strategies

Seven

for success

American Samoas fish canneries have contin ued to remain reasonably prosperous despite growing competition. David North examines their strategies and what they tell us about the

industry

Samoa Packing, the biggest tuna pro cessing operation in the islands, has qui etly changed ownership. The secrecy covering this corporate manoeuvre is typical of the industry.

The firm ships an estimated $l5O million worth of canned product, most ly tuna, every year from its large plant on the shores of Pago Pago Bay. Only HJ.

Heinz’s StarKist Cannery, also on the bay, is larger (with an estimated produc tion of S2OO million).

Samoa Packing is the only factory owned by Van Camp Seafood company of San Diego, California. Van Camp used to be owned, in turn, by St Louis-based Ralston Purina Corporation, a US food giant. In 1988 Van Camp was sold to P.T Mantrust, a major conglomerate in Indonesia.

At this point in the story a shroud of obscurity falls over the Van Camp oper ation. It is, according to Van Camp offi cials in San Diego, a privately owned US corporation based in that city.

One of them acknowledged that the

huge Prudential Insurance Company, of Newark, New Jersey, had taken over the firm a couple of years earlier.

In Pago Pago Van Camp not only packs the tuna, which is largely harvest ed in the western Pacific (often in the EEZs of Papua New Guinea and Federated States of Micronesia) by US owned tuna boats, its also packs smaller quantities of salmon caught in the cold waters of north Pacific. It buys other types of seafood from other canners and it also buys tuna from non-US tuna boats.

Van Camp, like StarKist, formerly packed yellowfin tuna caught in the eastern tropical Pacific. But catching these fish caused a major controversy with mainland environmentalists. The yellowfin usually feed in waters imme diately under schools of dolphin.

Catching these tuna with the huge nets used by purse seiners often snared and

killed dolphins.

Public outcry against the killing of dolphins, despite industry attempts to

employ techniques that would release the dolphins, led it to reluctantly move to western Pacific to harvest skipjack.

It is canned tuna that dominates the economy of American Samoa. About 40 percent of the workforce are employed in the two canneries (another 40 per cent works for the over-staffed American Samoan government).

But although the Pago Pago canner ies are humming at the 'moment, and the American canned tuna industry is robust, the industry faces major and growing competition from foreign fish

packers.

How has the industry managed, despite flat sales and growing competi tion, to remain reasonably prosperous?

Like an old warrior chief, who is aging but still wily and powerful, the industry has made some important allies and has used a number of different systems to stay on top of the heap.

These largely defensive strategies bear examination, not only for what they tell us about tuna packing, but about any mature island-based industry selling to the First World.

There appear to be seven strategies: keep the product attractive; keep it inexpensive; keep taxes low; keep wages low; play the tariff game; stay in touch with mainland environmentalists and diplomats; and keep as many secrets as you can.

Keep the product attractive. The canneries and the tuna boats have taken

strong steps to keep the product attrac tive, through vigorous quality control.

For example, a fish that has been cut in the process of seining, if identified, is sorted out of the packing process on the grounds that it will absorb too much brine used for freezing fish in tuna boats, and thus taste salty (which tuna routinely does not). This is also the rea son one uses fresh water to wash fish.

The use of salt water would add a saline taste to the canned product.

Similarly, some of the canners have changed the design of the small (3 oz) cans of tuna sold to be packed in lunch boxes. Since these will be opened away from home (and away from can open ers) they are now equipped with pull tops that can be opened by hand.

Keep it inexpensive. In order to keep consumers from wandering dff in the direction of alternate products, such as turkey, and to keep foreign competi tors at bay, the industry has made a point of keeping prices low (while not threatening profits). The cutback in advertising budgets and the low-wage and low-tax strategies described below, all fit into this category.

Another part of the picture is the canneries’ investment in more efficient technology. The 200-plus-feet purse-sein ers, many of them large enough to carry a helicopter, have so much labour-saving equipment on board that they go to sea with a complement of only 18 men.

