Stephen Taufen

A public watchdog and advocate for fishermen and their coastal communities. Taufen is an "insider" who blew the whistle on the international profit laundering between global affiliates of North Pacific seafood companies, who use illicit accounting to deny the USA the proper taxes on seafood trade. The same practices are used to lower ex-vessel prices to the fleets, and to bleed monies from our regional economy.


Contemplating Trident & the Fish Matrix

March 28, 2006
It's all over the docks, Trident Seafoods is buying out Ocean Beauty Seafoods and its Kabushiki Kaisha. And you won't hear hardly a peep come out of Trident's smokestacks about what the engine and drive train are really doing. You never do.

Hey, who has any grasp of the real meaning of the merger when there is a matrix of so many dimensions to consider? Depending on your 'row or column' in this industry, this could be a disaster, a poor thing, a good thing or the best news ever. And that's fertile ground for a little punditry - easy compost for all perspectives.

We're well aware that with this level of complexities, the dynamics in play, you can't draw conclusions without getting a lot more information. We'll come back to that, as well. Stay with me to the end here.

So, let's start with the other definition of matrix: something that constitutes the place or point from which something else originates. For neo-Trident, it's not just OB, but NorQuest, Port Chatham, ConAgra's Kemp Seafoods, and more. It's like a bit of old NEFCO resurrected. Fleets, plants, consumer product lines, distribution channels and customers - and don't forget politicians - all under one conglomerated circus tent. Folks, the show has just begun.

Over a decade ago, I flew back from Anchorage and immediately approached Chuck Bundrant about the Abusive Transfer Pricing testimony I had just given in an affidavit for the Bristol Bay sockeye antitrust case, days after it was filed. I reassured him that there was no testimony therein about his company, who I had briefly worked for in the mid-80's, just against Peter Pan and Wards Cove on salmon price fixing.

Chuck reassured me that he didn't want "the little bastards" in the building any more than I did. Well, he must have thought I was prejudiced too, so he just went ahead and said that - and yet we both understood the true context of the discussion was the grand financing of the industry. So I tolerated the below the dock level chumminess.

But my task was about what's best for the fish business and the Nation; and I told Chuck that if Trident would consider joining me on this tax evasion issue and turn over its evidence we could take the foreigners' profit laundering down tomorrow. That way, they'd be the big "American" company left standing - and a hero to the fleets. He'd always been too embarrassed to tell the boys that when he first took on Japan Inc. over sockeye supply from the Bay, they cleaned his clock, so he was also a de facto captive - and had to learn another way to play along. Point is: the new Fish Matrix could have started back then, in 1995. And although one can see how he's "winning" his way, I still think it was the wrong way. But it's not like he's "Trident" anymore, either.

Now, with the antitrust case having gotten the luck of the jury draw, and all the time and hand wringing that caused, and yet with transfer pricing continuing for another decade to clean our financial coffers of billions, Chuck's finally made a few moves that we can agree with. And the new Fish Matrix begins now.

Shaking your head? Well, let me explain. You are witnessing the start of a different era. If you are a scared fisherman (maybe you shouldn't be!) think instead about the knocking knees under the executive tables today at Icicle Seafoods and Peter Pan. They relied heavily on the abusive transfer pricing game of sending protein to Japan for a low first wholesale price and taking profits elsewhere, or brokering farmed salmon for a cut, or other schemes. Icicle faced a federal judge just last month on the major NOAA crab cap fine.

Ocean Beauty ran for a long time with tax evading salmon pricing, hollowing out its US side, slicing profits somewhere else, and transferring protein to its own Kabushiki Kaisha. The net operating losses in the US was a useful write-off to someone, somewhere (Indonesia?). The IRS really messed up a big case on that one. Once the FBI was in the door, the fact that it was at best a nefarious group at the top became openly known, but underneath was a firm with some decent characteristics. It is best that the old OB command is now gone, and the rest under Trident's thumbs. Good riddance. Take the kudoa enzymes and farmed fish with you. But OB got one thing right - building distribution channels in the USA and having some good locations and products. Although it's not like someone else couldn't.

But (maybe) gone also is a leading partner in international product laundering crime for a few compatriots, and their racket is breaking down. This is monumental. But we knew the Bristol Bay case had changed a lot of things, as the evidence did come out in the courtroom.

Moreover, Trident is a wholly different conglomerate today than it was even two years ago. Never shy of competition against other fish companies, and always reliable as a firm that follows through on what they promise to the market, they are poised for a stronger attack.

