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III. The Tuna Processing Industry

Overview

Canned tuna processing is by far the largest private-sector employer in American Samoa. Many of the other private-sector jobs provide goods or services to the tuna processors. Moreover, the economic growth of many other private-sector employers in the consumer retail and service sectors is tied to tuna industry expenditures. Specifically, they are dependent upon the level of disposable income of tuna industry workers, which in turn mainly depends on wages and salaries. This is true, even though the majority of these workers are not American Samoa citizens, and a portion of their income is spent off island.12 For this reason, much of the analysis and data in this report will focus on this industry.

Three major brands dominate the U.S. tuna market, StarKist, Chicken of the Sea, and Bumble Bee. StarKist and Chicken of the Sea have major processing plants on American Samoa. Bumble Bee operates a small plant in Puerto Rico and another in southern California.

In 2001, the United States was the leader in the canned tuna market, with consumption estimated at about 46 million cases, or 28 percent of the global consumption of approximately 165 million cases.13 StarKist Seafood is the U.S. retail category leader with a 44 percent market share, larger than Bumble Bee (24 percent) and Chicken of the Sea (17 percent) combined.14 Other brands and private labels comprise the remaining 17 percent market share. These are mainly imported; as of 2003 approximately 46 percent of U.S. canned imports were from Thailand, 21 percent from Ecuador, 19 percent from the Philippines, and 9 percent from Indonesia, respectively. Total imports of canned, fresh and frozen tuna increased in 2003 by a combined 184.9 million pounds to a total of 920.7 million pounds.15

Within the canned tuna category there are two primary subsets: lightmeat tuna, consisting primarily of the species skipjack and yellowfin; and whitemeat tuna, consisting of albacore. According to Christopher D. Lischewski, President and CEO of Bumble Bee, StarKist has a commanding position in the total tuna market. He further notes that Starkist has the lead in lightmeat tuna, which represents 71 percent of canned tuna consumption.16 It leads the market with a 47 percent market share, followed by Bumble Bee and Chicken of the Sea, both with 17 percent shares. Bumble Bee is the market leader in albacore tuna, with a 40 percent market share, followed by Star-Kist (34 percent) and Chicken of the Sea (16 percent).

About one-quarter of canned tuna consumption is for foodservice establishments, rather than direct retail sales to consumers. Private labels, dominated by importers, have a much higher share of this market, estimated at about 50 percent by Mr. Lischewski. In retail markets, consumers are conscious of reputation and quality; thus brand recognition is very important.17 For institutional trade, price becomes relatively more important as a selection factor. As a result, U.S. suppliers have a competitive advantage over foreign producers in retail tuna markets.18


Tuna Processing

Most tuna canneries are located adjacent to a dock so the fish can be easily unloaded from the fishing vessels. The thawing, butchering, and cold storage facilities are located nearest to the unloading area. When the fish are unloaded they are thawed in running water in thawing tanks or in the air with sprays of water. When the tuna are thawed they are ready for the butchering process. The tuna are eviscerated by hand and loaded onto trays according to size. The trays are stacked on wheeled shelf racks and taken to the pre-cooker, or first cooker. Careful sorting of the fish by size helps to ensure minimum losses during the pre-cooking. During pre-cooking and cooling up to 30 percent weight loss occurs, much of it by overcooking. Placing fish of only one size in a given cooker and varying the cooking time in proportion to the size of the fish minimizes the loss. The first cooking lasts from 45 minutes to three hours, depending upon the size and type of tuna.19

After pre-cooking and cooling, the tuna are put on conveyor belts that carry the fish to the cleaning, or fillet tables. In most canneries the cleaning, packing, and seaming equipment are located in working space directly behind the thawing and butchering areas. The cleaners remove the skin from the fish and separate the loins from the skeleton. The white or light meat for human consumption is separated from the red meat that is used for pet food. Other by-products are fishmeal, which is made from the skin, bones, and viscera, and fertilizer, which is made from the juices and used water.

