Individual Fishing Quotas
Methods for Community Protection and New Entry Require Periodic Evaluation Gao ID: GAO-04-277 February 24, 2004To assist in deliberations on individual fishing quota (IFQ) programs, GAO determined (1) the methods available for protecting the economic viability of fishing communities and facilitating new entry into IFQ fisheries, (2) the key issues faced by fishery managers in protecting communities and facilitating new entry, and (3) the comparative advantages and disadvantages of the IFQ system and the fishery cooperative approach.
Several methods are available for protecting the economic viability of fishing communities and facilitating new entry into IFQ fisheries. The easiest and most direct way to help protect communities under an IFQ program is to allow the communities themselves to hold quota. Fishery managers can also help communities by adopting rules aimed at protecting certain groups of fishery participants. Methods for facilitating new entry principally fall into three categories: (1) adopting transfer rules on selling or leasing quota that help make quota more available and affordable to new entrants; (2) setting aside quota for new entrants; and (3) providing economic assistance, such as loans and subsidies, to new entrants. In considering methods to protect communities and facilitate new entry into IFQ fisheries, fishery managers face issues of efficiency and fairness, as well as design and implementation. Community protection and new entry methods are designed to achieve social objectives, but realizing these objectives may undermine economic efficiency and raise questions of equity. For example, allowing communities to hold quota may result in a loss of economic efficiency because communities may not have the knowledge and skills to manage the quota effectively. Similarly, rules to protect communities or facilitate new entry may appear to favor one group of fishermen over another. Furthermore, community protection and new entry methods raise a number of design and implementation challenges. For example, according to fishery experts, defining a community can be challenging because communities can be defined in geographic and nongeographic ways. Similarly, loans or grants may help provide new entrants with the capital needed to purchase quota, but they may also contribute to further quota price increases. Given the various issues that fishery managers face in developing community protection and new entry methods, it is unlikely that any single method can protect every type of fishing community or facilitate new entry into every IFQ fishery. Deciding which method(s) to use is made more challenging because fishery managers have not conducted comprehensive evaluations of how IFQ programs protect communities or facilitate new entry. In comparing the key features of IFQ programs and U.S. fishery cooperatives, we found that each approach has advantages and disadvantages in terms of regulatory and management framework, number of participants, quota allocation and transfer, and monitoring and enforcement. Specifically, in terms of regulatory and management framework, IFQ programs have greater stability than cooperatives because they are established by federal regulations, while cooperatives are voluntary contractual arrangements. In terms of quota allocation and transfer, IFQ programs are open in that they allow the transfer of quota to new entrants, whereas cooperatives are exclusive by contractual arrangement among members. In terms of monitoring and enforcement, IFQ programs are viewed as being more difficult to administer, because NMFS must monitor individual participants, while cooperatives are viewed to be simpler for NMFS to administer, because NMFS monitors only one entity--the cooperative. For some fisheries, a combined approach may be beneficial. For example, a cooperative of IFQ quota holders can combine an IFQ program's stability with a cooperative's collaboration to help manage the fishery.
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.
Director: Team: Phone:GAO-04-277, Individual Fishing Quotas: Methods for Community Protection and New Entry Require Periodic Evaluation
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Report to Congressional Requesters:
United States General Accounting Office:
GAO:
February 2004:
Individual Fishing Quotas:
Methods for Community Protection and New Entry Require Periodic
Evaluation:
GAO-04-277:
GAO Highlights:
Highlights of GAO-04-277, a report to congressional requesters
Why GAO Did This Study:
To assist in deliberations on individual fishing quota (IFQ) programs,
GAO determined (1) the methods available for protecting the economic
viability of fishing communities and facilitating new entry into IFQ
fisheries, (2) the key issues faced by fishery managers in protecting
communities and facilitating new entry, and (3) the comparative
advantages and disadvantages of the IFQ system and the fishery
cooperative approach.
What GAO Found:
Several methods are available for protecting the economic viability of
fishing communities and facilitating new entry into IFQ fisheries. The
easiest and most direct way to help protect communities under an IFQ
program is to allow the communities themselves to hold quota. Fishery
managers can also help communities by adopting rules aimed at
protecting certain groups of fishery participants. Methods for
facilitating new entry principally fall into three categories: (1)
adopting transfer rules on selling or leasing quota that help make
quota more available and affordable to new entrants; (2) setting aside
quota for new entrants; and (3) providing economic assistance, such as
loans and subsidies, to new entrants.
In considering methods to protect communities and facilitate new entry
into IFQ fisheries, fishery managers face issues of efficiency and
fairness, as well as design and implementation. Community protection
and new entry methods are designed to achieve social objectives, but
realizing these objectives may undermine economic efficiency and raise
questions of equity. For example, allowing communities to hold quota
may result in a loss of economic efficiency because communities may
not have the knowledge and skills to manage the quota effectively.
Similarly, rules to protect communities or facilitate new entry may
appear to favor one group of fishermen over another. Furthermore,
community protection and new entry methods raise a number of design
and implementation challenges. For example, according to fishery
experts, defining a community can be challenging because communities
can be defined in geographic and nongeographic ways. Similarly, loans
or grants may help provide new entrants with the capital needed to
purchase quota, but they may also contribute to further quota price
increases. Given the various issues that fishery managers face in
developing community protection and new entry methods, it is unlikely
that any single method can protect every type of fishing community or
facilitate new entry into every IFQ fishery. Deciding which method(s)
to use is made more challenging because fishery managers have not
conducted comprehensive evaluations of how IFQ programs protect
communities or facilitate new entry.
In comparing the key features of IFQ programs and U.S. fishery
cooperatives, we found that each approach has advantages and
disadvantages in terms of regulatory and management framework, number
of participants, quota allocation and transfer, and monitoring and
enforcement. Specifically, in terms of regulatory and management
framework, IFQ programs have greater stability than cooperatives
because they are established by federal regulations, while
cooperatives are voluntary contractual arrangements. In terms of quota
allocation and transfer, IFQ programs are open in that they allow the
transfer of quota to new entrants, whereas cooperatives are exclusive
by contractual arrangement among members. In terms of monitoring and
enforcement, IFQ programs are viewed as being more difficult to
administer, because NMFS must monitor individual participants, while
cooperatives are viewed to be simpler for NMFS to administer, because
NMFS monitors only one entity”the cooperative. For some fisheries, a
combined approach may be beneficial. For example, a cooperative of IFQ
quota holders can combine an IFQ program‘s stability with a
cooperative‘s collaboration to help manage the fishery.
