AN INCOME IMPROVEMENT/ ENTERPRISE RETIREMENT PROGRAM FOR FISH HARVESTERS IN PLACENTIA BAY SUBMITTED BY: FISH, FOOD AND ALLIED WORKERS UNION

Transcription

1 AN INCOME IMPROVEMENT/ ENTERPRISE RETIREMENT PROGRAM FOR FISH HARVESTERS IN PLACENTIA BAY SUBMITTED BY: FISH, FOOD AND ALLIED WORKERS UNION

2 1.0 Context The fishery is the largest sector in terms of employment in the Placentia Bay area of Newfoundland and Labrador. Placentia Bay is located on the south coast of Newfoundland between the Avalon and Burin peninsulas. The area has approximately 5,000 residents, of which more than % of the population are fish harvesters. Placentia Bay falls within NAFO Subdivision 3Ps, which runs from Cape St. Mary s to Burgeo 1. The area is the most densely populated part of 3Ps and the most heavily trafficked for marine purposes. In addition to fish harvesting, the Bay is currently used for heavy industrial purposes, servicing the oil refinery, the transportation of nickel concentrate to a major smelter at Long Harbour, and offshore oil construction work. There is also a pending proposal to use the Bay as the site for the development of a major aquaculture operation by Grieg NL Seafarms Ltd., which will further exacerbate the marine traffic and congestion issue in this area. The two most important commercial fisheries in Placentia Bay - cod and crab - have declined precipitously over the last five years. For many years, cod formed an essential part of a harvester s income in this area. In , for example, more than 10,600 tons of cod was landed in 3Ps, mostly in Placentia Bay. However, by , the cod catch had declined by over 50% to only 5,200 tons, and landings have not recovered. In , 5,600 tons was landed, representing just 50% of the quota; and less than 1,800 tons, or 20%, of the available under 65 inshore quota has been landed to date in 2016/2017. The impact of the dramatic decline in the cod fishery was partially mitigated by a strong crab fishery and high crab prices prior to However, the crab fishery in Subdivision 3Ps also declined sharply beginning in In 2015, just 2,540 tons of crab was landed, compared to over 6,000 tons in Landings declined further in 2016 when just 662 tons caught. This represents close to a 90% decrease in snow crab landings in just three years. Crab was the primary economic driver for harvesters in Placentia Bay for close to two decades. For many years, harvesters in Area 10 landed over 10,000 pounds of crab per license, which provided a solid foundation for a middle-class standard of living. Between 2011 and 2014, for example, an active enterprise in Placentia Bay earned approximately $53,000 from the crab fishery compared with just $10,000 from the cod. In 2015, revenue derived from the crab fishery declined to $35,000 for the average inshore under 40 enterprise and it is anticipated that 2016 crab revenues will decline even further to only $10,000 on average. This represents an 80% decrease in enterprise revenue from 2011 to 2014 levels. It is also likely that the harshest impacts have yet to materialize. Harvesters are in a difficult financial position with no relief in sight. Many harvesters have fishing-related financial liabilities against which 1 NAFO Subdivision 3Ps consists of two fisheries management areas - Area 10 and Area 11. The eastern portion of the Subdivision (i.e. Placentia Bay) constitutes Area 10, while the western portion (i.e. Fortune Bay and the South Coast up to Burgeo) constitutes Area 11. 1

3 licenses, vessels, and homes have been leveraged. Unfortunately, there have already been instances where vessels have been repossessed or held by creditors. The declines in the crab and cod fisheries have understandably resulted in frustration, anger, and desperation amongst many harvesters in Placentia Bay. There have been more protests over the past 12 months by harvesters seeking new fishing grounds or additional quota than at any time of over the past decade. The frustration of harvesters is understandable, as they are unable to resolve this crisis by fishing harder or longer since the resource is simply not there to be caught. Outside intervention, in the form of a fleet rationalization or retirement plan, is required for this area. 2.0 Objective An Income Improvement/Enterprise Retirement program in Placentia Bay would be grounded on three key objectives: A. To compensate harvesters for agreeing to retire their Core fishing enterprises and key fishing licences. B. To reduce the total harvesting capacity in the Area 10 inshore under 40 fleet and the 3Ps supplementary crab fleet- by between 25% and 50%. C. To improve the incomes of fish harvesters and the economic viability of fishing enterprises who remain in the fishery. 3.0 The Income Improvement/Enterprise Retirement Plan This proposal is for an Income Improvemet/Enterprise Retirement Plan for the Placentia Bay area of Subdivision 3Ps. Based on past experience with fleet rationalization programs, it is anticipated that the plan will result in the following benefits: 1. Provide compensation for those willing to retire their enterprise; 2. Reduce the level of harvesting capacity in Placentia Bay; 3. Build sustainability, as the remaining harvesters will have access to the same pool of resources with fewer participants; 4. Build sustainability while not requiring the remaining enterprise owners to acquire further debt. 2

