Selected Economic Impacts of Crab Rationalization on Kodiak: Preliminary Results

Transcription

1 Selected Economic Impacts of Crab Rationalization on Kodiak: Preliminary Results Gunnar Knapp University of Alaska Anchorage ComFish Alaska 2006, Kodiak, Alaska March 17, 2006

2 Presentation Outline 1. What this Study is About 2. Challenges in Studying Effects of Rationalization 3. Changes in the Crab Fisheries 4. Fleet Consolidation 5. Effects on Crab Fishing Jobs 6. Effects on Crab Fishing Earnings 7. Effects on Businesses 8. Conclusions

3 1. What This Study is About

4 About myself I am a Professor of Economics at the University of Alaska Anchorage Institute of Social and Economic Research (ISER). I have been living in Alaska and working at ISER since 1981 I have done a lot of research about Alaska s economy and the fishing industry. I wasn t involved at all in crab rationalization I didn t help design it I didn t argue for or against it I m trying to understand the effects of crab rationalization I m not trying to support it or oppose it

5 In December, the City of Kodiak asked me to do a study of selected economic impacts of crab rationalization on Kodiak: Effects on crab fishing jobs of Kodiak captains and crew Effects on crab fishing earnings of Kodiak captains and crew Effects on Kodiak businesses

6 I have NOT studied all of the economic effects of crab rationalization. For example, I have NOT studied: Effects of processor quotas How rationalization affected markets or prices How rationalization affected safety How rationalization affected vessel owners How fair quota allocation was or wasn t I think all of these effects are important. I think all of these effects should be studied. But they aren t part of this particular study.

7 The purpose of this study is to try to get a better understanding of some of the economic impacts of crab rationalization on Kodiak.

8 I am still working on this study. I am talking today about preliminary results. They are based on: Data available at this time Talking with people Crab boat owners Crab fishing captains and crew Kodiak business owners Fishery managers Other people who know about the crab fisheries and/or Kodiak Thank you to everyone who talked with me!

9 I will prepare a written report for the City of Kodiak by the end of this month. The report will have: Details of what I talk about today Other analysis I don t have time to talk about today The report will describe potential options for further analysis: Effects of rationalization in the Bering Sea Opilio fishery Surveys of owners, crew, business owners

10 2. Challenges in Studying Effects of Rationalization

11 There are significant challenges in studying the economic effects of crab rationalization on Kodiak.

12 Rationalization only began half a year ago. Only limited data are available. ADFG hasn t finished analyzing data for the Bristol Bay Red King Crab fishery. The Bering Sea opilio crab fishery is still underway

13 There is a lot of variation in the crab fishery. There are differences between crab fisheries. Within each crab fishery, there are differences in Boat sizes Vessel ownership Some owners have only one vessel Some owners have multiple vessels How quota is fished Some quota holders lease out their quota Some quota holders fish only their own quota Some quota holders lease a lot of additional quota How long boats fish How crew are paid What other fisheries boats and crew participate in It is difficult to generalize about crab fishing or about how boats, crew and communities were affected by rationalization.

14 Historically, some crab boats caught much more than other boats. Some crab fishermen earned much more money than other crab fishermen. Average Catches per Permit in the Bristol Bay Red King Crab Fishery, by Quartile 140, , ,000 First quartile Second quartile pounds 80,000 60,000 Third quartile Fourth quartile 40,000 20, Number of permit holders in 2004: First quartile: 37 Second quartile: 47 Third quartile: 62 Fourth quartile: 105

15 Crab rationalization affects more fisheries than crab! Different Alaska fisheries are economically linked in many ways. Changes in one fishery affect other fisheries. Captains and crew will work in a lower-paying fishery to gain the opportunity to fish in a higher paying fishery (like crab). If crab fishing jobs decline, it may affect availability of crew for other fisheries Boats and fishermen that stop fishing for crab may fish other fisheries creating more jobs in those fisheries (but probably not more value) Crab boats fish in multiple crab fisheries and also participate in other fisheries, and tender. The profitability of a fishing operation depends on all of these activities. You can t understand the effects of crab rationalization just by looking at the crab fishery!

16 Not all of the changes in the crab fishery in 2005 are due to rationalization. Not all of the future changes in the crab fishery will be due to rationalization. Total crab quotas change from year to year Market conditions change from year to year Fuel prices change from year to year It s difficult to separate the effects of rationalization from the effects of these other factors on the crab fishery.

