MEMORANDUM

 

TO: Timothy Navarre, Assembly President

Members of the Kenai Peninsula Borough Assembly

FROM: Chris Moss, Assembly Member

DATE: January 24, 2002

SUBJECT: Ordinance Appropriating $305,550 for the Cook Inlet Salmon Branding Project

Project Overview.

Why do we need a branding program? The alternative to an active brand-marketing program is to do nothing. This means maintaining operations as they exist today, which would be disastrous. Without a visible and credible presence in the market, Cook Inlet sockeye would fade into the rear echelons, attractive only to bargain hunters and serving merely as a backup in times of shortage, while farmed and branded wild salmon lay claim to customers and market niches. Prices would sink so low as to reduce fishing to a breakeven occupation, at best. Both a reasonable occupation and a cherished lifestyle would become untenable. Processors would very likely fall into bankruptcy, or pull out of the region before they do. Economic conditions on the Kenai Peninsula would suffer, as hundreds of fishermen, factory and supporting industry personnel would be without work. These consequences are unacceptable. A diligent effort to adapt to the modern seafood marketplace is the only available alternative.

Last year, the Kenai Peninsula Borough invested $95,000 to begin this multi-year, multi-disciplinary effort. These funds were used to conduct the needs assessment, develop handling and quality guidelines, draft certified quality specifications and to develop a comprehensive marketing strategy. This program information is contained in the document entitled "Cook Inlet Sockeye Branding Project, Final Program Plan," dated September 26, 2001. As a result of this initial work, a steering committee was formed to implement the plan. Their first action was to adopt the Final Program Plan. The committee consists of fishermen, processors, other industry leaders, Borough staff and myself. (See attached list of committee members and the advisory group.) Three sub-committees have been formed to address the issues of organizational structure, quality assurance controls, and funding. It is primarily the funding issues we wish to present to the Assembly at this time.

Funding.

Our Cook Inlet Sockeye Branding Project will target a well-defined upscale market niche. It is expected that it will take three to five years to firmly establish the program. Eventually it will be managed by an organization formed in cooperation between fishermen and processors, the formative structure of which has already been established by the program's industry steering committee. The plan has two interdependent phases; one establishes a salmon quality management program and the second establishes a marketing campaign to sell Cook Inlet sockeye using the brand that certifies a high quality product. Expected funding needs for the next three years for both quality and marketing phases and other costs are shown below:

Component

 Year One Year Two Year Three
Quality $ 119,060 $ 93,010 $ 91,010
Marketing 79,430 184,300 171,500
Marketing Consultation / Project Management 68,550 66,000 66,000
Travel 27,910 18,000 18,000
Final Report 5,600 5,600 5,600
Miscellaneous 5,000 2,600 2,600
TOTAL $ 305,550 $ 369,510 $ 354,710

The steering committee has identified several potential funding sources, including federal and state grant programs, private corporations, industry support, and local governments. Three grant applications have been submitted to provide a portion of the start-up funding for the first year. If all three grants are awarded in the amounts requested, the steering committee would have sufficient funding for their start-up costs. However, until those grant awards are announced, the amount of grant funds available for the project is unknown.

Not included in the above totals are costs the processors and fishermen will have to absorb for modifications needed to bring their operations into compliance with the quality control standards adopted by the program. The sub-committee working on funding will begin to address this issue once operational funds are secured.

Potential funding sources for years two and three, to firmly establish the program and maintain it, include grant funds, legislative appropriations, and industry support through modification of the raw fish tax payments. Any changes to the raw fish tax would require state legislative action. Continuation of the program beyond year three would be supported through an assessment on the branded product and possible changes in the raw fish tax structure.

Timing.

It is vital to the project that we are prepared to initiate our quality assurance program during the 2002 fishing season. Prior to the fishing season, we must educate fishermen and processors on the quality expected in the market today and receive input from them in establishing quality control measures. Final approval and adoption of quality control standards for the branding program should be completed as soon as possible. During the season, we must implement the initial quality assurance program in support of our pilot marketing campaign. It is hoped to have a product that can be used for test marketing during the fall/winter of 2002 and 2003.

Because work should begin as soon as possible in order to be prepared for the 2002 fishing season, the committee seeks Borough funding to initiate its program. These funds would be replaced with grant funds when they are awarded. However, the Assembly should be aware that although the committee is confident that some grant funds will be received, there is no guarantee that any or all grant requests will be awarded. There is even the slight possibility that none of the grants will be awarded and that all the Borough funds appropriated by the attached ordinance will be needed for the first year start up costs.

Based on information provided in the grant program guidelines, the earliest we could expect an award announcement would be mid-February or early March. These dates are only estimates. Getting the funds appropriated and the agreements in place can take 8 to 10 weeks to complete. If the awards are not announced until early March, there is insufficient time to get an appropriating ordinance on the assembly's agenda for the only March meeting. If the notice is received before the March 12th Assembly meeting, an amendment to the attached ordinance would be made to appropriate the grant funds. Otherwise, an ordinance could not be introduced until the April 2nd meeting. Even with a shortened hearing date of April 16th, and assuming an ordinance passes on that date, time is still needed to negotiate and finalize an agreement with the granting agency. This can take a few weeks to accomplish. Given this timeline, grant funds would not be available for use on the project until sometime in May. This is too late to meet our goal of implementing the quality control program for the 2002 fishing season.

Your review and consideration of this funding request and the attached ordinance is appreciated. Members of the committee will be available during assembly deliberations to answer questions and provide further detail.

Attchments:

Ordinance

List of Steering Committee Members

cc: Jack Brown, Business Development Manager

Bonnie Golden, Grants Manager

Jeff Sinz, Finance Director