Individual Fishing Quotas
Better Information Could Improve Program Management Gao ID: GAO-03-159 December 11, 2002To assist in deliberations on individual fishing quota (IFQ) programs, GAO determined (1) the extent of consolidation of quota holdings in three IFQ programs (Alaskan halibut and sablefish, wreckfish, and surfclam/ocean quahog); (2) the extent of foreign holdings of quota in these programs; and (3) the economic effect of the IFQ program on Alaskan halibut and sablefish processors.
All three IFQ programs have experienced some consolidation of quota holdings. Further, consolidation of surfclam and ocean quahog quota is greater than National Marine Fisheries Service (NMFS) data indicate, because different quota holders of record are often part of a single corporation or family business that, in effect, controls many holdings. Program rules may affect the extent of consolidation in each IFQ program. While the Alaskan halibut and sablefish program set specific and measurable quota limits, the surfclam/ocean quahog and wreckfish programs did not, relying instead on federal antitrust laws to determine whether any quota holdings are excessive. Without defined limits on the amount of quota an individual or entity can hold, it is difficult to determine if any holdings would be viewed as excessive. GAO did not identify any instances where foreign entities currently hold or control quota. While NMFS requires transfer applicants in the halibut and sablefish program to declare themselves to be U.S. citizens or U.S. entities, there is no similar requirement for the surfclam/ocean quahog and wreckfish programs. As a result, in these programs, the potential exists for the transfer of quota to foreign entities. The economic effects of the halibut and sablefish IFQ program are not uniform. Some processors were adversely affected by the IFQ program, while others benefited; however, it is difficult to quantify the actual effects. The only estimate of the program's economic effect on processors is a 2002 study commissioned by the state of Alaska. This study estimated that halibut processors experienced a 56 percent loss in gross operating margins. While GAO could not validate or replicate the study's results, its analysis of public data and the study's methodology raised several concerns about the reliability of the study's estimates. Also, the study did not take into account other factors that may affect profits, such as the diversity and value of other species processed.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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Report to the Chairman and Ranking Minority Member, Subcommittee on
Oceans, Atmosphere, and Fisheries, Committee on Commerce, Science, and
Transportation, U.S. Senate:
December 2002:
INDIVIDUAL FISHING QUOTAS:
Better Information Could Improve Program Management:
GAO-03-159:
GAO Highlights:
Highlights of GAO-03-159, a report to the Chairman and Ranking Minority
Member, Subcommittee on Oceans, Atmosphere, and Fisheries, Committee on
Commerce, Science, and Transportation, U.S. Senate:
December 2002:
INDIVIDUAL FISHING QUOTAS:
Better Information Could Improve Program Management:
Why GAO Did This Study:
To assist in deliberations on individual fishing quota (IFQ) programs,
GAO determined (1) the extent of consolidation of quota holdings in
three
IFQ programs (Alaskan halibut and sablefish, wreckfish, and surfclam/
ocean
quahog); (2) the extent of foreign holdings of quota in these programs;
and
(3) the economic effect of the IFQ program on Alaskan halibut and
sablefish
processors.
What GAO Found:
All three IFQ programs have experienced some consolidation of
quota holdings.
Further, consolidation of surfclam and ocean quahog quota is
greater than
National Marine Fisheries Service (NMFS) data indicate, because
different
quota holders of record are often part of a single corporation
or family
business that, in effect, controls many holdings.
Program rules may affect the extent of consolidation in each IFQ
program.
While the Alaskan halibut and sablefish program set specific and
measurable
quota limits, the surfclam/ocean quahog and wreckfish programs
did not,
relying instead on federal antitrust laws to determine whether
any quota
holdings are excessive. Without defined limits on the amount of
quota an
individual or entity can hold, it is difficult to determine if
any holdings
would be viewed as excessive.
GAO did not identify any instances where foreign entities
currently hold
or control quota. While NMFS requires transfer applicants
in the halibut
and sablefish program to declare themselves to be U.S.
citizens or U.S.
entities, there is no similar requirement for the surfclam/
ocean quahog
and wreckfish programs. As a result, in these programs,
the potential
exists for the transfer of quota to foreign entities.
The economic effects of the halibut and sablefish IFQ
program are not
uniform. Some processors were adversely affected by the
IFQ program,
while others benefited; however, it is difficult to
quantify the actual
effects. The only estimate of the program‘s economic
effect on processors
is a 2002 study commissioned by the state of Alaska.
This study estimated
that halibut processors experienced a 56 percent loss
in gross operating
margins. While GAO could not validate or replicate the
study‘s results,
its analysis of public data and the study‘s methodology
raised several
concerns about the reliability of the study‘s estimates.
Also, the study
did not take into account other factors that may affect
profits, such as
the diversity and value of other species processed.
Table: Fewer Surfclam Quota Holders Than NMFS Data Indicate:
[See PDF for image]
[End of table]
What GAO Recommends:
GAO recommends that the Secretary of Commerce require:
* the National Marine Fisheries Service to collect and
analyze information
on quota holders, including who actually controls the use
of the quota;
* the regional fishery management councils to define what
constitutes an
excessive share for a particular fishery in future IFQ
programs; and
* the National Marine Fisheries Service to provide guidance
to the regional
councils on the factors to consider when determining what
constitutes an
excessive share.
www.gao.gov/cgi-bin/getrpt?GAO-03-159.
To view the full report, including the scope and
methodology, click on
the link above. For more information, contact Barry Hill at
(202) 512-3841
or hillb@gao.gov or Keith Oleson at (415) 904-2218 or
olesonk @gao.gov.
Letter:
Results in Brief:
Background:
Consolidation of Quota Holdings Occurred in All Three IFQ Programs:
No Foreign-Owned Entities Currently Hold Quota:
Economic Effects on Halibut and Sablefish Processors Varied and Are
Difficult to Quantify:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I:
Appendix II:
Appendix III:
Appendix IV:
Appendix V:
Appendix VI:
Tables:
Table 1: Examples of IFQ Program Objectives:
Table 2: Summary of Quota Allocation and Accumulation Rules, by IFQ
Program:
Table 3: Halibut Buyers, by Category, 1995 and 1999:
Table 4: Changes in the Number of Plants Processing Halibut and
Sablefish, 1995 through 2001:
Table 5: Price Margins in Selected Pre-and Post-IFQ Years:
Table 6: Average Product Value Percentage, by Species, for Plants
Processing Halibut and Sablefish, 1994 and 2001:
Table 7: Alaskan Halibut and Sablefish Quota Holders, 1995 through
2001:
Table 8: Wreckfish Quota Holders, 1992 to 2002:
Table 9: Surfclam and Ocean Quahog Quota Holders, 1990 to 2002:
Table 10: Surfclam and Ocean Quahog Processors, 1990 and 2000:
Table 11: Largest Alaskan Halibut Ports, 1995 and 2001:
Table 12: Largest Alaskan Sablefish Ports, 1995 and 2001:
Figures:
Figure 1: Halibut Being Displayed:
Figure 2: Photograph of a Sablefish:
Figure 3: Drawing of a Wreckfish:
Figure 4: Drawing of a Surfclam:
Figure 5: Drawing of an Ocean Quahog:
Figure 6: Fewer Surfclam Quota Holders Than NMFS Data Indicate:
Figure 7: Fewer Ocean Quahog Quota Holders Than NMFS Data Indicate:
Figure 8: Fresh Halibut as a Percentage of Total Halibut Production,
1984 through 2001:
Figure 9: Ex-Vessel Halibut Prices, 1984 through 2001:
Figure 10: Map of Alaskan Ports and Major Transportation Networks:
Abbreviations:
IFQ: individual fishing quota:
NMFS: National Marine Fisheries Service:
NOAA: National Oceanic and Atmospheric Administration:
Letter:
December 11, 2002:
The Honorable John F. Kerry
Chairman
The Honorable Olympia J. Snowe
Ranking Minority Member
Subcommittee on Oceans, Atmosphere, and Fisheries
Committee on Commerce, Science, and Transportation
United States Senate:
Overfishing is a problem with far-reaching ecological and economic
consequences. When a fishery--one or more stocks of fish within a
geographic area--is unable to sustain itself, it transforms the marine
ecosystem and threatens the livelihood of many U.S. fishermen. About
35 percent of the U.S. fish stocks assessed by the Department of
Commerce‘s National Marine Fisheries Service (NMFS) are overfished or
will be overfished if conditions do not change. Furthermore, while the
domestic commercial fish catch in the United States remained relatively
the same in 2001 as it was in 1990, U.S. consumption of domestic and
imported fish increased by 13 percent.
Fishery management practices in U.S. waters are developed primarily by
regional fishery management councils established under the
Magnuson-Stevens Fishery Conservation and Management Act
(Magnuson-Stevens Act).[Footnote 1] Fishery management councils, under
the direction of NMFS, have used several types of controls to maintain
the health of a fishery. One set of controls focuses on the way fishing
is conducted, such as placing restrictions on gear (e.g., type and
amount), vessels (e.g., size), areas fished, times when fishing can
occur, or the number of people allowed to fish. Another set of controls
is designed to directly limit the amount of fish caught by setting
catch limits for the entire fishery or for specific vessels, owners, or
operators. In some instances, councils may use both types of controls.
These efforts have sometimes had unintended consequences: fishermen
used larger vessels and more gear to catch the same amount of fish, and
fishing conditions became unsafe when fishermen raced to catch as much
fish as they could within the time period allowed. Such outcomes have
led to the search for innovative fishery management tools that balance
the competing interests of those who depend on fishing for their
livelihoods and the health of the fish stock.
In 1990, NMFS started using individual fishing quotas (IFQ), a
conservation and management tool that sets catch limits for individual
vessel owners or operators. Under an IFQ program, a regional fishery
management council sets a maximum, or total allowable catch, in a
particular fishery--typically for a year--based on stock assessments
and other indicators of biological productivity, and it allocates the
privilege to harvest a certain portion of the catch in the form of
quota to eligible vessels, fishermen, or other recipients. These quota
holders may then fish their quota or lease, sell, or otherwise transfer
their quota according to program rules. These rules must be consistent
with U.S. law and regulations. For example, among other things, the
Magnuson-Stevens Act prohibits any entity from holding an excessive
share of quota in any particular fishery. In addition, the implementing
regulations of each program, in effect, generally preclude foreign
individuals or entities from holding quota.
At the time of our review, NMFS had implemented three IFQ programs:
(1) the Alaskan halibut and sablefish (black cod) program in 1995, (2)
the South Atlantic wreckfish (snapper-grouper complex) program in 1992,
and (3) the Mid-Atlantic surfclam/ocean quahog program in 1990. In
addition, IFQ programs are being considered for several fisheries, such
as the Bering Sea crab, the Gulf of Alaska groundfish (e.g., pollock,
cod, and sole), and the Gulf of Mexico red snapper.
IFQ programs have achieved many of the desired conservation and
management benefits, such as helping to stabilize fisheries, reducing
excessive investment in fishing capacity, and improving safety.