What GAO Recommends:
GAO recommends that the Director of the National Marine Fisheries
Service (NMFS) ensure that regional fishery management councils that
are designing community protection and new entry methods for new or
existing IFQ programs
* Develop clearly defined and measurable community protection and new
entry objectives.
* Build performance measures into the design of the IFQ program.
* Monitor progress in meeting the community protection and new entry
objectives.
www.gao.gov/cgi-bin/getrpt?GAO-04-277.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Anu Mittal at (202)
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[End of section]
Contents:
Letter:
Results in Brief:
Background:
Methods Exist for Protecting Fishing Communities and Facilitating New
Entry:
Community Protection and New Entry Methods Raise a Variety of Issues
That Require Consideration:
IFQ Programs and Fishery Cooperatives Have Advantages and
Disadvantages:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Descriptions of Selected Individual Fishing Quota (IFQ)
Programs:
Appendix III: Descriptions of Selected U.S. Fishery Cooperatives:
Appendix IV: Comments from the Department of Commerce:
GAO Comments:
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Staff Acknowledgments:
Tables:
Table 1: Differences between U.S. IFQ Programs and Fishery Cooperatives
in Key Areas:
Table 2: Leasing Fees under the Shetland Community Fish Quota Scheme:
Figure:
Figure 1: Fishing-centered and Multi-industry Fishing Communities:
Abbreviations:
IFQ: individual fishing quota:
ITQ: individual transferable quota:
IVQ: individual vessel quota:
NMFS: National Marine Fisheries Service
NOAA: National Oceanic and Atmospheric Administration:
TAC: total allowable catch:
United States General Accounting Office:
Washington, DC 20548:
February 24, 2004:
The Honorable Olympia J. Snowe:
Chairman:
The Honorable John F. Kerry:
Ranking Minority Member:
Subcommittee on Oceans, Fisheries, and Coast Guard:
Committee on Commerce, Science, and Transportation:
United States Senate:
Commercial fishing and fishing-related businesses contributed about $28
billion to the U.S. gross national product in 2002. However, these
businesses are at risk of decline because about one-third of the U.S.
fish stocks assessed by the National Marine Fisheries Service (NMFS)
are overfished or approaching overfished conditions. The United States
is not alone in facing this problem. According to the United Nation's
Food and Agriculture Organization, about 28 percent of the world's
major fish stocks are reported as overexploited, depleted, or
recovering from depletion. Another 47 percent are fully exploited and
are producing catches that have reached, or are very close to, their
maximum sustainable limits. Greater competition for fewer fish
increases the likelihood that stocks will decline further and catches
will decrease. If a fishery--composed of one or more fish stocks in a
geographic area--cannot be sustained, the marine ecosystem could be
transformed, thus threatening the livelihood of fishermen and the way
of life in many communities.
Concerns about the condition of the world's fisheries have led to a
search for new management tools to maintain fisheries at sustainable
levels. One such tool is the individual fishing quota (IFQ), which has
been used worldwide since the late 1970s. Today, several nations,
including the United States, use IFQ programs to manage fisheries
within their 200-mile exclusive economic zone, where foreign vessels
are generally prohibited from fishing. Usually, these programs are
established by law. The primary goals of an IFQ program are to conserve
the resource and reduce fishing capacity (e.g., the number and size of
boats). Under an IFQ program, fishery managers set a total allowable
catch (TAC) and allocate quota--the right or privilege to fish a
certain portion of the TAC--to eligible vessels, fishermen, or other
recipients. IFQ programs often allow a quota holder to transfer quota
by sale, lease, or other methods.[Footnote 1] Such transfers are
expected to reduce the number of fishermen and vessels and consolidate
the quota among the more efficient fishermen. In the United States, the
Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-
Stevens Act) established eight regional fishery councils to manage the
nation's fisheries. These councils develop IFQ programs that are
administered by NMFS.
IFQ programs have achieved several desired conservation and management
benefits, such as helping to stabilize fisheries and reducing excess
investment in fishing capacity. However, these programs have also
raised concerns about the fairness of initial quota allocations, the
increased costs for fishermen to gain entry, and the loss of employment
and revenues in communities that have historically depended on fishing.
Responding to these concerns, Congress, through the Sustainable
Fisheries Act, placed a moratorium on new IFQ programs in 1996.
Congress later extended the moratorium through September 30, 2002, and
then allowed it to expire. Fishery councils are now free to propose new
IFQ programs. During the moratorium, fishery cooperatives emerged as
alternatives to IFQ management in two fisheries--Pacific whiting in
1997 and Bering Sea pollock in 1998. These cooperatives are voluntary
contractual agreements among fishermen to apportion shares of the catch
among themselves. The Department of Justice, in business review letters
concerning its antitrust enforcement intentions with respect to the
cooperatives, stated that Justice did not anticipate bringing any
antitrust enforcement actions against the cooperatives.
This report is the second in a series of reports you requested on
individual fishing quotas. In December 2002, we reported on the extent
of consolidation of quota holdings, the extent of foreign holdings of
quota, and the economic effect of IFQ programs on seafood
processors.[Footnote 2] For this report you asked us to determine (1)
the methods available for protecting the economic viability of fishing
communities and facilitating new entry into IFQ fisheries, (2) the key
issues faced by fishery managers in protecting communities and
facilitating new entry, and (3) the comparative advantages and
disadvantages of the IFQ system and the fishery cooperative approach.
To conduct this review, we visited domestic fishing communities in
Alaska and Maine, as well as communities in Iceland, New Zealand, and
Scotland. We visited these foreign countries because Iceland and New
Zealand have extensive experience with IFQ programs, and Scotland has
developed an innovative approach for protecting communities and
facilitating new entry. In these locations and elsewhere, we spoke with
domestic and foreign fishery managers, fishery participants, and
fishery researchers; reviewed literature on domestic and foreign quota-
based programs; and reviewed key regulations and studies. We did not
evaluate the effectiveness of the programs in the locations we visited.
