American Seafoods lets catfish go

Posted by The Highliner

Posted: August 22, 2008 - 6:04 pm

You can try Southern Pride catfish in Anchorage at the Catfish Haven restaurant on Boniface Parkway. Here's a four-piece catfish dinner with rice, collard greens, cornbread and sweet tea. Wesley Loy photo

Seattle-based American Seafoods has sold off Southern Pride Catfish, its Alabama-based catfish processing subsidiary, company spokesman Jan Jacobs told me today.

The buyer is Heartland Catfish of Itta Bena, Miss.

No sale price was disclosed. But I wouldn’t be surprised if it fell short of the $41.8 million in cash American Seafoods paid in 2002 for Southern Pride, described as the largest U.S. catfish processor.

My impression was that the foray into Deep South fish was a misadventure for a company more at home in the Far North. American's main business is catching and processing Bering Sea pollock, a white fish used for products such as fish sticks and imitation crab.

The catfish industry is struggling these days.

Fish farmers are letting many of their growing ponds go fallow due to low prices, high feed and energy costs, competition from imported catfish and declining U.S. consumption. Consolidation among catfish processors is expected.

On top of this, American Seafoods faced occasional labor flare-ups in the Southern Pride processing plants.

So, American bailed out of catfish this month, just as it expanded its Bering Sea operations with the purchase of a rival fishing ship, the Highland Light (The Highliner, Aug. 18).

A major owner of American Seafoods is Anchorage-based Coastal Villages Region Fund, one of the state's six Community Development Quota companies.

For those with an appetite for more catfish, below is a long story from the Arkansas Democrat-Gazette foreshadowing the Southern Pride sale and discussing the company’s perceived role in some of the catfish industry’s problems. I’ve highlighted a key section in bold.

Aug. 6, 2008

High feed, fuel prices batter catfish industry

BY NANCY COLE
Arkansas Democrat-Gazette (Little Rock)

JEROME – Belts are being tightened throughout the U.S. catfish industry. As soaring feed costs have outpaced catfish prices, many farmers have abandoned ponds, and consolidation among processors is expected.

Catfish acreage is going to continue to shrink, but new approaches to farming and marketing are likely, said Carole Engle, director of the Aquaculture/Fisheries Center at the University of Arkansas at Pine Bluff.

"We're going to see a lot of innovation come out of this difficult period," Engle predicted. Meantime, Alice-Sidney Farms LP in Chicot County near Jerome plans to be one of the survivors, said Bill Troutt, the farm's manager.

The 7,500-acre farm, which produces soybeans, rice and catfish, has about 60 ponds covering 1,200 water acres. During the past year, 200 water acres have been removed from production, Troutt said. Five 20-acre ponds – the farm's least productive – were planted with rice by airplane, he said.

"We'll take five or six more ponds out next year if things don't turn around," Troutt said last week as the farm's five-man seine crew funneled 20,000 to 25,000 catfish into a "live car," or pond holding net, to await transport to a processing plant in Mississippi.

The water surface area that will be used for catfish production in Arkansas from July 1 through Dec. 31 fell to a 10-year low of 25,300 acres, according to the U.S. Department of Agriculture's National Agricultural Statistics Service. That area represents a decline of 5,100 acres, or 17 percent, from a year ago, and a drop of 12,700 acres, or 33 percent, from the state's Jan. 1, 2002, high of 38,000 acres.

The number of catfish farms in Arkansas has fallen to 116, down 15 operations from July 1, 2007, and down 79 from the Jan. 1, 2002, high of 195. Ted McNulty, director of the Arkansas Agriculture Department's Aquaculture Division, estimates that as of 2007 Arkansas' catfish industry provided 3,250 direct jobs and 7,000 indirect jobs.

In the four leading catfish-producing states – Mississippi, Alabama, Arkansas and Louisiana – 132,500 water acres will be used for production during the second half of 2008, down 18,900 acres, or 12 percent, from a year ago. The number of catfish farms in those states has fallen to 638, down 75 operations in one year.

Arkansas continues to rank third in the nation, behind Mississippi and Alabama, in terms of the number of catfish operations and second only to Mississippi in terms of water acreage. In 2007, Arkansas' catfish sales totaled $71.5 million. U.S. sales last year were $444.8 million.

"Acreage this year is going to continue to go down" as farmers continue to exit the industry or reduce their exposure to it, Engle said.