Now, they are invested in far greater marketing fashion in the United States and Europe, and doing so through their own affiliates in ways that mean the true profitability cannot be easily hidden from government oversight. Things are about to change considerably.

Bobby T. should worry a lot less about fish prices and more about how his Icicle stock may have just become toilet paper. How can they compete now? When will Nichiro back out, too? And who knows, maybe behind the industry scenes, the IRS has been cutting a deal that if some promised changes were to occur, bygones could be bygones! Heck, I don't know if that's a hint, or not. Wink. Hey, all's fair in love and punditry.

Trident now has a fish train that stretches across the West and the freight cars to go with it, and plenty of supply lines for that protein train. When I ran a pollock fillet weight grading plant in the early 90's, doing factory trawlers a small service, we knew that sometimes more profit could be had by not roe-stripping, not doing surimi. The American Fisheries Act has greatly pleased the factory trawlers, in spite of having to give up a huge percent to the shoreside gang. But Trident won the pollock war on all sides. With Kemp under its belt, things will change fast.

You are aware too that crab rationalization left their boat floating even higher. And it is clear from the timing of this merger that they are not shy in declaring ahead of time that Ted Stevens and Don Young are lacing the Magnuson-Stevens Fisheries reauthorized fishing act with all of their favorite flavors. Who needs direct processor quotas when other language can obtain equal hegemony?

They'll soon have harvesting quotas through directed access privilege programs obtained through regional fisheries associations, and there will be no stopping Gulf of Alaska "rationalization" as the grandfather clauses exempting it from the new Act are in place, too. All that's needed is for Congress to do its reliable job of looking the other way on the recent GAO report, not caring enough to open up the CRS documents and get Transfer Pricing issues on the table, and voila! It'll be,Viva la cartel.

What would I do, were I in that driver seat with Neptune's fork in one hand and an antitrust-exempt coin machine in the other? I'd start by raising the grounds price in Bristol Bay for sockeye to $1.00 a pound, and announce it mid-June. And prepare for $1.50. Yes, executives cuss and scream in Tokyo, too. Trident might burst its competitors' profit skirting at the seams. Fishermen would fall in love (duh!). Why not!

No, Trident did not get a sudden urge of Patriotism. With the direct marketers on the run, with Mad Cow, Bird Flu, the EU setting a floor price of $3.25 for Norwegian farmed slimers, and all the other happenings, you can't hide the value of these products any longer. It is just too obvious.

You can raise the Bay sockeye grounds price easily by forty cents, and still take the majority share of profits elsewhere. Up the economy of scale, you lower the satisfaction-requirement level. It still comes out big dollars in the end. And you can still stay well below the "CUP/CUT" (comparable, uncontrolled prices or transactions) level that real Arm's Length standards might bring. The IRS won't care as long as fishermen get more, they get more and the USA gets more, right? Who will ever count the billions lost once they have shifted all operations back to the US side?

After all, the one guaranteed political hot button in the past was that the profits were being laundered for the sake of foreigners! Yes, they chose to become economic enemies, and those aiding and abetting them were traitors to this Nation. But no one cares once the robber baron is wearing a made in the USA hat! Even wearing a green Hulk tie will be accepted with enough public relations makeup put back on. Reflecting bleached smiles, the past crimes will be whitewashed away as politicians take credit for "Americanizing". After trying for 30 years, some folks might buy that line now, true or not.

Fishermen will hardly argue if the price goes up even a nickel. And at Groundswell, we of all people know - after 15 years of banging on some thick skulls - that many of you won't fight for the dollars. But, in case you are among the ones saying this whole Trident merger thing is a "bad deal" and "terrible news," pay attention.

Since the European community has apparently decided to end the Norwegian farmed salmon dumping game by setting a floor import price for farmed salmon at $3.25, it means something for your price, too. By that measure, first wholesale prices for Alaska sockeye in primary forms should be at least $3.60 to $4.20 a pound. The price-shakedown is far from over, and we realize that, but the fishermen should still easily get $1 to $1.25. More if in the next two decades the ocean regime predictions come true and there will be more scarce years.

The Europeans just said, in effect, that these antibiotic colorant figment of the imagination flesh importing companies have to show a profit back in Norway, too. That Chile is welcome to compete for those plates too - and so let's motivate it. It fits in with questions Germans were asking a few years ago about why Alaska's fishermen don't get squat at the ex-vessel level for the high priced and more highly prized wild salmon.