The next step in the production process is the packing operation. A highly automated canning process is utilized to hermetically seal the tuna meat in tin cans. The tuna meat is packed in water or in oil, with or without salt. After the tuna is sealed, the cans are put through a second cooking called retort cooking for two to four hours. This process sterilizes the tuna meat. After the retort cooking, the cans are cooled, labeled, and packed into cardboard cases. The cases of canned tuna are either stored or moved into the distribution system.


The Effects of Loin-Processing Operations

The use of pre-cooked tuna loins as a raw material in canning operations is a relatively new development that could have a significant impact on the structure and location of the industry. Because the conversion of raw fish to loins is labor intensive, it may also have an influence on the cost and the amount of labor needed in the production process for U.S. canneries.

Tuna loins are the light, meaty, edible part of the fish. Thawing, cooking, butchering, and cleaning frozen or fresh whole tuna produce them. The operations required for producing loins and canned tuna are essentially the same up to the point where the tuna loin is rendered. In a plant solely producing loins, the loin is packaged in plastic and frozen. It is then either shipped to a cannery as a raw material input or sold for other commercial purposes. In a tuna cannery, the loin is packed directly into the can. The production of the loins, which includes the butchering and cleaning steps, accounts for up to 80 percent of the cost of labor in a full-scale tuna cannery. In its raw material procurement, if a tuna cannery contracted for frozen tuna loins instead of frozen whole fish, substantial labor cost savings would be realized.

Some use of tuna loins by U.S. processors began as early as the 1960s, but their utilization on a large commercial scale has only occurred in recent years. The canneries in Puerto Rico increasingly used loins in their processing operations as part of a raw material mix with raw whole tuna. This was necessitated in part because of a reduction in raw tuna supplies from the eastern Pacific Ocean because of the dolphin-safe policy. In 1990, Bumble Bee opened a cannery in California that exclusively processes loins.

Today, all U.S. tuna canneries utilize precooked loins in their processing operation. Both Chicken of the Sea and StarKist rely on tuna loins (generally less than 30 percent of the product mix) when whole fish supplies are in short supply.20  However, virtually all the tuna utilized by Bumble Bee canneries in California and Puerto are in the form of precooked loins. These loins are imported and the tuna converted into cans or pouches in the U.S. In addition to the labor saving realized through their importation, tuna loins enter the U.S. at tariff rates substantially below those imposed on tuna in airtight containers.


Structure and Location of the Industry

In 1903 the canning of tuna fish began in the United States when the canning of albacore was undertaken in Southern California. Canning operations were begun in Hawaii in 1917 and in 1937 tuna canning had spread to the Atlantic Coast and to the Pacific Northwest. Southern California continued to be the traditional home base of the processor because the tuna fleet located there to maintain access to a major tuna fishery--the eastern Tropical Pacific Ocean.

Because of its proximity to the fishing areas of the South Atlantic and the availability of a large pool of low-cost labor, Puerto Rico became a desirable location for canning facilities in the 1960s. With the increasing importance of the western Pacific fishery and the presence of low statutory wage rates, the same advantageous conditions applied to American Samoa.

South America has become an opportunistic location for canneries and process facilities. With low wage rates and legislation which may lead to the relax of tariffs on the South American imports of tuna, countries such as Ecuador have the potential to claim a greater stake of the U.S. import market.


Geographical Shifts

The increased canning capacity in the offshore territories coincided with the steadily increasing share of the market by imports from low-wage Asian countries in Southeast Asia. The fact that tuna do not run with dolphins in the western Pacific Ocean also contributed to the shrinkage of the industry located in the continental United States, Hawaii, and Puerto Rico. This was due to Federal restrictions on catching dolphin and tuna together. In 1977, the closing of a cannery in Maryland marked the end of tuna canning on the Atlantic Coast, and in 1979 the last commercial tuna cannery in the Pacific Northwest was closed in Astoria, Oregon. The one cannery located in Hawaii ceased operations in 1985.