See appendix I for additional details on our scope and methodology and
appendix II for descriptions of the programs we reviewed.
Results in Brief:
Several methods are available for protecting the economic viability of
fishing communities and facilitating new entry into IFQ fisheries. The
easiest and most direct way to help protect communities under an IFQ
program is to allow the communities themselves to hold quota.
Communities allowed to hold quota can decide how to use it to protect
their economic viability by, for example, keeping the quota in the
community and leasing it to local fishermen. Fishery managers can also
help communities by adopting rules aimed at protecting certain groups
of fishery participants. Under these rules, fishery managers can decide
how quota is traded and fished in order to protect a particular group,
such as fishermen with small boats. Methods for facilitating new entry
principally fall into three categories: (1) adopting transfer rules on
selling or leasing quota that help make quota more available and
affordable to new entrants, (2) setting aside quota for new entrants,
and (3) providing economic assistance to new entrants. Under quota
transfer rules, fishery managers can, for example, place small amounts
of quota in blocks and limit the number of blocks that an individual
can hold, thereby making smaller amounts of quota available and more
affordable to new entrants. Under set-aside methods, fishery managers
can set aside a portion of the total quota to make a supply of quota
specifically available for new entrants. Under economic assistance
methods, government entities can provide low-interest loans, grants, or
other subsidies to help new entrants obtain quota that they might not
otherwise be able to afford.
In considering methods to protect communities and facilitate new entry
into IFQ fisheries, fishery managers face issues of efficiency and
fairness, as well as design and implementation. Protecting communities
and facilitating new entry are social objectives, but realizing these
objectives may undermine economic efficiency and raise questions of
equity. For example, allowing communities to hold quota may result in a
loss of economic efficiency because communities may not have the
knowledge and skills to manage the quota effectively. Similarly, rules
to protect communities or facilitate new entry may appear to favor one
group of fishermen over another. Community protection and new entry
methods also raise a number of design and implementation challenges.
For example, according to fishery experts, defining a community can be
challenging, because communities can be defined in geographic and
nongeographic ways. Similarly, loans or grants may help provide new
entrants with the capital needed to purchase quota, but they may also
contribute to further quota price increases. Given the various issues
that fishery managers face in developing community protection and new
entry methods, it is unlikely that any single method can protect every
type of fishing community or facilitate new entry into every IFQ
fishery. Deciding which method(s) to use is made more challenging
because fishery managers have not conducted comprehensive evaluations
of how IFQ programs protect communities or facilitate new entry.
Consequently, we are making recommendations to the Director of the
National Marine Fisheries Service to ensure that fishery councils that
are designing community protection and new entry methods include
clearly defined and measurable objectives, build performance measures
into the design of the IFQ program, and monitor whether the program is
achieving its community protection and new entry objectives.
In comparing the key features of IFQ programs and U.S. fishery
cooperatives, we found that each approach has advantages and
disadvantages in terms of regulatory and management framework, number
of participants, quota allocation and transfer, and monitoring and
enforcement. Specifically, in terms of regulatory and management
framework, IFQ programs have greater stability than cooperatives
because they are established by federal regulations, while cooperatives
are voluntary contractual arrangements. In terms of quota allocation
and transfer, IFQ programs are open in that they allow the transfer of
quota to new entrants, whereas cooperatives are exclusive by
contractual arrangement among members. In terms of monitoring and
enforcement, IFQ programs are viewed as being more difficult to
administer, because NMFS must monitor individual participants, while
cooperatives are viewed to be simpler for NMFS to administer, because
NMFS monitors only one entity--the cooperative. For some fisheries,
combining elements of both approaches can be beneficial. For example, a
cooperative of IFQ quota holders can combine the stability of an IFQ
program with the collaboration of a cooperative to help manage the
fishery.
Background:
The Magnuson-Stevens Act provides for the conservation and management
of fishery resources in the United States.[Footnote 3] The act
established eight regional fishery management councils that are
responsible for preparing plans for managing fisheries in federal
waters and submitting them to the Secretary of Commerce for approval.
NMFS, within the Department of Commerce's National Oceanic and
Atmospheric Administration, is responsible for implementing these
plans. The eight councils are New England, Mid-Atlantic, South
Atlantic, Gulf of Mexico, Caribbean, Pacific, North Pacific, and
Western Pacific.
The Magnuson-Stevens Act, as amended by the Sustainable Fisheries
Act,[Footnote 4] also establishes national standards for fishery
conservation and management. The fishery councils use these standards
to develop appropriate plans for conserving and managing fisheries
under their jurisdiction. For example:
* National Standard 1 requires that conservation and management
measures prevent overfishing while achieving, on a continuing basis,
the optimum yield from each fishery;
* National Standard 4 requires that conservation and management
measures not discriminate between residents of different states;
* National Standard 5 requires that conservation and management
measures, where practicable, consider efficiency in the use of fishery
resources; and:
* National Standard 8 requires that fishery conservation and management
measures take into account the importance of fishery resources to
fishing communities in order to provide for the sustained participation
of these communities in the fishery and, to the extent practicable,
minimize adverse economic impacts on these communities.
In addition to the national standards, the Magnuson-Stevens Act also
requires that new IFQ programs consider providing opportunities for new
individuals to enter IFQ fisheries.
The Magnuson-Stevens Act defines a fishing community as one that is
substantially dependent on, or engaged in, harvesting or processing
fishery resources to meet social and economic needs. The definition
includes fishing vessel owners, operators, and crew, and U.S. fish
processors based in such a community. NMFS guidance further defines
fishing community to mean a social or economic group whose members
reside in a specific location.[Footnote 5]
At the time of our review, NMFS had implemented three IFQ programs: (1)
the Mid-Atlantic surfclam/ocean quahog program in 1990, (2) the South
Atlantic wreckfish program in 1992, and (3) the Alaskan halibut and
sablefish (black cod) program in 1995. New IFQ programs were being
considered in other commercial 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.
