Study of Supply Side Effects on Sablefish Market Price

Executive Summary

The Study of Supply Side Effects on Sablefish Market Price was undertaken by sablefish fishermen in BC, Alaska and Washington and other groups with an interest in the continued viability of the fishery. The primary purpose of the study was to assess the potential impacts of sablefish fish farming in British Columbia on market prices for sablefish in Japan, which is the primary world market for sablefish. Secondary objectives were to assess the potential profitability of sablefish farming and to review the prospects for the transfer of sablefish farming knowledge from BC to farms in other countries.

The gross ex-vessel value of the American and Canadian wild sablefish fishery was estimated at $141 million[1] in 2002-2003. This places the sablefish fishery in the league of the Pacific halibut fishery ($161 million U.S. & Canada combined) or the Alaskan salmon fishery of $195 million in 2003. Investments in the BC sablefish fishery (represented by the market value of fishing licenses, but not including vessels and gear) exceeded $225 million in 2003.

Given the complexities of forecasting exchange rates, Japanese incomes and other factors that influence the price of sablefish, this study developed two models: Model 1 focused on the impact of increased production of sablefish while keeping all other economic factors equal; Model 2 incorporated broad economic indicators for the Japanese economy such as the dollar/yen exchange rate and forecast changes to the Gross National Product.

In addition to the difficulty of forecasting economic change, a second limit on this study is that the wild sablefish market has never reached the levels contemplated by BC fish farmers. In 2002, for example, imports of sablefish to Japan were roughly 20,000 metric tones (mt). BC fish farmers propose to produce an additional 100,000 mt of sablefish, so if even half that volume was shipped to Japan the supply would increase from 20,000 mt of wild fish only to 70,000 mt of farmed and wild fish. Unprecedented volumes of this size make price predictions at this level unavoidably speculative.

Within these parameters, the main conclusions of the study are:

Impacts on Market Prices

·         Model 1 indicates that under existing market conditions, an increase of 100,000 mt, whether from aquaculture or a resurgence of wild, ocean stocks, would drive the market price of sablefish down to nearly zero.

·         Increases of 20,000 and 50,000 mt would drive the market price down by 19% and 47% respectively.

·         In Model 2, which considers the future economic status of Japan, the impact of 100,000 mt also reduces the market price to nearly zero.

·         The major change between Models 1 and 2 is that Model 2 indicates a much more pronounced impact on price at lower levels of production. At 20,000 and 50,000 mt increases in production, for example, sablefish market prices would drop by 25% and 62% respectively under Model 2 versus 19% and 47% drops in Model 1.

·         The study also concludes that the U.S. market may absorb an additional 5-10,000 mt of sablefish and other worldwide markets an additional 10,000-20,000 mt. This increase is contingent upon significant marketing investments, declining harvests of Patagonian toothfish and the acceptance of sablefish in U.S. and other world markets.

·         Assuming these contingencies are met, a 20,000 mt increase in supply combined with an expansion in American market demand would reduce the drop in ex-vessel price from U.S. $3.09 lb to $2.80/lb rather than the extended drop to $2.51.

·         In general, the Japanese market would reach market saturation at a farm fish production of 27,000 mt to 48,000 mt.

Sablefish Farming

·         With current technology, it will take two or three years of culture time to raise each crop of market-ready sablefish. Within five years, BC sablefish farms are expected to produce 6,555 mt of sablefish at an estimated cost per pound of product of $1.67 to $2.05.

·         If sablefish farming proves profitable during the initial 4-5 year period, a more rapid expansion would follow as salmon farmers realize an opportunity to diversify their business.

·         Based upon the experience in the development and spread of aquaculture technologies for salmon, shrimp, halibut, cod and other species, sablefish farming technology will be taken overseas from BC to any area where it proves profitable. Countries such as southern Chile, Iceland, Norway and far eastern Russia are likely candidates.

·         Expansion of sablefish farming would continue until market prices decline to the point where they just cover the cost of production.