In 1984, in response to high costs and competition from low-priced tuna imports, StarKist closed its last mainland canning facility on Terminal Island.21 The last remaining mainland plant is operating in Santa Fe Springs, California. Between 1990 and 2001, four plants located in Puerto Rico closed, leaving only one plant (in Mayaguez) operating on the island.


U.S. Mainland Tuna Canneries

At the present time, there is only one cannery operating on the U.S. mainland. (Bumble Bee operates a loin-processing plant located near Los Angeles.) This plant processes frozen tuna loins, produced elsewhere from raw whole tuna. In May 2003, Omaha-based ConAgra, a U.S. firm, sold Bumble Bee Seafood, Inc. to Centre Partners and the Bumble Bee senior management team. The Chicken of the Sea cannery in San Pedro, California, (CalPac) the last full-scale cannery on the mainland, closed in 2001.22


Tuna Canning in Puerto Rico

Between 1990 and 2001 all of the tuna canneries operating in Puerto Rico closed, except for one plant operated by Bumble Bee. Among the factors affecting these plant closings are the following:

1. Shift from eastern to western Pacific Ocean. Public concern and legislative activity over the killing of dolphins that swim over schools of yellowfin tuna caused fishermen to move from the eastern to the western Pacific, where tuna generally do not run with dolphin. Since Puerto Rican canneries received much of their raw fish from the eastern Tropical Pacific, this fishery shift put them at an increasing disadvantage in access to inputs for production.

2. Environmental laws. Compliance with laws and regulations governing waste disposal at the tuna canneries has become increasingly difficult and expensive. In addition to the Federal Environmental Protection Agency (EPA), Puerto Rico's Environmental Quality Board (EQB) enforces environmental standards in the tuna canning industry.

3. Lower wage costs in American Samoa and other countries. On April 1, 1991, the Federal minimum wage increased from $3.80 to $4.25 an hour. While some lower-wage industries in Puerto Rico were granted a gradual phase-in to this higher minimum, the tuna canning industry was not. Meanwhile, Thailand and other countries with low-wage labor were exporting lower-priced canned tuna to the U.S. (By 1997 cannery workers in Puerto Rico had to be paid at least the Federal minimum wage of $5.15 per hour.)


Tuna Canning in South America

In 2003, the South American countries of Columbia and Ecuador had the capacity to process 2,250 tons of tuna per day. This corresponds to approximately 48.6 million cases of tuna, which is more than the 48 million cases of tuna consumed on average by the U.S. per year.23 Since the tuna workers in these countries are employed at a wage rate much lower than U.S. counterparts, they produce units of tuna much cheaper than U.S. processors. However, under current U.S. legislation, Andean countries are subjected to the tariffs on canned tuna imports to the U.S. which make them not as cost effective as U.S. tuna processors. Ecuador only accounts for 21 percent of all tuna imports into the U.S., third to Thailand and Philippines. Ecuador adheres to the Andean Trade Preference Act, which is constructed to give certain South American countries gradual exemption from import tariffs on a number of commodities, including canned tuna. Presently, Ecuador pays tariffs on canned tuna but pays no tariffs on pouched tuna.


Tuna Production in American Samoa

Two establishments in American Samoa, StarKist Samoa (a subsidiary of StarKist Seafood, owned by Del Monte) and Chicken of the Sea (owned completely by Thai Union Frozen Products of Bangkok) are engaged in the processing and canning of tuna fish. These two canneries employed approximately 4,700 workers covered by the Fair Labor Standards Act during the years 1991-93, rising to 4,400 by 1996, 5,150 by November 2000 and 5,016 in November of 2002. In the fall of 2004, the average straight-time hourly wage for the 4,738 covered employees in this industry was $3.60.24

StarKist

The StarKist Samoa cannery is the largest tuna cannery in the world. It produces more than 60 percent of American Samoa's canned tuna. StarKist is the leading brand of canned tuna sold in the U.S., followed by Bumble Bee and Chicken of the Sea. StarKist's market share in the U.S. increased from below 30 percent in the late 1980's to 45 percent in 2000. It expects to expand that market share with new tuna varieties and by improving the taste, texture and packaging of its premium, solid white albacore.