Under IFQ programs, fishery managers set 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 they
allocate quota--generally expressed as a percentage of the TAC--to
eligible vessels, fishermen, or other recipients, based on initial
qualifying criteria, such as catch history. In the United States,
fishery councils can raise or lower the TAC annually to reflect changes
in the fishery's health. Fishery managers distribute these changes
among the quota holders proportional to their share. For example, a
fisherman who received a 5 percent quota share in a fishery with a TAC
of 100 metric tons can catch 5 tons of fish. Should the TAC increase
from 100 to 200 metric tons in the following year, the quota holder
with a 5 percent share would be able to catch 10 tons, or 5 tons more
than the previous year. Furthermore, IFQs are generally transferable,
meaning that quota holders can buy, sell, lease, or otherwise transfer
some or all of their shares, depending on how much or how little they
want to participate in the fishery. The nature of the fishing right
varies by country. In New Zealand, for example, an IFQ is an exclusive
property right that can be held in perpetuity, whereas in the United
States, an IFQ represents the privilege to fish a public resource.
While this privilege has an indefinite duration, the government may
legally revoke it at any time.
IFQ programs arose in response to conditions that resulted in a race
for fish and overfishing and that reduced economic efficiency, safety,
and product quality. For example, before the IFQ program, the Alaskan
halibut fishery had limits on the amount of time allowed for commercial
fishing in an attempt to keep the annual halibut catch within the TAC,
but it did not have limits on the number of boats that could fish. In
response, fishermen increased the number of vessels in their fleets and
used larger vessels with more gear to catch as much fish as they could
in the time allowed. As a result, the halibut season was reduced to a
few days. After the IFQ program was implemented, the fishing season was
increased to 8 months. Fishermen could choose when to fish and they
could use more economical fishing methods, as long as they kept within
their quota limits.
Individual IFQ programs may differ considerably, depending on the
circumstances of the fishery and the objectives of the program. For
example, an IFQ program for a fishery where there are concerns about
overfishing and the consolidation of power among corporate interests
may have different objectives than a program for a fishery where there
are concerns about developing the fishery and attracting new fishermen.
Depending on the fishery, fishery managers may be willing to trade some
potential gains in economic efficiency in exchange for the opportunity
to protect fishing communities or facilitate new entry.
IFQ programs are largely intended to improve economic efficiency and
conserve the resource. According to the theory underlying IFQ programs,
unrestricted quota trading promotes economic efficiency, because those
willing to pay the highest price for quota would be those expected to
use quota the most profitably, by catching fish at a lower cost or
transforming the fish into a more valuable product. Over time,
unrestricted trading should lead less efficient fishermen to either
improve their efficiency or sell their quota. In contrast, restrictions
on quota transfers could be expected to reduce the economic benefits
that would otherwise be obtained where quota is freely transferable.
Another fundamental tenet of this theory is that quota holders will act
in ways to promote the stewardship of the resource. Specifically,
giving fishermen a long-term interest in the resource is likely to
provide incentives to fish in ways that protect the value of their
interest.
Methods Exist for Protecting Fishing Communities and Facilitating New
Entry:
Several methods are available under IFQ programs for protecting the
economic viability of fishing communities and facilitating new entry.
For protecting communities, the easiest and most direct method is
allowing communities to hold quota. Fishery managers may also help
protect communities by adopting program rules aimed at protecting
certain groups of fishery participants. For facilitating new entry into
IFQ fisheries, the methods principally fall into three categories: (1)
adopting quota transfer rules that promote new entry, (2) setting aside
quota for new entrants, and (3) providing economic assistance to
potential new entrants.
Methods for Protecting Communities:
Concerns have developed in the United States and in other countries
about the potential for IFQ programs to harm the economic viability of
fishing communities. Many fishery experts and participants are
concerned that individual quota holders will sell their quota outside
of the fishing community or sell their quota to large companies. If
this were to occur, fishing jobs could leave the community and larger
companies could consolidate their quota holdings and dominate the
fishery. Fishing communities that lose fishing jobs may have few
alternative employment options, particularly if they depend primarily
on fishing and no other industry replaces fishing.
Allowing communities to hold quota is the easiest and most direct way
under an IFQ program to help protect fishing communities. According to
fishery experts and participants, fishery managers can give each
community control over how to use the quota in ways that protect the
community's economic viability, such as selling or leasing quota to
fishermen who reside in the community. Community quota could be held by
municipalities, regional organizations, or other groups representing
the community--unlike traditional individual fishing quota, which is
generally held by individual boat owners, fishermen, or fishing firms.
Of the three U.S. IFQ programs, only one allows communities to buy and
hold quota--the Alaskan halibut and sablefish program.
Communities allowed to hold quota can obtain it through allocation when
the program begins or at any time thereafter. For example:
* The North Pacific Fishery Management Council (North Pacific Council)
is considering allocating quota to community not-for-profit entities as
it develops a proposal for managing the Gulf of Alaska groundfish
fishery.
* New Zealand fishery managers allocated quota to a Chatham Islands
community trust several years after the IFQ program was implemented.
The trust leases out annual fishing privileges to Chatham Islands-based
fishermen to help keep fishing and fishing-related employment in the
community.
Similarly, fishery managers can incorporate rules into existing IFQ
programs or into the design of new programs to allow communities to
make quota purchases. For example, in 2002, the North Pacific Council
amended the Alaskan halibut and sablefish IFQ program to allow
communities along the Gulf of Alaska to purchase quota. The council is
considering including a similar provision in the proposed plan to
manage the Gulf of Alaska groundfish fishery.
In addition to allowing communities to hold quota, fishery managers can
establish rules governing who is eligible to hold and trade quota as
well as other rules to manage quota as a means of protecting certain
groups of fishery participants. Specific rules may vary by program and
change over time, depending on which members or groups a council wants
to protect. In terms of eligibility to hold quota, for example, the
North Pacific Council initially restricted allocations of Alaskan
halibut and sablefish quota to individual vessel owners in part to
protect the fisheries' owner-operator fleet. The council later expanded
eligibility to allow crew members to hold quota without owning a
vessel.
We also identified several different types of quota transfer
restrictions used in foreign IFQ programs that were aimed at protecting
communities. For example:
* Prohibiting quota sales. While none of the IFQ programs in the United
States prohibits the transfer of quota through sales, fishery managers
in other countries have done so. For example, Norway's IFQ program
prohibited all quota sales to protect fishing communities in certain
locations. Alternatively, prohibitions could be used temporarily to
help prevent fishermen from hastily selling their quota. For example,
according to New Zealand fishermen we spoke with, many small boat
fishermen did not initially understand the long-term value of their
quota and therefore sold their quota shortly after the initial
allocation. To remedy this situation, they suggested that fishery
managers could prohibit sales for the first year after a program's
initial allocation to give fishermen time to make informed decisions
about whether to sell their quota.
