Homer Alaska - Business

Story last updated at 8:05 PM on Wednesday, March 30, 2011

Alaska ready to help largest trade partner recover after natural, man-made disasters

By Andrew Jensen
Morris News Service - Alaska

In the aftermath of the tremendous destruction wreaked on Japan, the question for longstanding state business ties — that are as personal as they are profitable — is not how the disaster may help the Alaska economy.

The question is how can Alaska help its largest trade partner recover from an unprecedented combination of natural and man-made disasters.

The first wave of Alaska goods in the form of fresh black cod is en route to Japan to meet the needs of a population left devastated by a 9.0 magnitude earthquake that struck March 11, scores of massive aftershocks, a tsunami that reached heights of 30 feet and an unfolding series of nuclear accidents that have yet to be contained.

Japan, which bought 84 percent of the Alaska black cod harvest in 2009, is seeking shipments of black cod "as quickly as possible," according to Randy Lantiegne, the Southeast fleet manager for Icicle Seafoods.

With radiation fears escalating and food supplies tightening after the destruction of fish processing plants and cold storage facilities, Alaskan black cod, or sablefish, is still in high demand from Japanese buyers snapping up the harvest that began March 12.

"It's a food source that wasn't over there," Lantiegne said. "It's new food coming to the country, which I think people have confidence in that. I know a lot of their food hasn't been affected, but that's a piece if you're purchasing fresh or new food, you wouldn't have that concern."

The demand is nothing new, Lantiegne said, and black cod is typically "very highly sought after at the beginning of the year. It's a product they really enjoy."

Black cod isn't the only Alaska seafood product enjoyed by the Japanese, who purchased about 70 percent of the king crab in 2009, nearly all the herring roe, 50 percent of the pollock roe and 25 percent of the sockeye salmon harvest.

Alaska shipped $1.2 billion worth of goods to Japan in 2010, according to the state Office of International Trade, a 24 percent increase over 2009.

Seafood accounted for $523.4 million, or 43 percent, followed by energy ($369 million), lead and zinc ($288.1 million) and forest products ($17 million).

With the world's third-largest economy facing a massive recovery and rebuilding effort, Alaska stands ready and able to help supply critical food and raw materials.

"The first thing that needs to be said is the human dimension," said University of Alaska Anchorage economics professor Gunnar Knapp, who is on a one-year sabbatical to write a book on the Alaska seafood industry.

"We are one of the few places in the world that has experienced earthquakes on the scale of this one," said Knapp, referring to the 1964 Good Friday earthquake that struck Prince William Sound and still ranks as the second largest recorded in history at a magnitude of 9.2.

"We also experienced several devastating tsunamis that killed many people. Alaskans feel a genuine empathy. There are a lot of personal ties and people feel those. We feel a genuine sorrow and shock at what they've gone through."

The black cod harvest quota increased by 14 percent for Southeast this year, to 26.8 million pounds. A little more than 920,000 pounds of black cod crossed Alaska docks in the first 10 days of the season that began one day after the earthquake struck off the north coast of Japan's main island, Honshu, devastating the fishing hub of Sendai.

The Japanese yen remains near its 16-year high against the dollar, giving the country the buying power to secure supplies of foodstuffs such as black cod. Lantiegne said prices have been a little stronger than 2010, when black cod fetched prices from $5.20 per pound to $7 or more per pound.

The Sitka sound herring roe fishery is more uncertain, but that was the case before the March 11 earthquake, Lantiegne said. The herring roe (eggs) harvest goes almost entirely to Japan, where it is used in sushi and in salted form for holiday gift boxes.

Demand for the roe, and dockside value, has been in decline for years. In the early 1990s, the fishery was valued at about $35 million annually but has averaged about $12 million since 2005.

A larger guideline harvest level, or GHL, for 2011 in the Sitka herring roe fishery had already had an impact on price negotiation.

Many of the importing companies in Japan also operate processing facilities in Alaska. Maruha-Nichiro owns Peter Pan Seafoods, Alyeska Seafoods and Westward Seafoods; Nippon Suisan owns Royal Aleutian and UniSea.