However, they have also raised concerns about the fairness of quota
allocations, the potential for quota consolidation among a few holders,
and the economic effects of IFQ programs on the fishing industry and
fishing communities. Responding to these concerns, Congress, through
the Sustainable Fisheries Act of 1996, placed a moratorium on new IFQ
programs. Congress later extended the moratorium through September 30,
2002, and then allowed it to expire.
To assist in deliberations on IFQ programs, you asked us to determine
(1) the extent of consolidation of quota holdings, (2) the extent of
foreign holdings of quota, and (3) the economic effect of IFQ programs
on seafood processors. Regarding the economic effect on processors, we
limited our review to the Alaskan halibut and sablefish processors
because few of these processors were eligible to hold quota under the
provisions of the Alaskan IFQ program. In contrast, processors could
hold quota under the surfclam/ocean quahog program, and most of the
wreckfish quota was not being fished. See appendix I for additional
details on our scope and methodology.
Results in Brief:
All three IFQ programs have experienced some consolidation of quota
holdings, and the extent of this consolidation may be affected by each
program‘s governing rules. According to NMFS data, from 1995 through
2001, the number of halibut and sablefish quota holders decreased by
about 27 and 15 percent, respectively. From 1992 to 2002, the number of
wreckfish quota holders decreased by 49 percent. From 1990 to 2002, the
number of surfclam and ocean quahog quota holders decreased by about 17
and 34 percent, respectively. According to our analysis, however,
consolidation of surfclam and ocean quahog quota is greater than NMFS
data indicate, because different quota holders of record are often part
of a single corporation or family business that, in effect, controls
many holdings. For example, for 2002, we determined that consolidation
of quota in the surfclam program was about twice that indicated by NMFS
data and that one entity alone controlled at least 27 percent of the
quota. Program rules may affect the extent of consolidation and the
information collected in each IFQ program. In particular, the Alaskan
halibut and sablefish program has specific and measurable limits on how
much quota any one individual or entity can hold. Limits on individual
halibut quota holdings, for example, range from 0.5 percent to
1.5 percent, depending on the fishing area, and sablefish holdings are
limited to 1 percent. In contrast, the surfclam/ocean quahog and
wreckfish programs have no specific and measurable limits on quota
holdings, relying instead on federal antitrust laws to determine
whether any quota holdings are excessive. As a result, NMFS does not
routinely gather and assess information on who controls the use of the
surfclam/ocean quahog and wreckfish quota. Furthermore, without defined
limits set by the councils on the amount of quota an individual or
entity can hold, it is difficult to determine whether any quota
holdings in a particular fishery would be viewed as excessive, as
prohibited by the Magnuson-Stevens Act.
We did not identify any instances where foreign entities currently hold
or control quota. In the surfclam/ocean quahog program, however, a
U.S. member firm of a foreign business that provides financial services
recently held quota while acting as a transfer agent in the sale of the
quota, but it did not control the use of the quota. In addition, two
surfclam/ocean quahog processors owned by foreign companies controlled
the use of quota. In one case, a subsidiary of one foreign-owned
company received quota; however, foreign control of the quota ended
when a group of Americans bought out the foreign owners. In the other
case, a foreign-owned company sold its fishing vessels with qualifying
catch histories to an individual qualified to receive quota in exchange
for control over the quota use; control of the quota remained with the
foreign-owned processing company until the processing company was sold
to a U.S.-owned firm. The implementing regulations of each program, in
effect, generally preclude foreign entities from holding quota. The
Alaskan halibut and sablefish program explicitly prohibits foreign
citizens and businesses from holding quota and requires all quota
transfer applicants to declare themselves to be U.S. citizens or U.S.
entities. In contrast, the surfclam/ocean quahog and wreckfish programs
tie eligibility for holding quota to the requirements for owning a
U.S.-documented vessel engaged in the fisheries of the United States,
that is, being a U.S. citizen or an entity 75 percent owned and
controlled by U.S. citizens. However, these two programs do not require
quota holders or transfer applicants to declare that they are U.S.
citizens or U.S. entities. As a result, the potential exists for the
transfer of surfclam, ocean quahog, and wreckfish quota to foreign
entities.
The economic effects of the halibut and sablefish IFQ program are not
uniform. Some processors were adversely affected by the implementation
of the program, while others benefited. It is difficult, however, to
quantify the actual effects. With respect to halibut, in particular,
the IFQ program extended the fishing season from a ’race for fish“ of a
few days to a season of 8 months. This resulted in a significant
increase in the fresh halibut market for some processors and a
corresponding decrease in the frozen halibut market for others.
Sablefish did not undergo a similar market change and remained
primarily a frozen product sold in the Asian market. While we can
determine some general effects on processors, information is not
available to precisely quantify these effects. The only estimate of
the IFQ program‘s economic effect on processors is a 2002 study
commissioned by the state of Alaska. The study concluded that
processors were hurt significantly by the IFQ program and estimated
that halibut processors, for example, experienced a 56 percent
($8.7 million) loss in gross operating margins. However, we could not
validate or replicate the study‘s results, because we did not have
access to the proprietary data used. Nonetheless, our analysis of
available public data and the methodology used in the study, as well as
the analyses of others, raised several concerns about the reliability
of the study‘s estimates. For example, the study used pre-IFQ processor
margins for 1992-1993--a time period where, coincidentally, there was a
dip in halibut prices--and, therefore, a comparison with post-IFQ
margins may indicate greater economic losses to processors than would
be indicated if different base years were used. Also, the study did not
take into account other factors that may affect profits, such as the
diversity and value of other species processed.
We are making several recommendations to the Secretary of Commerce to
collect and analyze information on quota holders, require regional
fishery management councils to define what constitutes an excessive
share for the fishery in future IFQ programs, and provide guidance to
the councils on the factors to consider when determining what
constitutes an excessive share. In commenting on a draft of this
report, the department agreed in principle with our recommendations to
collect and analyze information on quota holders and to provide
guidance for setting limits on quota holdings in future programs. The
department, however, disagreed with our recommendation to set limits on
the amount of quota an individual or entity may hold in future IFQ
programs, stating that such limits might be warranted and necessary in
certain cases, but not in all IFQ programs. The Magnuson-Stevens Act
clearly mandates that new IFQ programs prevent any person from
acquiring an excessive share of quota. We agree that market performance
and other issues should be considered and did not mean to imply
otherwise. We continue to believe that without a specific and
measurable definition, it would be difficult for the councils and NMFS
to know whether any quota holding could be viewed as excessive. We have
revised our recommendations to reflect the full range of considerations
that need to be taken into account when defining what constitutes an
excessive share and to focus on the need to provide guidance for making
this determination in future programs.
Background:
The Magnuson-Stevens Act granted responsibility for managing
marine resources to the Secretary of Commerce. The Secretary delegated
this responsibility to NMFS, which is part of Commerce‘s National
Oceanic and Atmospheric Administration (NOAA). The act established
eight regional fishery management councils, each with responsibility
for making recommendations to the Secretary of Commerce about
management plans for fisheries in federal waters. The eight councils--
consisting of fishing industry participants, state and federal fishery
managers, and other interested parties--and their areas of
responsibility are New England covering waters off Maine, New
Hampshire, Massachusetts, Rhode Island, and Connecticut; Mid-Atlantic
covering waters off New York, New Jersey, Delaware, Maryland, Virginia,
and North Carolina; South Atlantic covering waters off North Carolina,
South Carolina, Georgia, and the east coast of Florida; Gulf of Mexico
covering waters off Texas, Louisiana, Mississippi, Alabama, and the
west coast of Florida; Caribbean covering waters off the U.S. Virgin
Islands and the Commonwealth of Puerto Rico; Pacific covering waters
off California, Oregon, and Washington; North Pacific covering waters
off Alaska; and Western Pacific covering waters off Hawaii, American
Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and
uninhabited U.S. territories in the Western Pacific.
The Magnuson-Stevens Act also established national standards for
fishery conservation and management. These standards deal with
preventing overfishing, using scientific information, ensuring the
equitable allocation of fishing privileges, preventing excessive
accumulation of quota, using fishery resources efficiently, minimizing
bycatch,[Footnote 2] minimizing administrative costs, promoting safety
at sea, and considering the importance of fishery resources to fishing
communities. The regional councils use these standards to guide their
development of plans that are appropriate to the conservation and
management of a fishery, including measures to prevent overfishing and
rebuild overfished stocks and to protect, restore, and promote the
long-term health and stability of the fishery. These measures may
include, for example, requiring permits for fishery participants,
designating fishing zones, establishing catch limits, prohibiting or
limiting the use of fishing gear and fishing vessels, and establishing
a limited access system.
Under the Magnuson-Stevens Act, three regional councils (North Pacific,
South Atlantic, and Mid-Atlantic) have developed IFQ programs to manage
the halibut and sablefish, wreckfish, and surfclam/ocean quahog
fisheries, respectively. Each IFQ program is designed individually,
because the characteristics of each fishery differ.
Pacific halibut (see fig. 1) and sablefish (see fig. 2) are bottom-
dwelling species found off the coast of Alaska, among other areas.
Halibut weigh about 40 pounds, on average, and are found at depths of
about 50 to 650 feet. Sablefish weigh less than 11 pounds, on average,
and are found at depths of about 325 to 4,925 feet. The halibut and
sablefish fishing fleets are primarily owner-operated vessels of
various lengths that use hook-and-line gear to fish for halibut and
hook-and-line and pot gear for sablefish. Some vessels catch both
halibut and sablefish, and, given the location of both species, they
are often caught as bycatch of the other. Halibut are primarily sold
domestically as a fresh or frozen product, and sablefish are primarily
sold to the Asian market as a frozen product. In 2001, the total
halibut and sablefish catch was 45.2 million pounds and 21.7 million
pounds, respectively.
Figure 1: Halibut Being Displayed:
[See PDF for image]
[End of figure]
Figure 2: Photograph of a Sablefish:
[See PDF for image]
[End of figure]
Wreckfish (see fig. 3) are found in the deep waters far off the South
Atlantic coast, primarily from Florida to South Carolina. They were
first discovered in the southern Atlantic in the early 1980s by a
fisherman recovering lost gear. Wreckfish are fished using specialized
gear by vessels over 50 feet in length that are used primarily in other
fisheries. The fishing fleet is small, with only three vessels
reporting wreckfish landings totaling about 168,000 pounds--or about
8 percent of the total allowable catch--in 2000. Wreckfish are sold
fresh or frozen as a market substitute for snapper and grouper.
Figure 3: Drawing of a Wreckfish:
[See PDF for image]
[End of figure]
Surfclams (see fig. 4) and ocean quahogs (see fig. 5) are mollusks
found along the East Coast, primarily from Maine to Virginia, with
commercial concentrations found off the Mid-Atlantic states. While
ocean quahogs are found farther offshore than surfclams, the same
vessels are largely used in each fishery. These vessels pump water down
to the ocean floor to raise the mollusks and then catch them in a
dredge that runs over the bottom. Surfclams and ocean quahogs are
processed into strips, juice, soup, chowder, and sauce. They must be
processed generally within 24 hours of harvest or they will spoil. In
2000, the surfclam/ocean quahog fishery harvested 2.6 million bushels
of surfclams and 3.2 million bushels of ocean quahogs.
