DO JAPANESE SALMON BUYERS ENGAGE IN COLLUSIVE ANTI-COMPETITIVE PRACTICES?

In June, 1993 the Alaska Attorney General's Office produced a report entitled BRISTOL BAY SALMON INVESTIGATION which looked into price fixing by Japanese salmon importers and concluded:

"We make no claim to having conclusive evidence of price fixing or other illegal conduct, but we do believe that the report shows how various parties had the means, opportunity, and motive to reduce Bristol Bay salmon prices in recent years."

The report says Japanese trading companies became major purchasers in the late 1970s, contributing to a boom in salmon prices for fishermen. This boom lasted until 1989, when Japanese wholesale prices plunged 20% at a time when a U.S. processor, Trident Seafoods, had attempted to break the hold of Japanese trading companies in an alliance with Mitsubishi's trading company. The move failed. There was a further drop in prices resulting in a "crash" in 1991. In this case, the Attorney General's report suggests that factors other than the recession in Japan contributed to price declines. The report charges that big Japanese trading companies at first attempted to force Alaska fishermen to bear the whole burden of the 1991 crash in salmon prices: "It is clear that initially the intention was to make fishers bear the entire burden of the drop in Tokyo sockeye prices." However, they apparently relented after a work stoppage by fishermen and intervention by the Governor of Alaska. The fact that political intervention caused salmon prices to rise from 50 cents a pound to 70 cents a pound in 1991 is by itself indicative that free market forces may not be entirely driving salmon prices. For example:

• In 1982, several trading companies active in the Bristol Bay salmon trade had signed a consent decree with the U.S. Justice Department promising not to fix the price of Alaska crab. These companies included Nippon Suisan, Kyokuyo, Mitsui, Toshoku and Taiyo, all active buyers of salmon. The decree set to expire in 1992, "carried the implication of further anti-trust action by the U.S. Department of Justice, should these companies be found guilty of so much as communicating prices among themselves regardless of whether the subject was crab or other seafood."

• In 1987, CONAGRA, one of the largest food manufacturing companies in the United States bought Trident Seafoods of Seattle, Washington in a move that was seen as the "Americans ... preparing to gather their resources in an attempt to drive the Japanese out of the industry."
• In 1989, when the salmon prices took their first drop, the report suggests that an event of major importance was a partnership between Trident and Mitsubishi, a newcomer to the salmon market, to sell salmon in the Japanese market: "Subsequently Mitsubishi backed out of its contract with Trident leaving Trident with a large quantity of unsold frozen salmon in Japan. Eventually Trident was able to sell the fish to Kyokuyo (a company which had signed the 1982 U.S. Justice Department consent decree, see above -ed. note) at a much lower price than it had originally sold to Mitsubishi." The report speculates that a deliberate price decline by Japanese companies was aimed at "driving salmon prices to the point at which Mitsubishi decided to rethink its strategy."

• Prior to the 1991 crash in salmon prices, the Alaska investigation uncovered a December, 1990 memo from a meeting in Japan between a Japanese trading company and a salmon processor stating: " We are assure (sic) that the (processor) as a leader of this industry can establish reasonable ...prices by enforcing to control the grounds prices (i.e. prices paid to fishermen-ed. note)." The report infers from this and other evidence that "some concerted effort was afoot in 1991 to drive down grounds prices, and that at least some Japanese buyers discussed those efforts with some processors in advance of the season."

• Another factor contributing to the 1991 crash may have been Trident Seafoods' "continuing to protest Mitsubishi's abrogation of their 1989 sales contract, and may have been the target of price retaliation that contributed to the crash of 1991." The report also notes that in a 1989 Japanese television documentary on the U.S.-Japan salmon trade, Chuck Bundrant, president of Trident Seafoods Corporation was described as "fighting against the Japanese."

• In 1991, there was evidence of coordinated price offers by Japanese buyers: "Witnesses have testified that, in 1991 and subsequent years, price offers made by various Japanese buyers to various processors are very nearly parallel. Additionally, according to this testimony, in the early part of the 1991 season, the Japanese buyers all withheld written price offers to processors for several weeks. Then, within a short period of time, they nearly all made offers. This kind of parallel behavior with respect to pricing is difficult to explain in the absence of at least tacit agreement among buyers."

• In 1991, despite the intervention of the Governor of Alaska, the work stoppage and the subsequent rise in prices from an initial offer of 50 cents to 70 cents per pound, Japanese buyers forced Alaska fishermen to bear most of their price losses: "Of an average drop of $0.56 (year-to-year) in dollar equivalent Tokyo wholesale prices, $0.39 or 70 percent was ultimately passed on to fishers.."

In fairness to the Japanese there should be no astonishment expressed about why there was a crash in salmon prices in 1991 following the 1990 Tokyo stock market crash and Japan's subsequent economic downturn. Also, there was a great deal of speculation in many products during the 1980s, including salmon, and a shake-out was inevitable after 1990. In 1991, two of the top importers of U.S. sockeye salmon in Japan, Shin-Nishoku and Shin-Nihon went bankrupt. Clearly, these events had a major impact on prices in salmon in 1991 and in subsequent years.

However, the Alaska Attorney General's report concludes that Japanese buyers, many of whom are multi-billion dollar multinationals, succeeded in making up for most of their losses at the expense of American fishermen. It is also significant that Trident's efforts to break into the Japanese market should not only have failed but coincided with a 1989 drop in salmon prices under suspicious circumstances. Other disturbing evidence is:

• The breaking of a contract with Trident by one of Japan's leading trading companies, Mitsubishi, is very out of character for Japanese companies who pride themselves on the integrity of their contract obligations.

