First Irma, now a trade war.
Tariffs set to take effect Friday threaten to bump up prices by 25 percent — an increase that could cool demand in the lucrative Chinese market, say experts.
"This is a major impact on our fishery," said Jeff Cramer, who fishes out of Conch Key. "And just a year after we got wiped out by the worst hurricane we've had in recent memory."
Before the Chinese market picked up a decade ago, the going rate for a pound of lobster was $3. Today, fishermen can get between $10 to $20 per pound from Chinese buyers, and commercial fishermen like Cramer now send up to 75 percent of their Florida spiny lobsters to China.
"The Chinese market saved the fisherman’s ass," said Cramer.
But with the boom came a dependence: Cramer's Chinese buyers say that retailers have no appetite for absorbing the cost of the tariff, meaning he likely will need to lower his prices or risk losing his biggest buyers when the lobster commercial fishing season opens Aug. 6.
When possible, businesses incorporate tariff costs into consumer prices. For example, steel, lumber and aluminum tariffs imposed by the Trump administration in the past year have pushed up building costs, affecting home prices as well. But margins in the lobster trade are already slim, and Cramer worries that competition from Australia and Brazil will toss Florida out of the market if prices go up.
"Everybody is hoping this gets straightened out," he said. "We can’t compete when your product is taxed more than any other."
Others aren't as convinced. Gary Graves, owner of Keys Fisheries, is one of South Florida's biggest commercial fishing operations, with 25 boats under his watch. Live lobsters need to be shipped direct, and Graves doesn't think other countries can step up to fill the demand.
"It's not a good thing, but it might not be as bad as we think," said Graves, who sends about 40 percent of his live lobster to China. "Brazil, Nicaragua and Honduras aren't approved to sell lobster directly. The logistics just aren't as good as they are here."
Graves, who acts as a processor and distributor, isn't happy about the tariffs, just uncertain about their impact.
"Until we start the season and start production, you can't really know the full effect of these tariffs," said Graves. "Maybe the tariff will be split four ways, between distributor, retailer, fisherman and consumer. . . who knows?"
China's lobster tax came in response to U.S. tariffs imposed on Chinese imports in late June. Agriculture — soybeans, wheat and pork —have also been hit.
"The Chinese very skillfully played their cards, choosing products that hurt our industry a lot," said Bill Kelly, president of the Florida Keys Commercial Fishermen's Association. "These tariffs are a great deal of concern to us."
Ninety percent of Florida's live lobsters come from the Keys and account for about $50 million in sales each year. In 2016, fishermen hauled in $54 million in lobster — more than shrimp, red grouper or stone crabs.
A decade ago, Florida lobster gained favor with Chinese diners when Chinese businessmen looking for new markets discovered the South Florida crayfish. The nascent trade relationship got a boost from technological breakthroughs in live lobster shipping and tariff squabbles between China and Australia.
By 2015, the Florida lobster harvest had nearly doubled, from 3.5 million pounds to nearly 6 million. Kelly estimates Florida exports $36 million in live spiny lobster to China per year.
Prices soared to $20 per pound at their peak in 2014 but have since balanced out at about $8 per pound. The spiny lobster, often referred to as the "Dragon Shrimp" by Chinese consumers, is particularly popular during the Chinese New Year that beings in January.
The tariffs compound damage to an industry already slammed by September's Hurricane Irma, which closed marinas, wrecked boats and trashed traps. An estimated 60 percent of the Florida Keys' 2017 commercial fishing harvest — worth about $28.5 million — was lost, says Kelly. Last year's haul of 3.8 million pounds of lobster was the lowest since 2008, according to data from the Florida Fish and Wildlife Conservation Commission.
Tom Hill, owner of seafood processor Key Largo Fisheries, says many fishermen have yet to replace all the traps lost in the storm. For some, that was 35 to 80 percent of their traps. Kelly values the total loss of gear at $38 million.
And this year, those traps are more expensive. In 2017, the cost came in around $37 per trap. Since tariffs were imposed by the United States on Canadian lumber late last year, lumber prices have risen to the highest level in U.S. history. Many fishermen are waiting months to get new lumber, and spending upward of 50 percent more on the replacements.
"Irma really affected us," said Hill. "Most of our fisherman have gotten repairs and they would all like to have more traps waiting. It takes a lot of money to rebuild."
Fishermen are watching the trade war with the European Union as well. The EU is a major market for South Florida's cooked seafood. In late June, the EU retaliated against the U.S. steel and aluminum tariffs by instituting a 25 percent tariff on $3.2 billion of American goods. The seafood industry was spared, but with the Trump administration threatening more tariffs, there's no long-term guarantee.
But what's bad for fishermen may translate to lower prices for lobster on menus across South Florida.
Luis Garcia, owner of Garcia's Seafood Grille and Fish Market on Miami River, said that the high prices fetched from Chinese buyers left locals bare. Even with the supply from his own boats, Garcia sometimes had to order lobster shipped in from Nicaragua.
"What am I going to do, take lobster off the menu?" he said. "No, so you have to get it from somewhere."
Before the Chinese market opened up, Garcia was paying anywhere from $6 to $9 per pound, depending on the harvest. Now he pays up to $18 per pound for lobster shipped from outside of South Florida. If Chinese demand drops due to tariffs, Garcia said restaurants may return to selling Florida lobster, and at a much cheaper price.
"It's all based on supply and demand," said Garcia. "There was a good run there where the lobster fisherman was making a lot of money, but I believe that they find a way to balance themselves out."