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Issues for New Brunswick Seafood Industry Looking to 2021: Lobster

John SacktonSeafood Datasearch

Province of New BrunswickDecember 2020

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Background• 40+ Years in Seafood Industry• Crab, shrimp, lobster and cod market

analyst since 1997• Price and market outlooks for Atlantic

Canada, Alaska, and US West Coast• 2005-2018 Price arbitrator for Alaska crab• Expert on Mussel and Oyster Markets• Co-Founder of NFI’s Global Seafood Market

Conference• Annual Market Review for Fisheries Council

of Canada• Founder of SeafoodNews and Seafood

Datasearch

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For most species price is not the problemLiveLobster

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Frozen tails and meat

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Pandemic overview• Shifttoretail• HugeFoodservicecuts• USConsumerspendingmaintained• Chinaimportinglobsters

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Food Industry hit by demand shifts

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Industry got reprieve from retail seafood

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IRIWeeklyRetailData:Seafood,Meat,DeliMeat

100=nochangeYOY

deliMeat Meat Seafood

Seafood

DeliMeat

Meat

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Frozen category very strong at retail

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IRIWeeklyRetailData:Frozen,GeneralFood,Refrigerated

100=nochangeYOY

Frozen GeneralFood Refrigerated

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Retail lobster promotions surged

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5

10

15

20

25

30

jan-dec may-dec

Winn-DixieLobsterTailpromotionsinFloridaup65%

2019 2020

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Three trends helping seafood consumption

• BigIncreaseinhomecooking

• Bigincreaseinuseoffrozenfood

• Continuedemphasisonhealthduringpandemic

Data from informal survey of changes in seafood consumptionby SeafoodNews

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Survey shows increased retail buying, buying from home delivery service

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Crab and lobster had biggest retail sales gains

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30.0%

40.0%

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70.0%

80.0%

Crab Lobster Shrimp Salmon

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Not only did seafood outperform other proteins but

crab and lobster saw the greatest increase

This trend hascontinued thruOctober

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Pandemic has hit different sectors unevenly

• 70% of US Seafood dollar sales are at Foodservice

• Shut down of foodservice sector has had huge impact

• But impact was initially mitigated

• New round of shutdowns means many closures will be permanent

• Restaurant relief not a government priority

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Foodservice is a different storyMost distributors report around a 25% drop off in business

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Restaurant traffic falling with new lockdowns in Europe and N. America

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PercentofDeclineinSeatedDinersYearoverYearCanada Germany UnitedStates

5per.Mov.Avg.(Canada) 5per.Mov.Avg.(Germany) 5per.Mov.Avg.(UnitedStates)

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Seafood Distribution is not out of the

woods$2.2 Billion in uncollected

debt

RecentCongressionaltestimonyfromSladeGorton:• Lost70%oftheirbusiness

duringshutdown• Hugeproblemwithbaddebt;

restaurantscan’tpayforwhattheyorderedlastspring

• Nationally$2.2billioninbaddebtisoverhangingseafooddistributors

• BankLendingsecuredbyinventoryisfreezingupasinventoriesgetsmaller

A major bankruptcy could createhuge problems

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Restaurant industry will not quickly recover

• Casual dining and fine dining hit harder than quick service.

• Restaurants paring their menus

• Changes don’t affect all seafood equally

• Worst for oysters and items that didn’t have huge retail uptake

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US personal income is falling

17,500.0

18,000.0

18,500.0

19,000.0

19,500.0

20,000.0

20,500.0

21,000.0

21,500.0

March Aprilr Mayr Juner Julyr Aug.r Sept.r Oct.p

USPersonalincome

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Economic factors are key risk for first half of next year• The US economy remains on a

knife edge, with a serious risk of extreme disruption from a congressional gridlock after the election.

• Consumer confidence and spending will rebound based on election results.

• Moody’s and other analysis says that a Biden win and a democratic senate would provide a huge boost to the Economy.

• 18.6 million jobs projected over 4 years

• unemploymentofjustover4%,bythesecondhalfof2022

• averagehousehold’srealafter-taxincomeincreasesbyapproximately$4,800

• The size of the stimulus will depend on Biden’s political clout with Congress

Beginningofrecoveryboostedoptimismforseafooddistributors

Withrecoverystalled,riskisnowthattemporarylossofrestaurantandfoodservicebusinessmaybecomepermanent

Changesinseafoodbuyingpatternshelpedbymaintenanceofincomelevels– whichnowisatrisk

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Lobster• Both live and frozen lobster pricing has

recovered from shock of pandemic.• Lobster pricing is currently driven by

shortages• This presents a very risky environment

for buyers• Customers not in a good position to

accept price increases• Overall market is smaller• China imports face new restrictions due

to virus testing

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2020 Prices supported by lower landings

LFAlandingstrendingdown CanadianexportstotheUSweredown14%thruSept

0

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100000

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019p

Lobsterlandingsbyregion

NL QB Gulf Maritimes US

Widespread reports of lowerlandings in Maine

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Live lobster pricing

2019

2018

2017

2020

• Bad weather and late start for LFA 34 mean price volatility over the next few weeks

