly instructive to anyone concerned about the future of Maine’s lobster industry.
One of the first things you learn from the study is how inter-dependent the Canadian and American lobster industry has become, especially since the mid-1990s when Maine landings began to increase sharply. Since Maine produces some 80 percent of U.S. lobster landings, we are really talking about the interdependence of the Canadian and Maine lobster industries. Let’s start with the report’s finding that Canada imports 50-70 percent of the U.S. (Maine) harvest in recent years. Then consider that the U.S. market takes 70-80 percent of Canada’s total exports. Thus, according to the study, “there is a brisk re-export in live lobster in the U.S. [with] as much as 70 percent re-exported from the U.S. to Europe and Asia because of the wider array of airfreight options and lower rates available to shippers.”
Hmmm. OK, so Maine sends over half its catch to Canada, which then sends most of the harvest back to load on planes to go to markets abroad. You might logically wonder how Canadian dealers can make money doing this, while the U.S. and Maine industry cannot or does not when Maine is so much closer to these Boston and New York airports. The answer, according to the report is that “higher quality has allowed Canadian shippers selling live lobsters to differentiate their product and focus on higher market segments. It also made it worthwhile for Canadian companies to invest in land based holding facilities …to allow the industry to re-time supply to maximize revenues…on a year round basis to meet customer specifications with respect to quantity, size and timing.”
In analyzing the U.S. (Maine) lobster industry, the 2006 report points out, “By contrast, U.S. effort and catches are highest…when lobster quality is lowest” during the summer and early fall shedding season. “About half of (Maine) lobster) goes into the lower end of the live market depressing prices for harvesters, but setting up a buying opportunity for Gulf of St. Lawrence plants.” Seventy percent of Maine landings occur in August-November, when, in the prosaic words of the economists who wrote the Canadian report, “With limited holding capacity (in Maine), the market is unable to absorb this supply without some softening of prices.” The shorter Maine season and “relatively poor quality of soft-shell lobster presents a challenge for U.S. companies; much of (Maine) product sold live finds its way into lower price market segments.” According to the report, Maine has four value-added lobster processors, while Atlantic Canada has 50.
Maine’s lobster industry grew up in the 1950s and 60s as a cash business when post-War tourists poured into Vacationland looking for a plateful of shedders at a lobster shack on the shore. Maine lobstermen still harvest soft-shelled lobsters and sell all they can catch for $2 a pound because that’s the way they’ve always done business. The huge harvests of the 1990s and the early years of this decade masked the structural problems in the industry as Canadian processors and dealers innovated, while the Maine industry did not because everyone was making good money. If it ain’t broke…and all that.
When money gets tight, as it surely has, the Canadian report demonstrates how our neighbors have eaten our lunch-or rather supplied our lobster dinners. Recently while in New York, I looked over a menu at a white tablecloth restaurant featuring Prince Edward Island mussels and Nova Scotia lobster. The question facing the Maine lobster industry is whether it has the stomach for serious innovation and restructuring.