Alaska's Future Blue Economy with Justin Sternberg - TAS #17

This week on The Alaska Show Podcast I talk to Alaska Ocean Cluster Program Manager Justin Sternberg. Justin and I talk about the future of Alaska's economy - which he believes involves a higher utilization of the seafood catch in processing, mariculture, and developing new products from Alaska's underexplored coastal resources.

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Interview Notes

Justin is the Program Manager at Alaska Ocean Cluster.

AOC is a program of the Bering Sea Fishermen’s Association that is 2-2.5 years old. The inspiration came from looking at some of the ocean cluster models that have emerged in places like Iceland and San Diego. It looks at some improvements that have been made like in seafood processing and networks there.

In Iceland, for example, the ocean cluster started around 2008 or 2009. Various components of it were underway. Their utilization in processing was between 60-65% of the total catch weight, similar to Alaska today, and the rest was disposed of as waste. For example throwing out the heads and skins and bones of a salmon. Their goal was 100% utilization. From that time to day they’ve gone to 98-99% utilization. What they found along the way was as they were processing waste streams into value-added products some of those products were more valuable than the protein.

One example is using the collagen for nutraceutical products or cosmetics. The goal of AOC is to develop businesses and products out of these waste streams with entrepreneurs as well as working with the existing processors/industry. They have recently applied for several grants to bring researchers from Iceland to help bring Alaska up to speed based on their experience.

Which species are the most ripe for improving waste usage? It’s more about working with the processors - they all have potential. Iceland is focused on cod as their main fishery - that will be different in Alaska to some extent. There are opportunities across the board from fish leather to dog treats and others. Looking around the globe that’s a great starting point - but there’s even higher-value processing that can create considerably higher returns for things that can be used in things in medicine.

Why hasn’t the industry focused on this already? Iceland might be the leader now but 10-15 years ago they were right where we are now. When we consider Alaska’s resources like the coastline and the ocean resources - that can’t be exported or taken away. There’s no reason we can’t be a world leader in processing techniques and develop the technologies and training for it. There are limitations on the fisheries right now with Covid and we have to import workers internationally - if we had invested in something like robotics for seafood processing there might be less jobs, but they’d be higher-paying and based in Alaska and mitigate some of these issues.

AOC is also focused on mariculture. Before AOC Justin was working with Blue Evolution which was started by a friend of his from his MBA program. Blue Evolution was started in Mexico as a sustainable fish farming enterprise. The issue was always trying to find what you would feed the fish. He looked down the trophic chain to shrimp. Then he had to feed the shrimp and the obvious thing was feeding them seaweed. At that point it made more sense to grow seaweed and feed it to humans. For some reason in 2011 the amount of interest in seaweed as human food grew exponentially. Parents found kids loved eating it. 98% of the seaweed growing in the US comes from Asia. No one knows if that’s from pristine waters or from outside a polluted city in Asia.

Alaska has such a strong seafood brand - why not? Justin saw articles about seaweed and the potential for it. Around 2014 they had some meetings about it - approached University of Alaska Southeast in Juneau to create a public-private partnership to create hatcheries and farms for seaweed. Then they worked with the state to develop commercial permit protocols.

Where are we in 2020 with seaweed/kelp farming? It’s not just a regulatory or consumer taste problem - it’s just tough to build something from the ground up. It takes a lot of investment and learning and building. It overlaps well with the fishing season because the outplanting and harvest occurs during downtime so you can use the processing infrastructure that’s already in the state. It actually supports the seasonality. The challenge is growing it from scratch. Asian seaweed is red seaweed - Alaska is focused initially on Kelp. So there is some market development, but there are certainly already vast markets for commoditized kelp products for fertilizer or animal feed or human food.

The state has been proactive in developing the permitting process. There is a lot of interest in it from the state as the economy gets hit. Alaska has been friendly towards working towards solutions.

If Blue Evolution is physically farming and turning Kelp and Seaweed into products - what is AOC’s goal? It’s to be a nexus of seaweed farmers, fishermen, the state, and the processing facilities. They are facilitating networking and missing pieces of the puzzle like financing, entrepreneurship, and innovation around it. They are bringing in best practices from international partners. AOC is a startup as well.

What does being a nexus mean? An example is helping potential seaweed farmers pitch investors. He was initially the Blue Pipeline Incubator in 2017 - which was a partnership between the ocean cluster, city of Seward, SBDC, and chamber of commerce. Worked with companies in coastal tourism, seafood processing, ocean energy and mariculture. The first cohort had successes in raising money and getting investor access following some IP. One of the pieces that became obvious was they needed to engage with existing industry to support entrepreneurs in the best way. You don’t want existing industry to see these people as competitors. Existing industry can identify opportunities where there are pain points where a business could help them. Entrepreneurs might have an exit strategy through existing industry as well.

What Justin sees across the state is people think about Alaska as one thing but it’s so many different communities and cultures and climates that fall under one designation. Programs that get developed outside of Alaska like an incubator or accelerator get dropped into Alaska and it doesn’t work out the way it was intended. Justin wanted to respond to the high degree of entrepreneurship he was seeing. It’s consistently in the top three states per capita - many are mom and pops. Justin knows they can scale. Trident Seafoods was an Alaska startup - one of the biggest companies the owner started in Unalaska. It has vast underexplored biological potential. But how do you go from a mom and pop to a scalable company?