* Placing geographic restrictions on quota transfers. Iceland and New
Zealand fishery managers have also set limits on where quota can be
sold or leased to protect certain groups, such as local fishermen and
the communities themselves. The Icelandic IFQ program, in which
individuals own vessels with associated quota rather than the quota
itself, adopted a "community right of first refusal" rule to provide
communities the opportunity to buy vessels with their quota before the
vessels are sold to anyone outside of the community. IFQ programs can
also regulate quota leasing to keep fishing in a certain area by
establishing rules that limit leasing or fishing to residents of the
community. In terms of leases, New Zealand's Chatham Islands community
trust has, in effect, used residence in the Chatham Islands as a
requirement to lease its quota.
* Limiting quota leasing. Iceland requires that all quota holders fish
at least 50 percent of their quota every other year and prohibits quota
holders from leasing more than 50 percent of their quota each year.
Fishery managers introduced such restrictions, in part, to minimize the
number of "absentee" quota holders--those who hold quota as a financial
asset but do not fish.
Finally, according to fishery managers and experts we spoke with,
fishery managers can help protect fishing communities by (1) setting
limits on quota accumulation, (2) establishing separate quota for
different sectors of the fishery, (3) requiring quota holders to be on
their vessels when fish are caught and brought into port, and (4)
restricting the ports to which quota fish can be landed.
* Setting limits on quota accumulation. Fishery managers can place
limits on the total amount of quota an individual can accumulate or
hold to protect certain fishery participants. In the United States, for
example, the North Pacific Council set limits on individual halibut
quota holdings that range from 0.5 percent to 1.5 percent, depending on
the fishing area, as a means of protecting the fishery's owner-operator
fleet.
* Establishing separate quota for different sectors of the fishery. To
protect small boat fishermen and local fishing jobs, Iceland developed
a separate quota for small vessels and large vessels and prohibited
owners of small vessels from selling their quota to owners of large
vessels. In the U.S. halibut and sablefish IFQ program, the North
Pacific Council established separate quota categories based on vessel
type and length and placed certain restrictions on transfers among
these categories to ensure that quota would be available to owners of
smaller vessels.
* Requiring quota holders to be on their vessels. Some programs require
the owner of the quota to be on board when fish are caught and brought
into port. For example, the North Pacific Council requires fishermen
who entered the Alaskan halibut and sablefish IFQ program by purchasing
certain categories of quota, rather than receiving it as part of the
initial allocation, to abide by this rule. The rule was designed in
part to limit speculative quota trading by individuals who are
primarily interested in quota as a financial asset and not otherwise
invested in the fishery.
* Restricting landings. Fishery managers could restrict the ports to
which quota holders or those who lease quota can deliver their catch.
For example, New Zealand's Chatham Islands trust leases rock lobster
quota to local fishermen who must then land their catch in the Chatham
Islands.
Methods to Facilitate New Entry:
IFQ programs have also raised concerns about opportunities for new
entry. As IFQ programs move toward achieving one of their primary goals
of reducing overcapitalization, the number of participants decreases
and consolidation occurs, generally reducing quota availability and
increasing price. As a result, it is harder for new fishermen to enter
the fishery, especially fishermen of limited means, such as owners of
smaller boats or young fishermen who are just beginning their fishing
careers. According to New Zealand officials, quota prices increased
dramatically. For example, the average price of abalone quota increased
by more than 50 percent in the first 6 months of trading--from about
NZ$11,000 to NZ$17,000 per metric ton--and, by 2003, the average price
had reached about NZ$300,000 per metric ton, or about 27 times the
price at the start of abalone quota trading in 1988.
To reduce the barriers to new entry, fishery managers have established
quota transfer rules and set-asides, and/or provided economic
assistance, such as loans or grants. In terms of transfer rules, all
domestic and most foreign IFQ programs allow quota to be sold or
leased. Allowing such transfers provides the opportunity for new entry
to those who can find and afford to buy or lease quota. Since the lease
price is generally below the sales price, leasing quota may help make
entry more affordable to fishermen of limited means, such as small boat
fishermen.
Fishery managers can also make quota available and more affordable to
new entrants by "blocking" small amounts of quota and limiting the
number of "blocks" that any one individual or entity can hold. For
example, the North Pacific Council set up two types of halibut quota at
the initial allocation--unblocked and blocked. Unblocked quota holds no
restrictions. Blocked quota, on the other hand, is an amount of quota
that yielded less than 20,000 pounds of halibut in 1994 and can only be
bought or transferred in its entirety. An individual or entity can hold
unblocked quota and one quota block; an individual who holds no
unblocked quota can hold two quota blocks. A state of Alaska study
found that estimated prices for blocked quota were less per pound than
for unblocked quota over the first 4 years of the Alaskan halibut and
sablefish IFQ program and that estimated prices for smaller blocks were
less per pound than for larger blocks.[Footnote 6]
Setting aside a portion of the total quota specifically for new
entrants can also make quota available. Quota could be set aside at the
time of the initial allocation for future distribution to entities that
did not initially qualify for quota. For example, at the start of the
Alaskan halibut and sablefish program, the North Pacific Council set
aside a portion of the TAC for allocation to communities in western
Alaska for community development purposes. According to fishery
managers, similar set-asides could be used for new entrants by
establishing the set-aside at the start of the IFQ program, or by
buying or reclaiming, rolling over, or setting aside quota during the
program.
* Buying or reclaiming quota from existing quota holders. Fishery
managers could buy back quota from existing quota holders. For example,
the New Zealand government bought back quota to give to the indigenous
Maori tribes in partial settlement of their claims against the
government over fishing rights. Fishery managers could also obtain
quota forfeited by fishermen who have not complied with program rules;
in the New Zealand IFQ system, for example, quota holders risk
forfeiting their quota holdings if they catch more fish than they have
quota for.
