The Potential for IncreasingProduction of Fishmeal and Fish Oilfrom Food Fishery Byproducts:The Case of Alaska PollockGunnar KnappProfessor of EconomicsUniversity of Alaska AnchorageInternational Fishmeal and Fish Oil Organisation2008 Annual ConferenceSan Diego, California, USAOctober 28, 2008What is the potential forincreasing world productionof fishmeal and fish oil from food fishery byproducts?My understanding is that:• No data existon world production of feed products from foodfisheries• No studies have beendone examining the potential for worldproduction of feed products from food fisheriesMy objectives in this presentation• To suggest a conceptual frameworkfor thinking about factorsaffecting production of feed products from food fisheries• To illustrate this frameworkusing the Alaska pollock fishery• To speculate about the world potential for productionof feedproducts from food fisheriesOrganization of Presentation1. Basic economics of fishmeal and fish oil production fromfood fishery byproducts2. Fish meal and fish oil production in the Alaska pollockfishery3. An approach for estimating potential fishmeal and fish oilproduction from food fish byproducts4. Conclusions1. Basic economics of fishmeal and fish oil productionfrom food fishery byproducts• Profit maximization for primary food products drives fundamentaleconomic choices for food fish processors:– Species processed– Timing of production– Locations of facilities– Scale of facilities– Product mix– Product yields• Optimal economic choices for food fish production are notnecessarily optimal for byproduct utilization.The scale needed for profitable fishmeal and fish meal production islikely to be higher than for food fish production.• Larger scale production is needed because of:– Higher relative capital costs– Lower relative unit values– Higher volume requirements of buyers– Much lower yield from harvest volume• For food fish processors, fishmeal and fish production may beunprofitable:– If the scale of production is too low– If production is too seasonalEven if costs of production exceed prices, food fish processors may stillproduce fish meal and fish oil:• If losses from fish meal and fish oil production are less than the costof waste disposal• If government mandates production• If government subsidizes productionSelected factors which affect the likelihood of fish meal and fish oilproduction from a food fisheryDecreaseIncreasing energy and labor costsIncreaseIncreasing costs of fish waste disposalEffectFactorDecreaseDevelopment of alternative byproduct usesDecreaseIncreasing food uses of fish byproductsDecreaseIncreasing yields in food fish processingIncreaseEven flow of product over the yearIncreaseConsolidation of processing into fewer and larger plantsIncreaseGovernment mandates for byproduct utilizationIncreaseGovernment subsidies for byproduct utilizationIncreaseIncreasing fishmeal and fish oil pricesMathematically, the volume of fishmeal and fish oil production from afood fishery is determined by theharvest volumeandthree utilization oryield percentages.Food fish harvest volumex Percent of food fish volumefor which byproducts are utilized= Food fishery volume for whichbyproducts are utilizedx Byproduct yield= Byproduct volumex Fishmeal & fish oil yield frombyproducts= Fishmeal & fish oil volumeUnder reasonable assumptions, fishmeal and fish oil volume will be arelatively small share of total food fishery volume0102030405060708090100Totalfood fisheryharvestvolumeFood fisheryvolume for whichbyproductsare utilizedBy-productvolumeFishmeal& fish oilvolume

% of total harvest volumex Percent of foodfishery volume forwhich byproductsare utilized(70%)x By-productyield(50%)x Fishmeal & fishoil yield fromby-product(15%)100%5%35%70%2. Fishmeal and fish oil productionin the Alaska pollock fisheryAlaska pollock (Theragra chalcogramma, also known as Walleye pollock),ranks second in world marine capture fisheries production.Source: FAO, World Review of Fisheries and Aquaculture, 2006, page 11.“Alaska pollock” is the name of the species.In recent years, Alaska has accountedfor more than half of world harvests.In this presentation, I discuss only that part of the “Alaska pollock”industry which occurs in Alaska!World Harvests of Alaska Pollock, by Country01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,000 1970 1,972 1,974 1,976 1978 1,980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006Source: FAO Fishstat+ database

metric tonsOthercountriesRussiaUnitedStates(Alaska)Alaska pollock accounts for:- about one third of total U.S. fish harvests- more than twice the volume of US menhaden harvestsUnited States Fish Harvests0500100015002000250030003500400045005000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

thousands of metric tonsOther speciesMenhadenPollockAlaska pollock accounts for about 3/5 of Alaska fish harvests.Volume of Alaska Groundfish Harvests05001,0001,5002,0002,5003,000 1990 1992 1994 1996 1998 2000 2002 2004 2006Source: National Marine Fisheries Service