4 Governance The Income Improvement/Enterprise Retirement Plan will be managed by the Fisheries Science Stewardship and Sustainability Board (FSSSB). This Board previously delivered the federal and provincially-funded Lobster Enterprise Retirement Program (LERP) between 2011 and The FSSSB is a not-for-profit company incorporated in The Board is managed by a board of directors with a wide variety of fisheries experience ranging from former harvesters to former provincial and federal officials. The FSSSB operates at arms-length from the Fish Food and Allied Workers Union and is its own independent entity. In September 2015, the Government of Newfoundland and Labrador commissioned an independent evaluation of the LERP with the goal of measuring the effectiveness of the Plan and its impact on the Newfoundland fishery. In its conclusion, the consultant stated that the plan has been successful in reaching its objectives and has made great strides to encourage long-term sustainability and economic prosperity of the lobster fishery in NL. It is clear, based on the outcomes of independent evaluation of the LERP, that the FSSSB has a proven track record of being able to manage and implement the complexities of an enterprise retirement program. Scope of the Income Improvement/Enterprise Retirement Plan The Income Improvement/Retirement Plan will focus on harvesters based in Placentia Bay that fish predominantly in Species Management Area (SMA) 10. This includes several hundred enterprises in the inshore <40 fleet and just under 100 enterprises that belong to the supplementary crab fleet. Both of these fleets fish predominantly in Area 10. However, the supplementary fleet also has a small quota of 2,400 lbs per license in Area 11 (South). Under the Enterprise Retirement Plan, the entire Core enterprise will be retired. In short, this means that all groundfish licenses, crab licenses and vessel registrations that are attached to the enterprise will be removed from the fishery. Other licenses, such as lobster, herring, and scallop, can be retained by the enterprise owner for a period of 24 months so as to facilitate the potential sale of these licenses to other harvesters. If the retiring enterprise owner does not reissue/transfer these licenses within 24 months, they would be revoked. The Plan is focused on fishing enterprises and not licenses. A participating combined enterprise would result in two licenses being removed from the fishery. A combined enterprise cannot retire one license and retain another. 2 Close to one-quarter of the harvesting capacity in the lobster fishery in the western portion of Subdivision 3Ps (i.e. LFA 11) was retired under the LERP over the 2011 to 2014 period at an average cost of $77,000 per enterprise. 3

5 License Holders in 3Ps and Placentia Bay Fisheries and Oceans Canada (DFO) data indicates that there are currently 448 crab enterprises in Subdivision 3Ps with a total of 597 licenses. There are 161 combined (i.e. two licences) enterprises licenses and 287 single licence enterprises. The majority (i.e. approximately two-thirds) of the Subdivision 3Ps crab licenses are located in Area of the 448 licenses. No information is available on the number of combined enterprises in Placentia Bay. But, given that the area accounts for 67% of all active crab enterprises, there are likely between 90 and 110 combined enterprises in this geographic area. The 3Ps Income Improvement/Enterprise Retirement Board A 3Ps Income Improvement/Enterprise Retirement Board will be established to oversee the enterprise retirment program. The Board will be comprised of representatives from the Department of Fisheries and Oceans (DFO), the NL Department of Fisheries, Forestry and Agrifoods (DFFA), and the Fish Food and Allied Workers Union (FFAW-Unifor). The Board will have the following responsibilities: To establish criteria and guidelines for the purchase and retirement of fishing enterprises through a reverse auction process and based on the advice of the Harvester Working Groups. Schedule a series of reverse auction bidding rounds to establish the prices at which enterprise owners will be willing to sell their enterprises. Ensure that its activities are in compliance with federal and provincial funding agreements and financial administration acts. The Board will be established once the funding for the buyout is confirmed. Harvester Working Groups The Income Improvement/Retirement Board will receive assistance and advice from two Harvester Working Groups (HWGs). The HWGs will be established based on fleet. There will be one HWG for the Supplementary Fleet and one for the inshore <40 fleet. Representatives to the HWGs will be nominated by licence holders within the specific fleets. The HWGs will work with the Board to develop and provide advice on the guidelines for implementing the reverse auction process in their respective fleet groups. Information Sessions In partnership with the FFAW, meetings will be held with all harvesters holding crab and groundfish licenses in the Placentia Bay area prior to the commencement of the enterprise retirement process. The meetings will be held at various locations around Placentia Bay. At the meetings, the procedures for participating will be explained, as will the ultimate objectives of the project. Harvesters will be given an opportunity to ask questions. 4