17 Not all of the economic changes in Kodiak this year are due to rationalization. Not all of the future economic change in Kodiak will be due to rationalization. Economic conditions in other fisheries change from year to year Economic conditions in other industries change from year to Federal and state spending change from year to year Permanent fund dividends change from year to year Old businesses close and new businesses open It s difficult to separate the effects of rationalization from the effects of these other factors on Kodiak s economy.

18 We don t know what would have happened without rationalization. We can t necessarily assume that the same number of boats would have continued to fish. Some consolidation would likely have happened in the crab fishery even without rationalization. We can t necessarily attribute all of the decline in crab fishing jobs to rationalization. There isn t any way to really know how much of the decline we can attribute to rationalization.

19 It s hard to define and measure specific effects on Kodiak. It s not always clear which boats are Kodiak boats who are Kodiak residents

20 The effects of crab rationalization will happen over a long period of time. We re only in the first year of crab rationalization. It s far too early to know what the long-term effects will be: On how many boats fish On crab fishing jobs On crab fishing earnings On markets On communities It took far longer than one year to begin to understand the longterm effects of Salmon limited entry Halibut and sablefish s The CDQ program The American Fisheries Act pollock co-ops But it s important to start studying effects as they happen!

21 3. Changes in the Crab Fisheries

22 The two most valuable rationalized crab fisheries are Bristol Bay red king crab and Bering Sea snow crab (opilio) BSAI Crab Individual Fishing Quota () Allocations August June Fishery code Fishery description Allocation (lbs) BBR Bristol Bay red king crab 16,496,100 BSS Bering Sea snow crab 33,465,600 BST Bering Sea Bairdi Tanner crab 1,458,000 EAG Eastern Aleutian Islands golden king crab 2,700,000 WAG Western Aleutian Islands golden king crab 2,430,000 Total TOTAL 56,549,700 Source: NOAA Restricted Access Management Division,

23 The Bristol Bay Red King Crab fishery catches fewer pounds but at a higher price with a higher total value. Bristol Bay Red King Crab Bering Sea Snow Crab (Opilio) Value ($ millions) $54.2 $72.7 $65.7 Pounds (millions) Price ($/lb) $6.14 $5.08 $4.71 Opens in Days 3 October 5 3 Value ($ millions) $44.2 $45.0 $45.0 Pounds (millions) Price ($/lb) $1.49 $1.83 $2.05 Opens in Days 24 January 9 8 Source: ADFG Annual Management Report, 2004

24 My preliminary study has focused on the Bristol Bay Red King Crab fishery. The Bristol Bay Red King Crab (BBRKC) fishery began in October and is over so preliminary data are available. The Bering Sea Opilio Crab fishery began in January and is still underway so only limited data are available. Many of the effects of crab rationalization are similar for the two fisheries (although there are some important differences).

25 The newly rationalized Bristol Bay Red King Crab fishery experienced dramatic changes in 2005 compared with earlier years.

26 Total pounds landed increased by 20%, from 13.7 million to 16.5 million. Bering Sea Red King Crab Fishery, : Total Pounds Landed (000) 18,000 16,000 14,000 14,171 13,758 16,483 thousands of pounds landed 12,000 10,000 8,000 6,000 8,722 4,000 2,

27 Total ex-vessel value increased by 14%, from $65 million to $74 million. Bering Sea Red King Crab Fishery, : Ex-Vessel Value (000) $80,000 $70,000 $72,354 $64,975 $74,050 thousands of pounds landed $60,000 $50,000 $40,000 $30,000 $20,000 $54,052 $10,000 $ Note: Value estimate is based on preliminary prices.

28 The number of boats registered fell by 65%, from 251 to 89. Bering Sea Red King Crab Fishery, : Number of Vessels Registered Number of vessels

29 The number of pots registered fell by 68%, from 50 thousand to 16 thousand. Bering Sea Red King Crab Fishery, : Number of Pots Registered 60,000 50,000 46,964 49,506 number of pots registered 40,000 30,000 20,000 25,833 15,713 10,

30 Total landings fell by only 4%, from 270 to 259. Many fewer boats were making about the same number of landings and catching more total crab. Bering Sea Red King Crab Fishery, : Number of Landings Number of vessels

31 The average number of landings per vessel increased by 171%, from 1.08 to Bering Sea Red King Crab Fishery, : Average Landings per Vessel average landings per vessel