StarKist has recently announced that, in addition, it is equipping some of the helicopters with a “fish-eye” -a sophisticated device which can mea sure the temperature of the sea (appar ently without touching it) and give the purse-seiner’s navigator key information on where the tuna are congregating.

Keep taxes low. Like the wily chief who pays as little tribute as he can man age, the American tuna industry goes to great lengths to avoid paying taxes.

While there is relatively little industry can do about mainland tax levels, it has played a remarkably effective role in lim iting and nearly eliminating taxes that might be paid to American Samoa.

The threat, of course, is the tuna fac tories will leave behind their extensive holdings in Samoa, desert their workers and move their activities to a lower wage location elsewhere in the Pacific.

The threat has done wonders with American Samoan politicians, governors and legislators. No politician wants to eliminate 4400 jobs - or even run against an opponent who accuses him of risking such an outcome.

Asa result, according to Samoa’s member of the US House of

The threat that the tuna factories will leave behind their extensive holdings in Samoa, desert their workers and move their activities to a lower-wage location has done wonders with American Samoan

politicians.

Representatives, Eni F.H. Faleomavaega, the tuna canneries pay virtually nothing in taxes. He suggested during the last election campaign that the least the companies could do would be to pay about $6 million, between them, for medical costs.

Currently they provide no medical insurance for their workers. When work ers and their family members are sick they go to the island’s public hospital where they usually pay nothing for treatment. It is unlikely the local legisla ture, the Fono, will have the courage to take Faleomavaega’s suggestion.

Gus Hanneman, subsequently defeat ed for re-election to the Samoan House of Representatives, had suggested dur ing his campaign that each can of tuna leaving the harbour be taxed two cents.

This would produce about $7 million in taxes, he had said. Nothing happened to that proposal either.

In fact, the whole issue of cannery taxation has been largely obliterated by a series of 10-year tax holidays which have been quietly negotiated with gov ernors Coleman and Lutali over the years. These holidays handle some of the canneries’ tax obligations, but not all of them. When taxes for the Samoan gov ernment are not eliminated, they are delayed, amid dispute and more negotia tions which are not public.

A vignette on the canneries’ tax-pay ing habits could be gleaned from the Samoa News (October 5, 1994). The lead was about another cliff-hanging story of government finances - the gov ernment had just barely met the dead line to pay $1.3 million on a bond issue.

The story concluded:“The task (meeting the payment) was made easier this year

because StarKist Samoa reached a final settlement withASG on the Tax Office’s audit of the company’s 1986-1990 tax returns. Part of the final settlement includes a payment to the Tax Office.

The amount of the settlement is confi dential and cannot be legally disclosed by either side.”

So, whatever StarKist paid, three things are clear: the company paid something less than $1.3 million, what it paid it had owed for four to eight years, and how much it paid was clearly not the kind of information to be shared with Samoan taxpayers.

Keep wages low. The tuna canner ies have followed a three-part strategy to keep their wages low. They use for eign workers, break up union-organising attempts and play the US minimum wage system.

Using foreign workers, from Western Samoa, is a basic part of the strategy.

Western Samoans, though of the same ethnic group (and sometimes the same extended family) as American Samoans, cannot become citizens of American Samoa and cannot vote in ASG elections and, therefore, have no ability to influ ence the governor or the Fono.

The industry has from time to time been challenged by union organisers arriving from the mainland, usually from the big and controversial Teamsters Union. The plants always manage to get both the governor and the traditional leaders to rally around to fight the union. (Neither the chiefs nor the gov ernors want to see anew and powerful organisation created that might compli cate their lives.) With the island establishment solidly against the union, and with little contin uing local support for it, the union always loses.

Meanwhile, every two years, under mainland law, a system is set in motion to review the perennial request of America Samoa for a minimum wage under the mainland level of $4.25 an hour.

Six people are chosen to set the wages; two from industry, two from labour and two from the public. One of the public members is appointed by the US Secretary of Labor and one by the governor. Since it takes four votes to make a decision, and since the gover nor’s representative always sides with the companies, the tuna factories, in effect, set their own minimum wages.

