How about price supports for salmon?

June 3, 2009 

The salmon price outlook is OK this season, in remarkable defiance of the global recession. Fish buyers have sorted out credit for the season's pack and should be operating to capacity. We might even see small grounds price rises in some species, reflecting good sales and problems in Chilean farmed Coho production.

Or not. Suppose a big fish buyer loses his credit line? Suppose the yen, pound or euro tank, reducing salmon export sales? Or US demand for frozen fillets drops? We could face deeply reduced salmon prices, if not this year then next. Lower prices could trigger more credit problems for packers, and in turn cause still lower prices on the grounds, in a classic commodity price spiral. This has been seen before in recessions. For reasons beyond our control the salmon industry could blow at any seam.

So let's apply a lesson from the Great Depression and institute a price floor safety net now, before we get into trouble.

Commodity price support loans have been used worldwide over the years to protect producers in cyclical and start-up industries. They were a key part of the New Deal. They could work with salmon today. The government, actually the USDA, would make low interest seasonal loans available to packers at a given price per unit of output - for example - $100 per case of canned Bristol Bay Reds. Loans would be non-recourse. The cannery pledges the case of salmon and nothing else as collateral.

If all goes well the cannery sells that case of salmon over the winter at a profit and pays back the loan with interest. If the salmon market fizzles the company pays off by handing over the salmon. In essence the government is willing to buy salmon at $100 per case, providing a floor under the price. As part of the deal, packers would pass the security of a price floor on to the fishermen, based on the past relationship between wholesale prices and grounds prices. Say, 75 cents per pound in this example.

The New Dealers learned to include over-production controls with their support loans. They feared expensive surpluses if farming supported commodities got too profitable. They were right. In the 1950s Congress removed over-production limits from major farm commodities but left price supports in place; expensive surpluses followed. Farm supports cost a fortune to this day because Congress won't reinstate production controls.

We have permanent production controls in wild salmon already, organized by Mother Nature. So we won't end up with surpluses, nor find ourselves ironically dumping salmon at sea, like unwanted wheat. In addition, the proposal is for price floors at current levels to stave off potential disaster and reassure creditors, not to raise salmon prices. The government might nonetheless end up with some salmon inventory at the end of the season. Is this a big whoop? USDA bought 390,000 cases last year for food aid and to clear excess inventories. Support loans could provide more market stability at similar cost.

Price supports provide predictability. Packers would know they could obtain seasonal loans. They could plan too on minimum wholesale prices. Fishermen, their lenders and fishing communities would benefit by knowing ahead of time that it would be worthwhile to untie the boats.

There are downsides to price supports. One is a reduction in opportunity for newcomers and young fishermen. Take away the downturns, when boats and permits go begging, and its tougher getting started. Another is potential loss of market share. Chilean farms are down now, but far from out. We could lose competitiveness. Last, supports are economic meddling, however cost-effective and beneficial. So make the policy an emergency measure and junk it in a few years.

We need a floor now though, to stave off potential deep disaster. Let's ensure that credit flows, boats untie and packing lines roar. The country needs our fish - and fishing communities need an honest buck.

Former economist Phil Lansing is a salmon fisherman. He lives in Boise, Idaho.

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