Figure 4: Drawing of a Surfclam:
[See PDF for image]
[End of figure]
Figure 5: Drawing of an Ocean Quahog:
[See PDF for image]
[End of figure]
When designing the IFQ programs, each regional council set out specific
objectives for improving conservation and management in their
respective fisheries. These objectives differed for each program, as
shown in table 1, depending on the desired biological, social, and
economic outcomes for the fishery.
Table 1: Examples of IFQ Program Objectives:
Objective: Reduce overcapitalization; Halibut/ sablefish: X;
Wreckfish: X; Surfclam/
ocean quahog: [A].
Objective: Maximize efficiencies; Halibut/ sablefish: [Empty];
Wreckfish: [Empty]; Surfclam/
ocean quahog: X.
Objective: Stabilize fishery; Halibut/ sablefish: X; Wreckfish: X;
Surfclam/
ocean quahog: [Empty].
Objective: Conserve resource; Halibut/ sablefish: [A]; Wreckfish: X;
Surfclam/
ocean quahog: X.
Objective: Improve safety; Halibut/ sablefish: X; Wreckfish: [Empty];
Surfclam/
ocean quahog: [A].
Objective: Simplify regulation; Halibut/ sablefish: [Empty];
Wreckfish: [Empty]; Surfclam/
ocean quahog: X.
Objective: Protect fishing participants; Halibut/ sablefish: X;
Wreckfish: [Empty]; Surfclam/
ocean quahog: [Empty].
[A] While not specified as an official objective, this outcome is
important to the program.
Source: NMFS and the National Research Council.
[End of table]
When designing the IFQ programs, each of the respective regional
councils also set out who was eligible to receive quota under the
initial allocation (see table 2). The regional councils based
eligibility and amount of quota to be received on, among other things,
ownership and catch history of the vessels that participated during a
portion of a set of qualifying years. Some halibut, sablefish,
surfclam, and ocean quahog processors owned fishing vessels with a
catch history during the IFQ programs‘ qualifying years, and therefore
received quota under the initial allocation.
Table 2: Summary of Quota Allocation and Accumulation Rules, by IFQ
Program:
Rule: Initial allocation based on historical catch; Halibut/ sablefish:
X
; Wreckfish: X
; Surfclam/
ocean quahog: X
.
Rule: Initial allocation based on vessel size; Halibut/ sablefish:
[Empty]; Wreckfish: [Empty]; Surfclam/
ocean quahog: X
.
Rule: Quota divided by geographic areas; Halibut/ sablefish: X
; Wreckfish: [Empty]; Surfclam/
ocean quahog: [Empty].
Rule: Specific caps on initial allocation; Halibut/ sablefish: [Empty];
Wreckfish: X
; Surfclam/
ocean quahog: [Empty].
Rule: Specific caps on quota accumulation; Halibut/ sablefish: X
; Wreckfish: [Empty]; Surfclam/
ocean quahog: [Empty].
Source: NMFS and the National Research Council.
[End of table]
Consolidation of Quota Holdings Occurred in All Three IFQ Programs:
Consolidation of quota holdings occurred in all three IFQ programs,
with much of it occurring in the early years of each program. In
addition, consolidation of surfclam and ocean quahog quota is greater
than NMFS data indicate. The governing rules of each program may have
affected the extent of consolidation and the information collected.
However, without clear and accurate data on quota holders and fishery-
specific limits on quota holdings, it is difficult to determine whether
any quota holdings in a particular fishery would be viewed as
excessive, as prohibited by the Magnuson-Stevens Act.
Much of the Consolidation Occurred in Early Program Years:
According to our analysis of NMFS data, from 1995 through 2001, the
number of halibut and sablefish quota holders decreased by about 27 and
15 percent, respectively. Over 46 percent of the halibut consolidation
and 35 percent of the sablefish consolidation occurred by the end of
the second year of the program. From 1992 to 2002, the number of
wreckfish quota holders decreased by 49 percent, with all of the
consolidation occurring by the end of the program‘s third
year.[Footnote 3] Finally, from 1990 to 2002, the number of surfclam
and ocean quahog quota holders decreased by about 17 and 34 percent,
respectively. About 58 percent of the surfclam quota consolidation and
36 percent of the ocean quahog quota consolidation occurred by the
start of the second year of the program. (See app. II for additional
data on changes in quota holdings.):
Consolidation of Surfclam and Ocean Quahog Quota Is Greater Than NMFS
Data Indicate:
Surfclam and ocean quahog quota consolidation is greater than NMFS data
indicate. According to NMFS officials and others knowledgeable about
the fishery, the quota holder of record (i.e., the individual or entity
under whose name the quota is listed) is often not the entity that
controls the use of the quota. Some families hold quota under the names
of more than one family member; some parent corporations hold quota
under the names of one or more subsidiaries; some entities hold quota
under the name of one or more incorporated vessels; and some financial
institutions serve as transfer agents and hold quota on behalf of
others or in lieu of collateral for loans.
After aggregating quota controlled by the same individual or entities,
we determined that consolidation of surfclam quota holders was about
twice that indicated by NMFS data. As shown in figure 6, no more than
59 and 42 individuals or entities controlled surfclam quota in 1990 and
2002, respectively. One entity controlled quota held in 12 different
names, accounting for 27 percent of the 2002 total surfclam quota
allocated.
Figure 6: Fewer Surfclam Quota Holders Than NMFS Data Indicate:
[See PDF for image]
[End of figure]
Similarly, consolidation of ocean quahog quota holders was about twice
that indicated by NMFS data. As shown in figure 7, no more than 48 and
29 individuals or entities controlled ocean quahog quota in 1990 and
2002, respectively. One entity controlled quota held in 2 different
names, representing 22 percent of the 2002 total ocean quahog quota
allocated. (See app. III for information on consolidation in the
surfclam and ocean quahog processing sector.):
Figure 7: Fewer Ocean Quahog Quota Holders Than NMFS Data Indicate:
[See PDF for image]
[End of figure]
The consolidation of surfclam and ocean quahog quota may be even
greater than our analysis indicates because we could not determine the
individuals or entities for whom banks hold quota.[Footnote 4]
According to NMFS data, banks hold about 21 percent of the 2002
surfclam quota and 27 percent of the 2002 ocean quahog quota. However,
we could not determine for whom the banks hold the quota and thus who
controls the use of the quota. NMFS officials stated that, in theory,
they had the ability to identify the individuals or entities for whom
the banks hold quota. They explained, however, that such an analysis
would be extremely difficult and labor-intensive because their record
system is not designed for this purpose. As such, NMFS did not provide
us with this information.
Program Rules May Affect the Extent of Consolidation and Information
Collected:
Each program‘s governing rules may have affected the extent of
consolidation and the information NMFS collects and monitors on quota
holders. To help meet the Magnuson-Stevens Act‘s prohibition of any
individual or entity acquiring an excessive share of the fishery, the
regional fishery management councils may establish limits on the amount
of quota any individual or entity can hold. In the Alaskan halibut and
sablefish program, for example, the council set specific limits on
individual holdings by, among others, species and area.[Footnote 5]
Limits on individual halibut quota holdings, for example, range from
0.5 percent to 1.5 percent, depending on the fishing area, and
sablefish holdings are limited to 1 percent. NMFS collects the
information needed to monitor and ensure adherence to these
requirements. NMFS requires halibut and sablefish transfer applicants
to identify whether they are individuals or business entities. Business
entities must also report their ownership interests at least annually.
NMFS uses this information to ensure that all potential transfers and
all current quota holdings comply with program rules. NMFS conducts
computer checks on each transfer request to ensure that the transfer
will not result in any entity, whether individually or collectively,
exceeding the limits for quota holdings.
In contrast, the regional fishery councils for the surfclam/ocean
quahog and wreckfish programs did not set specific and measurable
limits on the individual accumulation of quota. Instead, the councils
let federal antitrust laws determine whether any quota holdings are
excessive. However, NMFS officials explained that the Department of
Justice would most likely base a decision for taking an antitrust
action on whether or not an individual or entity could fix the price of
fish, rather than the amount of quota an individual or entity held.
Further, NMFS officials said that they have never referred such a case
to the Department of Justice.
The National Research Council pointed out in its 1999 study that ’[a]
lack of accumulation limits may unduly strengthen the market power of
some quota holders and adversely affect wages and working conditions of
labor in the fishing industry...“[Footnote 6] Establishing limits,
however, is not an easy task. Program objectives and the political,
economic, and social characteristics of each fishery may influence each
council‘s definition of what limits should be placed on an individual‘s
or entity‘s quota holdings. In addition, fishery participants have
different opinions on what these limits should be.
Because the surfclam/ocean quahog and wreckfish programs have no
specific limits on the amount of quota any one individual or entity can
hold, NMFS does not routinely gather and assess information on the
ownership interest of each quota holder. For example, NMFS requires
transfer applicants in the surfclam/ocean quahog program to submit
identifying information, including the name of the quota holder, the
name of the related vessel, and the contact information for the quota
holder. However, NMFS does not verify this information or require
transfer applicants or quota holders to submit any information
detailing ownership interest or eligibility. Further, NMFS does not
conduct any assessment of the amount of quota held or controlled by an
individual or entity, and NMFS records are not kept in a manner that
would readily allow such an assessment. As such, it is difficult to
determine how much quota any one individual or entity controls.
Moreover, lacking specific limits on quota holdings, we could not
determine if any individual‘s or entity‘s holdings in either the
surfclam/ocean quahog or the wreckfish programs would be viewed as
excessive for the fishery, as prohibited by the Magnuson-Stevens Act.
No Foreign-Owned Entities Currently Hold Quota:
We found no evidence that foreign entities currently hold or control
quota in the three IFQ programs. Furthermore, industry participants and
NMFS officials said that they did not know of any cases in which a
foreign entity has been able to acquire quota in either the halibut and
sablefish or the wreckfish IFQ programs. However, some foreign-owned
entities have held or controlled quota in the surfclam/ocean quahog
program, as the following examples show.
* A U.S. member firm of a foreign business that provides financial
services held about 6 percent of the surfclam quota in 2002 while
acting as a transfer agent in the sale of the quota. According to a
representative of the firm, only the buyer and the seller controlled
the quota and the fishing of the quota. When the sale was finalized in
the spring of 2002, the quota was released to the buyer. The firm no
longer holds quota in the fishery.
* A foreign-owned processing company once controlled about 7 percent of
the surfclam and ocean quahog quota through its U.S. subsidiary.
Foreign control of the quota ended when a group of fishery participants
bought out the foreign interest in the processing company.
* On the eve of the implementation of the IFQ program, a foreign-owned
processing company sold its fishing vessels with qualifying catch
histories to a U.S. citizen eligible to hold quota. This individual
then received the quota for these vessels--nearly one-fourth of the
quota allocated under the initial allocation.[Footnote 7] However,
control of the quota remained with the foreign-owned processing company
until the processing company was sold to a U.S.-owned firm.