32 Average pounds landed per vessel increased by 238%, from 55 thousand to 185 thousand. Bering Sea Red King Crab Fishery, : Average Pounds Landed per Vessel 200, , , , , ,000 pounds 100,000 80,000 60,000 40,000 36,042 56,235 54,813 20,

33 Average ex-vessel value per vessel increased by 221%, from $259 thousand to $832 thousand. Bering Sea Red King Crab Fishery, : Average Ex-Vessel Value of Landings per Vessel $900,000 $832,022 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $223,357 $287,120 $258,863 $200,000 $100,000 $

34 The number of days spent fishing increased sharply for most boats. Bering Sea Red King Crab Fishery, : Season Length (days) The number of days boats fished in 2005 varied widely. Many boats caught their quota in about 10 days; some boats fished for a month

35 Rationalization has resulted in dramatically fewer crab boats fishing longer seasons with much higher catches and value per boat.

36 4. Fleet Consolidation

37 The total number of boats which fished Bristol Bay Red King crab fell from 251 in 2004 to 89 in How did the number of Kodiak boats change? ADFG doesn t make public which boats actually fished. This makes it more difficult to figure out how the number of Kodiak boats which fished changed. ADFG does publish a list of which boats preseason register to fish for crab. More boats preseason registered than actually fished. I used the preseason registration list to estimate how the number of Kodiak boats which fished changed. Changes in the Number of Boats Fishing for Bristol Bay Red King Crab Number of boats which preseason registered % of preregistered boats which fished Number of boats which fished Change % Change % 99.6% 84.0% %

38 First I had to decide which boats are Kodiak Boats. There isn t any clear definition of a Kodiak Boat Most Kodiak residents who are involved with fishing seem to have a pretty clear idea about: Which boats are definitely Kodiak boats Which boats are definitely not Kodiak boats (Their ideas don t match 100% with ADFG home port data for registered vessels) There are a few boats people are unsure about or don t agree on Boats that are here some of the time. Boats that are here more or less than they used to be.

39 Of the 252 boats which preseason registered to fish Bristol Bay Red King Crab in 2004, I classified these 54 boats as Kodiak Boats. ALASKA CHALLENGER HANDLER MELANIE ALASKA SPIRIT ICE LANDER MIDNITE SUN ALICIA JEAN INCENTIVE NORDIC VIKING ALPINE COVE IRENE H NORTH POINT AMERICAN WAY ISLAND MIST NUKA ISLAND ARGOSY JEANOAH OBSESSION ATLANTICO KATHERINE OCEAN BAY BIG BLUE KATRINA EM PACIFIC STAR BIG VALLEY KODIAK PACIFIC VENTURE BOTANY BAY LADY ALASKA PERSEVERANCE BUCCANEER LADY ALEUTIAN PROVIDER CHISIK ISLAND LADY HELEN RUFF & REDDY CORNELIA MARIE LADY KISKA SAGA COUGAR LADY KODIAK SEABROOKE DETERMINED LUCKY LADY SILVER SPRAY ELIZABETH F MAR DEL SUD STORM BIRD FOUR DAUGHTERS MARCY J TRAIL BLAZER GUARDIAN MARY J VIEKODA BAY Probably some of you would take a few boats off this list, and put a few others on. I welcome your suggestions about this.

40 Of the 54 Kodiak boats which preseason registered in 2004, 27 boats, or 50%, did not preseason register in These 27 boats also preseason registered in 2005 These 27 boats did not preseason register in 2005 ALASKA CHALLENGER MAR DEL SUD ALASKA SPIRIT LADY ALEUTIAN ATLANTICO MELANIE ALICIA JEAN LADY HELEN BIG BLUE NORDIC VIKING ALPINE COVE LADY KISKA BOTANY BAY NORTH POINT AMERICAN WAY LADY KODIAK CORNELIA MARIE NUKA ISLAND ARGOSY LUCKY LADY DETERMINED OBSESSION BIG VALLEY MARCY J ELIZABETH F PERSEVERANCE BUCCANEER MARY J FOUR DAUGHTERS PROVIDER CHISIK ISLAND MIDNITE SUN HANDLER SEABROOKE COUGAR OCEAN BAY ICE LANDER SILVER SPRAY GUARDIAN PACIFIC STAR INCENTIVE STORM BIRD IRENE H PACIFIC VENTURE ISLAND MIST TRAIL BLAZER JEANOAH RUFF & REDDY KODIAK VIEKODA BAY KATHERINE SAGA LADY ALASKA KATRINA EM