StarKist and its affiliates, have tuna processing plants in Ecuador, American Samoa, Seychelles, France, Portugal, and Ghana.25 Industry reports have noted that StarKist also entered the European market with acquisitions of distributors in the United Kingdom, France and Italy.26 Sales from StarKist canneries in Ghana, Seychelles, and Ecuador to the European Union, which enter duty free, are reported to have expanded sharply in recent years.

In 2002 H.J. Heinz Company exchanged several of its retail brands (including StarKist) for majority interest in the new Del Monte Company.27 Like StarKist, Del Monte first began operations in California in the early 1900s. Based in San Francisco, Del Monte has operating facilities in American Samoa, Ecuador, and Venezuela, and recently achieved more than $3 billion in sales.28

In their 2004 annual report, Del Monte highlighted the success that the StarKist brand has contributed to the company success as well as to potential problems. Since 2000, the StarKist brand has begun to shift some of its products toward value-added products such as the Lunch-To- Go packs and Tuna Creations. These products provide the consumer with more than tuna in a can, for example, the Lunch-To-Go offers ingredients to make tuna salad accompanied with crackers. In 2004 StarKist had the highest market share of pouched tuna. Other major events that have impacted Del Monte include filing of lawsuits against the company regarding the levels of methyl mercury present in StarKist tuna products and liability of Del Monte. One of the lawsuits filed in California was against the major 3 tuna processors in violation of Proposition 65, a law requiring businesses to provide warnings of carcinogens present in consumer products.29

Chicken of the Sea

The other cannery in American Samoa, producing almost 40 percent of the tuna pack there, is Chicken of the Sea. After the previous owner, Van Kamp, declared bankruptcy, it came under new ownership, Tri-Union Seafood LLC, based in San Diego. In 2000, two of the owners of Tri- union sold their shares to Thai Union International30 . This company is owned by Thai Union Frozen Foods of Bangkok. Thai Union is the largest tuna canner and exporter in Thailand,31 and the second largest in the world.

Thai Union was created in Thailand in 1997 to produce canned tuna for export. It is now the largest canner in Asia, exporting to Japan, U.S., Europe, Hong Kong, Malaysia, Singapore and the Middle East. According to the Crow's Nest on-line news service,

"Thailand's aggressive marketing efforts, low labor costs and weak currency against the U.S. dollar makes it the largest canned tuna exporting country in the world."

Its Chicken of the Sea has close to a 20 percent share in the U.S. market. (Of the approximately one-third of the U.S. market share not held by StarKist or Chicken of the Sea, most is held by Bumble Bee, which does not have a cannery on American Samoa. In 2004 Bumble Bee and Connors Bros. Income Fund combined to make Bumble Bee LLC, Inc. the largest branded seafood company in North America.)


Recent Issues Affecting Tuna

A number of key issues have risen in the past few years that have a direct impact on the tuna industry. One of these issues was the presentation of tuna to the consumer inside a flexible, foil pouch. Second, a report issued warning of levels of methyl mercury present in certain fish consumed by Americans, including tuna. Also, current U.S. legislation to promote trade between the U.S. and South America has provisions which affect American Samoa and its competitiveness in the U.S. tuna market.