The last time around the wage was set at $2.97 an hour. In June or July there will be another round of wage-setting.

Play the tariff game. The tuna companies came to American Samoa for

one reason - it was the lowest wage location under the American flag and thus behind US tariff walls. These walls, however, are not terribly high and may be crumbling.

As is usually the case with trade bar riers, the significance is in the details and the details are complicated.

Tuna packed in oil has a high tariff (35 percent of its value) and very little foreign-packed tuna in oil arrives in the US as a result. Unfortunately for the industry, it thought tuna in oil was more important than tuna in water and agreed to the current set of rates many years ago when the spring-water pack was less popular than it is now.

Tuna packed in water has two levels of tariffs: 12 percent most of the year and six percent of the value on January l.This is how it works,not how the law is written.

The law says that 20 percent of the previous year’s domestic consumption of tuna can be admitted with a six-per cent duty rate, but above that quota, duty is levied at 12 percent.

The US Congress recently ratified the General Agreement on Trade and Tariffs, but that document left fish tariffs in place to the relief of tuna packers. They are much more worried about the North American Free Trade Agreement which covers exports from Canada and Mexico.

The Mexico tuna industry is the problem. It has ships working tuna and has even mounted some efforts to avoid killing dolphins. It has tuna packing plants, all of which are much closer to the mainland than those in Samoa and its wage scale is lower than Pago Pago’s.

Further, NAFTA will, over the next 15 years, reduce the existing tariffs by one fifteenth a year.

NAFTA also has a complex set of pro visions that discourages the US from enforcing legislation, like the “dolphin safe” provision in the Marine Mammal Act, that might be viewed as inhibiting free trade between US and Mexico.

At the moment Mexico is not press ing the issue and is not seeking to either comply completely with US “dolphin safe” requirements nor is it seeking to over-rule the Marine Mammal Act. But should the Mexican industry take either of these courses, the US tuna industry might be in trouble.

Stay in touch with environmen talists and diplomats. Just as the wily aging chief has to maintain alliances with external powers, so does the indus try. Although it does not talk much about the very real sacrifices it made to end the dolphin controversy, it clearly

won friends in environmental move ments and created a set of allies who may be useful in the future.

The time may come when Mexico wants to enter the US canned tuna mar ket and when the “dolphin-safe” issue may be the only real barrier to the ship ment of tuna from Mexico. The tuna industry will then need allies among the

dolphin lovers.

Further, although the industry does not regard the $ 12 million a year paid by the US State Department to island gov ernments for fishing rights as a subsidy to it, it welcomes the peace that has fol lowed the negotiation of the tuna treaty.

In earlier years tuna boats would be found in the islands’ EEZs and were

sometimes captured by island police

forces. Solomon Islands and Kiribati levied substantial fines on boat owners before releasing the vessels. The diplo mats who handle the tuna treaty are important allies of the industry.

Keep it a secret. While it may not be good for the broader public, tuna canneries have clearly benefited from their policies of secrecy. No one knows how much taxes they pay, how large their profits are or, in the case of Samoa

Packing, who owns the company.

A couple of years ago this policy of secrecy was preserved through the unlikely intervention of the Big Daddy of US Senate liberals, Senator Teddy Kennedy. Through some legislative acci dent the law that once applied to Puerto Rico about the minimum wage had been extended to American Samoa. It said corporations, like the tuna canner ies, seeking lower than normal mini mum wages had to open their books for public inspection. This had been the case for years in Puerto Rico and had not caused problems.

The tuna industry, however, was furi ous and mounted a major lobbying effort - threatening to open up the whole question of the recently enacted minimum wage on the mainland if its secrecy could not be preserved.

Kennedy did not want to revisit and defend the then new minimum wage, and so he and the rest of the Senate and House Democrats quietly caved. A small bill drafted by the industry moved through both houses of Congress and the canneries won yet another round for secrecy. ■