There are certain entrepreneurs who can do 100% of the business. It’s very common in startups where you have to build a team and move beyond the initial founder. There’s a challenge particularly in remote coastal communities of finding enough people to join your team to create a well-rounded team. It’s not like you’re dealing with tech companies where people can be remote, you have to deal with the physical world and people might need to be on the water all day. How do you build and scale a team so those skillsets are available if there’s a limitation on the number of people around? Someone may be a great marketer but is already working with 2-3 businesses.

Are you educating investors or entrepreneurs? There is a huge amount of education that needs to happen. People in Alaska don’t necessarily understand. The state, historically, is so reliant on oil and gas that it prioritizes it as a focus. When the price of oil is good times are good and when it’s bad times are bad. Usually we forget the bad times when the price of oil is good again. But Justin thinks there are fundamental rethinks going on as Alaska is at an unprecedented point in the history of the state. The four pillars of the economy - oil and gas, military, mining and fishing - are all under tremendous simultaneous threat with the exception of military spending. Coastal tourism is under threat as well. Alaska has tremendous resources that are not even utilized at all like bioprospecting looking for potential applications for different plants that haven’t been discovered yet or are in traditional Native knowledge that is being lost

Alaska has tremendous amounts of innovative capacity. We are seeing that right now with the mariculture industry. Even the existing seafood industry is looking at those opportunities.

On the investor side - when Justin was working through Blue Evolution to identify opportunities - people had to be educated on the potential of seaweed. They might understand oysters, but people wanted to sit back and watch what would happen with something like mariculture. There is a history of people coming in promising riches and going bust. There are simultaneously multiple early-stage industries coming together.

Justin worked in Alaska since 1997. Starting around 2008 he started doing work with Renewable Energy Alaska project. He did the programming for that - bringing people in around the world who were experts in their field in Norway or Iceland or the Lower 48 talking about geothermal, wind, and solar energy. He was a partner in an Anchorage LED streetlight project that was expanded to other cities in the US. No one figured out how to do a large-scale LED implementation until Anchorage did it. Figuring out those models was important to Justin. Even though Alaska may not be a seafood processing technology leader right now, we have the potential to be. A lot of the jobs around mariculture can’t be exported - they need to stay in the state. It’s not like fish you can send to China - you have to process it on-site. The systems thinking approach - taking available resources and leverage them to create opportunities - is his background.

Justin was dating a woman in college who was from Anchorage. His junior year he lived and worked in Anchorage for the summer. He got to travel around the state and fell in love with it. He’s still up in Anchorage. The other thing that impressed him was the people. Nevada City was an old gold mining town. There’s a bit of a pioneering mentality to this day. People are a little more self-sufficient - in Alaska you see that at a much larger scale. Justin feels that coming from outside Alaska there are so many opportunities that you don’t see elsewhere. He was blown away by the working waterfront that was there. In so many cities the industry is fading away and they have to maintain that working waterfront. 5,000 people year-round work in an incredible diversity of ocean-based industries. From the port to the marine industrial center, to the SeaLife Center and the seafood processors. Justin thinks there is tremendous opportunity there.

For so long we’ve seen the consolidation of Alaskan seafood jobs into Seattle, but now Justin believes we could see a consolidation of talent in the state. That may be underestimated about Alaska. The internet is actually pretty fast here - faster than in some places in Northern California. Justin is getting a lot of interest from people all over the country and the world.

Iceland bit the bullet and instead of paying off the bankers it would be smarter in the long run to bail out the banks and invest in the future economies. They’ve done a tremendous job investing in tourist infrastructure and the blue economy. Alaska has the exact same opportunities. One thing they’ve done in Iceland is curate the experience. There are opportunities here too for people to curate those tours like in the national park and access nature. That’s tremendous. There are things they could be doing better like designing the accommodations nicer than “Alaska Chic.” There are opportunities to grow. The scalability is so great.

There are three people on the Alaska Ocean Cluster team. During Covid they’ve applied for $4 million in grants. They are trying to grow the scale of the entrepreneurship program. That could double or triple the number of people they have if they get those grants. They’re they only organization in Alaska to get the encouragement to apply for one of the recent grants. There is converging interest around economic development. It’s hard for organizations in Alaska to come up with match funding. If you apply for a grant they might require you match the money you get from other sources. Everyone in the state is rethinking how they do that. There have been amazing discussions from those grant applications.

There’s an interesting shift because for so long Alaska is a place of incredible beauty that is always fighting against extraction industries. But in the ocean space that is fading away and a new model is emerging where economic development creates jobs. It aligns people and preserves communities and creates opportunities for coastal communities who need it. There has a been a huge decline in people int here communities - kids go off to college and can’t come back and work there. The opportunities in value-added processing could be huge - a lot of availability for people with advanced degrees.

AOC has a partner in Quebec who is even working with traditional Native communities to identify ecological products that could be used in medicine. Kids there are actually interested more in their communities as a result. There are ways in Canada to reward and protect people who have that knowledge, but there are ways to create value for communities based on their traditional knowledge. How do you preserve diversity and culture here?

Justin’s team is coming up with ways to engage existing industry and investors - they will be unveiling some of that work in coming months. They have the Ocean Tuesday program that happens almost every week where different experts around the world talk on a webinar - people can watch that at 10 AM AKST. As they develop the platform there will be more and more ways for people to stay in tune with it.

Seward is the most underrated town to visit in Alaska according to Justin.

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