The implementing regulations of each IFQ program, in effect, generally
preclude foreign entities from holding quota. The Alaskan halibut and
sablefish program explicitly prohibits foreign citizens and businesses
from holding quota and requires all quota transfer applicants to
declare themselves to be U.S. citizens or U.S. entities. In contrast,
the surfclam/ocean quahog and wreckfish programs allocate quota to
qualified ’persons,“ defined as U.S. citizens, and tie eligibility for
holding quota to the requirements for owning a U.S.-documented vessel
engaged in the fisheries of the United States, that is, being a
U.S. citizen or in the case of a corporate owner being 75 percent owned
and controlled by U.S. citizens. However, these two programs do not
require quota holders or transfer applicants to declare that they are
U.S. citizens or U.S. entities. In addition, NMFS officials overseeing
the wreckfish program told us that they consider the U.S. Coast Guard‘s
approval of fishing vessel permits to be sufficient for determining
eligibility to hold quota, because only vessels owned by U.S. citizens
and U.S. companies are eligible for documentation as a U.S. fishing
vessel. This procedure may be sufficient when a transfer applicant owns
a permitted fishing vessel and applies for quota under the name used to
document the vessel. However, an applicant who does not own such a
vessel will never go through the Coast Guard verification process,
because after the initial allocation, quota can be transferred to, and
held by, nonvessel owners. Without information on the nationality or
ownership of the quota holder, the potential exists for the transfer of
surfclam, ocean quahog, and wreckfish quota to foreign entities.
Economic Effects on Halibut and Sablefish Processors Varied and Are
Difficult to Quantify:
Some processors were adversely affected by the implementation of the
halibut and sablefish IFQ program while others benefited. However,
quantifying the economic effects of the IFQ program on processors is
difficult because much of the data needed to measure changes in
profitability are proprietary. Furthermore, other factors besides the
IFQ program may lead to changes in processors‘ economic situation.
IFQ Program Resulted in Changes That Harmed Some Processors and
Benefited Others:
The IFQ program changed the environment in which traditional
shore-based processors operated by extending the halibut and sablefish
fishing seasons in some areas from several days to 8 months. Before the
IFQ program was implemented, fishermen had just a few days to fish the
total allowable catch for the year. Consequently, fishermen provided
processors with large amounts of fish in a very short period of time,
and processors organized their operations to process under these
conditions. With the implementation of the IFQ program, the ’race for
fish“ was eliminated because fishermen had more flexibility in choosing
when to fish, and, as a result, processors received halibut and
sablefish in smaller quantities over a longer period of time. This
extended fishing season enabled more halibut to be processed and sold
as a fresh product. Consequently, the fresh halibut market, as shown in
figure 8, increased from 15 percent of the total halibut market in 1994
to 46 percent in 2001. Sablefish was not similarly affected, remaining
primarily a frozen product that is shipped to and sold in the Asian
market.
Figure 8: Fresh Halibut as a Percentage of Total Halibut Production,
1984 through 2001:
[See PDF for image]
[End of figure]
To take advantage of the fresh market and its potential for higher
wholesale prices, processors need ready access to highways and air
transportation. As such, processors with access to transportation
systems may have been competitively advantaged while those who were in
more remote locations may have been competitively disadvantaged because
transportation costs were higher. For example, one processor estimated
that the cost to transport fresh product from Kodiak Island, Alaska, to
Seattle, Washington, was about 20 cents a pound higher than from Seward
or Homer, Alaska, which has ready access to a major road system. (See
app. IV for more information on Alaskan ports and major transportation
networks.) Also, processors located near services, such as fuel, ice,
stores, and entertainment, said that fishermen were more willing to
deliver fish to them than if these services were not available.
The shift toward fresh product in the halibut market resulting from the
IFQ program led to the emergence of the buyer-broker, a middleman who
buys fish at a port and ships it fresh to market. Processors told us
that the emergence of buyer-brokers, generally one-person operations
with lower overhead costs, resulted in increased competition for fish
and contributed to the increase in ex-vessel halibut prices (prices
paid to fishermen for raw product). As shown in table 3, the percentage
of halibut purchased by buyer-brokers increased from 3.7 in 1995 to
17.4 in 1999.
Table 3: Halibut Buyers, by Category, 1995 and 1999:
Category: Buyer-broker; [Empty]; Percent of halibut purchased: 1995[A]:
3.7; Percent of halibut purchased: [Empty]; Percent of halibut
purchased: 1999[B]: 17.4.
Category: Shore-based processors; [Empty]; Percent of halibut
purchased: 1995[A]: 84.9; Percent of halibut purchased: [Empty];
Percent of halibut purchased: 1999[B]: 73.8.
Category: Other; [Empty]; Percent of halibut purchased: 1995[A]: 11.4;
Percent of halibut purchased: [Empty]; Percent of halibut purchased:
1999[B]: 8.8.
Category: Total; [Empty]; Percent of halibut purchased: 1995[A]: 100.0;
Percent of halibut purchased: [Empty]; Percent of halibut purchased:
1999[B]: 100.0.
[A] 1995 was the earliest year for which NMFS data were available. :
[B] 1999 was the latest year we could analyze because, starting in
2000, buyers could identify themselves in multiple categories.
Source: NMFS.
[End of table]
Along with an increase in buyer-broker halibut purchases, there was a
decrease in the number of individual shore-based plants that processed
halibut and sablefish. While some plants stopped processing halibut and
sablefish, others decided it was beneficial to start. Between 1995 and
2001, as shown in table 4, 68 plants stopped processing halibut and 56
started, resulting in a net decrease of 12 plants. Similarly, 54 plants
stopped processing sablefish and 40 started, resulting in a net decline
of 14 plants.
Table 4: Changes in the Number of Plants Processing Halibut and
Sablefish, 1995 through 2001:
Plant status: Processing in 1995[A]; Halibut: 84; Sablefish: 57.
Plant status: Stopped processing between 1995 and 2001; Halibut: (68);
Sablefish: (54).
Plant status: Started processing between 1995 and 2001; Halibut: 56;
Sablefish: 40.
Plant status: Processing in 2001; Halibut: 72; Sablefish: 43.
[A] 1995 was the earliest year for which NMFS data were available.
Source: GAO‘s analysis of NMFS data.
[End of table]
Most of the shore-based plants that stopped or started processing were
relatively small in comparison to other processors in that they
purchased less than 100,000 pounds of halibut or sablefish annually.
About 80 percent of the shore-based plants that stopped processing
halibut and 75 percent of those that started purchased less than
100,000 pounds of fish. Similarly, about 81 percent of the plants that
stopped processing sablefish and 70 percent of those that started were
also small plants.
The IFQ program, however, did not necessarily cause a plant to stop
processing halibut or sablefish. According to industry and government
officials, some plants stopped processing halibut or sablefish because
the plant was sold to another processor, the plant closed for personal
reasons, plant management made poor business decisions that were
unrelated to the IFQ program, or the plant burned down. For example:
* One processor with a freezing operation bought halibut and sablefish,
but it primarily bought and sold salmon off trollers. When the supply
of farmed salmon increased, contributing to price decreases, the owners
decided to sell the plant.
* One company that owned several plants consolidated its halibut
production under fewer plants.
* One plant went out of business because its owner paid too much for
fish--10 to 15 cents a pound more than others--and then resold it for
less than he paid.
* One plant burned down and the processor now uses the site to offload
fish from vessels and then transport it to another site for processing.
In addition to changes in the number of plants processing halibut and
sablefish, companies experienced some change in their market
share.[Footnote 8] Some processing companies lost market share, while
others gained market share. Comparing market shares for 1995 and 2001,
we found that of 28 companies that processed halibut in 1995, 15
experienced a decrease in market share and 13 experienced an increase.
Similarly, of the 17 companies that processed sablefish in 1995, 7
experienced a decrease in market share while 10 experienced an
increase.
State of Alaska Study Found Processors Hurt by IFQ Program, but Results
Cannot Be Validated:
To determine the IFQ program‘s effect on processors, Alaska‘s
Department of Fish and Game commissioned a study to examine how halibut
and sablefish processors were affected economically.[Footnote 9] This
was the only study we could find that attempted to quantify the
economic effect the IFQ program had on halibut and sablefish
processors. Using a sample of halibut and sablefish processors, the
study assessed the change in processors‘ gross operating margins
(revenues minus variable costs of processing). The study used the
periods 1992-1993 for pre-IFQ margins and 1999-2000 for post-IFQ
margins. According to the study‘s principal author, these years were
chosen because they provided the longest possible length of time
between the pre-and post-IFQ years for which data were available. The
study estimated that halibut processors suffered a 56 percent, or
$8.7 million, loss in gross operating margins because the IFQ program
caused halibut prices to increase and processors‘ market shares
to change.[Footnote 10]
While we could not validate or replicate the study‘s results because
the proprietary data used in the study were confidential, we identified
a number of problems with the study‘s methodology and scope that brings
into question the reliability of the study‘s estimates. These problems
include (1) the pre-and post-IFQ time periods do not provide an
accurate measure of processors‘ economic welfare, (2) the study‘s
results may not be representative of the industry as a whole, and (3)
the document requesting economic information from processors may have
biased participant responses. Further, the study‘s authors acknowledged
that examining the pre-and post-IFQ impacts on the processing sector
does not necessarily imply that the IFQ program alone caused these
effects.
The pre-and post-IFQ time periods used to assess changes in processors‘
gross operating margins do not provide an accurate measure of changes
in processors‘ economic welfare over time. First, the study‘s
methodology makes the assumption that all costs, except labor and
material inputs, remain fixed from 1992 through 2000. However, as
pointed out in a critique of the study, assuming that all of these
other costs remain the same would not be adequate for a period as short
as a year, and is clearly unjustified for the 7 year period evaluated,
because the longer the time period assessed, the more likely costs will
change.[Footnote 11]
Even if the study‘s assumption about costs were valid, the pre-and
post-IFQ periods examined identify a greater negative change in gross
operating margins than may be identified if different or longer periods
were used. The changes in gross operating margins and the estimated
economic effects are influenced by the fact that ex-vessel halibut
prices dipped in the period 1992-1993 and were near their peak in 1999-
2000 (see fig. 9). Real ex-vessel halibut prices in 1999-2000 were
44.5 percent higher than they were in 1992-1993. However, when
different base years, such as 1991-1992, are compared with 1999-2000,
the price increase is 22.7 percent.
Figure 9: Ex-Vessel Halibut Prices, 1984 through 2001:
[See PDF for image]
[End of figure]
The influence of the choice of base years and the corresponding ex-
vessel prices also can be demonstrated by looking at the difference
between the price a processor pays for raw fish and the price a
processor receives for the processed fish--the processor‘s price
margin. We calculated a simplified version of the price margin to
demonstrate the sensitivity of the margin to the choice of the time
period examined. As shown in table 5, comparing the study‘s pre-and
post-IFQ price margins of 47.3 percent and 24.1 percent, respectively,
shows a 23.2 percentage point decrease in margins. However, comparing
the price margins for 1991-1992 with 1999-2000 shows a 13.0 percentage
point decrease and comparing 1993-1994 with 1998-1999 shows a
1.1 percentage point increase.