6 The Reverse Auction Process The Enterprise Retirement Program will be conducted using a reverse auction bidding model. Under the reverse auction process, a call is issued to eligible harvesters to submit a bid for the dollar amount they would accept to retire their enterprise. One of the key responsibilities of the Income Improvement/Enterprise Retirement Board will be to assess the bid submissions and determine an appropriate value for an enterprise based on a variety of considerations. A bid that the Retirement Board views as appropriate will be accepted. Under the reverse auction model, it is anticipated that the Enterprise Retirement Plan will take at least two to three years to complete. It is expected that several rounds of bidding bids will have to be held in order for harvesters to adjust to the auction process. The reverse auction was used to deliver the Lobster Enterprise Retirement Program (LERP) and it was found to be extremely effective. This process empowers the harvester, as it allows him/her to honestly self-evaluate and engage with the Income Improvement/Retirement Board. It also moves away from the one size/cost fits all approach, whereby harvesters are given a take it-or-leave it fixed price. With the LERP, prices changed over time and it is expected that this trend will continue under the 3Ps Enterprise Retirement Plan. 4.0 Timelines, Budget, and Enterprise Viability Enterprise Viability The ultimate goal of the Enterprise Retirement Plan is to establish a fishery in Placentia Bay that is viable for those who remain as active fish harvesters. There is no specific definition of what constitutes viability; and viability will differ between harvesters and between fleets. However, ultimately, viability will be measured in terms of an improvement in overall enterprise revenue. In 2016, the landed value per crab license for the inshore <40 fleet in Area 10 was only $8,140 compared with an average landed value per license of $25,000 in This massive decline in revenue occurred despite the fact that the port price of crab increased by close to 50% (from $2.05 per lb. to $3.00 per lb.) between 2013 and Viability must be considered through a realistic lens, holistically, and with a view to the long term. In the case of the LERP, for example, harvester gross incomes in the program coverage area improved over a four year period by an average of close to 25%. This represents a realistic four-year goal for the 3Ps Income Improvement/Enterprise Retirement Plan. This program will not only support higher per license returns in crab and cod, but potentially in lobster. In the case of lobster, there are signs in recent years that the fishery is improving on the southeast tip of the Burin Peninsula. In 2015, the landed value per lobster license was the highest in several years, though the overall amount - $4500 remains very low. The results of the LERP were achieved through an overall reduction in capacity of 36%, which included an enterprise buyout and a lobster trap reduction program. A similar reduction will be required in Area 5