"The ones that are left are going to be the most efficient," she said.

"When times are good and people are making money, there's really no incentive to change. When times are difficult, you have to rethink things, you have to tighten up, and you have to find new ways to do things," she said.

Feed formulations already are being adjusted, some farmers are increasing pond aeration rates and others are shifting production to faster-growing hybrid catfish, a cross between a male blue catfish, Ictalurus furcatus, and a female channel catfish, Ictalurus punctatus, Engle said.

Jeff Baxter, co-owner of Baxter Land Co., which operates a catfish farm near Arkansas City in Desha County, said he is getting out of the food-fish business and will focus his efforts on raising hybrid fingerlings, young fish 2-6 inches long.

"We're trying to phase over to the hybrid because we think it's a better fish than the straight channel," Baxter said.

FEED, IMPORTS UP

Catfish feed prices have soared 55 percent in the past year, according to UAPB's Aquaculture/Fisheries Center. One ton of 32 percent-protein feed, which cost $273 in August 2007, sold last month for $423 a ton.

Increased feed prices, driven by record-high soybean and corn prices, have stressed the budgets of all U.S. livestock farmers - beef, poultry, swine and catfish. But the catfish industry has suffered the most for two reasons, said Terry Hanson, an agricultural economist at Mississippi State University.

One, feed is a larger share of the variable cost of catfish production, 52 percent in 2007, compared with 35 percent for hogs and 21 percent for cattle, he said.

Second, the U.S. catfish industry must contend with more imports. In 2007, imported catfish accounted for 36 percent of industry sales, compared with just 9 percent for beef, 4 percent for pork and less than 0.00001 percent for poultry products, Hanson said.

"These other industries, while they can't pass on all the higher feed costs, they can pass on some because they have no import that's going to fill the void if people decide not to purchase the higher-priced meat product," Hanson said.

Higher prices for catfish at processing plants are what farmers need to stay in business, said David Yocum IV, the owner of Alice-Sidney Farms. In addition to higher feed costs, escalating energy costs are straining the finances of catfish farms, which use diesel fuel and electricity to power their pond aerators.

The catfish harvested one day last week at Alice-Sidney Farms were destined for processing in Isola, Miss., by Consolidated Catfish Cos. LLC, which does business as Country Select Catfish, Troutt said. Country Select currently pays 90 cents a pound for catfish that weigh 1.5-4 pounds, 70 cents for those under 1.5 pounds and 75 cents for those over 4 pounds, he said.

Alice-Sidney Farms has been receiving an average of 82 cents a pound for its catfish, Troutt said. The problem – when feed costs $400 a ton – is that the farm needs to earn 94 cents a pound to cover its costs, he said.

Catfish prices peaked in April and May 2007 at a then-record high of 84 cents a pound but tumbled to 65 cents a pound in December, according to the USDA.

Feed is the largest expense of any catfish farm. During peak feeding season, from April through October, Alice-Sidney Farms buys about 60 tons of catfish feed daily, Troutt said.

Some feed mills and some farmers have experimented with feed formulations "to help offset some costs," said Rick Wohlschlaeger, president and chief executive officer of Arkat Nutrition Inc., a Dumas-based catfish-feed and pet-food manufacturer.

A 28 percent-protein catfish feed, which is about $20 a ton cheaper than the traditional 32 percent-protein feed, has become this year's No. 1 seller, Wohlschlaeger said.

Feed mills such as Arkat also began making a cheaper feed that incorporates corn gluten, a protein, rather than corn meal, he said. However, June flooding in Iowa closed one of the country's largest corn-gluten plants, eliminating much of the price advantage of gluten over meal.

CONSOLIDATION IN WORKS

Tough times will lead to changes in the processing side of the catfish business, too, Wohlschlaeger said.

"I believe that the fate of this industry will be written in the next three to six months.

It's going to happen that fast," he said.

Carl Jeffers, the immediate past chairman of the Arkansas Catfish Promotion Board, said that "one bright spot for the industry" will be the proposed purchase of the No. 1 processor, Greensboro, Ala.-based Southern Pride Catfish LLC, a division of American Seafoods Group LLC of Seattle, by Heartland Catfish Co. of Itta Bena, Miss.

"Secondly, there will have to be some of the processors go out of business," he said.