* Issuing quota for a fixed period of time and then rolling it over for
distribution to new entrants. Depending on the program, the frequency
of the rollover could range from every few years to annually and the
amount of the rollover could range from some to all of the quota. For
example, a rollover system has been proposed for Australia's New South
Wales fishery under which fishery managers would issue quota for a
finite period of time (e.g., 30 years) under one set of program rules
and, periodically (e.g., every 10 years), quota holders would have the
opportunity to choose whether to continue to participate in the old
system or move their quota into a new system with different rules for
another 30 years.
* Setting aside TAC increases for distribution to new entrants. Foreign
and domestic IFQ programs generally define an individual fishing quota
as a percentage of the overall TAC and distribute any changes in the
TAC among existing quota holders proportional to their share.
Alternatively, fishery managers could distribute TAC increases to new
entrants, leaving existing quota holders fishing the same amount of
fish as they did in the previous year.
Once fishery managers have set aside quota, they must devise a method
for allowing new entrants to obtain it. According to fishery experts,
the options include:
* Selling quota at auction. Fishery managers could auction off quota to
the highest bidder and keep the proceeds. Alternatively, the managers
could serve as an intermediary by auctioning off quota on behalf of
existing quota holders, and the seller would incur all losses or gains.
In case the auction price becomes prohibitive for new entrants, fishery
managers could set aside quota that could be sold at a lower,
predetermined price.[Footnote 7] Economists generally support the idea
of auctioning quota because an efficient market provides quota to its
most profitable users. However, in the United States, the Magnuson-
Stevens Act limits the amount of fees that may be charged under an IFQ
program, which may effectively preclude the use of auctions.
* Distributing quota by lottery. New entrants could be randomly
selected from a pool of potential entrants, giving persons of limited
means an equal chance to obtain quota. Lotteries might be especially
advantageous when the demand for quota from new entrants is greater
than the supply of quota set aside.
* Distributing quota to individuals who meet certain criteria. Fishery
managers could allocate quota to new entrants using a point system
based on criteria such as fishing experience or completion of an
apprenticeship program.
Finally, to help make quota affordable, fishery managers and experts
told us that government entities could provide loans or subsidies to
potential entrants who might not otherwise be able to afford the quota.
Affordability is particularly an issue as an IFQ program becomes more
successful and the value of the quota increases.
* Loans. The Magnuson-Stevens Act allows NMFS to offer loans.[Footnote
8] Under this provision, for example, NMFS has established a low-
interest loan program for new entrants and fishermen who fish from
small boats in the halibut and sablefish fisheries off Alaska. The
fishermen can use these loans to purchase or refinance quota. Since the
program's inception in fiscal year 1998, Alaska has approved 207 loans,
totaling nearly $25 million. The Magnuson-Stevens Act also provides for
the creation of a central registry where owners and lenders can
register title to, and security interests (such as liens) in,
IFQs.[Footnote 9] According to the National Research Council, a
registry would increase lender confidence and provide opportunities for
individuals to obtain financing to enter IFQ fisheries.[Footnote 10]
Although NMFS has not yet established this registry, its Alaska Region
maintains a voluntary registry where creditors, such as private banks,
the state of Alaska, and private lenders can record liens against quota
shares.[Footnote 11] The Alaska Region reported that most lending
institutions take advantage of this service. The registry contained
2,581 reported interests in quota share at the end of 2002.[Footnote
12]
* Grants or other subsidies. Grants or other subsidies could decrease
the costs associated with buying or leasing quota. Since grants do not
have to be repaid, they could give fishermen of limited means the
opportunity to enter the fishery and then build their capital in order
to increase their quota holdings. In addition to grants, fishery
managers could establish a "lease-to-own" quota program--new entrants
would pay for the quota while using it. Also, quota could be made
available for purchase or lease at below market prices. Iceland, for
example, is considering adopting a discount program to make quota more
affordable. This discounting scheme would allow crews of small vessels
to purchase quota from the government at 80 percent of its market
value.
Community Protection and New Entry Methods Raise a Variety of Issues
That Require Consideration:
In considering methods to protect communities and facilitate new entry
into IFQ fisheries, fishery managers face issues about efficiency,
fairness, and design and implementation. Community protection and new
entry methods are designed to achieve social objectives, but achieving
these objectives may undermine economic efficiency, one of the primary
benefits of an IFQ program, and raise questions of equity. Moreover,
community protection and new entry methods present a number of design
and implementation challenges. However, given the particular
circumstances of the fishery and the goals of the IFQ program overall,
it is unlikely that any single method can protect every type of fishing
community or facilitate new entry into every IFQ fishery. It is also
unclear how beneficial these protective methods can be.
Community Protection and New Entry Methods Raise Concerns about
Economic Efficiency and Equity:
Fishery managers face an inherent tension between the economic goal of
maximizing efficiency and the social goal of protecting communities or
facilitating new entry. According to fishery experts we spoke with,
this tension occurs because a community or new entrant often may not be
the most efficient user of quota. For example, according to Icelandic
fishery experts, some communities did not manage their quota
effectively and sold it, reducing the communities' economic base. In
addition, setting aside quota for new entrants may not be the most
efficient use of quota because experienced fishermen or fishing firms
are generally able to fish the quota more economically than a new
entrant. Adopting rules that constrain the free trade of quota, such as
those designed to protect communities or facilitate new entry, would
likely limit the efficiency gains of the IFQ program. Therefore,
fishery managers have to decide how much economic efficiency they are
willing to sacrifice to protect communities or facilitate new entry.
Methods to protect communities or facilitate new entry may also raise
concerns about equity. In the United States, certain community quotas
or rules aimed at protecting certain groups may not be approved because
they are not allowed under the Magnuson-Stevens Act. For example,
National Standard 4 of the Magnuson-Stevens Act prohibits differential
treatment of states. A rule that proposes using residence in one state
as a criterion for receiving quota may violate the requirements of
National Standard 4. Furthermore, methods that propose allocating quota
to communities or adopting rules aimed at making quota more available
or affordable to a certain group of fishermen can appear unfair to
those who did not benefit and could result in legal challenges.
Moreover, allowing communities to purchase quota may be considered
unfair or inequitable, because relatively wealthy communities would
more readily have the funds needed to purchase quota while relatively
poor communities would not.