thousand metric tonsOther speciesSalmonOther groundfishPacific codAlaska pollockSince 1994, total Alaska pollock harvests have beenbetween 1.0 and 1.6 millionmetric tons annually.Total Alaska Pollock Harvests02004006008001,0001,2001,4001,6001,800 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

thousands of metric tonsMost of theAlaska pollockharvest occursin the BeringSea.Total Alaska Pollock Harvests0200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,0001,800,0002004 2005 2006 2007

metric tonsGulf of AlaskaBering SeaBering Sea pollock harvests are allocated between three sectors:onshore plants, catcher-processors, and motherships.Bering Sea Pollock Harvests, by Sector0200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,0002004 2005 2006 2007

metric tonsMothershipCatcher-ProcessorOnshoreProcessorOnshore pollock processing is heavily concentrated in three largeprocessing plants at Dutch Harbor(Unalaska) and one at Akutan. Mostof Alaska’s numerous other processing plants process much smallervolumes of salmon and other species, and many operate onlyseasonally.Map source: Alaska Division of Community Advocacy web site: http://www.dced.state.ak.us/cbd/seafood/seafoodprocessors.htm.Dutch Harbor& AkutanOnshore Processing Plant at Dutch HarborTrawler of the type deliveringpollock to Dutch Harbor plantsCatcher-Processor (factory trawler)FilletsSurimiRoeThe mostimportant foodproducts madefrom Alaskapollock are surimi,fillets, and roeIn 2004, surimi, fillets, and roe accounted for 77% of product volumeand 91% of first wholesale value.Roe31%Fillets34%Minced fish2%Other products3%Fish meal4%Surimi26%Share of Alaska PollockProduct Value, 2004Source: NMFS Economic Status Report, 2004, Table 25Roe5%Fillets33%Minced fish4%Fish meal11%Other products8%Surimi39%Share of Alaska PollockProduct Volume, 2004There are only about ten onshore fishmeal processing plants in Alaska.The largest are operated bythe onshore pollock processors.Most of the others process primarilysalmon byproducts in much smallervolumes. A few catcher-processorshave fishmeal plants on board.The yellow dotsshow thelocations andapproximatescale of fish mealplants.Fish meal plant at Dutch HarborDiagram of a fish meal plant at Dutch Harbor.In recent years:Alaska pollock fishmeal production hasbeen about 4.5% of harvest volume(60-70 thousand metric tons)Alaska pollock fish oil production has been about 1.2% of harvest volume(17-19 thousand metric tons)Alaska Pollock Fishmeal and Fish Oil Production010,00020,00030,00040,00050,00060,00070,00080,0002004 2005 2006 2007

metric tons0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0% % of harvest volumeFishmeal volumeFish oil volumeFishmeal percentFish oil percentUntil recently, Alaska pollock fishmeal prices were higher thaninternational fishmeal prices.Alaska Pollock Fishmeal Prices and International Fishmeal Price$0$200$400$600$800$1000$1200$1400 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

metric tonsAlaska at-sea price(NMFS data)Alaska price(COAR data)Alaska onshore price(NMFS data)International price(FAO data)International price source:FAO, Globefish CommodityUpdate, Fishmeal and FishOil, July 2007; prices for64/65%, any origin,wholesale, CIF HamburgFish meal production is a much higher share of harvest volumeonshore than offshore.Bering Sea Pollock Fishmeal Production:Percentage of Harvest Volume0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%2004 2005 2006 2007

% of harvest volumeFishmeal,onshoreFishmeal,offshore(Data for 2006are notavailable)Similarly, fish oil production is amuch higher share of harvest volumeonshore than offshore.Bering Sea Pollock Fish Oil Production:Percentage of Harvest Volume0.0%0.5%1.0%1.5%2.0%2.5%3.0%2004 2005 2006 2007

% of harvest volumeFish oil,onshoreFish oil,offshore(Data for 2006are notavailable)Food product prices and volumes arehigher than fish meal prices andvolumes—giving processors an incentive to optimize production of foodproducts.Average Annual Prices of Products Produced from Alaska Pollock$0.00$0.20$0.40$0.60$0.80$1.00$1.20$1.40$1.60$1.80 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$/lbDeep-skin filletsOther filletsSurimiMinced fishFish mealSource:NMFS SAFEEconomicReports.Prices arefor productsproduced atsea.Food fishery harvest volume isclearly a key variable affectingclearly a key variable affecting the potential for fishmeal & fish oilproduction.Total Alaska Pollock Harvests02004006008001,0001,2001,4001,6001,800 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