41 Between 2004 and 2005, the number of Kodiak boats which preseason registered fell from 54 to 27. Only 84% of boats which preseason registered actually fished in I estimate that between 2004 and 2005, the number of Kodiak boats which fished for Bristol Bay Red King Crab fell from 54 to 23, or by 57%. I estimate that 31 Kodiak boats which fished in 2004 didn t fish in Estimated Changes in the Number of Boats Fishing for Bristol Bay Red King Crab Change % Change Kodiak boats % Number of boats Other boats % preregistered TOTAL % % of preregistered boats which fished 99.6% 84.0% Kodiak boats % Estimated number of boats Other boats % fishing* TOTAL % *Assumes that the percentage of preregistered boats which fished was the same for Kodiak as for other ports.

42 4. Effects on Crab Fishing Jobs

43 Most Bering Sea crab boats fish with crews of either 5 or 6. For the study I simply assumed an average crew size of 5.5. I think the actual average is probably slightly higher.

44 Assuming 5.5 jobs per boat, 162 boats not fishing Bristol Bay Red King Crab represents a loss of 891 crab fishing jobs total. Assuming 5.5 jobs per boat, 31 Kodiak boats not fishing Bristol Bay Red King Crab represents a loss of 171 crab fishing jobs on Kodiak boats, or 57% of jobs on Kodiak boats. Estimated Changes in Jobs on Bristol Bay Red King Crab Boats Change % Change Estimated number Total fleet % of boats fishing Kodiak boats % Assumed average jobs per boat Total jobs Total fleet % Kodiak boats % That does not necessarily mean a loss of 171 fishing jobs since some of the boats which didn t fish for crab fished for other species instead, such as cod and Tanner crab thus providing other fishing jobs.

45 Not everyone who fishes on a Kodiak boat is a Kodiak resident. The number of jobs on Kodiak fishing boats is not necessarily the same as the number of fishing jobs held by Kodiak residents. The number of fishing jobs held by Kodiak residents could be higher or lower than the number of jobs on Kodiak boats. It depends on: What % of jobs on Kodiak boats are held by Kodiak residents What % of jobs on non-kodiak boats are held by Kodiak residents

46 There are no data on what % of jobs on Kodiak boats and non- Kodiak boats are held by Kodiak residents. (In general, there are hardly any data about crew in Alaska fisheries!) Most of the people I talked to were reluctant to even guess what % of jobs were held by Kodiak residents. The job estimates I m going to show you next assume that: 60% of the jobs on Kodiak boats are held by Kodiak residents 10% of the jobs on non-kodiak boats are held by Kodiak residents Then I ll show you how using different assumptions changes the estimates.

47 The assumptions about the % of jobs held by Kodiak residents result in an estimated loss of 174 crab fishing jobs held by Kodiak residents 102 jobs on Kodiak boats and 72 jobs on other boats. Estimated Changes in Bristol Bay Red King Crab Fishing Jobs Held by Kodiak Residents Total jobs Assumed % of jobs held by Kodiak residents Total jobs held by Kodiak residents Change % Change Total fleet % Kodiak Boats % Kodiak Boats 60% 60% Other boats 10% 10% On Kodiak boats % On other boats % Total %

48 Depending on what you think about the % of crab jobs held by Kodiak residents, the estimated job losses for could vary widely. I think the mostly likely number is somewhere in the range. Percent of jobs on other boats held by Kodiak residents Percent of jobs on Kodiak Boats held by Kodiak residents 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% % % % % % % % % % % Assumes losses of 171 jobs on Kodiak boats and 721 jobs on other boats, for a total of 892 jobs lost. By way of comparison, total estimated annual average employment for the Kodiak Island Borough in 2004 was about [Source: Kodiak Chamber of Commerce, Kodiak Economic Profile and Economic Indicators, 2005.]

49 5. Effects on Crab Fishing Earnings

50 Crab rationalization has significantly reduced the number of fishing jobs. It has also changed the nature of the remaining crab fishing jobs in several important ways. Most jobs: Last longer Pay more for the season Pay substantially less per day of fishing Pay substantially less as a share of the catch value Provide for more certainty about total income for the season Remember, there is a lot of variation in the crab fishery. Different owners pay captains and crew in different ways. Not all of these generalizations apply to all jobs.