7 10 under the Income Improvement/Enterprise Retirement Plan. There are currently 300 active crab enterprises in Placentia Bay, including the inshore <40 fleet and the supplementary fleet. If program take-up approaches the 36% level, the number of crab allocations will be reduced to 191 allocations. Budget The total cost of the Income Improvement/Enterprise Retirement Plan will be dependent on the level of participation and the average price of the bids accepted by the Enterprise Retirement Board over several bidding rounds. For these reasons, program funding can be incremental over the duration of the plan. For program planning and budgeting purposes, the value of the average enterprise that will be retired under the proposed project has been set at 2.5 times the average value of the crab and cod quotas over the 2011 to 2015 period. In the case of the inshore <40 fleet, the assigned quota values for crab and cod are: Crab - $23,835 Cod - $11,417 Total - $35,253 x 250% = Estimated Average Value of $88,130. The Supplementary fleet is significantly different from the inshore <40 fleet. Vessels and investment in this fleet are larger, there are several crew per vessel, and, in general, there is a high capacity to catch larger quantities of fish. For the supplementary fleet, the quota values for crab and cod are: Crab - $150,073 Cod - $11,417 Total - $161,490 x 250% = Estimated Average Value of $403,725. The above noted figures represent estimates for budgetary purposes. The Income Improvement/Enterprise Retirement Board will oversee the review and acceptance of bids based on a determination of what constitutes a fair market value for the average enterprise within each of the targeted fleets. It is anticipated that interest in the retirement option will be higher within the inshore <40 fleet. The overall program target is to retire 110 enterprises, 90% of which will be inshore <40 enterprises. Given this, the total estimated program budget is $13,252,000 The request to fund this proposal is being made to both the Government of Newfoundland and Labrador and the Government of Canada. For both levels of government, there are financial incentives to participate. On the effectiveness of retirement programs as an instrument of public policy, a paper developed for the US Department of Commerce succinctly captured the expected benefits: Removing redundant capital with few alternatives for its redeployment accompanied by low opportunity costs leads to the faster removal of excess capacity. With fewer players remaining, there is the potential for cooperation to increase Those fishers remaining are those most committed to the fishery further strengthening incentives for cooperation. 6

8 A fishery that is mired in debt with no hope of viability runs the risk of turning against itself. The focus needs to be on improving harvester incomes in a practical and cost effective manner. The Income Improvement/Enterprise Retirement Program is a long term income improvement strategy. The purpose of this solution is to move away from temporary Band-Aid solutions. This proposal addresses the main issue under the control of the harvester excess capacity. A solution to that issue is a crucial step to improving incomes. A retirement program provides a fair approach to lift the incomes of all remaining harvesters in 3Ps without fundamentally altering the economics of the fishery in the area. A retirement program in rural NL also provides a local economic boost. The funds paid to harvesters are mostly spent locally, supporting local businesses. Overall, the benefits of the income improvement/enterprise retirement program will be spread out across regions and to the various orders of government.. As in the past, our request is that both orders of government cost-share the program on the 70/30 Federal-Provincial basis. Timelines The Income Improvement/Enterprise Retirement program must begin immediately. Harvesters in 3Ps can no longer endure the status quo with no plan for relief. Overall, it is anticipated that the Income Improvement/Enterprise Retirement Program will continue for a minimum of three years. Funding can be provided incrementally as the program progresses and year-over year funding levels can be adjusted accordingly. In the case of the LERP, all of the available funds were not required. The same result cannot be projected in this instance, but funding can be made available on a yearly basis to reflect the requirements and outcomes of the program. 5.0 Supporting Data 3Ps Cod Total Allowable Catch and Landings In 3Ps the cod resource, as it relates to landings, has been in near continuous decline since The 3Ps quota is shared with St. Pierre-Miquelon, with Canada retaining 84.4% of the overall TAC. The table below accounts only for the Canadian held quota. Since 2011, Canadian landings of cod in 3Ps have been less than half of the level. Year TAC 11,000 11,000 11, ,162 11,385 Landed 11,300 10,800 10,600 7,500 6,600 5, No data Percent Landed 103% 98% 96% 77% 68% 53% 41% 47% 50% No data 7

9 3Ps Inshore Cod Landings In 3Ps, the cod quota is shared between the offshore and inshore fleets and the above table includes both. In the division of the quota each year, the inshore receive 87.76% and the offshore receives the remaining 12.24%. The table below shows annual inshore quotas, the amount landed per year, and the percent of the TAC landed: Year Inshore 9,654 8,553 8,553 8,553 8,553 8,553 10,217 9,991 TAC Inshore 8,087 5,365 4,881 3,823 3,469 2,651 3,712 3,647 Landed Percent of TAC Landed 84% 63% 57% 45% 41% 31% 36% 36% The most recent stock reports for 3Ps cod suggest that the stock faces some significant challenges. The estimated mortality for the stock for the period average 0.65 (48% annual mortality), which is high given that less than half of the TAC was taken during this time period. According to the areas 2016 stock assessment, Recent trends in mean size and weight-at-age, fish condition, and age-atmaturity are at or near their lowest levels, indicating reduced productivity of this stock. This is consistent with broader ecosystem trends, which also suggest decreased productivity. The TAC has not been fully taken by both the inshore and offshore fleets for many years and has hovered around the 50% mark for the past four years. While the annual TACs still remain high, these have been set from assessments using a modeled estimate of stock biomass and applying a limit reference point that is less conservation-oriented than those applied to other cod stocks. FFAW-Unifor does not agree with this approach. The current TAC decisions ignore the negative signals coming for the cod survey and from inshore harvesters. Area 10 Cod <40 Fleet The equivalent of the area 10A for the cod fishery is the fixed gear <40 fleet. There are two sub-fleets within this group the <25 fleet and the fleet each of which have their own quota. We do not have historical quotas and landing rates for these sub-fleets, and both will be combined into a <40 category. The quota for area 10 is approximately 55% of the overall quota between area 10 and area 11. For the past several years, the area 10 quota has been growing, increasing by 18% since Year