• Some processors have failed to open due to high shore prices

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Price of live lobster compared to fzn lobster tail

Vs 4 oz fzn lobster tail

Live Lobster$US per Lb

Fzn 4 ozlobster tail $US per Lb

junejune june

june

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Frozen meat and tail pricing

ck dry

4 oz tail

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US is dominant market fzn lobster and snow crab; Less so for live lobster

Snow crab

Live Lobster

Fzn Lobster

Fresh salmon

Bars show export value by quarter

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Lobster and Crab had real growth in 2019; Only crab will see growth in 2020

Source: Canadian customs data

0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

lobster crab shrimp salmon(inclwild)

$CA

MajorSeafoodExportCommodities

2015 2016 2017 2018 2019 YTD2019 YTD2020

2019

Salmon and shrimp were slightly lowerComparing YTD July 2020 with YTD 2019, lobster and crabhad lower value, but not shrimp and salmon

YTD Comparison 2019/20

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Strong demand for frozen lobster has increased Canadian processor purchases from US

USlobsterexportsYTDJuly

0

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Canada China HK

2018 2019 2020

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But over the summer, China aggressively bought US lobster

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2018 2019 2020

USpercentlivelobstergoingtoChinacomparedtoCanadaYTDSept

Canada China chinapercent`

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Lobster and Crab Mostly eaten in restaurants

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10.00%

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40.00%

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60.00%

70.00%

80.00%

90.00%

Shrimp Salmon Crab Lobster Whitefish(cod,haddock,tilapia,

catfish

Swordfish ClamsorOysters Flounder

restaurant home

Data from informal survey of changes in seafood consumption by SeafoodNews

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But crab and lobster had biggest retail sales gains during pandemic

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Crab Lobster Shrimp Salmon

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Retail promotions on frozen tails up 65%

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jan-dec may-dec

Winn-DixieLobsterTailpromotionsinFloridaup65%

2019 2020

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China’s demand is key for lobster pricing: strong purchases from US this fall have impacted price

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Percentoftotallobsterexports

$CAKg

UnitedStatesofAmerica

China

UnitedStatesofAmerica

China

Korea,Republicof

France

Spain

3per.Mov.Avg.(UnitedStatesofAmerica)3per.Mov.Avg.(China)

Periods of high volume in China, at stable prices, are followed by higher prices in US

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Canada is still heavily tied to US MarketMore so in first half of 2020

Source: Intracen customs data

61%63% 63%

60% 59%

59%

65%

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2014 2015 2016 2017 2018 2019 2020

$CA000’s

TotalCanadianSeafoodExports

US

China(inclvietnam,HK)

EU

OtherAsia

Other

USpercent

Chinapercent

EUpercent

OtherAsiapercent

Otherpercent

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Canada is dominant exporter to china for lobster and fzn coldwater shrimpMarketshareformajorexports:

Lobster72%Fzn Lobster100%Coldwatershrimp45%FrozenCrabs39%LiveCrab(Dungeness)15%Hake55%

0%

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LobsterLive

LobsterFzn

ColdwaterShrimp

Crablive(Dungeness)

CrabFrozen

Turbot&Halibut

Hake

Other

$CA000's

SnapshotofCanada'sExportstoChinain2019

CAExp ChinaImp CanadaMarketShare

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China is first major country to recover economically from pandemic

• China’sSeptemberpurchasingmanagerIndexwas51.5,60%HigherthantheConsensusforecast

• ChinaistheonlymajoreconomyexpectedtopostGDPgrowththisyear

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China has become Canada’s 2nd most important seafood partner

Despite improving diversification, Canada’s seafood industry still depends on US market, and this increased in 1st half 2020.

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Exportedvaluein2015-Q3

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$USD000’s

US China(InclHK&Vietnam) Europe

Japan OtherAsia Other

USPercent

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Pandemic impacted live lobster buying

• FearoflackofmarketsledtolowpricesinSpring

• Heavydemandatretailseafoodledtomoresales,especiallyoncrabandlobster

• Frozenlobstersawincreasedinterestfromfoodservicethatimprovedoverthesummer

• HeavylocaltourismalongtheEastCoastsupportedoutdoordiningforlobster

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Imports of other foreign foods to China have slowed

China’sinspectionsandcampaignagainstimportedfoodwillhaveimpact

EvenwithStrongNewYear’sCelebration,Chinamaynotmatchprioryearsimports

• Import and shipping delays due to overloaded inspectors can create expensive problem for shippers.

• All imported seafood will require covid-free certificates

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Current situation

• Currentlylivepricesarehigherthanprocessorscomfortablewith

• Processorsreluctanttoraiseprices,butshortagesanddemandispushingpriceshigher

• Chinaanimportantbuyeroflivelobster,butrecenteffortstoinspectimportedseafoodduetoCovid-19hasslowedpurchasing

• CreatesHighrisksituationforbothfrozenandlivelobster

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Time for Questions

• Pleaseputquestionsinchatandtheywillbepresented.