• Alleged advance efforts by Japanese buyers to force U.S. processors to lower prices for U.S. fishermen in 1991.

• Testimony that price offers by Japanese buyers may have been coordinated.

  Nevertheless, at the end of the day with all of this information, the Attorney General's office concluded that Japanese practices "are not generally subject to antitrust enforcement in Japan and most of their activities are, for a number of reasons, beyond the reach of Alaskan antitrust enforcers."

  The report does go on to suggest that U.S. processors and fishermen should consider being allowed to collectively bargain with the Japanese trading companies and that there should be an antitrust exemption for U.S. interests dealing with the Japanese to allow for a more level playing field in trade.

  In 1993, the Alaska Department of Commerce produced a report entitled THE JAPANESE SALMON MARKET co-authored by Gunnar Knapp, who now heads SMIS. The report found that the Marubeni Corporation was the leading importer of sockeye salmon. Other companies included: Nippon Suisan, Mitsubishi, C. Itoh and others.

  The report said that the major trading companies circumvent Japan's cumbersome wholesale market and distribution systems, which allow them to sell directly to supermarkets and other retailers. Supermarkets in some parts of Japan purchase as much as 65% of fish products with 35% going to small retailers. The trading companies system works as follows:

  "Large importing or trading companies often have in-house processing plants or affiliated processing companies , as well as their own distribution networks. A large portion of the frozen salmon imported by these companies is processed in-house instead of being supplied to wholesale markets. Following in-house processing, products are distributed directly to supermarkets chains, retail stores, or sometimes wholesale markets."

  For example, in 1993 the report lists the Nichirei Corporation as one of the largest salmon importer after the Marubeni Corporation. The company was described in the 1993 JAPAN COMPANY HANDBOOK, published by Toyo Keizai Inc, as the "unrivaled leader in refrigeration warehousing industry and also No. 1 in frozen foods." The company had just developed a new distribution system to link it with the Kansai Supermarket chain in the Osaka area and the Ito-Yokado supermarket chain in the Tokyo area. Ownership of Nichirei includes Fuji Bank, which is one of the leading banks in the Fuyo industrial group or keiretsu and includes amongst its member companies, the Marubeni Corporation, Nichirei, Nissan Motors, Hitachi and Canon.

  In 1993, the Ito-Yokado Supermarket chain, supplied by Nichirei, had the highest earnings of any supermarket chain in Japan and was second in sales. Ownership of the company included Mitsui Life Insurance and Mitsui Trust. Company holdings include the American Southland company, which owns the Seven-Eleven stores, according to the JAPAN COMPANY HANDBOOK.

  Researchers for THE JAPANESE SALMON MARKET report asked Japanese officials at the Japan Fisheries Agency about whether it would be possible for U.S. fish processors to sell salmon directly to Japanese supermarkets and provide them with a lower cost product by avoiding intermediaries: "We were told that such sales are legal but that they normally do not work successfully: the producer is seldom able to meet the retailer's diverse needs over an extended period of time and the connection falls apart."

  Normally government officials lack the ability to make such exact predictions about the future of market forces, especially in cases, where the potential would be for lower prices to the purchaser and potentially higher profits. However, if the Japan Fisheries Agency officials were aware of Trident's problems breaking into the Japanese market, then perhaps the evidence was compelling enough to discourage other foreigners.

  Gunnar Knapp, director of SMIS and co-author of the report told SAM TRADE that while it was possible to draw the conclusion that Japanese officials implied that collusive practices would undermine direct sales marketing, it was also true that some U.S. companies who had sought to sell directly were not successful because of ineffective marketing, causing the Japanese officials to question the viability of a direct sales effort by U.S. exporters:
  "When I go to Japan I am struck at the sometime ineffective marketing efforts of U.S. companies in contrast to the Chileans who have been very effective marketing their product to Japan and are aggressively putting on trade shows and in making the contacts with key buyers. I have a problem criticizing the Japanese for collusion when I don't see us making the effort to get into their market."

  Mitch Kink, a former president and general manager for the Alaska Independent Fish Marketing Association, who fishes for sockeye in Bristol Bay is convinced that collusive practices by Japanese companies remain the industry's most serious problem:
  " In 1991 we went on strike against the low prices that were paid to us for salmon. They were talking about paying us 45 cents a pound. The only weapon the fishermen has is not to go fishing but some people crossed the line. I think if we had held out even one day, then we might have gotten the prices we wanted but we didn't and it went to show the processors how weak we were."

  Kink believes the problems with the Japanese market are: " They control the prices through the trading companies and the other distributors so that the fisherman get less than they would get selling fish in the U.S. market. The fishermen have talked to other smaller (Japanese) wholesalers about breaking the chain but there have been concerns that they would be frozen out in Japan and that the trading companies would retaliate against fishermen who tried to get around the system."

  Kink charges that U.S. fish processors are content to rely on the system as it is because processors get paid quickly by the Japanese trading companies and efforts to break in to the Japanese market have been unsuccessful in the past.

  Efforts by SAM TRADE to interview several U.S. processors were unsuccessful.

  Kink cites the lack of change in the retail price of salmon as proof of the collusive effect of major Japanese trading companies on fish prices in Japan and for Alaska fishermen:
  "The price to the Japanese housewife has stayed just about the same despite the changes in the value of the dollar with the yen. I remember hearing from the Japanese that when the yen was 125 to the dollar that fish was too expensive and that's why they couldn't give us good prices. Now the dollar is lower and the prices are still low. ... They are paying us so little because too many other people in the distribution system need to get paid off."

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