51 How this vessel owner paid crew was typical for many boats before rationalization although there was a lot of variation between boats in specific details. Example of Where Gross Earings Went for Two Kodiak Vessels in 2003 $250,000 $200,000 Net income was $150,000 shared between the vessel owner and the crew. (The crew was charged for groceries.) $100,000 The crew was paid 41% of net income. Captains got about twice as much as an experienced crewman. Groceries Payments to crew Payment to owner Bait Fuel Taxes $50,000 Taxes, Fuel and Bait were deducted from gross to calculate net $0 income Vessel A Vessel B

52 This particular vessel stacked both boats quota on one boat in 2005 resulting in fewer crab fishing jobs. But he continued to pay his crew in the same way. Example of Where Gross Earings Went for Two Kodiak Vessels in 2003 $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 The crew was still paid 41% of net income. The crew worked a longer season but they earned more. Groceries Payments to crew Payment to owner Bait Fuel Taxes $100,000 $50,000 $0 Vessel A 2003 Vessel B 2003 Both boats' quota stacked on one boat 2005 Both fuel prices and tax rates increased in 2005!

53 Many boats fished not only their owners quota, but also quota leased from other quota holders, for which they paid a royalty. The typical royalty rate paid for Bristol Bay red king crab was 70% of after-tax value. This royalty payment was deducted from gross (along with taxes, fuel and bait) to calculate net value. For boats which leased a lot of quota, the resulting net value on which crew shares was paid was much lower. As a result, crew received a much lower share of gross income. How crew income was affected depended on: How much leased quota the vessel fished What royalty the vessel owner paid for the leased quota

54 To illustrate the effects of quota leasing on crew earnings, I developed a simple model of revenues and costs for a hypothetical boat (based on cost data provided by the owner of large crab boat). The model calculates how revenues, costs and payments change when the vessel leases more quota. These graphs are only hypothetical examples but they illustrate how quota leasing affects vessel earnings, costs and payments in many ways.

55 The model assumes that the vessel owner s own quota is equal to what he would have caught in a derby fishery before rationalization. (This is probably NOT the case for many or most vessel owners, but it allows the model to focus specifically on the effects of quota leasing). $2,000,000 Vessel Total Revenue & Payments $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 If the vessel doesn t lease any quota, his catch and total revenue are the same as they would have been without rationalization. Quota royalties Groceries Bait Fuel Taxes and fees Payment to owner Payments to crew $600,000 $400,000 Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% $200,000 $0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

56 The model assumes that the vessel owner pays crew in the same way as before rationalization for fishing his own quota. (This was not necessarily the case for all boats). $2,000,000 Vessel Total Revenue & Payments $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 If the vessel doesn t lease any quota, the crew receives almost the same share of gross income as they would have before rationalization. (The crew s share is slightly lower because tax rates were higher after rationalization). Quota royalties Groceries Bait Fuel Taxes and fees Payment to owner Payments to crew $600,000 $400,000 Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% $200,000 $0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

57 As the vessel leases additional quota, its total catch and total revenue increase. Its costs also increase, because it is spending more days fishing. 70% of the additional gross revenue (after taxes) goes to pay quota royalties. Vessel Total Revenue & Payments $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 These bars illustrate the effects of leasing additional quota. (The amount of leased quota is measured as a % of the total quota for all boats). Quota royalties Groceries Bait Fuel Taxes and fees Payment to owner Payments to crew $800,000 $600,000 $400,000 Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% $200,000 $0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

58 As the vessel leases more quota, royalties represent an increasing share of the gross ex-vessel value. 100% Payments as Share of Ex-Vessel Value 80% 60% Quota royalties Groceries Bait Fuel Taxes and fees Payment to owner Payments to crew 40% Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% 20% 0% Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

59 As the vessel leases and fishes more quota, the number of days the vessel fishes increases. Number of Days a Crewman Spends Fishing Crewman days fishing Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% 2 0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

60 As the vessel leases and fishes more quota, total work days also increase (but the relative increase is not as dramatic as for fishing days ). Total Number of Days a Crewman Works (Fishing, Running, Transit, and in Port) Crewman days worked Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% 0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

61 As the vessel leases and fishes more quota, the total payment to crew increases. Note that the model assumes that the crew receives 41% of the additional net value (after deductions which include the 70% royalty). Total Payment to All Crew on Vessel $300,000 $250,000 $200,000 Payments to crew $150,000 $100,000 $50,000 Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% $0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