Designing and Implementing Community Protection Methods Presents
Multiple Challenges:
Fishery managers face multiple challenges in designing and implementing
community protection and new entry methods, according to fishery
managers and experts we spoke with. The resolution of these issues
depends on the fishery's circumstances and the program's objectives. It
is unlikely that any single method can protect every kind of fishing
community or facilitate new entry into every IFQ fishery.
In developing an approach to protect fishing communities, fishery
managers have to define community, determine who represents it, and
define economic viability, and communities must determine how to use
the quota. Defining community can be challenging because communities
can be defined in many ways. As discussed earlier, the Magnuson-Stevens
Act defines a fishing community as one that substantially depends on,
or is engaged in, harvesting or processing fishery resources to meet
social and economic needs. NMFS guidance further defines fishing
community geographically--that is, a social or economic group whose
members reside in a specific location. Fishery managers and experts
told us that communities with geographically distinct boundaries are
easier to define, such as island communities or remote communities in
Alaska. However, some communities are difficult to define when, for
example, some of the fishermen live away from the areas they fish, as
is the case for many halibut fishermen who reside in other states and
fish in the waters off the coast of Alaska. Moreover, communities can
also be defined in nongeographic ways, such as fishermen who use the
same type of fishing gear (e.g., hook-and-line or nets) for a
particular species or people and businesses involved in a fishery
regardless of location. These communities can include fishermen and
fish processors, as well as support services such as boat repair
businesses, cold storage facilities, and fuel providers.
Once fishery managers define the community, they must then determine
who represents the community and thus who will decide how the quota is
used. More than one organization (e.g., government entity, not-for-
profit organization, private business, or cooperative group) may claim
to represent the interests of the community as a whole. For example,
rural coastal communities in Alaska, which are geographically distinct,
could have several overlapping jurisdictions, including a local native
corporation, a local municipality, and a local borough. Determining who
represents the community is more difficult in communities without
geographically distinct boundaries.
Fishery managers also need to define what constitutes economic
viability, which is likely to differ by community because the fishery
has different economic significance in each community. Some communities
primarily rely on fishing and fishing-related businesses, while others
may have a more diverse economic base. (See fig. 1.) Consequently, it
may be unclear what type of protection a community needs to ensure its
economic viability. Fishery experts we spoke with agreed that few
communities in the United States primarily depend on fishing as their
economic base. Moreover, the balance of industries making up a
community's economy may change over time when, for example, the area
becomes more modernized or a new industry enters. For example, the
economy of the Shetland Islands changed dramatically with the
development of the oil industry off the Shetland Islands in the 1970s.
This development resulted in jobs and settlement funds that the
community used to enhance its economic base through community
development projects.
Figure 1: Fishing-centered and Multi-industry Fishing Communities:
[See PDF for image]
[End of figure]
Finally, communities have to decide whether to keep their quota, sell
it, or lease it to others. If they keep their quota, they also have to
decide how to allocate it. Similarly, if they sell or lease their
quota, they have to decide how to allocate the proceeds. Unless
communities can decide how to allocate quota or the proceeds, the
community quota may go unused and thus prevent the community from
receiving its benefit. For example, the quota New Zealand's Maori
people received from the government in 1992 has not been fully
allocated to the Maori tribes, largely because the commission
responsible for distributing the quota and the tribes could not agree
on the allocation formula.[Footnote 13]
Along with these definitional challenges, fishery managers and
communities have to address other design and implementation issues,
such as whether to establish prohibitions on quota sales or geographic
restrictions on quota transfers.
* Prohibitions on quota sales. Prohibiting quota sales may not allow
fishing communities or businesses to change over time as the fishing
industry changes. According to fishery experts we spoke with, rules
that prevent change essentially freeze fishing communities at one point
in time and may create "museum pieces." For example, prohibitions on
quota sales prevent the fishery from restructuring, thus forcing less
efficient quota holders and fishing businesses to remain in the
fishery. Consequently, prohibitions on quota sales may actually
undermine the economic viability of the fishing communities they were
designed to protect. In addition, prohibitions on quota sales might run
counter to an IFQ program's overall objective of reducing excess
investment in the fishery because such prohibitions act to prevent
fishermen from selling some of their boats or leaving the fishery.
* Geographic restrictions on quota transfers. Protecting communities by
imposing geographic restrictions on quota transfers also raises issues
that must be considered and addressed. According to fishery experts we
spoke with, rules that give communities the right to purchase quota
before it is sold outside the community might be legally avoided. For
example, Icelandic officials told us that in their IFQ program, where
individuals own vessels with associated quota rather than the quota
itself, companies holding quota easily avoided the "community right of
first refusal" rule by selling their companies as a whole to an outside
company, rather than just selling their vessels and associated quota.
As a result, communities could not use this rule to prevent the sale.
Furthermore, communities that could benefit from such a rule may not
have the money to purchase the quota, while those communities that can
afford to purchase the quota may not need the rule's protection.
Other program rules aimed at protecting the community also raise
implementation issues that fishery managers must consider:
* Accumulation limits. The challenge in setting accumulation limits--
the amount of quota that any one individual or entity can hold--is to
set limits that are high enough to promote economic efficiency and low
enough to prevent any one individual or entity from holding an
excessive share. According to New Zealand fishery managers and experts,
for example, accumulation limits were set at between 10 and 35 percent,
depending on the species, in order to allow individuals to acquire
enough quota to be efficient and competitive while also stemming
overcapacity and overfishing in the inshore fisheries. Furthermore, as
quota becomes more valuable, managers may face pressure from existing
quota holders to raise or eliminate the limits on accumulation. In
Iceland, for example, fishery managers recently increased accumulation
limits from 8 percent to 12.5 percent of the total quota because of
such pressure. In cases where both communities and individuals hold
quota, fishery managers may want to set different limits for
communities and individuals. Even after managers set accumulation
limits, monitoring and enforcing these limits could be more difficult
when fishermen create subsidiaries and complicated business
relationships that enable them to catch more than the quota limit for
an individual quota holder. To mitigate this problem, the Alaskan
halibut and sablefish program, for example, requires all quota transfer
applicants to identify whether they are individuals or business
entities, and requires all business entities to annually report their
ownership interests. NMFS uses this information to ensure that no
halibut and sablefish quota holdings, whether individually or
collectively, exceed the accumulation limits.