"They are, to put it mildly, distracted," Knapp said. "They all have operations in these (affected) areas of Japan. They all have employees that may be killed or hurt, and their family members. You read about fishing boats coming home from the high seas to see if anything is left, who in the family is OK. People are really distracted from normal business."

Tyson Fick, communications director for the Alaska Seafood Marketing Institute, reported a strong contingent from Japan at the Boston Seafood Show, but 10 days into the aftermath many still did not know the fates of their company infrastructure and, more importantly, some friends and family.

Seafood is the mostly widely traded global commodity, and Japan's position as the world's top importer of seafood will undoubtedly impact the Alaska economy in some form, either in increased demand for some products or decreased demand for others such as the high-end herring roe.

But even if it helps Alaska to help Japan, the state will not be immune to global economic forces caused by the ongoing disaster that stand to cause severe disruption in the coming months.

Oil prices are expected to keep rising as Middle East and North Africa turmoil continues. That is good for the state tax coffers, but the benefit may be short-lived if inflation in food and fuel prices curtails the nascent global economic recovery.

Alaskans spend more per capita on energy than any other state and fishermen have felt the sting of rising fuel prices for the past several years. A strong yen and a weak dollar are generally good for Alaska fishermen and American exports in general, but a weak dollar driving fuel price increases could destroy gains from good prices in Asian markets.

"Rising energy prices are not good for the fishing industry," Knapp said. "If you 'export' to the U.S. market, what happens on the exchange rate doesn't affect you. You get a double bad whammy if costs go up for energy prices and you're trying to sell to American consumers who are paying higher energy prices and have less money to buy fish."

The Japan disaster comes into play on the inflation front because of its status as the second-largest foreign holder of U.S. debt. As of January, Japan held $885.9 billion worth of U.S. Treasury securities, a 15.7 percent increase from January 2010.

China is well ahead at No. 1 with $1.15 trillion worth of U.S. debt, a 29.9 percent increase in the last year.

With the U.S. running annual deficits of more than $1.5 trillion, the amount of foreign-held debt increased by 20.3 percent from January 2010 to January 2011 and now stands at $4.45 trillion according to the U.S. Treasury Department.

The Federal Reserve has pumped massive amounts of liquidity into the markets since the 2008 financial crisis by purchasing mortgage-backed securities, keeping interest rates at record-low levels and a program known as Qualitative Easing 2, or QE2, that involves the Fed purchasing some $600 billion worth of U.S. Treasury notes.

The inflationary effects of these moves have already been seen in rising oil prices that preceded the ongoing Middle East and North African unrest. Food prices spiked in February by 3.9 percent, the highest one-month increase in 36 years.

At the end of February, world leading bond trader Pacific Investment Management Co., or PIMCO, liquidated its entire holdings of U.S. Treasuries and its founder Bill Gross posited this question in his most recent newsletter: "Who will buy treasuries when the Fed doesn't?"

Gross liquidated PIMCO's Treasury holdings in anticipation of an inevitable run-up in interest rates.

In order to find buyers for U.S. debt, the nation will have to offer higher yields. Once those yields go up, those holding low-interest bonds such as the kind PIMCO sold off stand to lose big.

When the government increases the interest it will pay on its debt, interest rates will increase for every borrower at the exact moment inflationary pressure is eating away disposable income through food and fuel costs.

The Fed's Treasury buying through QE2 is set to end in June. If Japan steps away from U.S. bond auctions as it directs its financial resources into recovering from damages now estimated at more than $230 billion, the effects could be serious according to Ty Young, president and CEO of wealth management firm Ty J. Young Inc.

"It could be catastrophic," Young said. "Essentially what we're doing as a country is we're spending $1.6 trillion more than we're taking in. China and Japan are effectively loaning us money, and I don't expect Japan to be at the table any time soon. They may be selling.

"What that means as a country, is that our credit card is about to be denied. Then, we're left with two choices: stop spending more than we're taking in — which seems to be a mountain the folks in Washington aren't willing to climb — or we can monetize more debt by borrowing money from ourselves, devalue our currency and make gas and consumer goods cost more. It's not a good place to be."

Andrew Jensen is a reporter for the Alaska Journal of Commerce.