10 Area 10 Quota The under <40 fleet receives approximately 73% of the inshore area 10 quota. This, too, has increased over time. Like crab, the problem with cod is not the quotas, it is the landings. The rate of landings has been poor for several years and has shown no sign of improving. Year Area 10 <40 quota (Total quota for area 10) (Total quota for Area 10) Area 10 <40 landed Percent of quota landed Unknown 81% 51% 55% 58% 68% 58% Unknown Starting in 2011, there was a noticeable drop in the amount of the cod quota landed. The decline has not been consistent, with catches improving noticeably in 2014 and then decreasing again in Supplementary Fleet - Cod Like the <40 fleet, the cod fishery for the Supplementary fleet has been inconsistent. For whatever reason, Supplementary fleet harvesters have no way of knowing whether the fishery will be strong one year to the next. Highlighting this inconsistency are the years 2013 to 2015, where the percent of the quota moved from an unsustainable 46% to an acceptable 79% and back to a difficult 58%. Year Area 10 quota Supplementary (Total quota for area 10) (Total quota for Area 10) 3 In 2015 DFO reporting changed. It no longer lists separate quotas or landings for <40 fleet. All cod landings in area 10 are lumped together under <65 fleet. 4 In 2015 DFO reporting changed. It no longer lists separate quotas or landings for <40 fleet. All cod landings in area 10 are lumped together under <65 fleet. 9

11 Area 10 Supplementary landed Percent of quota landed Unknown 101% 73% 63% 46% 79% 58% Unknown 3Ps Snow Crab Quotas and Landings Year TAC 3,245 4,385 5,280 6,205 7,027 6,467 6,467 5,577 4,299 Landings 3,963 4,524 5,559 6,035 6,716 6,225 6,047 4,904 2,540 Percent of TAC Landed 122% 103% 105% 97% 96% 96% 94% 88% 59% As the above table shows, between 2011 and 2015, the snow crab quota in 3Ps has declined by 39% while the landings have declined by 62%. Landings should correspond in a general way to the quota; in 3Ps in 2015 and 2016 this was not the case. 3Ps Snow Crab Catch Per Unit Effort The chart below sets out the catch per unit effort (CPUE) for 3Ps snow crab since CPUE is important, as it can be used to infer the abundance of the stock. In 2015, the CPUE in the 3Ps for snow crab was the lowest ever recorded for that fishery. 3PS SNOW CRAB CATCH PER UNIT EFFORT CPUE (kg./trap) Crab Recruitment The green on the charts are an indication of recruitment. Starting in 2013, there has been essentially no recruitment. This has continued through The 2016 Science Advisory Report summary states that in 3Ps, Overall recruitment has declined since 2009 to its lowest observed level. 10

12 According to the information in this chart, the immediate future of the snow crab fishery in 3Ps is not positive. The sudden decline in crab landings is reflected in the declines in landed value in Placentia Bay. In 2014, the average active enterprise in Placentia Bay had a landed value of snow crab of $51,152, which was a slight decrease from 2011 levels. This average includes all snow crab harvesters in Placentia Bay, mixing together larger and smaller vessels. In 2015, an active enterprise in Placentia Bay averaged $34,938 in snow crab landings a one year decline of 32%. Area 10A - Crab Area 10A comprises all of Placentia Bay. Most of the <40 fleet based on Placentia Bay fishes exclusively in Area 10A. For the crab fishery, there are two zones within 10A Inner and Outer. The Inner area is closer to shore while the Outer area is further out. As an incentive to fish in the Outer area, that area usually has a slightly higher per license quota. In 2015, there were 109 snow crab allocations in 10A Inner and 292 allocations in 10A Outer. 10A Quotas Year A allocation 12,158 12,158 10,942 8,794 6,156 (lbs) 11