Table 5: Price Margins in Selected Pre-and Post-IFQ Years:
Pre-IFQ: Years: 1991-1992 ; Pre-IFQ: Price margin[A]: 37.1; [Empty];
Post-IFQ: Years: 1998-1999 ; Post-IFQ: Price margin[A]: 31.4.
Pre-IFQ: Years: 1992-1993[B]; Pre-IFQ: Price margin[A]: 47.3; [Empty];
Post-IFQ: Years: 1999-2000[B]; Post-IFQ: Price margin[A]: 24.1.
Pre-IFQ: Years: 1993-1994 ; Pre-IFQ: Price margin[A]: 30.3; [Empty];
Post-IFQ: Years: 2000-2001 ; Post-IFQ: Price margin[A]: 23.3.
[A] Price margin is the percentage by which real wholesale price
exceeds real ex-vessel price, excluding other variable costs. We did
not incorporate recovery rates (the amount of raw product required to
produce the finished product) or product mix in price margin
calculations.
[B] Years used in the state of Alaska study.
Source: GAO‘s analysis of Alaska Department of Fish and Game,
Commercial Operators Annual Report data.
[End of table]
Moreover, the study‘s results may not be representative of the industry
as a whole. In total, 53 halibut processors and 46 sablefish
processors, representing 88 percent of all halibut purchased and
96 percent of all sablefish purchased in the study years, were asked to
participate in the survey. Responses were used from processors
representing only 52 percent of all halibut and 54 percent of all
sablefish purchased in the pre-IFQ years and 61 percent of all halibut
and 59 percent of all sablefish purchased in the post-IFQ years. The
study does not provide the actual number of participants whose data
were used. Without knowing the number of participants or the
characteristics of the respondents whose data were used, we cannot
determine whether the study‘s estimates are representative of the
industry as a whole.
Finally, the document requesting economic information from processors
may have biased participant responses. In the preamble to the survey
document, participants were told, among other things, that the purpose
of the study was to test the theory that a harvester-only quota
allocation transfers wealth from processors to harvesters and that the
survey‘s results would be used to assist in designing future IFQ or
other fishery rationalization programs. Such statements leave little
doubt as to how responses could benefit or harm processors with
economic interests in other fisheries. According to standard economic
research practice, these types of statements are to be avoided when
designing a survey as they can influence the results.
Factors Other Than the Implementation of the IFQ Program Could Affect
Processors Economically:
Factors other than the IFQ program‘s implementation could contribute to
changes in the economic well-being of processors, such as changes in
the market of other species processed and changes in the total
allowable catch. According to NMFS officials and industry experts, most
processors handled other species of fish in addition to halibut and
sablefish, and the relative proportion and value of these species will
affect the economic condition of processors. According to our analysis
of data from the Alaska Commercial Operators Annual Report, halibut and
sablefish were relatively small portions of the fish processed by
shore-based plants that processed halibut and/or sablefish.
Specifically, from 1994 to 2001, halibut production ranged, on average,
from 2.0 percent to 4.1 percent of all fish processed at a plant, while
average sablefish production ranged from 1.4 percent to 2.3 percent. In
terms of value, as shown in table 6, halibut was 4.4 percent of total
plant product value in 1994 and 7.9 percent in 2001. Sablefish was
4.7 percent of total plant product value in 1994 and 5.3 percent in
2001. (These ranges are averages for all plants processing halibut and/
or sablefish and a particular plant may process a higher percentage of
these fish.):
Table 6: Average Product Value Percentage, by Species, for Plants
Processing Halibut and Sablefish, 1994 and 2001:
Species: Halibut; [Empty]; Percent of product value: 1994: 4.4; Percent
of product value: [Empty]; Percent of product value: 2001: 7.9.
Species: Sablefish; [Empty]; Percent of product value: 1994: 4.7;
Percent of product value: [Empty]; Percent of product value: 2001: 5.3.
Species: Cod; [Empty]; Percent of product value: 1994: 5.7; Percent of
product value: [Empty]; Percent of product value: 2001: 9.5.
Species: Pollock; [Empty]; Percent of product value: 1994: 12.6;
Percent of product value: [Empty]; Percent of product value: 2001:
27.6.
Species: Salmon; [Empty]; Percent of product value: 1994: 46.7; Percent
of product value: [Empty]; Percent of product value: 2001: 35.1.
Species: Other species[A]; [Empty]; Percent of product value: 1994:
25.9; Percent of product value: [Empty]; Percent of product value:
2001: 14.6.
Species: Total; [Empty]; Percent of product value: 1994: 100.0; Percent
of product value: [Empty]; Percent of product value: 2001: 100.0.
[A] Other species include crab, flounder, greenling, herring, lingcod,
octopus, perch, prowfish, rockfish, shrimp, skate, sole, and turbot.
Source: GAO‘s analysis of Alaska Department of Fish and Game,
Commercial Operators Annual Report data.
[End of table]
Another factor that affects processors economically is a change in the
total allowable catch--limits on the amount of fish that can be caught
annually. Such limits were used for halibut and sablefish long before
the introduction of the IFQ program. Since the introduction of the
IFQ program, the total allowable catch for halibut has increased by
56.4 percent and the total allowable catch for sablefish has decreased
by 36.2 percent. In its 1999 report, Sharing the Fish, the National
Research Council said that changes in the total allowable catch may
affect the supply of fish available to processors and therefore the
price they pay.[Footnote 12]
Conclusions:
Individual fishing quotas are one of many tools available for
conserving and managing fishery resources on a sustainable basis.
Concerns have been raised about the possibility of quota holdings
becoming concentrated among a few individuals or entities, which, among
other things, might lead to control of fish prices and/or might
adversely affect wages and working conditions in the fishing industry.
Moreover, there is a need to ensure that program rules on foreign
holdings and quota concentration levels are complied with. NMFS
collects the necessary data on halibut and sablefish quota holders and
periodically monitors it to provide these assurances. However, NMFS
does not gather sufficient information or periodically analyze the data
it does collect on surfclam/ocean quahog and wreckfish quota holders to
determine (1) who actually controls the use of the quota and
(2) whether the holder is a foreign individual or entity. Furthermore,
while each fishery is different, the regional councils have not defined
the amount of quota that constitutes an excessive share in the
surfclam/ocean quahog and wreckfish IFQ programs. Different program
objectives and the political, economic, and social characteristics of
each fishery make it difficult to define excessive share. However,
without the information on who controls quota and defined limits on
quota accumulation, NMFS cannot determine whether eligibility
requirements are being met or raise questions as to whether any quota
holdings are excessive.
Recommendations for Executive Action:
We recommend that the Secretary of Commerce take the following actions
to improve the management of IFQ programs:
* To ensure that quota holders meet eligibility requirements, such as
being a U.S. citizen or entity, we recommend that the Secretary of
Commerce direct the Director of NMFS to collect and analyze information
on quota holders, including who actually holds and controls the use of
the quota and for whom financial institutions hold quota.
* To help prevent an individual or entity from acquiring an excessive
share of the quota in future IFQ programs, we recommend that the
Secretary of Commerce require regional fishery management councils to
define what constitutes an excessive share for the fishery.
* To assist the regional fishery management councils in defining
excessive share for a particular fishery, we recommend that the
Secretary of Commerce direct the Director of NMFS to provide guidance
to the councils on the factors to consider when determining what
constitutes an excessive share in future IFQ programs.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Department of Commerce for
review and comment. In the Secretary‘s response, the Department‘s
National Oceanic and Atmospheric Administration provided written
comments. NOAA‘s comments and our detailed responses are presented in
appendix V of this report. NOAA generally agreed with the accuracy and
conclusions of our report. NOAA agreed in principle with our
recommendation to collect and analyze information on quota holders,
disagreed with our recommendation to set limits, and agreed with our
recommendation to provide guidance for setting limits on quota holdings
in future programs. NOAA also provided technical comments that we
incorporated in the report as appropriate.
NOAA agreed in principle with our first recommendation, to collect and
analyze information on quota holders. While NOAA stated that it would
place greater emphasis on collecting this information in its IFQ
programs, it noted that its ability to collect economic information
might be constrained by provisions of the Magnuson-Stevens Act that
protect certain economic and proprietary data. NOAA believed that
existing IFQ programs provide adequate information on quota holders,
citing, for example, the Alaskan halibut and sablefish program, but
stated it would be difficult to collect information on who actually
controlled the quota. However, our recommendation is aimed at requiring
all IFQ programs to collect information similar to the information
collected in the Alaskan halibut and sablefish program. We do not
believe that information on the identity of quota holders and their
ownership interests involves economic data protected by the Magnuson-
Stevens Act, and, in fact, the Alaskan program requires that such
information be provided. We also believe that without a requirement to
collect similar information in all IFQ programs, it will be difficult,
if not impossible, to monitor for compliance with eligibility
requirements. Such information is especially important where banks hold
quota on behalf of others, such as in the surfclam/ocean quahog
program.
NOAA disagreed with our second recommendation, to set limits on the
amount of quota an individual or entity may hold in future IFQ
programs. NOAA acknowledged that avoiding excessive shares was a
serious mandate and that fishery management councils should analyze the
projected impacts of various levels of ownership on market performance,
distributional issues, and equity considerations. NOAA stated, however,
that councils should have flexibility to deal with preventing excessive
shares according to the circumstances of each IFQ program and that
limits on quota holdings might be warranted and necessary in certain
cases, but not in all IFQ programs. NOAA cited the wreckfish program--
a program where there has been little activity--as an example where
limits should not be required. We agree with NOAA‘s position that
circumstances vary from fishery to fishery and that councils need to
analyze the various issues when determining how to prevent excessive
shares. We continue to believe, however, that fishery management
councils need to define what constitutes excessive share for future IFQ
programs. The Magnuson-Stevens Act clearly mandates that new IFQ
programs prevent any person from acquiring an excessive share of quota.
Without a specific and measurable definition, it would be difficult for
councils and NMFS to know whether any quota holding could be viewed as
excessive. A similar conclusion was reached by the National Research
Council, which recommended the creation of fishery-specific limits on
the accumulation of quota share by individuals or firms in each new IFQ
program. We have revised our recommendation to reflect the full range
of economic, social, and political considerations that need to be taken
into account and the need for guidance to assist councils in
determining excessive share.
Finally, NOAA agreed with our third recommendation, to provide guidance
to fishery management councils on factors to consider when setting
limits on quota holdings in future IFQ programs. NOAA agreed that
limits should be based on factors that are appropriate to the fishery.
These factors include market effects, distributional issues, and equity
considerations. We have revised this recommendation, however, from
’providing guidance for setting limits“ to ’providing guidance for
defining what constitutes an excessive share“ to take into account
NOAA‘s comments and make it consistent with our second recommendation.
We conducted our review from April 2002 through October 2002 in
accordance with generally accepted government auditing standards.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to the Secretary of Commerce and the Director of the National Marine
Fisheries Service. We will also provide copies to others upon request.
In addition, the report will be available at no charge on the GAO Web
site at http://www.gao.gov.
