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Processor on a quest for fishing quota(Oregonian (Portland, OR) (KRT) Via Thomson Dialog NewsEdge) Feb. 5--In a two-decade climb from lowly prey to the food chain's peak, Frank Dulcich transformed his small Clackamas business into the West Coast's dominant seafood supplier. Resolved to stay on top, Dulcich has turned his money and drive toward Congress. In coming weeks, his Pacific Seafood Group and other West Coast processors hope to win a political test that will guarantee them shares of fish and shut out competitors. Despite earlier Justice Department warnings that such processor shares are anti-competitive, Dulcich remains confident. And with good reason: He's used to winning. With 1,800 employees and estimated annual revenue of $700 million, Pacific now ranks No. 3 among North American seafood suppliers, according to Seafood Business magazine. During the past five years, Dulcich, the company's president and sole shareholder, has augmented Pacific's steadily growing market power by expanding its political clout. He hired an influential lobbying firm, joined an elite group of donors to President Bush's re-election, and turned to U.S. Sen. Gordon Smith, R-Ore., and others in Congress to find nearly $1 million in federal money to resolve wastewater problems at Pacific's Warrenton plant. The company also has sought to influence who will -- or won't -- make the rules under which it has to operate. Now, Smith, recipient of $8,500 in donations from Dulcich and top Pacific managers since 1999, is advancing a bill he sponsored to grant existing West Coast processors quota rights to divvy up all whiting processed ashore. Also known as hake, whiting -- the highest-volume species caught off Oregon shores -- is used to make fake crab. The bill faces a stiff headwind in Congress, where opponents fear that opening the door to perpetual control of a public resource by Pacific and others would be as anti-competitive as handing a half-dozen lumber mills an exclusive right to log the forests. "It's ultimately a political call on how much is given to the processors, because there's no economic rationale for it," said Johanna Thomas, a deputy director with Environmental Defense, a nonprofit group that opposes the bill. Pacific contends the bill would restore order to a chaotic fishery, and many whiting trawlers support the premise. But other fishermen from Canada's border to California worry that Pacific's political and pricing might threatens their livelihoods and independence. Trawlers gamble with their lives, pitting instincts against waves and weather. They place faith in things they cannot see -- a green net unfurling behind them, cables and rings herding fish inside. Many fishermen sense another kind of net closing around them. In faltering seaport towns hamstrung by years of government-ordered catch cutbacks, Dulcich's decisions increasingly control their destiny. The greater his success, the more resentment grows toward Pacific, whose tactics have sparked lawsuits, even a criminal conviction of one of its subsidiaries. Bay Area crab fishermen, angry at what they saw as Pacific bullying them over price, refused to leave port for 11 days in November. "They're the Wal-Mart of the . . . fishing business," said Larry Collins, vice president of the San Francisco Crab Boat Owners Association. In answer to such claims, Dulcich, 50, just smiled and shrugged. "Twenty years ago when we were starting," he said, "I blamed the big guy for everything." Dulcich remembers the first time he saw his father cry. The two were standing outside the family's Clackamas fish distributorship. It was 1983, and Dulcich had just graduated from the University of Portland with a major in psychology. Other than summers helping his father, Dominic, he had little business experience. All that changed when representatives of the Dulciches' main fish supplier decided to expand from processing into distributing. They told Dominic Dulcich he could sell them his business outright or face losing his supply. Tearfully, Dominic Dulcich told his son he feared losing the company that he and his own father had founded in 1941. Frank Dulcich wouldn't have it: "I said that if we were going down, we'd go down fighting." The first step was to replace their fish supply. In Warrenton, they found an old processing plant so dilapidated that the freezer floor sank 18 inches when they thawed it. Ice had held it up. The younger Dulcich recalls telling employees to stack totes to conceal the slumping dock. Bank lenders were headed to the plant. "They had just financed it, and I didn't want them to see the collateral," Dulcich said. After reviving the plant, the younger Dulcich invested as much as 18 hours a day to ensure the company's survival. At night, he attended business classes. Pacific plowed profits back into the company, modernizing equipment and buying plants. Dulcich formalized management