62 As a vessel leases and fishes more quota, a crewman s total earnings increase. Total Earnings of a Crewman who Receives a 6% Net Share $45,000 $40,000 $35,000 $30,000 Crewman total earnings $25,000 $20,000 $15,000 $10,000 Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% $5,000 $0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

63 As the vessel leases and fishes more quota, although the crewman s total earnings increase, his earnings per day fishing decrease. Crewman Earnings Per Day Fishing $6,000 $5,000 $4,000 Crewman earnings per day fishing $3,000 $2,000 $1,000 Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% $0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

64 Under the assumptions for this particular model, as the vessel leases and fishes more quota, the crewman s earnings per day working (including days running, transiting, and in port) stay about the same. This result depends on what you assume about how many non-fishing days a crewman works. Crewman Earnings Per Day Working $1,400 $1,200 $1,000 Crewman earnings per day worked $800 $600 $400 $200 Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% $0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

65 If all boats which fished owned and leased identical amounts of quota, then the more each individual boat leases, the smaller the fleet and the fewer the total jobs in the fishery. 1,600 Effect of Quota Leasing on Total Jobs in Fishery (if all boats which fished had the same number of crew and the same costs and fished the same amount of quota) 1,400 1,200 Estimated total jobs 1, Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% 0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

66 If all boats which fished owned and leased identical amounts of quota, then the more each individual boat leases, the greater the share of the total quota which would be leased, and the smaller the share of total value of the fishery which would be paid to crew. $30,000,000 Effect of Quota Leasing on Total Payments to All Crew in Fishery (if all boats which fished had the same number of crew and the same costs and fished the same amount of quota) $25,000,000 $20,000,000 Estimated total crew income $15,000,000 $10,000,000 $5,000,000 Key Assumptions: Quota lease rate = 70% Crew share of net value = 41% $0 Derby Lease 0% Lease 0.5% Lease 1.0% Lease 1.5% Lease 2.0% Quota Share Leased

67 6. Effects on Businesses

68 We would expect different kinds of businesses to be affected by crab rationalization in different ways. Type of business Businesses which sell to fishing boats, and for which sales depend on the number of boats fishing Businesses which sell to fishing boats, and for which sales depend on the number of days fished Businesses which sell to fishing crews Businesses which sell to local residents Businesses which don't sell to fishing boats or local residents Examples Pot storage and loading Welding Marine supplies Fuel sales Bait sales Fuel sales Bait sales Grocery stores Restaurants Auto dealers Tourism businesses Effects of crab rationalization depend on: Change in number of crab boats fishing Crab boats as % of total sales Change in total crab fishing days Crab boats as % of total sales Change in number of crab fishermen working Crab fishermen as % of total sales Change in crab fishing income Crab fishing % of total resident income No change

69 Many different Kodiak businesses depend exclusively or heavily on sales to the fishing fleet and to fishermen. Because Kodiak fisheries are diversified, most don t depend solely on the crab fisheries or crab fishermen but crab boats and crab fishermen are important to their business.

70 The businesses most likely to be affected by crab rationalization are those that derive a high % of their sales from crab boats, and that depend on how many crab boats are fishing. Business which store and load crab pots are directly affected by the decline in the number of crab pots fished. The number of pots registered in the 2005 Bristol Bay Red King Crab fishery fell by 68%.

71 Some crab fleet purchases depend more on the total number of boat-days fished than the number of boats fishing. Examples include fuel, bait and groceries The number of boat days fished did not decline as much as the number of boats fishing in 2005, because boats fished longer seasons Total sales of fuel, bait and groceries to the crab fleet probably declined far less than the number of boats But many of those sales probably shifted from Kodiak businesses to communities closer to the fishing grounds, such as Dutch Harbor, as boats spent longer in the Bering Sea and bought more supplies when they delivered

72 A number of Kodiak business owners have told me about specific ways in which their sales were harmed by crab rationalization: I own a life raft inspection station, so I sell and service life rafts, EPIRBS and other marine safety equipment. Of course I do business with most all the fisheries. The mainstay of my business is life raft servicing, so if a boat doesn't go fishing I don't get to service their raft/s. Additionally, depending on the way the boat operates the crew sometimes buy safety gear for themselves if the boat doesn't (i.e., survival suit personal lights or personal EPIRBS). I can't nail down specific numbers as far as percentages of loss until last year taxes are filed... However, when halibut was turned into an based fishery I lost over 30% of my business due to high attrition in the fishing fleet. While I hope the crab impact is not so severe it will still loom large.