If you or your staff have any questions about this report, please call
me at (202) 512-3841 or Keith Oleson at (415) 904-2218. Key
contributors to this report are listed in appendix VI.
Barry T. Hill
Director, Natural Resources
and Environment:
Signed by Barry T. Hill:
[End of section]
Appendix I: Scope and Methodology:
To assist in deliberations on individual fishing quota (IFQ) programs,
we reviewed the Alaskan halibut and sablefish, wreckfish, and surfclam/
ocean quahog programs to determine (1) the extent of consolidation of
quota holdings, (2) the extent of foreign holdings of quota, and (3)
the economic effect of IFQ programs on seafood processors.
For all three objectives, we interviewed agency officials at the
Department of Commerce‘s National Marine Fishery Service‘s (NMFS)
headquarters office and the Northeast, Southeast, and Alaska regional
offices; representatives of the Mid-Atlantic, South Atlantic, and North
Pacific Fishery Management Councils; officials from the Alaska
Department of Fish and Game; and fishery participants, researchers, and
other industry experts. We visited Easton, Maryland; Cape May and
Atlantic City, New Jersey; and Sitka, Petersburg, Juneau, Homer,
Seward, and Kodiak, Alaska, where we interviewed quota holders,
processors, and industry representatives and viewed processing plants.
We selected these sites in accordance with suggestions from program
managers and industry representatives to obtain IFQ program and
geographic coverage.
In addition, to determine the extent of consolidation of quota
holdings, for each IFQ program, we reviewed pertinent laws, rules, and
regulations; the fishery management plan; processes and procedures; and
relevant program documents that NMFS used to track quota holdings. We
analyzed NMFS data on quota allocations and transfers, searched public
corporate ownership and U.S. Coast Guard vessel documentation records,
and interviewed NMFS officials, industry experts, and fishery
participants to identify who controlled the use of the quota. As agreed
with the requesters, we did not review the Maine mahogany quahogs as
part of the surfclam/ocean quahog IFQ program because of the fishery‘s
small size and unique characteristics.
To determine the extent of foreign holdings of quota, we reviewed
federal laws, regulations, and IFQ program rules pertaining to foreign
individuals holding quota in U.S. fisheries. We also reviewed the
U.S. Coast Guard‘s requirements for documenting U.S. fishing vessels.
We searched public records on corporate ownership for foreign interest
in, and affiliation with, entities holding quota.
To determine the economic effect of IFQ programs on seafood processors,
we limited our assessment to the economic effects on Alaskan halibut
and sablefish processors because few of these processors were eligible
to hold quota under the IFQ program. In contrast, processors in the
surfclam/ocean quahog and wreckfish programs were eligible to hold
quota. We analyzed (1) NMFS data on registered buyers, landings by
port, and total allowable catch; (2) Alaska Department of Fish and
Game, Commercial Operators Annual Report data on fish production, ex-
vessel prices, and processing at shore-based plants; and (3) public
records on ownership of seafood processing companies. We interviewed
fishery participants, including NMFS and regional management council
officials, seafood processors, quota holders, researchers, and other
experts on IFQ programs, to identify changes in the processing sector
after the IFQ program‘s implementation. We searched the economic
literature on the Alaskan halibut and sablefish IFQ program and
reviewed the only study that quantified the economic effect of the IFQ
program on processors, interviewed the study‘s principal author, and
obtained the views of other economists who had reviewed the study. We
could not verify the study‘s results because the data used in the study
were proprietary.
[End of section]
Appendix II National Marine Fisheries Service Data on Quota Holdings:
NMFS data on quota holdings show that consolidation occurred in
all three IFQ programs--Alaskan halibut and sablefish (see table 7),
wreckfish (see table 8), and surfclam/ocean quahog (see table 9)--with
much of the consolidation occurring in early program years.
Table 7: Alaskan Halibut and Sablefish Quota Holders, 1995 through
2001:
Item: Number of halibut quota holders; Year: 1995: 4,828; Year: 1996:
4,227; Year: 1997: 3,913; Year: 1998: 3,795; Year: 1999: 3,677; Year:
2000: 3,610; Year: 2001: 3,532.
Item: Cumulative percent change; Year: 1995: [Empty]; Year: 1996:
(12.4); Year: 1997: (19.0); Year: 1998: (21.4); Year: 1999: (23.8);
Year: 2000: (25.2); Year: 2001: (26.8).
Item: Number of sablefish quota holders; Year: 1995: 1,051; Year: 1996:
994; Year: 1997: 940; Year: 1998: 919; Year: 1999: 902; Year: 2000:
890; Year: 2001: 889.
Item: Cumulative percent change; Year: 1995: [Empty]; Year: 1996:
(5.4); Year: 1997: (10.6); Year: 1998: (12.6); Year: 1999: (14.2);
Year: 2000: (15.3); Year: 2001: (15.4).
Note: For 1995, NMFS reported the number of holders who received quota
during the initial allocation. Thereafter, NMFS reported the number of
holders as of December 31 of each year.
Source: GAO‘s analysis of NMFS data.
[End of table]
Table 8: Wreckfish Quota Holders, 1992 to 2002:
Item: Number of wreckfish quota holders; Year: 1992: 49; Year: 1993:
35; Year: 1994: 26; Year: 1995: 25; Year: 1996: 25; Year: 1997: 25;
Year: 1998: 25; Year: 1999: 25; Year: 2000: 25; Year: 2001: 25; Year:
2002: 25.
Item: Cumulative percent change; Year: 1992: [Empty]; Year: 1993:
(28.6); Year: 1994: (46.9); Year: 1995: (49.0); Year: 1996: (49.0);
Year: 1997: (49.0); Year: 1998: (49.0); Year: 1999: (49.0); Year: 2000:
(49.0); Year: 2001: (49.0); Year: 2002: (49.0).
Source: GAO‘s analysis of NMFS data.
[End of table]
Table 9: Surfclam and Ocean Quahog Quota Holders, 1990 to 2002:
Item: Number of surfclam quota holders; Year: 1990: 111; Year: 1991:
100; Year: 1992: 100; Year: 1993: 102; Year: 1994: 99; Year: 1995: 104;
Year: 1996: 103; Year: 1997: 103; Year: 1998: 102; Year: 1999: 98;
Year: 2000: 98; Year: 2001: 94; Year: 2002: 92.
Item: Cumulative percent change; Year: 1990: [Empty]; Year: 1991:
(9.9); Year: 1992: (9.9); Year: 1993: (8.1); Year: 1994: (10.8); Year:
1995: (6.3); Year: 1996: (7.2); Year: 1997: (7.2); Year: 1998: (8.1);
Year: 1999: (11.7); Year: 2000: (11.7); Year: 2001: (15.3); Year: 2002:
(17.1).
Item: Number of ocean quahog quota holders; Year: 1990: 82; Year: 1991:
72; Year: 1992: 73; Year: 1993: 70; Year: 1994: 59; Year: 1995: 63;
Year: 1996: 61; Year: 1997: 58; Year: 1998: 60; Year: 1999: 58; Year:
2000: 57; Year: 2001: 55; Year: 2002: 54.
Item: Cumulative percent change; Year: 1990: [Empty]; Year: 1991:
(12.2); Year: 1992: (11.0); Year: 1993: (14.6); Year: 1994: (28.0);
Year: 1995: (23.2); Year: 1996: (25.6); Year: 1997: (29.3); Year: 1998:
(26.8); Year: 1999: (29.3); Year: 2000: (30.5); Year: 2001: (32.9);
Year: 2002: (34.1).
Note: Quota allocations held under the same name were aggregated to
obtain a unique count of quota holders.
Source: GAO‘s analysis of NMFS data.
[End of section]
Appendix III: Surfclam/Ocean Quahog Processing Sector:
Major holders of surfclam and ocean quahog quota include seafood
processors that are vertically integrated--owning both processing
plants and fishing vessels. Processing companies that owned fishing
vessels were eligible to receive quota under the initial quota
allocation and some have held quota from the beginning of the IFQ
program. The IFQ program also allows processing companies to purchase
and transfer surfclam/ocean quahog quota. According to NMFS data,
three-fourths of the companies that processed surfclams and all of the
companies that processed ocean quahogs in 2000 were quota holders. In
addition, our analysis of NMFS quota allocation data for 2000 showed
that seafood processors held about one-third of the total surfclam
quota and almost one-half of the total ocean quahog quota.
Further, NMFS data indicate that fewer processors processed surfclams
and ocean quahogs since the IFQ program was implemented and that
several small-and mid-sized processors left the fishery. The number of
surfclam processors decreased by more than 40 percent and the number of
ocean quahog processors decreased by more than two-thirds from 1990 to
2000 (see table 10), with the same key companies processing both
surfclams and ocean quahogs.[Footnote 13] The top 4 processors handled
about 74 percent of the surfclam catch in 1990 and 86 percent in 2000.
Table 10: Surfclam and Ocean Quahog Processors, 1990 and 2000:
Processor type: Surfclams; [Empty]; Number of processors: 1990: 15;
Number of processors: [Empty]; Number of processors: 2000: 8.
Processor type: Ocean quahogs; [Empty]; Number of processors: 1990: 14;
Number of processors: [Empty]; Number of processors: 2000: 4.
Source: GAO‘s analysis of NMFS data.
[End of table]
[End of section]
Appendix IV: Alaskan Ports and Major Transportation Networks:
Ready access to highways and air transportation makes it easier for
processors and buyer-brokers to take advantage of the fresh fish market
and its potential for higher wholesale prices because they can get
their products to market more quickly and at a lower cost than
processors or other buyers in more remote locations. Figure 10 shows
the location of major Alaskan halibut and sablefish ports in relation
to major transportation networks leading to the lower 48 states and
international destinations.
Figure 10: Map of Alaskan Ports and Major Transportation Networks:
[See PDF for image]
[End of figure]
The Alaskan port with the greatest amount of halibut landed changed
between 1995 and 2001, as shown in table 11. NMFS and industry
officials attribute much of the change in port rankings to the increase
in the fresh halibut market and the need for ready access to
transportation networks. While ports may have access to air and ferry
service to the lower 48 states, the number of flights and ferries may
be limited and subject to weather delays or cancellations.
Table 11: Largest Alaskan Halibut Ports, 1995 and 2001:
Port: Kodiak[B]; 1995[A] ranking: 1; Percent of 1995
landings: 23.0; 2001 ranking: 2; Percent of 2001
landings: 15.3.
Port: Homer; 1995[A] ranking: 2; Percent of 1995
landings: 9.7; 2001 ranking: 1; Percent of 2001
landings: 24.0.
Port: Sitka[B]; 1995[A] ranking: 3; Percent of 1995
landings: 8.8; 2001 ranking: 5; Percent of 2001
landings: 4.6.
Port: Unalaska/Dutch Harbor[B]; 1995[A] ranking: 4; Percent of 1995
landings: 8.6; 2001 ranking: 3; Percent of 2001
landings: 11.1.
Port: Seward; 1995[A] ranking: 5; Percent of 1995
landings: 8.5; 2001 ranking: 4; Percent of 2001
landings: 11.0.