systems. He defined the company's Diamond Philosophy, with its four facets of teamwork, productivity, quality and excellence. His employees are "team members" or "partners." He visits each plant every few weeks. Chewing gum and walking briskly, he surveys the grounds of the Warrenton plant, spotting weeds, asking questions and comparing notes from his last trip. He reaches inside an ice machine, checking for frost buildup. At a time when other processors are failing, he attributes his company's remarkable growth to making smart plans, hiring the best employees and treating them well. "We're passing through this life, and what's more important is really the end," he said. "I believe in God, and I believe in life after death, and you've got to do what's right here." Others outside the company say Dulcich's real secret is that he controls distribution, the networks of salespeople and trucks that get fish to markets and restaurants -- and the industry's most profitable segment. As a result, Pacific's processing plants, while ensuring him supply, don't have to make money. In fact, observers say, the tighter the profit margins become in processing, the better highly integrated Pacific can succeed while one-dimensional competitors fail. Untrue, Dulcich said. Segments of his company operate as separate profit centers. He wouldn't let one hand claw ahead at the expense of the other. The trawlers who catch the fish and the companies that buy them always have haggled over price. Sons and grandsons recount the battles; the faces and brands come and gone. Trawlers who sell to Pacific say it pays on time, keeps its plants gleaming and operates professionally. Dulcich runs a tight ship. But on the docks, and in the courthouse, Pacific's practices have forged a ruthless reputation. Complain about prices the company pays, a trawler told Oregon investigators, and Pacific's managers tell you there are plenty of guys to take your place. Dulcich disputes that, adding he would fire a manager for saying such a thing. The trawler was interviewed in an inquiry that resulted in a Pacific subsidiary pleading no contest to criminal theft charges in 2002. The subsidiary, Pacific Surimi Inc., agreed to pay $800,000 to settle that case as well as state claims against another Pacific unit. In addition to paying investigative costs and a $324,579 charitable payment, Pacific Surimi paid $166,824 to fishermen that the state concluded the company had cheated by inflating amounts of unusable whiting it bought from them. The subsidiary also paid $104,839 for the other Pacific unit's falsifying documents about groundfish caught with whiting. In effect, the company bought sensitive groundfish for a fraction of its value, which rivals said put them at a disadvantage. "Pacific was getting all the cod real cheap," said Gib Hunter, who owned competitor Eureka Fisheries. "That was a big blow." Not a fatal one for Eureka, in Hunter's estimation, but as the government kept restricting groundfish harvests, and he failed to cut costs, his losses mounted. He closed the Eureka plant in 2001. The new owner: Pacific, which bought Hunter's restaurant, brand and most of his equipment. "They treated us right," Hunter said. Documents from another case describe how Dulcich used legal maneuvers to gain control of Tillamook Bay oyster land in the 1990s. He wanted to buy Hayes Oyster Co., but the two sides could not agree on a price. When Dulcich discovered that Hayes had missed payments on 300 acres of oyster lands, he directed his attorneys to draft a new agreement between the landowner and Hayes. The agreement reduced Hayes' monthly payments but made foreclosure easier. Hayes signed it, and in a separate transaction, the landowner assigned the agreement to Dulcich. When Hayes missed payment, Dulcich foreclosed. Compete in a world marketplace, Dulcich said, and you have to be opportunistic. You never settle for mediocrity. You drive hard bargains. "There's never too good of a deal," he said, "because somebody always has the choice to say no. And no is just a way of getting to yes." As competitors have gone bust, Dulcich has picked up the pieces. Pacific has grown to include 28 processing and distribution sites, ranging from Alaska, to Fresno, Calif., to Salt Lake City. Outside the industry, however, Dulcich managed to keep Pacific nearly invisible for two decades. "We've been an extremely quiet company," Chief Operating Officer Tim Horgan said in a 2003 interview. "We typically figure out where we're going, run our game plan and then other people have to react to us." A massive sewage problem prompted Pacific to expand its political reach in 2000. Dulcich hired the Gallatin Group, a well-known Pacific Northwest political strategist, to help resolve a dispute with the state over wastewater discharge from its Warrenton plant. Gallatin lobbied for support from Sen. Smith, Rep. David Wu, D-Ore., and other members of Congress, who secured a $950,000 federal