13 There was a significant decline in the amount of crab landed in 2015 that far exceeded the reduction in quota levels. As the table below shows, until the end of 2014, harvesters in 10A caught essentially all of their per license quotas. In 2015 this trend stopped and the landings in 10A amounted to less than twothirds of the quota. In 2016, landings were approximately one-third of the quota. 10 A Landings Year A Inner (lbs) 11,671 11,428 10,387 5,608 2,031 Area 10 - Quota Value versus Landed Value The real impact of the decline in quota and landings is clear when the value of what is landed and not landed is considered. Historically, quotas have provided a reasonable expectation for what a harvester will catch during the year. When the annual minimum price is set for snow crab, harvesters can multiply this price against the size of their quota for an understanding of total landed value (and expected revenue). In snow crab, the minimum price has been increasing for the past five years. In 2012, the minimum price was $1.95 while in 2015 it was $2.45. This is an overall increase of 25.6%. This price increase over time should minimize the impact of declining quotas. In northern shrimp, for example, quotas have declined significantly but the per pound price increased by 86%, which made the northern shrimp fishery more profitable in a period of resource decline. In snow crab, the strong price would largely mitigate the declines in quota if harvesters were able to land their quota. Unfortunately, the difficulties with snow crab relate primarily to landings and not quotas. In 2015 and 2016, quotas are providing no indication of what the overall landed value will be; harvesters are thus expending significant effort to catch snow crab that does not seem to exist. These calculations only consider minimum price. Most harvesters receive above the minimum, so the landed value to the harvester would exceed the expected value of the quota using the minimum price. Year 2012 Price $ Price $ Price $ Price $ Price $ A Quota Value 10A Landed Value $23,708 $24,924 $25,166 $21,545 $18,468 $22,758 $23,427 $23,890 $13,739 $

14 Between 2012 and 2016 quotas declined in 10A by 49%. But due to increases in minimum prices, the expected value of a quota in 10A declined by 22%. During the same period of time, however, the actual landed value of a 10A quota declined by 73%. Supplementary Fleet Crab Quota The Supplementary fleet for snow crab is composed of vessels between 40 to 64 fleet in length. These are bigger vessels than those that fish for snow crab in 10A and are more expensive to maintain and operate. Unlike a smaller vessel in 10A that may have one additional crew member, boats in the Supplementary fleet have four or five crew, in addition to the captain, and must travel much further out to fish. The Supplementary fleet fishes in areas 10BCD, 10X, and 11S. There are 97 allocations for each area. Overall, the Supplementary fleet has access to much larger quotas of snow crab than the 10A fleet. As was noted in the previous paragraph, these vessels require more quota and higher landings to function so the quota differences are a necessity. Year Quota (lbs) 94,625 94,625 66,578 49,938 34,956 Supplementary Fleet Crab Landings As with snow crab harvesters in 10A, a decrease in landings is a much bigger concern than the decrease in quota. The three tables below show the per license amount landed and landing percentage for the three areas harvested by the Supplementary fleet in 3Ps. Year 2012 (82% landed) 2013 (81% landed) 2014 (83% landed) 2015 (58% landed) 2016 (43% landed) Total Landed (lbs) 77,956 76,331 55,530 28,976 15,041 Supplementary Fleet Quota Value versus Landed Value Year 2012 Price $ Price $ Price $ Price $ Price: $3.00 Total Quota Value Total Landed Value $158,348 $166,468 $153,130 $122,347 $104,868 $152,014 $156,479 $134,621 $70,991 $45,123 13

15 Consistent with the basic principle that price increases will offset quota reductions, the quota value for a Supplementary license was mitigated by rising prices over the past 4 year. Though quotas have dropped sharply from 2012 to % the value of the quotas fell by a less severe 34%. This is not the case for landed value. From 2012 to 2016, landed value for the Supplementary license dropped by 70%, which is an incredible loss for which there has been no mitigation. 14