73 As a potential indicator of the effects of crab rationalization on Kodiak businesses, I looked at business sales data collected by the City of Kodiak (for the purpose of calculating sales taxes). The city collects sales data by quarter. If crab rationalization affected the sales of Kodiak businesses, we would expect to see a decline in sales for the fourth quarter (October-December) of 2005, compared with the fourth quarter of 2004.

74 Sales data are confidential for individual businesses, but the City can release combined data for a group of businesses. I asked the City to calculate total sales for twelve Kodiak businesses that supply or service the crab fleet. Twelve Kodiak Marine Supply and Services Businesses Alaska Hydraulics, Inc Alaska Industrial and Marine Services Arc N Spark Welding Island Hydraulics Kodiak Marine Supply Kodiak Metals & Supply Inc Kodiak Ocean Safety Services Kodiak Service Company Kodiak Welding & Supply Nets Pacific Radar-Alaska Marine Electronic Sutliff's Hardware Inc These twelve companies are not (by any means!) the only businesses that supply or service the crab fleet but I thought they might be representative of trends for these types of businesses.

75 Total sales of these twelve businesses increased in every quarter of 2005, compared with the corresponding quarters of Fourth quarter sales increased 14%. Gross Revenues of Kodiak Businesses: Twelve Marine Supply and Service Companies 4,000 3,500 3,000 thousands of dollars 2,500 2,000 1,500 1st quarter 2nd quarter 3rd quarter 4th quarter 1,

76 According to city records, comparing the fourth quarter of 2004 and fourth quarter of 2005 for these twelve Kodiak Marine Supply and Services businesses: Sales were DOWN for 3 businesses One business had a very big decline in sales Sales were UP for 9 businesses Several businesses had strong growth in sales

77 From city sales data, it is difficult to find any clear evidence yet of any MAJOR effect of crab rationalization on marine supply and service businesses in general. This does NOT mean that: businesses weren t affected no businesses experienced major negative effects It does suggest that for most of these particular businesses-- the effects of crab rationalization have been outweighed by other factors affecting their sales.

78 Total sales of Kodiak businesses increased in the first three quarters of 2005, compared with the corresponding quarters of However, fourth quarter sales decreased by 3%. This may have been caused by crab rationalization. It may be due to less income coming into the community from crab fishing. Gross Revenues of Kodiak Businesses: Total for All Business Types 120,000 thousands of dollars 100,000 80,000 60,000 40,000 In 2005, total fourth quarter sales were down 3%. 1st quarter 2nd quarter 3rd quarter 4th quarter 20,

79 Business Type Gross Receipts of Kodiak Businesses: 2005 Percentage Change from 2004 First quarter (Jan-Mar) Second quarter Apr-Jun) Third quarter (Jul-Sep) Fourth quarter (Oct-Dec) Legal Services 15% 49% -66% -41% Health Services -28% 22% -8% -36% Contractors 33% 11% -3% -28% Personal Services -13% -21% -14% -16% Taxi Cabs -4% -16% -4% -12% Business Services 2% -19% -25% -11% Communications 15% -8% -17% -10% Vehicle Repairs -39% -1% -24% -8% Rentals/Leases -1% -3% -7% -8% Restaurants -2% -2% 7% -7% Amusements -2% -1% -12% -4% Retail Sales 28% 2% 30% -2% Bars/Liquor Stores 3% 0% 4% -1% Artists/Photographers 94% 54% 35% 1% Miscellaneous Services 16% 14% 17% 2% City Utilities -2% 2% 4% 4% Beauticians -3% 2% 5% 5% General Repair Services 9% -7% -11% 6% Grocery Stores 4% 7% 4% 6% Utilities 4% 2% 1% 10% Service Stations 5% 11% 9% 11% Hotels/Motels -3% 11% 11% 13% Canneries -11% 25% -11% 27% Boat Charters -57% -3% 4% 34% Beverage Distributors -2% 8% 21% 57% City Boat Harbor -52% 25% -18% 253% TOTALS 13% 5% 10% -3% But looking at the sales for specific business types, it is not obvious that the decline in fourth quarter sales was due to rationalization. Fourth quarter sales decreased for some business types. Fourth quarter sales increased for other business types. Total fourth quarter sales were down 3%.

