The Big Fish Win Again

Investors gobble up rights intended to help the small fry.

Clam chowder.
When you eat a bowl of clam chowder in the U.S., you’re probably padding profits for British investors.

Courtesy of Jen/Flickr

What does it take to buy a share of the American ocean?

For Lion Capital, a British private equity firm, the price is less than $980 million. That’s what the firm paid three years ago when it bought Bumble Bee Foods, the giant producer of shelf-stable seafood such as canned tuna. The purchase included the Bumble Bee subsidiary Snow’s Inc., best known for its creamy white clam chowder. Snow’s came with another perk: It owns the exclusive rights to 23 percent of the clams that dominate America’s canned clam industry, almost a quarter of the national supply for clam sauce, clam juice, clam soup, anything with clams.

Now, every time you sit down to a bowl of clam chowder in the United States, you’re probably padding profits for British investors.

It’s a scenario that has advocacy groups worried. “We shouldn’t be issuing control of our fisheries and access to our fisheries away from communities and to multinational corporations. It’s a no-brainer,” says Linda Behnken, the vice chair of the Alaska Sustainable Fisheries Trust, which works to strengthen fishing communities.

Increasingly, as the Snow’s deal illustrates, equity groups and corporations are poised to rule the seas through their investments. And if you eat seafood, then it ought to matter to you.

Over the long term, it means that costs will rise. Fishermen will earn less, their profits halved and quartered by the rental payments they’ll have to make to people in suits just to go fishing. Yet consumers will pay more. Investors will be getting rich off of resources that used to belong to you.

Here’s how it happens: catch shares. They are a type of fishing management system that became national policy in the United States in 2010 to encourage sustainable fishing. Catch shares accomplish this by capping the amount of fish that can be caught and doling out the rights to fishermen, and sometimes seafood processors and co-ops, to fish them.

Catch shares have some perks. A lot of them, really. They limit the amount of fish that can be caught, allowing depleted populations make a comeback. They reduce the number of boats pillaging the seas and make fishing safer just by thinning competition. Catch shares mean nobody rushes to the sea in a hurricane to get an edge on the next guy. Not only is that good for the ocean, it saves lives. It’s also intended to boost values for seafood, a potential windfall for fishermen.

But looked at another way, catch shares basically amount to a privatization scheme. And it’s hard to know who’s really making bank. Once rights to fish are given away, those rights can be traded like any other commodity. 

Catch shares have opened up markets for the sale and lease of access rights to fishing like nothing we have ever seen. The hope from the environmental camp was that these rights would live with fishermen and be passed from one generation to the next, giving them a greater stake in the health of the ocean and making them better stewards. It was a noble and worthwhile vision. It just isn’t what’s happened, at least not very much. In reality, these rights are worth so much money that rich investors snap them up at top prices, making it tough for people who actually fish to acquire them. Consider the present cost of halibut rights, which in prime fishing areas fetch upward of $40 a pound. That’s about six times the best dock price a fishermen can earn for delivering the same fish.  

Proponents of this type of management are just beginning to concede the level of consolidation that’s really occurring. And they haven’t acknowledged the degree of investment speculation that’s really going on. They helped create one of the coolest vehicles environmental policy has seen in decades. But it could be driven straight off a cliff.

Policymakers assured the nation that fishing rights would never migrate out of U.S. control through catch shares or end up as properties of investment firms. Environmental groups have similarly touted catch shares as a tool for communities and fishermen and overlooked the role investors can and do play. As the Snow’s deal now makes clear, those pacifications are baloney. Federal law does prohibit ownership of fish access for investment purposes. But it’s like a prohibition on jaywalking: quaint and rarely enforced. The same goes for foreign acquisition of U.S. fishing rights, which is similarly banned by federal law. But there’s a loophole: Firms can acquire American-owned corporations or hang a shingle on American soil and qualify for ownership as long as the CEO of the U.S. corporation is an American, along with most of its board. Such is the case at Snow’s, where a majority of the company’s board and its CEO are U.S. citizens, even though the company is owned by a British private equity firm.

