StarKist calls for “sustainable wages” factoring in competition
StarKist Co. is calling for the establishment of an American Samoa “sustainable wage rate”, which factors in the globally competitive industry, as the territory’s canneries continue to face stiff competition from other countries, with low wages.
The Pittsburgh, Pennsylvania based company, which operates the StarKist Samoa cannery in Pago Pago, made the call in its response to the 110-page US Government Accountability Office report last Friday covering two alternatives for raising minimum wage in American Samoa to keep pace with the cost of living and reach the federal level of $7.25 per hour.
American Samoa has 17 different minimum wages, depending on the industry — with the lowest at $4.68 for garment manufacturing and the highest at $6.09 for stevedoring, and maritime shipping agency activities.
The cannery minimum wage went up to $5.26 per hour last October with the next 40 cent hike — for all local industries —to happen every three years.
The GAO report reaffirmed that the local government and tuna canneries are the largest employers, accounting in 2014 for 42 percent and 14 percent of the workforce, respectively. From 2007 to 2014, overall employment fell by 4 percent, and workers’ average inflation-adjusted earnings fell by about 11 percent.
Cannery officials reported labor costs and fisheries access among the challenges of operating in the territory, and one of the two canneries — Samoa Tuna Processors Inc., has announced plans to suspend operations indefinitely next week, GAO said.
In a statement Wednesday, StarKist commended GAO for reporting on the “serious issues” that are impacting the American Samoan economy and recognizing that the Territory’s “economy is in a fragile state.”
As the longest and largest private-sector employer in the American Samoa economy, StarKist said it has seen, first hand, the negative impact of inflationary wage increases and the resulting decline in the local economy.
For example, the devastating impact of the federally mandated minimum wage hikes based on the 2007 federal law, resulted in a downward trend in employment — which continues — and pointed to the closure in September 2009 of COS Samoa Packing cannery.
StarKist also noted the pending indefinite closing of STP’s cannery operations next week. “StarKist faces the same challenges with our operations in American Samoa and we have been struggling to maintain a stable operation,” said Michelle Faist, the company’s corporate spokesperson. “The tuna industry is a labor-intensive industry and minimum wage has a significant impact on our overall operations.”
As outlined in the GAO report, StarKist says there are other “production models” available that take advantage of low-wage rates in other countries.
“It is difficult for American Samoa to compete with other manufacturing locations, where labor costs and other expenses are substantially lower,” Faist said. “We are trying to sustain a business on U.S. soil and are being penalized with increased costs.”
She added, “Efforts to establish a sustainable wage rate for American Samoa must factor in the globally competitive environment in which the Territory's sole industry competes.”
The GAO report outlined four “production models”, or potential business scenarios for the cannery operations currently located in American Samoa, a US territory located “near rich fishing grounds” but local cannery labor costs “are significantly higher than those in competing countries.”
According to cannery officials, the canneries’ current operations in American Samoa are not competitive with other business models, said GAO adding that the four models, in the report, provide estimate costs and considers “only labor costs and tariffs”, to show the effect of variation in different countries.
MODEL A — Tuna loining and canning located in American Samoa.
Tuna processing currently performed in American Samoa would remain entirely in American Samoa; and canneries would hire local and foreign workers to loin (clean, cook, and cut) and can the fish.
In addition, the plant would process some loins imported from countries with lower wages. The canned tuna from American Samoa would be exported directly to the United States and would benefit from tariff-free access to the U.S. market.
“With an estimated workforce of 2,700 employees in American Samoa, the associated labor cost would be $29 million in 2016, with zero tariff costs,” according to GAO analysis.
MODEL B - Relocating tuna loining to a country with lower labor costs and canning processed loins in the US.
The loining operation — the most labor-intensive part of the operation — would move to low labor-cost countries, such as Thailand, Trinidad, Fiji, Mauritius, or Papua New Guinea, where the fish loin would be cut, cleaned, and cooked and then placed in pouches.
The fish would then be exported to the United States, where it would be canned. The imported fish would carry a tariff of $11 per metric ton, and workers would be employed in a low labor-cost country at $1.20 per hour; the combined tariff and labor cost in 2016 would be $21.4 million.
Under this GAO model, no workers would remain in American Samoa cleaning fish, and 540 workers would be employed in the 50 U.S. states at $14 per hour — which is a rate of pay based on past statements from industry officials.
“However, according to an industry expert, relocating operations from American Samoa could affect the canneries’ eligibility for certain U.S. government contracts that require U.S.-sourced and processed fish,” says GAO.
MODEL C - Relocating all loining and canning to a tariff-free country.
Loining would take place in a country with zero tariffs on canned tuna exported to the U.S. For example, Samoa is near American Samoa and, through Dec. 31, 2010, was allowed to export tuna to the US traffic free under trade agreements with the US.
Workers, under Model C, would be employed at $1.20 per hour Workers would be employed at $1.20 per hour. Additionally American Samoa canneries would close, and all 2,700 positions would be relocated to a tariff-free country.
“The cost would be $6.6 million for 2016, assuming no wage increases in the tariff-free country. However, as in Model B, relocating operations from American Samoa could affect the canneries’ eligibility for certain U.S. government contracts,” GAO said.
MODEL D - Half of production, including for certain U.S. government contracts, located in American Samoa and the other half relocated to a tariff-free country.
In this hybrid model, the American Samoa cannery would continue to supply canned tuna for U.S. government contracts — 20 percent of production from Model A, while another 30 percent of production would remain in American Samoa. The remaining 50 percent of production would move to a country that exports canned tuna tariff free to the United States.
For this model, GAO assumed that 50 percent of the current workforce would remain in American Samoa and the other 50 percent would be located in a tariff-free country.
“The associated cost would be $17.8 million in 2016, with zero tariff costs,” said GAO.
Considering only labor and tariff costs, Model A has higher costs than the alternatives, said GAO, adding that Model C presents the highest combined labor and tariff cost savings but would result in approximately 2,700 fewer jobs in American Samoa.
Furthermore, Model D would present the next-highest labor and tariff cost savings while retaining eligibility for certain U.S. government contracts and would result in about 1,350 fewer jobs in American Samoa.
A footnote in the report, says GAO estimates of job loss include only workers directly employed in tuna canning.
“If we included workers who manufacture cans for the company and would lose their jobs if the cannery relocated, the estimates of job loss would be higher,” GAO said. “Additionally, our estimate does not take into account the likely effects that actions taken by American Samoa’s tuna canning industry would have on other businesses.”
The report said that Model B also presents significant cost savings; however, importing processed loins to the United States would incur tariffs, and wages for canning in any of the 50 U.S. states would be higher than in competing tuna processing countries.