Challenges and possible solutions for local seafood supply chains

Professor Gary Bullen and SCRC Research Scholar Jessica Newsome spoke in my Local Seafood class this afternoon.  Both pointed out some critical points that are indeed challenges for the seafood supply chain in North Carolina, as well as some avenues to explore that may drive solutions.

First, Gary pointed out that 91% of the seafood in North Carolina is imported!  So when you sit down at a restaurant, it is highly unlikely that you are eating North Carolina product.  Gary notes, “In Morehead City, I only found two restaurants that was selling NC seafood.”

Most of the fishermen in NC are “dayboat people”.  That means that they have small 40’ boats, and go out for the day (or the night), and let the nets drag.  They were losing money when fuel went up, and many of them were spending $100,000 on fuel, and losing money.  That is a major driver when $4 fuel and $1.5/pound shrimp does not compute!

But there are other products coming into the market that can make a difference.  Between 2000 and 2011 the number of commercial licenses has dropped to 3700. There has been a 36% decrease in seafood packaging capacity since 2000.  There is not much there.  But the low supply of seafood is the major driver, not the packaging capacity.  There is generally excess capacity for packing.

Fishermen are also being crowded out by people who are moving to the coast.  Waterfront development is an issue.  One family has 3 acres on the Savannah waterfront, but wanted to stay in the business.  Gary also learned that fishermen do not retire – many just say they “might want to get a smaller boat!”  But fisherman need a place to dock for their boats with access to water.

Fish houses are absolutely necessary – but they are also part of the problem.  The fish house has a dock where the fisherman can dock his boat.  In return for docking there, they agree to sell their product at the “price of the day”.  If they couldn’t dock there – they would be out of business.  The fish house supplies them with ice, and they will sell the product for them.  Many fishermen don’t want to talk to people – and the fish houses will sell the product.  How do you develop the fish houses and develop new markets?  Every bit of the product comes in – they can sell it.  They will sell it – but it can be sold at a low price.

A fish house will unload the fish and put it in 100 pound boxes with ice.  They will pay the fisherman at that moment the market price.  There is no contractual market.  It worked on volume in the past – it was a commodity thinking – and it worked well.  But the structure over the last 20 years has been that it is NOT a good commodity, due to supply limitations.  They also help organize political will to keep commercial fishing possible.  Recreational fishermen are after the same fish –a nd they have legislation pressure to support commercial fishermen, not just recreation.  In Oregon Inlet the only way for commercial fishermen to get out – and so the state will dredge it to allow them.  During the budget crisis, there was no dredging – and they couldn’t get out.  This disrupted seafood supply.  But most of the seafood goes north – and only a small amount goes West in North Carolina.  This is an established supply chain, and they know each other and talk to one another – and do not give up that information.

Fish Houses have gone down 36% in the past 10 years.  In 2011, there were 83 fish houses in NC.  Many will not be in business and there will be some consolidation, due to the shrinkage in supply.  Some of the shortage is overfishing, but regulations are a definite factor.  Many people got new nets and then they changed the season so they can’t go after flounder.  Fish has gone down a lot more than shellfish, largely due to regulation.

Jessica Newsome, the SCRC Research Fellow, offered some insights into possible solutions to these challenges.

One of the possible solutions is the idea of a Community Supported Fishery (CSF), which is the concept of people doing things differently. Wholesale Distributors and Retailers need to let the supply chain do what it needs to do, but act to intercede in the downstream segment of the supply chain.  This could be a good model for small scale fishermen because it is scalable.  A CSF could go to the fisherman and will buy at that point.  But if they need higher volume, they could go to fish house, and buy larger volume.  If they need something processed they could go to a processor and buy what they have available.  But there needs to be value demonstrated in selling right in North Carolina.

To make this work, the supply chain will need inland processors.  Because so much of the supply chain today in seafood is “social contracting” (e.g. good old boy networks and word of mouth with spot pricing and no contracts), there is a lack of structured relationships and contracts in the channel.   If we are going to sell through new channels, there is a lack of information on how retailers need to operate with fishermen.  There is a need to build relationships and forge partnerships.  Supply access will continue to be an issue and there need to be incentives to ensure that people are coming in to fill these roles is a major issue, and who will do these roles to support this supply chain.  Contracts and investments will be needed to drive standard pricing, and to ensure access to freight and other equipment.  Today no one is ready to make these investments, and as we have stretched out the supply chain, transportation and going to mainstream markets will be an issue.

How can we move the needle on this?  We need to first organize fishermen into cooperative structures, and take primary processors (fish houses) and bring it into a cooperative structure.  Next, we need to demonstrate the inland market value to high volume seafood dealers and fishermen, and convince them these markets will pay a competitive price (vs. DC or NE markets). Fishermen need to feel they are not being cheated.  We need to connect fishermen and retailers to inland aggregators with processing capabilities.  The final piece is the education piece – especially grocery retailers and consumer education on local species, NC seafood industry, fishery management and environmental impacts.

A highly likely set of potential CSF’s are the cooperatives and brands like Brunswick Catch, Carteret Catch, Outbanks Catch, and Ocracoke Fresh.  These are cooperatives that could be brought together to pool risk, investments, and leverage their brands.  If they could see the value to sell into Raleigh, Charlotte, and Asheville, they could perhaps move to a place where fishermen can earn enough money to stay on the water, fish houses can be profitable, retailers will provide what their customers want, and we can once again eat healthy, tasty local seafood.

Future research needs to conduct interviews to better understand market channels, including the high volume seafood dealers, including dealers in Carteret, Dare, New Hanover counties, and others to define available for sale amounts.  We need to survey inland customers at grocery partners stores to establish the size of the addressable market.  And we need to explore feasibility of establishing catch groups as cooperative business structures for small and midscale fishing operators.