The amount of catfish processed in the United States hit a 10-year low in 2007 of 496.2 million pounds, down 165.3 million pounds, or 25 percent, from the 2003 high of 661.5 million pounds. Processing through June of this year was running about 10 percent ahead of last year.

A second purchase in the catfish-processing sector also is widely rumored. Alabama Catfish Inc. of Uniontown, Ala., which does business as Harvest Select Catfish, is said to be negotiating the purchase of SouthFresh Farms, based in Oxford Miss.

"There is a rumor going around. I can't say that there's anything substantial to it," said Phil Craft, vice president of operations for Harvest Select.

"There may be some negotiations, but that's as far as it's gone," he said.

Harvest Select operates Arkansas' one major catfish-processing plant, located in Eudora in Chicot County.

MARKETING CHALLENGES

The U.S. catfish industry has struggled since 2006 to compete with a dramatic increase in the importation of frozen catfish fillets from Asia. Most of the imports are "basa" or "tra," members of the Pangasiidae family of catfish, but about 25 percent now are channel catfish, members of the Ictaluridae family, the same fish that is raised by most U.S. catfish farmers.

Imported fillets totaled 85 million pounds in 2007 compared with 104 million pounds of domestically produced fillets. Through the first five months of 2008, imports have totaled 48 million pounds, up 11 million pounds, or 30 percent, compared with the first five months of 2007.

Imports are "always going to be an issue because everything has a substitute, especially fish products," said Hanson, the Mississippi State University agricultural economist.

Meanwhile, catfish consumption in the United States has declined steadily for four years, according to a ranking of the top 10 consumed seafoods that is prepared annually by the National Fisheries Institute. In 2007, catfish ranked No. 6 – with per-capita annual consumption of 0.876 pound – behind shrimp, canned tuna, salmon, pollock and tilapia.

Although imports do offer consumers substitutes, U.S. farm-raised catfish has an extremely loyal customer base that doesn't want to eat imports, said Engle, the UAPB Aquaculture/Fisheries Center director.

"The market is there, and these people are willing to pay higher prices," she said.

However, neither farmers nor processors have been able to pass along significant feed and energy cost increases to consumers, Engle said.

Farm manager Troutt agrees.

A recent effort to organize farmers and hold fish off the market to drive up prices failed when only about four farms held firm, he said. The others were eager to "exit the business at any price" or were so strapped for cash that they couldn't afford to postpone sales, he said.

Unlike most businesses, farmers are specifically exempted from antitrust laws, Engle said. The Capper-Volstead Act, which was passed in 1922 in response to depressed agricultural prices, authorizes farmers to form voluntary associations for producing, handling and marketing farm products.

Despite that advantage, the power to set prices in the food-marketing sector has gravitated to large food distributors such as Sysco Corp. and large food retailers such as Wal-Mart Stores Inc., Engle said.

The No. 1 research priority in the U.S. aquaculture field is how best to organize to gain market power, she said. Successful examples in U.S. agriculture do exist, such as California almond growers and walnut growers, who operate through a system of federal marketing orders, she said.

"Their prices are going up and their acreage is going up dramatically," Engle said.

"The economists call this horizontal integration," as opposed to vertical integration, which distinguishes the U.S. poultry industry, she said. "There is another model." No one is more eager to find such a new model than Wayne Branton, the owner of Mainline Fisheries, a catfish farm near Wilmot in Ashley County with about 1,000 acres of ponds.

Mainline's feed costs this year will increase by about $600,000 compared with last year, and fuel costs will be up an additional $100,000, said Branton, who serves as president of Catfish Farmers of Arkansas.

Mainline, which sells larger fish that are gutted and shipped fresh to Asian and Hispanic markets in the Los Angeles area, has met resistance when attempting to pass those costs along to buyers, Branton said.

"I tried to increase our prices two weeks ago, and my sales went down 80 percent, so I had to back off," he said.

Branton said he is unsure what price consumers would accept.

"The family that goes out and eats catfish, can they afford $18.95 for an all-you-can-eat deal, where now it may be $9.95?" he asked rhetorically.

Tough economic times are a bad moment to increase food prices, especially in restaurants, said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville.

"People really tend to see restaurant consumption as a discretionary purchase, one that can be cut back easily," Deck said.

Protein consumption also is viewed as a relative luxury, she said.

"Catfish is merely one kind of protein, and people will substitute away. That's economics for you."

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