Chris Lischewski, the president and CEO of Bumble Bee, doesn’t see Lion Capital’s ownership as a big distinction. Instead, he rightly points out that Bumble Bee and its subsidiary Snow’s have been American brands for more than 100 years. Despite its new ownership, Snow’s still processes its clams in New Jersey, employing local workers to catch them, then shell and boil and chop them at its plant. “We pride ourselves of being one of the last U.S. companies that actually process most of our canned seafood in the United States,” Lischewski said in an email.

Some policy experts warned that selling rights to U.S. natural resources could lead to a loss of control over the food supply. In 2002, there was enough concern that a Senate committee asked government auditors to look at whether foreign companies could take control of U.S. fish by buying up access rights. Those auditors quickly sounded the alarm about clams, the first catch share in America, created in 1990.

Despite that alarm, however, there’s been no fix. Instead, the Mid-Atlantic Fishery Management Council, one of eight regional groups that manage fish for the federal government, has spent 12 long years plotting how it will collect data about who controls the clams. The council only recently approved a white paper outlining the data it ought to have. And it isn’t collecting any yet.

It’s no wonder the sale of clams to Lion Capital went mostly unnoticed. The council doesn’t know who owns what. And there are few small fishermen left in the industry to complain.

Instead, the clam industry is dominated by a small number of industrial processors, Snow’s included. And declining popularity has depressed the market for canned clams enough that the few remaining independent owners of fishing rights are focused on getting their clams to market.

Still, processed clams are a $56 million a year industry. Zeke Grader, executive director of the Pacific Coast Federation of Fishermen’s Associations, is among those making noise about where such seafood revenues land.

“We are setting up the fishing industry for just such a situation where it’s going to be private equity firms basically owning the (rights). Fishermen will be basically like a sharecropper or a tenant farmer fishing these at much lower rates. And a lot of the money is going to be taken directly out of the fishing community and transferred to Wall Street. I think this is a very dangerous condition,” he said.

A leasing culture has already started to dominate the fishing industry. In Alaskan crabbing, for example, made popular by reality TV’s The Deadliest Catch, fishermen now pay as much as 80 percent of their revenue to absentee landlords to go fishing. The fishermen shoulder the expenses of fuel, bait, and crew pay and assume all of the risks of fishing.

Most of those landlords are Americans, former boat owners who were the beneficiaries when catch shares were created and distributed in 2005. For many it was like winning the lottery—$125 millions in assets were handed over, making millionaires overnight. Some recipients were fishing at the time; others were already hiring skippers to run the boats they owned. Few remained on deck afterward. The value of their assets has since ballooned to a collective $202 million, so much money that dividing it in marital spats has confounded Alaska divorce courts enough to shift state law. The owners will tell you that everybody makes more money on crab through catch shares. But there’s no question that no fisherman actually working on a crab boat is earning enough to buy fishing rights if anybody ever wants to sell them. That means these landlords could be the last generation of people to hold such rights who have ever spent time on the sea.

The clam fishery may signal a more likely future: Hedge funds and equity firms will take control of the nation’s seafood supply.

And that’s a shame. Catch shares could be the policy that makes sustainable seafood the norm in America and makes the seas safer for people who fish. But proponents of the strategy need to acknowledge that it’s an investment vehicle too, and the fish councils that manage it lack the resources and political savvy to keep fishing rights in the United States and in the hands of fishermen. If we quit deploying catch shares with such indifference to who controls American seafood, and with faith in federal rules that stand no chance against a deep pocket, maybe this policy can be made to work. We can still stop the world’s wealthiest from owning all our fishing rights. But if we keep on pretending catch shares benefit all things fish and fishermen in America, consumers will lose at the cash register, just like fishermen have been losing on the docks for years.