As fishermen prepare for the spring lobster-fishing season, a deep sense of unease hangs over Maine’s island and working waterfront communities. We now know that last October’s lobster price collapse ripped a gaping $50 million hole in Maine’s coastal economy-representing the decline in the value of the 2008 lobster season from the previous year, despite an increase in landings.
When spread among Maine’s 6,000-licensed lobstermen-or more accurately among Maine’s 3,000-fulltime lobstermen-the decline meant that each fulltime lobsterman lost in excess of $15,000 in income from the family budget, which led to a long difficult winter.
The Task Force on the Economic Sustainability of Maine’s Lobster Industry
(on which I sit) was asked to analyze the factors that influence the value of Maine’s lobster industry and to recommend strategies that could increase that value for harvesters, dealers and processors in the future. The task force contracted with a food industry consulting company-the Moseley Group-to collect information on the structure and function of Maine’s lobster industry, a process that is still underway, but here are some preliminary findings.
Moseley pointed out that the conditions that led to the 2008 price collapse were a classic case of how the laws of supply and demand play out in the market place.
The recent story begins in the spring of 2007 when boat prices shot up by 68 percent after the traditional spring spurt of lobsters failed to materialize. Prices stayed high throughout 2007 because Maine’s total lobster harvest declined that year by over 11 million pounds from its recent average. Prices of lobster tails from Canadian processors, which have become the largest buyer of Maine lobsters during the past decade and a half, stayed high throughout 2008.
The largest buyers of lobster tails are two “casual dining” restaurant chains: Darden’s that runs Red Lobster restaurants and OSI that operates Outback Steakhouses. Faced with very tight competition in an over-saturated casual dining market and high lobster prices, these huge buyers balked. They began substituting spiny lobster and shrimp for lobster tails. Canadian processors still have a huge unsold inventory of frozen lobster tails that augers poorly for a rebound in prices in 2009.
These recent swings in lobster prices have unmasked longer-term problems. Since the early 1990s, Maine’s lobster harvests have approximately tripled in volume. Although this trend has largely been good news along the Maine coast, it has meant that the lobster business has become a matter of pushing more and more lobsters through the supply chain. Harvesters catch more lobsters and dump them on wharves where dealers have to find ever more outlets to buy them. Instead of carefully sorting and marketing lobsters of different sizes and quality to different markets; dealers, distributors and processors have increasingly come to rely on loading 18-wheelers to deliver to a few big markets to absorb this prodigious increase in supply.
So what to do?
Through innumerable interviews with key industry players, Moseley’s research points to a key conclusion: the Maine and Canadian lobster industry has become a commodity business with an undifferentiated product in the market. No segment of Maine’s lobster industry has any real pricing power-not the 6,000 harvesters who sell everything they catch the day it is landed, or the 463 dealers who buy directly from lobstermen, or the myriad other distributors and processors who each add their cut of the cost of handling Maine’s lobsters in the complex supply chain.
As a result, the industry is riven with tensions and rivalries as different sectors blame others for the current state of affairs. Harvesters believe that dealers unscrupulously fix prices. Dealers and distributors decry the poor product quality from harvesters of “crate run” lobsters-with mixtures of poor-quality shedders in shipments that begin to die the moment they are out of the water. And processors cannot understand why harvesters fail to understand the basic laws of supply and demand.
There is no quick fix to these problems that have built up over many years in Maine’s lobster industry. Moseley’s report to the governor is due later this month, while they conduct more targeted background research on key strategies that have emerged so far.
In the meantime it’s safe to say that the Maine lobster industry will need a cooperative effort to reposition itself in the marketplace as a supplier of high-quality seafood, caught by conservation-minded fishermen from hundreds of local communities that take pride in supplying one of Maine’s most valuable brands-the Maine lobster-to consumers willing to pay for a local product with a great story.
Philip Conkling is president of the Island Institute.