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Non-binding Price Formula Arbitrator and Market Analyst Report

Non-binding Price Formula Arbitrator and Market Analyst Report. 18 Month BSAI Crab Review John Sackton Anchorage, AK March 27, 2007. Background. 30 Years in Seafood Industry; 13 years as market analyst and price reporter Publisher of Seafood.com News,

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Non-binding Price Formula Arbitrator and Market Analyst Report

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  1. Non-binding Price Formula Arbitrator and Market Analyst Report 18 Month BSAI Crab Review John Sackton Anchorage, AK March 27, 2007

  2. Background • 30 Years in Seafood Industry; 13 years as market analyst and price reporter • Publisher of Seafood.com News, • Price formula and market reports in Canadian Opilo industry since 1998 • Selected Price Formula Arbitrator and Market Analyst for BSAI crab in 2005, and again in 2006.

  3. Main Issues • Definition of historical revenue share • Data sets used to determine historical share • Use of Linear regression to produce a price table based on historical share • Use of Contract Arbitration Results • Incentives to increase value of crab • Proposed procedure for soliciting comments on price formula • Changes in timing of the market reports

  4. Historical Revenue Share Never Defined by council (1) • Years Chosen to be included: 1990-2004 • Covers both high and low harvest years • Applies to all crab species • Provides sufficient number of data points • Range acceptable to harvesters and processors Recommendation is that these years be accepted as defining historical revenue shares

  5. Data Sets to determine historical revenue share (2) • Criteria: • Publicly available • Consistent methodology over time • COAR data sets initially chosen as best available • Covers ex-vessel and wholesale prices • Sales broken down by product form • Allows for exclusion of Norton Sound and SE Alaska, as not under BSAI program • There are significant problems with annual COAR data: • Does not match fishing year • Companies have no standard method of filling out the reports • Data seen by some as inaccurate

  6. COAR limitations • BBRK: ex-vessel prices set in October, Japan sales made same year; US sales not captured until following year. • BSS: ex vessel prices set in January; sales prices averaged over entire year • Result: ex vessel percentage of wholesale price varies due to market/inventory factors, not negotiations, but variance averages over time. • These problems may be corrected by producing a better historical data set if one becomes available

  7. Use of Regression Formulas Gives Best Result (3)

  8. Test of Formula on BBRK

  9. Opilio Formula

  10. Historical Test of Opilio

  11. Regression Formulas Best Way to Calculate ex-vessel % • Regulations require price formula to be expressed as vessel percentage of wholesale price. • Actual percentage varies based on price, is not fixed. • Regression formulas, including formulas that reflect changes in prices and harvests, are better mechanism to produce a price formula than estimating a market price and ex-vessel percentage

  12. Contract arbitration results and the Price Formula Arbitrator (4) • 2 Opilio and 1 Bairdi arbitration at end of 2005-2006 season. • Price Formula Arbitrator is required to take contract arbitration results into account • Current regulations prevented Price Formula Arbitrator from learning anything from the arbitration except the arbitration decision, and the processor offers

  13. The 2006 Opilio price after arbitrations, was higher than predicted by the formula • 2006 estimated Opilio pricing, including results of arbitrations, had the 2nd highest deviation in favor of harvesters. • Without access to the presentations and arguments of the parties, it was very difficult to know how to interpret this result in 2006 formula. • Recommendation: That the Price Formula arbitrator be given access to presentations made to contract arbitrators, either by the parties, or by NMFS

  14. Incentives for adding value to crab (5) • Current practice hurts processors ability to try and get higher prices for crab • Problem is that costs of value added products, or market timing, are not considered as part of the “FOB Price” against which harvester payments are made.

  15. Example of Negative Incentive

  16. Procedure for comments on Non-Binding Price Formula (6) • In 2006, a draft non-binding price formula was circulated for comment two weeks before the final report was due. • There is a benefit in providing parties an opportunity to comment on the proposed price formula • Recommendation: that a one week period for written comments on a draft price formula be instituted, if both parties agree.

  17. Timing of the Market Report (7) • Current regulations require a single market report, based on data at least 90 days old. • For Opilio, this means that when the price negotiations take place in January, the market report is 7 months out of date. • Recommendation: That a supplemental market report be allowed, if requested by both arbitration organizations, as needed for negotiations.

  18. Conclusions • In general parties have tried to make the non-binding price formula and market report features of the program work. • Both reports have improved considerably over the first two report cycles. • Adopting these recommendations will help regularize the price negotiation process, and allow for more effort to be focused on raising the value of crab products.

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