Canneries to GAO: labor costs put Territory at a disadvantage in global tuna market

Deferring the next minimum wage hike helped the tuna canning industry put in place better plans for the future, including investing in American Samoa, but industry officials maintain that labor costs, including wages put the territory at a disadvantage in this globally competitive industry.

 

This is according to the U.S. Government Accountability Office report on the impact of minimum wage hikes on American Samoa and the Commonwealth of the Northern Mariana Islands, whose employment and earnings have decreased overall since 2006, while earnings increased slightly from 2011 to 2012.

 

Released Monday, the GAO report made clear that a 2012 federal law that delayed the next wage hike to September next year, states that after 2015 the 50 cent hikes thereafter will be implemented every three years. The last wage hike for American Samoa was in 2009.

 

Because tuna canning is the largest private employer in the territory, GAO focused attention on this industry, with a group discussion and interviewing officials, who shared that the tuna canning industry faces challenges from the minimum wage increase and other factors.

 

According to GAO, both StarKist and Tri Marine International cited the territory’s proximity to Pacific fisheries as a key advantage for the American Samoa tuna canning industry, as well as tariff-free access to the U.S. market. Star-Kist also cited Pago Pago’s protected deep-water harbor.

 

“However, cannery company officials we interviewed indicated that labor costs, including the minimum wage increases, continued to place American Samoa at a significant cost disadvantage compared with other canned tuna exporting countries,” GAO said.

 

In June 2011, GAO said it concluded that the three minimum wage increases to date had further widened the gap between American Samoa and production sites with lower labor costs, such as Thailand.

 

“Star-Kist estimated the total differential in the annual wage bill between American Samoa and an equivalent number of employees in Thailand at approximately $17.4 million,” GAO noted.

 

“In addition, Star-Kist also cited disadvantages for American Samoa from U.S. regulations, high fuel and re-provisioning (net repairs, ship maintenance, crew provisions, and fishing bait) costs, an outdated shipyard, and the lack of sufficient dock space.”

 

Both canneries cited congressional action to defer the next minimum wage increase to 2015 “as encouraging their ability to invest in American Samoa,” it says.

 

For example, StarKist officials say “deferring the next minimum wage increase helped the company to better plan for future activity at the cannery— to better train its workforce, plan procurement, negotiate supply contracts, and compete for business that requires pricing guarantees for multiple years.”

 

At Tri Marine, the company said it “carefully considered all of its current and projected costs before deciding to invest in American Samoa and that its decision to move forward came only after the deferral of increases in the minimum wage,” GAO said.

 

As to actions available to the canneries in response to increasing costs, StarKist pointed out that it could lower the staffing level or close certain production lines, the report says.

 

“Star-Kist reiterated its position that the cost savings between a fully U.S. manufacturing process and an outsourced manufacturing process is substantial and places American Samoa at a disadvantage,” GAO pointed out.

 

(Outsourced manufacturing process, means having fish cleaned in a foreign country and sent to the U.S. for canning. This is a less costly process than the Starkist operations which clean, process and can tuna here, due to the wage differential.)

 

For Tri Marine, whose cannery operations are expected to open later this year, the company told GAO that “any increase in direct costs, related to wages or not, will erode the competitiveness of American Samoa with a number of low-cost sources, including Thailand, Vietnam, Indonesia, and the Philippines, as a source of canned tuna for the U.S. market.”

 

CANNERY WAGES

 

Current minimum wage for cannery workers stand at $4.76 per hour - a 44% increase since the mandatory wage hike law went into effect in 2007. The last  wage hike for all industries in the territory was 2009.

 

Based on questionnaire responses about workers’ wages as of June 2013, the future minimum wage increases would affect the wages of 92 percent of the current workers in the canning industry by 2018, when the minimum wage reaches $5.76 per hour, according to the report.

 

Based on the wages workers currently earn, minimum wage increases would increase the average annual cost per worker in 2018 by an average annual cost of $1,723 per worker.

 

EMPLOYER ACTIONS

 

Two of the three employers in the tuna canning industry in American Samoa reported that they had taken cost-cutting actions from June 2010 to June 2013 including labor- and cost-saving strategies and reduced overtime, according to the draft, which didn’t identify the companies by name, but Samoa News understands GAO is referring to StarKist Samoa and the can manufacturing plant,  Impress Samoa.

 

The third employer, which is just beginning operations in American Samoa considered the questions — on the impact of wage hikes to the cannery — not applicable. (GAO is referring to Tri Marine International’s local Samoa Tuna Processors Inc.)

 

The two employers attributed all but one of their actions to a moderate or large extent to minimum wage increases, it says and noted that in addition to minimum wage increases, these two employers also attributed their actions to a moderate or large extent to increased utility and material costs.

 

“Two of three employers stated that they planned in the next 18 months to introduce labor- and cost-saving strategies, delay business expansion, relocate business, and reduce overtime hours,” GAO said. “The two employers attributed all of these plans to a moderate or large extent to the minimum wage increases, but also to increased utility and material costs and business factors.”

 

INDUSTRY ANALYSIS

 

Cannery officials told GAO that wage increases “are one of many factors affecting the tuna canning industry in American Samoa, but that its labor costs, including the minimum wage increases, place American Samoa at a significant cost disadvantage in comparison with other canned tuna exporting countries.”

 

Both canneries cited congressional action to defer the next minimum wage increase to 2015 as encouraging their ability to invest in American Samoa. Cannery officials said that there is a spectrum of possible actions in response to increasing costs. For example, canneries could lower the staffing level or close certain production lines.

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