grant toward the city's construction of a water treatment plant. In a ceremony announcing the grant, Smith said the money to help a major coastal employer "could not be better spent." The company still faces a federal lawsuit over its wastewater discharges, and a judge shut down Pacific's fish-paste production there last summer after finding hundreds of Clean Water Act violations. In 2003, Gallatin and Pacific began strategizing on a higher plane. They hoped to find a way to set a new quota system that would lock in processor rights to fish caught off of California, Oregon and Washington. Processors would have rights to buy fish based on their past production levels, effectively barring new competitors. The year before, Pacific had decided gaining processor shares "wasn't a fight we could win," Horgan said. But two events aligned in 2003 that he said opened doors for Pacific and propelled its plans into public view: a pending presidential election and expiration of an important congressional moratorium. The moratorium, which took effect in 1996, had barred quotas granting fishermen individual percentages of fish the U.S. government allows to be taken in a year. If fishermen now could get such quota rights, Pacific reasoned, processors might be able to get their own shares, too. On the political front, Oregon was among swing states -- George W. Bush had lost the state by less than 0.5 percentage point in 2000 -- that Republican strategists hoped to turn in 2004. By then, Dulcich had evolved into a staunch financial supporter of the Republican Party. Federal campaign records show he has contributed $57,700 during the past decade, mostly to Republican candidates and committees. "We became more politically active than we ever had been," Dulcich said. The company, he said, had no choice: It needed to battle "fear" seeded by environmentalists, protect Pacific's jobs and investment, and ensure processors were heard before important federal decisions. Dulcich became a Bush "Pioneer," one of 327 individuals nationally who pledged to raise more than $100,000 for the president's 2004 re-election campaign. Dulcich said he raised the money because he admires Bush, not because he wanted to curry favor. About that time, Pacific won the attention of federal regulators of West Coast fisheries. In 2003, Pacific representatives flew east to meet with Donald Evans, then U.S. commerce secretary. They arranged for William T. Hogarth, head of the National Marine Fisheries Service, to swing through Oregon. Later that year, Hogarth wrote the executive director of the Portland-based Pacific Fishery Management Council, the West Coast's most important fisheries rule-making body, to outline the administration's position on quotas. Hogarth said that rule making would be left to regional councils such as Portland's but that an administration bill had supported processor participation in harvesting quotas. In 2003, the council began a long process to address the quota question. Chairman Hans Radtke, an economist, considered individual processor shares anti-competitive, and he said he reinforced his opposition in a private meeting that Dulcich requested. A few weeks later, Radtke found out that his six years on the council were over. Evans, the commerce secretary, had opted against reappointing him, despite a nominating letter from Oregon Gov. Ted Kulongoski that called Radtke his "clear choice." The same letter said it would be "very disruptive" if Radtke lost the council seat. In 2004, when Radtke sought state help in regaining a seat, Kulongoski's natural resource policy adviser e-mailed him. "We have decided not to pick a fight with the Pacific Group by submitting your name as a candidate . . . ," Jim Myron wrote. "We just have too many other battles to fight at this time without adding another (that) we can avoid." Dulcich said although Radtke had been bad-mouthing his company, he never tried to oust him. What Dulcich did do, he acknowledged, was throw his support behind Frank Warrens, a charter boat operator and former council member. Warrens also received Sen. Smith's endorsement -- and the seat. Since then, the council's examination of quotas has meandered along in fits and starts, in part because Pacific and other processors have pressured Congress not to fund it. Dulcich said an important committee has been tilted toward trawlers' interests. Frustrated by the council process, Pacific helped forge an agreement with many whiting trawlers last year to incorporate harvesting shares for fishermen and processors into the bill that Smith is now sponsoring. Chris Matthews, a Smith spokesman, said it would be "better for the community if you end the race for fish as it happens now." As the Bush administration began paying closer attention to Pacific's concerns, the company's Horgan acknowledged that Dulcich's political push played a part. "We are getting a lot of support politically," he said. "That's the honest answer." |