The second half of the 20th century ended a little late in calendar terms the first week of October 2008. That was the week that everyone from Iceland’s international depositors to Maine lobstermen and from Wall Street financiers to Russian oligarchs began to recognize that our intricately inter-dependent and globally profligate indebtedness will extract a terrible price from all of us for many, many years to come.
In our heart of hearts, did we really believe that we would all retire rich by burdening our family, business and government budgets with vertical walls of debt? If a 32-foot lobster boat with a 150-horsepower engine made a good living for our fathers or uncles when lobsters were $2 per pound, why couldn’t we finance larger boats with a 350-horsepower engine when lobsters are at $4 per pound? If our parents could finance a 1,500-square-foot house and drive a station wagon, why couldn’t we finance 3,500 square foot houses and drive Yukons and Denalis? If local banks could prosper by selling home mortgages, why couldn’t Wall Street print money by repackaging those mortgages as collateralized debt obligations hedged by credit default swaps? (Huh?) If we could finance a great world war by borrowing from ourselves through the sale of Liberty bonds, why couldn’t we finance new wars by borrowing from the Chinese and have our children and pay the interest on several trillion dollars of additional debt? If government is the problem, why can’t it just get out of our way?
Forgive me, I digress.
Lobstermen, we have a problem. It’s not just that the price of lobsters has suddenly dropped to $2 per pound because the Canadian processors who have bought most of Maine’s fall lobster run during the past decade were financed by Icelandic banks and now can’t get financing to buy our lobsters. It’s not just the squeeze of escalating bait and fuel prices that threaten over-extended boat loans. It’s not just the new federal rules that impose thousands of additional dollars on individual lobstermen who have to buy miles of new lines to protect endangered whales.
The real problem is that the lobster business model is broken and lobstermen need to create a new one-and soon, before an entire way of life along the Maine coast is deeply compromised. Sending most of our lobsters to Canadian processors where they add value to consumers who love to eat the meat once extracted from their shells-not in them-means that Maine exports a huge amount of economic opportunity to our international neighbor. One of the first things is to recognize that Maine needs to encourage strategies to capture more value in the lobster commodity chain.
There are some simple marketing and processing strategies that don’t involve a lot of financial heavy lifting to implement. Maine lobsters are one of the most widely recognized and admired brands in the world. The Maine industry also has a great story to burnish this incredibly valuable brand. The lobster conservation story could add substantial value to the brand. Generations of Maine lobstermen have protected female lobsters, have protected juvenile lobsters and the large reproductive lobsters and have developed carefully designed traps that do not impact fragile marine habitats, all to protect and sustain the future of one of Maine’s most important businesses.
The Maine lobster industry needs to devise ways of telling this story to its customers–across the country and across oceans–to distinguish Maine lobsters in the marketplace. The fact that the Maine lobster brand is extinguished when those lobsters travel to Canada where they lose their identity is an economic tragedy.
Protecting Maine’s lobster brand will also inevitably mean agreeing to third-party certification. Many lobstermen have resisted certification based on the fear that more environmental reporting rules will be required and that more whale-related lawsuits and other regulation will be required. Understandable as that fear may be, continuing to resist certification is a huge missed opportunity for the entire industry. When Wal-Mart, the largest retailer of lobsters in the world, announces that within the next two years, it will only buy certified seafood, the market is about to undergo a seismic change. If Maine lobstermen will not take the lead, others will and Maine lobstermen will be left behind.
On the processing side, there are other strategies that don’t necessarily involve financing large businesses to extract lobster meat for upscale national and international convenience markets, although it is also important to invest in these kinds of businesses. Most lobstermen sell their catch as “crate run” lobsters to dealers, which means the premium hard shell fall lobsters get mixed in with late shedders, culls and weakened lobsters, too many of which die enroute.
Lobster dealers then sort through the crates, and sell to different dealers who sell to different markets for different grades of lobsters, inevitably involving a lot of middlemen in the wholesale chain who all need their cut. Everyone makes money on premium lobsters, while dealers take all the risk on the lower quality lobsters. If lobstermen take more of the risk on poor quality lobsters, they can make a lot more money on premium lobsters.
When the lobster business was booming, the crate run sales system worked. But with lobster prices hovering around $2 pound in many ports, Maine’s lobster economy is in serious trouble. The only way for Maine lobstermen to get better prices in the short run is to develop business relationships that shorten the commodity chain-that is the number of middlemen between them and the customer. Lobstermen cannot afford to forgo the premium prices for premium lobsters just to move their lower quality lobsters. Catches will need to be sorted and sold to a single middleman who can deliver the sorted product directly to the end markets.
In the longer run, Maine lobstermen are going to have to fish far fewer traps that will consume less bait and less fuel in more efficient lobster boats with more efficient traps. The only good thing about hard times is that some individuals are inspired to think about business in a whole new way and I hope some lobstermen are among the inspired.
Philip Conkling is the president of the Island Institute.