Port: Petersburg[B]; 1995[A] ranking: 6; Percent of 1995
landings: 7.2; 2001 ranking: 7; Percent of 2001
landings: 4.0.
Port: Hoonah[B]; 1995[A] ranking: 7; Percent of 1995
landings: 2.8; 2001 ranking: 9; Percent of 2001
landings: 2.5.
Port: Cordova[B]; 1995[A] ranking: 8; Percent of 1995
landings: 2.8; 2001 ranking: 10; Percent of 2001
landings: 2.5.
Port: Pelican[B]; 1995[A] ranking: 9; Percent of 1995
landings: 2.7; 2001 ranking: 19; Percent of 2001
landings: 0.4.
Port: Yakutat[B]; 1995[A] ranking: 10; Percent of 1995
landings: 1.9; 2001 ranking: 12; Percent of 2001
landings: 1.9.
Note: Juneau ranked number 13 with 1.4 percent of the landings in 1995
and number 6 with 4.2 percent in 2001. Adak had no reported landings in
1995 and ranked number 8 with 3.8 percent of the landings in 2001.
[A] 1995 was the earliest year for which NMFS data were available.
[B] Ports with limited access to major transportation networks.
Source: GAO‘s analysis of NMFS data.
[End of table]
While sablefish remained primarily a frozen product, sablefish ports
experienced a similar change in rankings (see table 12), because,
according to processors, many fishermen sell their catch of both
halibut and sablefish to the processor who pays the most for the
halibut.
Table 12: Largest Alaskan Sablefish Ports, 1995 and 2001:
Port: Seward; 1995[A] ranking: 1; Percent of 1995
landings: 22.5; 2001 ranking: 1; Percent of 2001
landings: 19.7.
Port: Sitka[B]; 1995[A] ranking: 2; Percent of 1995
landings: 14.6; 2001 ranking: 3; Percent of 2001
landings: 12.6.
Port: Unalaska/Dutch Harbor[B]; 1995[A] ranking: 3; Percent of 1995
landings: 14.3; 2001 ranking: 2; Percent of 2001
landings: 15.0.
Port: Kodiak[B]; 1995[A] ranking: 4; Percent of 1995
landings: 11.4; 2001 ranking: 4; Percent of 2001
landings: 9.9.
Port: Yakutat[B]; 1995[A] ranking: 5; Percent of 1995
landings: 5.8; 2001 ranking: 10; Percent of 2001
landings: 3.6.
Port: Pelican[B]; 1995[A] ranking: 6; Percent of 1995
landings: 5.2; 2001 ranking: 15; Percent of 2001
landings: 1.0.
Port: Petersburg[B]; 1995[A] ranking: 7; Percent of 1995
landings: 4.2; 2001 ranking: 9; Percent of 2001
landings: 4.0.
Port: Cordova[B]; 1995[A] ranking: 8; Percent of 1995
landings: 3.7; 2001 ranking: 6; Percent of 2001
landings: 5.1.
Port: Homer; 1995[A] ranking: 9; Percent of 1995
landings: 3.1; 2001 ranking: 5; Percent of 2001
landings: 7.0.
Port: Hoonah[B]; 1995[A] ranking: 10; Percent of 1995
landings: 2.0; 2001 ranking: 8; Percent of 2001
landings: 4.3.
Note: Juneau ranked number 20 with 0.4 percent of the landings in 1995
and number 7 with 5.0 percent in 2001.
[A] 1995 was the earliest year for which NMFS data were available.
[B] Ports with limited access to major transportation networks.
Source: GAO‘s analysis of NMFS data.
[End of table]
[End of section]
Appendix V: Comments from the Department of Commerce:
THE SECRETARY OF COMMERCE:
Washington, D.C. 20230:
Nov 21 2002:
Mr. Barry T. Hill:
Director, Natural Resources and Environment:
United States General Accounting Office Washington, D.C. 20548:
Dear Mr. Hill:
Thank you for the opportunity to review and comment on the General
Accounting Office‘s draft report entitled, ’Individual Fishing Quotas:
Better Information Could Improve Program Management.“ Enclosed is a
copy of the Department of Commerce‘s comments on the draft report.
These comments were prepared in accordance with the Office of
Management and Budget Circular A-50.
Sincerely,
Donald L. Evans:
Signed by Donald L. Evans:
Enclosure:
NOAA Fisheries Comments on the Draft GAO Report on IFQs:
’Individual Fishing Quotas: Better Information Could Improve Program
Management“ (November 2002) GAO-03-159:
Recommended Changes for Factual Information:
* In the draft letter to Senator John Kerry, GAO uses domestic
commercial catch data from 1990 to 2000, stating that catch declined by
7 percent (page 1). Data for 2001 (Fisheries of the United States,
2001) shows an increase in harvests from 2000 (4.114 million tons) to
2001 (4.305 metric tons), or an increase of 4.6 percent.Thus, from 1990
to 2001, domestic harvests fluctuated from year to year, and the 2001
catch level is about the same as the 1990 catch level. The point is
that the decade of the 1990s did not witness any steady decline.
* Page 19, last paragraph, line 2: The text indicates that the halibut
and sablefish fisheries were only a few days long prior to IFQs. While
this is true for the halibut fishery, the sablefish fishery lasted
longer. In 1994, sablefish fishing was allowed for twelve days in most
of the Gulf of Alaska; it lasted from January 1 to August 8 in the
Bering Sea and all year in the Aleutian Islands area.
* Page 20, first paragraph, line 8: The sentence which reads, ’For
example, one processor estimated that the costs to transport fish
product from Kodiak - located on an island with limited air service -
to Seattle were about 20 cents a pound higher than from Seward or Homer
- that had ready access to a major road system and a major airport.“
This is not correct, since the Kodiak airport is at least on a par with
the airport in Homer and has a greater capacity than the airport in
Seward. The cost differential may be due to the fact that Homer and
Seward are on a road system. The word ’costs“ should be ’cost“ and the
verb changed from ’were“ to ’was.“:
* Page 36, Figure 10: The map shows airports at Anchorage and Juneau.
However, there are also airports at Petersburg, Hookah, Sitka, Yakutat,
Cordova, Seward, Homer, Kodiak, Unalaska/Dutch Harbor, and Adak. Not
all of these are major airports but the airports at Petersburg, Sitka,
Yakutat, Cordova, Kodiak, Unalaska/Dutch Harbor, and Adak can all
accommodate regularly scheduled jet aircraft.
General Comments:
NOAA Fisheries found the draft GAO report on IFQs to be a well
researched and clearly drafted study that addresses some of the more
sensitive issues associated with IFQ programs. We were particularly
impressed by the careful research on trends in the number of quota
holders in the three IFQ programs, and we acknowledge that GAO has,
through multiple interviews with IFQ participants, uncovered
information on consolidation that is not revealed by NOAA Fisheries
data, especially with respect to the surf clam/ocean quahog IFQ.
However, NOAA also notes that the GAO report‘s treatment of
developments in the wreckfish IFQ would have benefitted from
consulting:
John R. Gauvin, John M. Ward, and Edward A. Burgess, ’Description and
Evaluation of the Wreckfish (Polyprion Americanus) Fishery Under
Individual Transferable Quotas,“ Marine Resource Economics, (1994)
9(2), pp. 99-118.
NOAA found that the tables on trends in the number of quota holders in
the three IFQ programs on page 34 of Appendix III were particularly
useful.
The section of the GAO report dealing with foreign ownership was also
well done, and it shows, in our judgment, that there is little or no
basis for thinking that foreign ownership is an actual or potential
problem in U.S. IFQ programs.
Finally, the discussion of the economic effects of IFQs on processors
was limited, as the GAO report recognizes, because there is only one
report that addresses economic effects on processors in the halibut/
sablefish IFQ. There are many still unanswered questions about that
study, which was commissioned by the State of Alaska. We concur with
and appreciate the analysis on pages 23-29 of that study: ’Efficiency
and Equity Choices in Fishery Rationalization Policy Design: An
Examination of the North Pacific Halibut and Sablefish IFQ Policy
Impacts on Processors.“:
In conclusion, NOAA accepts the basic conclusion of the report, i.e.,
that more and better information on quota holdings, foreign ownership,
and economic impacts on processors would improve IFQ programs.
_Specific Comments:
* An important question is ’control“ over use of quotas in IFQ
programs.
The GAO report suggests in several places that an entity other than a
fishing company (e.g. a bank or holding company) that holds quota
automatically controls its use. NOAA questions that this is always the
case. A bank may hold quota as collateral without controlling its use.
Our understanding is that a bank will normally hold quota shares as
collateral to ensure that the fishermen pays his debt to the bank. The
bank cannot utilize, lease, or sell quota shares unless the agreement
between parties so specifies, and the federal regulations so authorize.
* Page 6, footnote 2: This footnote is technically correct, but the
authors may want to note that the term ’bycatch“ has an unusual
definition in the Magnuson-Stevens Act. The term ’bycatch“ means fish
that are harvested in a fishery, but that are not sold or kept for
personal use, and includes economic discards and regulatory discards.
Such term does not include fish released alive under a recreational
catch and release fishery management program. Therefore, in the
Magnuson-Stevens Act, ’bycatch“ means discards.
* Page 12, Table 1: The table is only meant to provide information on
selected IFQ program objectives. GAO should be aware that ten program
objectives were identified by the halibut/sablefish program, including
(1) allocation conflicts, (2) gear conflicts, (3) deadloss from lost
gear, (4) bycatch loss, (5) discard mortality, (6) excess harvesting
capacity, (7) product wholesomeness, (8) safety, (9) economic
stability, and (10) rural community and small-boat fleet.
* Page 13, first three paragraphs: The first sentence in the first
paragraph is repeated verbatim in the first sentence of the second
paragraph. The second sentence in the first paragraph is repeated
almost verbatim as the first sentence of the third paragraph.
* Page 16, first complete paragraph, lines 9-11: (A) The limits on
quota
share use and block holdings, and the limits on the amounts of quota
share that may be fished from a vessel in a year, are in Code of
Federal Regulations (CFR) 679.42(e) , (f), (g), and (h). The limits are
specified as limits on quota share ’use“ rather than as limits on quota
share ’holdings“ (as described in the report). Limits are imposed on
’use“ rather than on ’holdings“ to avoid an implication that quota
share is more than a privilege. (B) The limits cited in the text are an
example of the types of limits that can be imposed; however, GAO should
be aware that there are additional limits imposed by the halibut/
sablefish program. Regulations at CFR §679.42(h) impose limits on the
amount of quota share that may be fished from a single vessel during a
year. No vessel may be used to harvest more than one-half of 1 percent
of the combined halibut catch limits in all areas, or more than 1
percent of the catch limit in area 2C (Southeast Alaska). No vessel may
be used to harvest more than 1 percent of the sablefish fixed gear
Total Allowable Catch (TAC) from the Gulf of Alaska and Bering Sea/
Aleutian Islands areas, and no vessel may be used to harvest more than
1 percent of the fixed gear TAC east of 140 degrees W (the eastern Gulf
of Alaska). Moreover, some quota share is aggregated into indivisible
blocks. Regulations at CFR §679.42(g) impose limits on the numbers of
these blocks that may be held.