Pouched Tuna

In recent years, new technology in packaging tuna has led to tuna being packaged in a flexible, foil pouch. This alternative to traditional packaging has become a success and is gaining momentum among consumers. This new packaging consists of large chunks or flakes of premium albacore tuna with essentially no liquid (oil or water). In addition to not having to drain the tuna meat, the pouches are also available in a variety of preseasoned flavors and require no can opener. The pouches are considered to be a higher quality product and deemed convenient but the retail price is almost double of canned tuna. Approximately 3 percent of retail tuna consumption is pouched tuna.32 Ecuador is the main importer of the tuna in foil pouches and the country enjoys duty-free status on the pouches while Thailand is levied a 6 to 12.5 percent duty on pouches.33

Methyl mercury

In 2003 a report was released with the concerns of levels of methyl mercury found in certain consumable fish in the U.S. Among the fish listed was albacore tuna. In March of 2004, the Food and Drug Administration (FDA) reported that albacore tuna had a higher level of methyl mercury than light meat tuna. The recommendation of the FDA was to limit the amount of these fish consumed per week, especially for children and pregnant women. In November of 2004, the Center for Disease Control (CDC) released a report in their Morbidity and Mortality Weekly Report indicating that levels of methyl mercury from fish were well below any level of concern.

Legislation

A bill in the U.S. Congress, S. 1739, was passed exempting the Andean countries duty free status on imports of pouched tuna.34 Currently, Andean countries pay tariffs on canned tuna imported into the U.S. ranging from 6% up to quota, after which a heftier 12.5% tariff is assessed.35 The Andean Preference Act was established in 1991 to reward countries that agreed to actively curtail illegal narcotics into the U.S. As a result, selected imported items would be eligible for reduced duty or duty-free entry in the U.S. canned tuna included.


12 Many of these workers are from Samoa and Tonga.
13 http://foodmarketexchange.com.
14 U.S. International Trade Commission, Fact Sheet: Update on the Likely Impact of U.S. Tariff Modification for Tuna Imported From ATPA Beneficiaries, 2002.
15 U.S. Department of Commerce, Fisheries of the United States, 2003, NOAA.
16 Mr. Lischewski spoke in May, 2000 at the Tuna 2000 Bangkok: Papers of the 6th World Tuna Trade Conference.
17 Del Monte Annual Report 2004.
18 U.S. International Trade Commission, Industry and Trade Summary: Canned Fish except Shellfish, Publication 3083, January 1998.
19 U.S. Department of Labor, Various Industries in American Samoa, Wage and Hour Division, various years.
20 http://www.house.gov/apps/list/press/as00_faleomavaega/2senatorssupporteniscool.html.
21 Achim Korber, Why Everybody Loves Flipper: The Political-Economy of the U.S. Dolphin-Safe Laws, European Journal of Political Economy, 1998.
22 Crow-s Nest, August, 2001.
23 Pacific Magazine, May, 2003.
24 U.S. Department of Labor survey data.
25 Testimony of K. Ward Rodgers, Heinz representative, before U.S. Senate Committee on Finance, August, 2001.
26 The source of statements about recent trends is Globefish, a news report on the fish and seafood industry. It is a unit of the Food and Agriculture Organization of the United Nations. It is an integral part of INFOFISH.
27Crow-s Nest, June, 2002.
28 http://www.delmonte.com/Company/News/press56.asp.
29 http://www.montereyherald.com/mld/montereyherald/news/8979083.htm.
30http://www.chickenofthesea.com/company.aspx.
31 U.S. International Trade Commission, Fact Sheet: Update on the Likely Impact of U.S. Tariff Modification for Tuna Imported From ATPA Beneficiaries, 2002.
32Forum Fisheries Agency, Tuna Market News, August 6, 2002, Issue No. 30.
33 www.globefish.org/index.php?id=2089.
34 USITC, Memorandum on Proposed Tariff Legislation of the 108th Congress, 2004.
35 Josupeit, Helga, International Fish Trade Regulatory Framework, INFOFISH Tuna Conference presentation, 2004.

Table of Contents List of Figures and Tables Appendices