80 Gross Receipts of Kodiak Businesses: 2005 Percentage Change from 2004 Business Type First quarter (Jan-Mar) Second quarter Apr-Jun) Third quarter (Jul-Sep) Fourth quarter (Oct-Dec) Legal Services 15% 49% -66% -41% Health Services -28% 22% -8% -36% Contractors 33% 11% -3% -28% Personal Services -13% -21% -14% -16% Taxi Cabs -4% -16% -4% -12% Business Services 2% -19% -25% -11% Communications 15% -8% -17% -10% Vehicle Repairs -39% -1% -24% -8% Rentals/Leases -1% -3% -7% -8% Restaurants -2% -2% 7% -7% Amusements -2% -1% -12% -4% Retail Sales 28% 2% 30% -2% Bars/Liquor Stores 3% 0% 4% -1% Artists/Photographers 94% 54% 35% 1% Miscellaneous Services 16% 14% 17% 2% City Utilities -2% 2% 4% 4% Beauticians -3% 2% 5% 5% General Repair Services 9% -7% -11% 6% Grocery Stores 4% 7% 4% 6% Utilities 4% 2% 1% 10% Service Stations 5% 11% 9% 11% Hotels/Motels -3% 11% 11% 13% Canneries -11% 25% -11% 27% Boat Charters -57% -3% 4% 34% Beverage Distributors -2% 8% 21% 57% City Boat Harbor -52% 25% -18% 253% TOTALS 13% 5% 10% -3% Of the business types with lower sales, some have no obvious connection with rationalization Others were declining before rationalization. Total fourth quarter sales were down 3%.

81 Retail business sales account for about 40% of total sales. Retail sales were down 2% in the fourth quarter of This may have been caused by crab fishermen spending less because of a decline in their income. But without a fairly detailed study of the Kodiak economy and how other factors are affecting it (including what s happening in other fisheries) I can t say for sure. 50,000 45,000 40,000 35,000 Gross Revenues of Kodiak Businesses: Retail Sales Businesses In 2005, total retail business fourth quarter sales were down 2%. thousands of dollars 30,000 25,000 20,000 1st quarter 2nd quarter 3rd quarter 4th quarter 15,000 10,000 5,

82 7. Conclusions

83 Conclusions: General Economic Effects of Crab Rationalization It is far too early to tell the full effects of crab rationalization. The effects of crab rationalization are broad, complex and difficult to measure. There has been very rapid and dramatic consolidation of the crab fleet. There has been a dramatic decline in the number of crab fishing jobs. The remaining crab fishing jobs are a different kind of job: longer seasons, more income (for those working), more certainty about income, a smaller share of total income, and lower earnings per day fishing (but not necessarily per day worked). Rationalization has cut into sales of businesses which sell to crab boats and crab fishermen. Crab rationalization has many other important economic effects that this study hasn t looked at.

84 Conclusions: Economic Effects of Crab Rationalization on Kodiak Not enough information is presently available to measure economic effects of crab rationalization on Kodiak with any great degree of precision. Between 2004 and 2005, the number of Kodiak boats which fished for Bristol Bay Red King Crab fell from about 54 to about 23, or by about 57%. The number of Kodiak residents who lost crab fishing jobs is hard to measure, but was probably between 100 and 200. Rationalization has cut into the sales of some Kodiak businesses which supply and service the crab fleet but there has been no obvious major decline for this sector. Total sales of Kodiak businesses declined by 2% from the fourth quarter of 2004 to the fourth quarter of 2005; this may have been caused by rationalization but I can t tell for sure. Kodiak is a relatively large and diversified community that depends on many fisheries and other activities which tends to dampen the effects of crab rationalization compared to those for other, smaller and less diversified communities.

85 For the people who lost jobs, crab rationalization had a very big impact. "This year I watched all these guys go fishing. It's heartbreaking. I stayed awake at night with anxiety attacks, thinking where is my next paycheck going to come from." "I am a captain with 17 years in the crab fishery and 5 years as captain. I lost my job because of rationalization. The quota from my boat was stacked on another boat. My grandfather fished, my dad fished I fished and my son fished... This is wrong. I want to fish but I can not find a job."

86 The experience with crab rationalization illustrates a fundamental challenge for Alaska fisheries management. In some fisheries, we need to find ways to cut costs. But one person s cost is always another person s income.

87 These are preliminary results. I m still working on this study. I welcome comments, suggestions and questions. My phone number is My is Gunnar.Knapp@uaa.alaska.edu You can find me by searching on Google for Gunnar Knapp Happy St. Patrick s Day!