So it appears that we are at that place or point from which something else originates, indeed. The fuel price shakedown by the oil companies won't let up for a few years, if ever, either. So, maybe we are at the point where a few folks will start considering what Groundswell long ago suggested. With the arrival of the new Fish Matrix, it is time for a national fish price, or some price controls. Long ago, fishermen faired very well under such a system. Today, it would be easy for the government to conclude the sky's the limit on this precious protein, and consumers can't get hurt by setting a floor price to fishermen for product off-the-vessel.

That could help bring back healthier fish communities, increase their tax base, get the federal government off the hook for corporate and community welfare a bit, and stabilize some jobs. With the high level of consolidation, why should any of the few oligarchs care that they don't get it all, when they get a free pass from the feds to go ahead with an antitrust exemption - i.e. they can keep their virtual monopoly, as long as it is a USA one. We'd just have to kick out the Japanese corporations from the Occupied Territory of Dutch Harbor, and we'd be 90% of the way there.

But - getting back to the point of what do we really know? - if you hate what's happened, and want to get better information, then go to battle. Call up the Federal Trade Commission and act fast to file a written request for deeper review. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 surely required Trident and Ocean Beauty to report the merger and apply for first review. But absent any complaints, the FTC and DOJ will surely approve the merger. After all, Trident has bought a company that blends with its current operations and enhances its product lines, and brings consumers alleged benefits, too.

The DOJ should remember its 1990's San Francisco team's efforts, but it probably won't. It was too embarrassed after Maruha and Mitsui had it all dismantled under god knows what threat of retaliation against US firms in Japan. Shhh. I mean their continued silence is like gold for the merger - unless you awaken them.

If you are a fishermen concerned that this is going to crush your business on the resource supplier side, and that it is anti-competitive (especially in Bristol Bay or at Kodiak), then take advantage of the potential to fight. Ask the FTC to require additional information before the merger is allowed. Such "second requests" can be extremely costly and very disruptive for such merging firms. If you believe that they do not have the information needed to perform a proper analysis under the antitrust laws, and do not want this case "cleared" in the first 30-days, like 90% are, then exercise your rights and scream fast and loud. There were new guidelines put in place on February 16, 2006.

The FTC and Department of Justice (antitrust) now rely less on readily apparent structural indicators like the companies' market shares in various products and markets served, but more on detailed direct market analyses. They build econometric models to evaluate the economic consequences about whether or not these mergers affect price competition, efficiency and innovation, and how they affect consumers. But seafood is not like normal businesses of parts purchases and manufacturing, or even regular agriculture.

This is a vital protein industry with national strategic value, as NEFCO's chairman pointed out to President Carter back in 1977. And the production activity concentration is inseparable from the potential harm to regions and coastal economics, that there is good reason to examine deeper.

Couple that with the unique laws on the Treasury books that require when the IRS does formula-based pricing for transfer pricing, that the harvester component should receive a fair and equitable share of values. Couple that with the MSA statutes that also address whether everyone is getting a fair and equitable share from the Nation's fish resources. Then mention how Rationalization schemes have privatized those resources - how else would Trident get the money to proceed? - and you have begun with some real arguments. Who is looking out for the harvester? Who is ensuring the Nation gets a fair shake from its public resources in this critical industry?

Be sure to mention that as soon as Abusive Transfer Pricing was mentioned in the Bay antitrust suit, Marubeni ducked out for $25 million, and UniSea and others once got examined by the IRS on it, so dear FTC, you need to look deeper! Maybe what you ask for is that certain business operations not be allowed as part of the merger - but get offered for bid to other competitors. At Kodiak, this might "grow" one of the other companies and enhance overall competition. Or in Bristol Bay, keep some price competitiveness around.

It's up to you to decide - is this merger a good thing, a bad thing, or what? Is your first call to say hi to Trident about your permit and fish, or will it be to scream at the government to get busy? If you know that you are going to have to act, then do it today! Ask the FTC to do a "second request." Else just enjoy the punditry and the ride.

In any case, start asking about what that Bristol Bay sockeye price is going to be - both for last's year's bonus (they must have done well, or they couldn't afford to buy so many new companies!) and next year's starting price. And, as for the IRS: yes - it's audit time. Somebody has a deep well they haven't been talking about.

Watch or ride - but enjoy the new Fish Matrix!