* Page 21, Tables 3 and 4: The tables make comparisons between the
years
1995 and 1999. The year 1995 was the first year in which the IFQ
program was operational. If the purpose is to compare the fishery and
the buying and processing sector before and after IFQs were introduced,
it may be appropriate to change the first year to 1994.
* Page 22, last paragraph: The year 1995 was used as the first year of
comparison in this paragraph. The year 1994 may be more appropriate for
the reasons explained in the previous comment.
* Page 37, Table 11: This table compares Alaska halibut port rankings
between 1995 and 2001. The year 1995 was the first year of the IFQ
program. To contrast the situation before the program and after, it
might be more appropriate to use the year 1994 as the base.
NOAA Response to GAO Recommendations:
The GAO states, ’We recommend that the Assistant Administrator for
Fisheries should take the following actions to improve the management
of IFQ program:“:
Recommendation 1: ’To ensure that quota holders meet eligibility
requirements, such as being a U.S. citizen or entity, we recommend that
the Secretary of Commerce direct the Director of NMFS to collect and
analyze information on quota holders, including who actually holds and
controls the use of the quota and for whom financial institutions hold
quota.“:
NOAA Response: NOAA Fisheries agrees in principle with this
recommendation, but notes that our ability to collect some of this
information may be constrained by Magnuson-Stevens Act provisions that
protect: (1) processors‘ ’economic data“ (section 303(b)(7)) and (2)
’proprietary or confidential commercial or financial information
regarding fishing operations or fish processing operations“ (section
402(a). Unfortunately, voluntary economic data collection has not been
effective in some regions. This makes it difficult or impossible to
effectively monitor the impact of some IFQ programs on fishing
operations and processors. NOAA Fisheries notes that the halibut and
sablefish IFQ program already effectively complies with this
recommendation and that the Alaska crab rationalization plan that the
North Pacific Council recommended in June 2002 to Congress includes
provisions that would allow mandatory collection of economic data.
NOAA believes that existing programs provide adequate information on
the holders of quotas in IFQ programs. In the halibut and sablefish IFQ
program NOAA Fisheries issues quota shares initially and approves all
transfers of quota shares and IFQs. Therefore, NOAA Fisheries already
’knows“ who holds all such quota shares and IFQs. With respect to
controlling the use of quota and determining for whom financial
institutions hold quota, we are dealing with a more difficult issue. In
the halibutlsablefish IFQ program, there is voluntary reporting of
asserted security interests against quota shares. NOAA has made public
periodic analyses of the demographics of quota share ownership,
including disclosed financial interests. However, if analysis of other
types of ’control“ is intended, the nature of such ’control“ must be
specified before NOAA Fisheries can design an appropriate data
collection system to capture such information.
NOAA Fisheries will place greater emphasis on these questions in its
IFQ information collection programs, bearing in mind that specific
efforts may be constrained by sections 303(b)(7) and 402(a) of the
Magnuson-Stevens Act, and by future actions of Congress.
Recommendation 2: ’To help prevent an individual or entity from
acquiring an excessive share of the quota in future IFQ programs, we
recommend that the Secretary of Commerce require regional fishery
management councils to set limits on the amount of quota an individual
or entity may hold.“:
NOAA Response: NOAA does not agree that limits, or caps, on the amount
of quota that an individual or single entity may hold should be
required in all IFQ programs, but we do believe that councils should
study this issue and seriously analyze the projected impacts of various
levels of ownership on market performance, distributional issues and
equity considerations.
The Magnuson-Stevens Act requires that:
(1) ’no particular individual, corporation, or other entity acquires an
excessive share“ of any catch quota (national standard 4 in section
301(a)), and:
(2) a new IFQ program ’prevents any person from acquiring an excessive
share of the individual fishing quotas issued“ (section 303(d)(5)(C)).
To meet these mandates, NOAA agrees that caps on the individual
ownership of quota shares may be warranted and necessary in certain
cases, such as the halibut/sablefish IFQ program, but not in all such
programs. The halibut/sablefish IFQ program (1) includes specific
limits on the amounts that an individual or individual entity may use,
(2) requires that some quota be aggregated in indivisible blocks, and
(3) imposes limits on the number of blocks that may be held by an
individual or individual entity. Finally, the program imposes limits on
the percentage of TAC that may be fished from a single vessel during a
year.
On the other hand, some IFQ programs do not include such limits. The
wreckhsh IFQ has provisions for monitoring ownership shares but does
not mandate caps. The wreckhsh program has fewer than 10 quota holders,
of which only two vessels actually participated during the most recent
season. Thus, individual ownership caps do not serve any meaningful
purpose in this program.
NOAA Fisheries agrees that avoiding excessive shares is a serious
mandate, and recommends that councils who want to develop a new IFQ
program should conduct an informed analysis of the implications of
ownership concentration on (1) markets (prices), (2) distribution of
shares among industry sectors, and (3) e uit , in particular the future
participation of small-scale fishermen. These issues will be discussed
in greater detail in the technical guidance that is the subject of the
next GAO recommendation.
NOAA believes in dealing with the ’excessive quota shares“ issue
flexibly, depending on the circumstances of each IFQ program, within
the constraints of sections 301(a) and 303(d)(5)(C) of the Magnuson-
Stevens Act. The economic conditions of different federally managed
fisheries vary widely, and, therefore, limits on individual quota
holdings should be tailored to the specific fisheries based on
recommendations of the relevant Regional Fishery Management Council. As
a very general rule, IFQ programs in fisheries in which (a) there is a
substantial number of participants and (b) the council has a strong
desire to maintain as much as possible the participation of small-scale
fishermen may require caps on individual shares.
Recommendation 3: ’To assist the regional fishery management councils
in setting limits on the amount of quota an individual or entity may
hold, we recommend that the Secretary of Commerce direct the Director
of NMFS to provide guidance to the councils on the factors to consider
when setting limits in future IFQ programs.“:
NOAA Response: NOAA agrees with this recommendation. Guidance on the
’factors“ that the councils should take into account when setting
limits or caps on individual ownership of quota in IFQ programs could
be included in guidance that NOAA will provide to the councils on a
broad range of IFQ issues. As previously noted, while NOAA does not
believe that such caps should be required in each IFQ program, we do
agree that, if a council chooses to develop such caps, the limits
should be based on factors that are appropriate to the fishery. The
factors that councils should take into account when deciding on
ownership caps may be placed in three categories: (1) market effects,
(2) distributional issues, and (3) equity considerations. NOAA will
conduct research to provide specific guidance on these factors, and the
final product will be technical guidance on fishery management plans
that include IFQs.
[End of figure]
GAO Comments:
The following are GAO‘s comments on NOAA‘s written comments provided by
the Secretary of Commerce‘s letter dated November 21, 2002.
1. We revised the text to reflect that the domestic commercial fish
catch remained relatively the same as in 2001 as it was in 1990.
2. We revised the text to reflect that the IFQ program extended the
halibut and sablefish fishing seasons in some areas.
3. We changed the text to make it clear that the cost differential was
due to the fact that Homer and Seward had access to a road system.
4. We revised the legend for figure 10 to show that the airports are
international airports.
5. NOAA commented that the report‘s treatment of wreckfish would have
benefited from consulting a 1994 wreckfish article. We reviewed the
article and determined that generally only the article‘s discussion of
consolidation and control of quota holdings was pertinent to our
objectives. The article explained that the wreckfish program did not
set limits on quota holdings, in part, because it would be difficult to
determine who actually controlled the use of the quota. We believe that
our report had already adequately addressed this issue. By not defining
limits, the information needed to determine who controls the use of
quota is not collected and monitored. For this reason, we did not
revise our report.
6. Our point was that banks hold quota for someone else who controls
its use. As such, consolidation may be greater than NMFS data indicate.
Nonetheless, we revised the text to make it clearer that financial
institutions held, but did not control the use of quota in IFQ
programs.
7. Although our definition was technically correct, we revised footnote
2 by providing the definition of bycatch under the Magnuson-Stevens
Act.
8. We revised the title of table 1 to make it clear that the table
listed examples of objectives for the IFQ programs we reviewed.
9. We revised the text to remove some of the redundancy.
10. We added a footnote to explain that the rules of the Alaskan
halibut and sablefish program specify limits on quota holdings as quota
share use caps.
11. We added a note to tables 3, 4, and 11 to indicate that 1995 was
the earliest year for which NMFS data were available.
[End of section]
Appendix VI GAO Contact and Staff Acknowledgments:
GAO Contact:
Keith W. Oleson, (415) 904-2218:
Acknowledgments:
In addition to the name above, Charles W. Bausell, Jr., Susan J.
Malone, Mark R. Metcalfe, Rebecca A. Sandulli, and Tama R. Weinberg
made key contributions to this report.
(360198):
FOOTNOTES
[1] P.L. 94-265, as amended (16 U.S.C. 1801 et seq.).
[2] Under the Magnuson-Stevens Act, ’bycatch“ means fish that are
harvested in a fishery, but which are not sold or kept for personal
use. Bycatch includes fish discarded for regulatory or
economic reasons.
[3] According to NMFS officials, there had been very little activity in
the wreckfish program since 1995. A National Research Council study of
IFQs attributed this lack of activity to low market prices of wreckfish
compared to other species for which the same vessels can fish.
[4] To facilitate financial transactions such as the purchase of quota,
a bank or other financial institution may serve as a transfer agent. In
this situation, an individual sells or permanently transfers the quota
to the financial institution, which, under separate agreement,
transfers the quota to the ’rightful“ owner when the loan is fully paid
or in installments as loan payments are made. In addition, these
agreements establish to whom the bank leases the use of the quota
each year.
[5] Program rules specify these limits as quota share use caps.
[6] National Research Council, Sharing the Fish: Toward a National
Policy on Individual Fishing Quotas (Washington, D.C.: National Academy
Press, 1999), 209.
[7] In the initial allocation, quota shares could only be distributed
to owners of fishing vessels that landed surfclams or ocean quahogs
during certain years. Once the initial allocation was made, quota
shares could be transferred to entities whether they owned a fishing
vessel or not.
[8] The market share of a company is the amount of fish purchased by
that processing company as a percentage of total fish purchased by all
processing companies. Processing companies, in this context, are those
companies that own one or more of the individual shore-based plants
that are processing halibut or sablefish.
[9] Matulich, Scott C., and Michael Clark, Efficiency and Equity
Choices in Fishery Rationalization Policy Design: An Examination of the
North Pacific Halibut and Sablefish IFQ Policy Impacts on Processors,
Washington State University, January 2002.
[10] The study also estimated that gross operating margins for
sablefish processors decreased by 75 percent, on average. However, we
did not review the sablefish estimates because the methodology and
adjustments used in the study were not clear to NMFS economists or us.
[11] Halvorsen, Robert, Comments on the Matulich and Clark Report,
’Efficiency and Equity Choices in Fishery Rationalization Policy
Design,“ University of Washington, April 2002.
[12] Sharing the Fish, 403.
[13] NMFS was only able to provide processor data through the year
2000.
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