harvest volume (000 mt)010,00020,00030,00040,00050,00060,00070,00080,000 fishmeal & fish oil volume (mt)Harvest volumeFishmeal volumeFish oil volumeThere is wide seasonal variation in Alaska pollock harvests, withdistinct winter and summer seasonsdriven by roe content and marketfactors. Fish oil yields are much lower in the winter (1-2%) than in thesummer (3-4%). Landings from otherfisheries improve plant utilizationin other seasons.Alaska Pollock Harvests, by Month, 2000-2002050,000100,000150,000200,000250,000300,000350,000 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02

metric tonsExtensive research is occurring on utilizationof Alaska fish processing byproducts—not only fishmeal and fish oil but also food products, nutritionalsupplements, and fuels.http://seagrant.uaf.edu/conferences/2009/byproducts/index.htmlOther factors affecting Alaska pollock fish meal and fish oil production• Fishery management– Onshore delivery allocations– Harvesting cooperatives• Waste disposal regulations andfish utilization requirements• Capital subsidies for byproduct utilization• Utilization of fish oil for energy• Reprocessing in China• Climate change– Shifts northward and westward in pollock stocksFish meal production is a much higher percentage of harvest volumefor Alaska pollock than for other Alaska species, due to larger scaleproduction and lower processing yields.Alaska Pollock Share of Alaska Fish Meal Productionand Alaska Fish Harvests0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%2000 2001 2002 2003 2004 2005 2006 2007

% of Alaska totalAlaska fish meal productionAlaska fish harvests3. An approach for estimating potential fishmeal and fishoil production from food fish byproductsWe may estimate potential worldfishmeal and fish oil productionfrom food fish byproductsbased on four assumptions:– World food fish production– Share of food fish productionfor which byproducts will beprocessed into fish meal and fish oil– Byproduct yield from food fish– Fishmeal & fish oil yield from byproductsWe may use a range of assumptions to calculatea range of potential fishmeal and fish oil production.World food fish production• Approximately 106 million metric tons in 2004– FAO estimate; includes China (37 million metric tons)– Includes aquaculture• Production from capture fisheries will likely remain stable or decline.• Production from aquaculture willlikely continue to grow.Assumption: World food fish production will be 106million metric tons.Share of food fish production for which byproducts will be processedinto fish meal and fish oilHIGHER FOR FOOD FISHPRODUCTION WHICH IS:• Finfish• Large-scale• Industrial• Geographically concentrated• Year-round• Not marketed fresh (about half ofcurrent world production)LOWER FOR FOOD FISHPRODUCTION WHICH IS:• Non-finfish• Small-scale• Artisinal• Geographically dispersed• Seasonal• Marketed fresh (about half currentworld production)Assumption: Byproducts from 30-60% of food fishproduction will be utilized for fishmeal and fish oilproduction.Byproduct yield from food fish• The higher the food product yield,the lower the byproduct yield.• Processors’ have an economic incentive– to increase food product yields– to lower byproduct yieldsAssumption: Byproduct yield from food fisheries willbe 30-50%.Fishmeal & fish oil yield from byproductsAssumption: The fishmeal & fish oil yield frombyproducts will be 10-25%.Under these assumptions, fishmealand fish oil production from foodfisheries would be between 1 and 9 million metric tons.1-9 million mt= Fishmeal & fish oil volume10%-25%x Fishmeal & fish oil yieldfrom byproducts13-38 million mt= Byproduct volume40%-60%x Byproduct yield32-64 million mt= Food fishery volumefor which byproducts are utilized30%-60%x Percent of food fishery volumefor which byproducts are utilized106 million mtTotal food fishery harvest volumeA formal analysis would require areview of these assumptions on afishery-by-fishery basis—a significant undertaking.4. Conclusions• Profit maximization for primary food products drives fundamentaleconomic choices for food fish processors.• The scale needed for profitable fishmeal and fish meal production islikely to be higher thanfor food fish production.• Fish meal and fish meal productionmay be uneconomic if the scaleof production is too low or too seasonal.• Even if production is unprofitable,food fish processors may stillproduce fish meal and fish oil– if losses are less than the cost of waste disposal– if government subsidizes ormandates byproduct utilization• Rapid or dramatic increases in fish meal and fish oil production frombyproducts seems unlikely• The potential scale of world fishmeal and fish oil production frombyproducts ranges from well belowto slightly higher than productionfrom feed fisheries.Selected factors which could affect world fishmeal and fish oilproduction from food fishEffectFactorDecreaseDevelopment of alternative byproduct usesDecreaseIncreasing energy pricesDecreaseIncreasing food uses of fish byproductsDecreaseIncreasing yields in food fish processingIncreaseIncreased processing of food fish (lower % sold fresh)IncreaseIncreasing costs of fish waste disposalIncreaseGovernment mandates for byproduct utilizationIncreaseIncreasing aquaculture productionIncreaseIncreasing fishmeal and fish oil prices