* Owner-on-board requirements. According to fishery experts we spoke
with, requiring quota holders to be onboard their vessels could be
impractical, especially for small businesses where the same person
would have to be on board at all times. Furthermore, such a rule would
require so many exceptions, such as for emergencies and illness, that
it could become meaningless.
* Requirements to bring catch into ports in a particular geographic
area. These requirements may not be healthy for a community's economy
in the long term. For example, such a requirement may subsidize
inefficient local fish processors that cannot compete on the open
market. With reduced competition, these processors may offer less money
for the catch, thus reducing the fishermen's income and ultimately
harming the community. According to Shetland Islands fishery managers
we spoke with, had fishermen been required to land their catch in the
Shetland Islands, they would have been forced to sell their catch at a
price far below the market value and the processor would have had no
incentive to restructure into the competitive business it is today.
* Leasing provisions. According to some fishery managers and experts,
leasing reduces stewardship incentives, which may impact the
community's long-term economic viability. Quota leasing separates the
person holding the quota from the person fishing the quota. In some
cases, quota leasing may diminish stewardship incentives by creating a
class of absentee quota holders who rely on independent fishermen.
While owner-on-board rules, such as those in Alaska, may minimize the
risk of creating this class of absentee quota holders, fishermen who
lease quota have only a temporary privilege to catch fish. Thus, they
have less interest in the long-term health of the fishery, especially
as the end of their lease term approaches. Consequently, incentives may
exist to catch more fish than their quota allows and sell this over-
quota fish on the black market or to fish using nonsustainable methods.
For example, according to New Zealand fishery experts, quota holders in
the high-value abalone fishery found that unskilled fishermen who
leased quota were jeopardizing the fish by extracting them in ways that
harmed the abalone beds.
Given the issues raised by quota transfer and other program rules, as
well as the potential loss of economic efficiency resulting from these
rules, some fishery managers and experts view freely transferable quota
as being the best way to maintain economically viable communities and
therefore place few or no restrictions on quota sales or leases. For
example, New Zealand allows free trade in quota on the theory that free
trade is needed to maximize returns from the fishery and enhance
stewardship of the resource. Similarly, the surfclam/ocean quahog IFQ
program has relatively few restrictions on quota transfers.
New Entry Methods Present Design and Implementation Challenges:
As with community protection methods, new entry methods also present a
variety of design and implementation challenges to fishery managers.
Allowing quota to be transferred through sales or leases provides the
opportunity for new entry but quota prices may increase over time,
making quota less affordable. In the New Zealand IFQ program, for
example, the average price per metric ton of rock lobster quota in one
management area skyrocketed from NZ$23,265 to NZ$222,500 over an 8-year
period.
While leasing helps make quota available at prices lower than the sales
price, the lease price may still be unaffordable or unprofitable to
fish and thus not practical for new entrants. For example, according to
New Zealand fishing industry representatives, the lease price for rock
lobster in 2003 was about NZ$22.50 per kilo, but fishermen needed to
sell the fish for at least NZ$30 per kilo to cover their
costs.[Footnote 14] To minimize the risk associated with leasing, the
Shetland Islands community quota program levied fees based on the sales
revenue from the quota fished, rather than setting a fixed lease price
that fishermen would have to pay, regardless of the amount of quota
fish caught.
Set-asides to make quota available for new entrants also raise
challenges, according to fishery experts. In setting aside quota for
new entrants, fishery managers have to decide how much quota to reserve
and who would be eligible to receive it, such as owners of small boats
or young fishermen. If a set-aside occurs when a program is first
established, managers do not have to take quota away from existing
quota holders. However, there are many challenges associated with
setting aside quota after a program is implemented.
* Buying back quota. Buying back quota may not be possible because the
government may not find quota holders willing to sell their quota. For
example, New Zealand funded a buyback program to obtain quota as part
of its settlement with the Maori tribes. However, the government was
not able to obtain the amount of quota it was seeking, and, as a
result, had to give the tribes money in place of some of the quota.
* Issuing quota for a fixed period of time. Issuing quota with
expiration dates could make it less likely that fishermen would accept
the IFQ system or make investments in efficiency. Fishermen could also
find it difficult to invest in boats and gear because banks may be less
willing to lend money and fishermen may be less willing to borrow.
Furthermore, as with leasing, stewardship incentives could decline as
the quota expiration date draws near.
* Setting aside TAC increases. Replenishing quota by using TAC
increases might not always be feasible because quota would not be
available to reserve as a set-aside when the TAC remains the same or
declines. Setting aside TAC increases would also dilute the interests
of existing quota holders, who would hold a smaller percentage of the
TAC.
Fishery managers also face challenges in deciding which new entrants
would be eligible to receive quota from the set-aside. If fishery
managers decide to auction quota to the highest bidder, they cannot be
assured that quota would be affordable to new entrants.[Footnote 15]
Fishery managers could auction the quota in small amounts, which would
make the quota more affordable and thereby open up opportunities to new
entrants. However, the value of the quota would decrease to reflect the
inherent inefficiency of this distribution mechanism. In addition,
while lotteries could provide potential entrants an equal chance to
obtain quota and resolve some of the equity issues raised by auctions,
they would also create more uncertainty for existing quota holders.
Current quota holders would no longer have control over quota purchases
and would have to depend on the luck of the draw. This uncertainty is a
disincentive to invest in boats or gear.
Economic assistance methods are designed to provide new entrants with
the capital needed to purchase quota and are the most direct method of
helping new entrants. However, they raise the following concerns,
according to fishery experts we spoke with:
* The financial assistance may not be sufficient for a potential new
entrant to enter the fishery or buy enough quota to earn a living.
* Providing economic assistance could contribute to an increased demand
for quota and further price increases, thereby defeating the primary
purpose of trying to make quota more affordable.
* Government entities may not be willing or able to fund economic
assistance programs.
Evaluations of Community Protection and New Entry Methods Would Enable
Managers to Determine Their Effectiveness:
Fishery managers have not conducted comprehensive evaluations of how
IFQ programs protect communities or facilitate new entry, because few
IFQ programs were designed with community protection or new entry as
objectives. This lack of information, combined with the concerns about
economic efficiency and fairness, makes it more difficult to decide
which community protection and new entry methods to use. In order to
determine whether the chosen methods are working or how they should be
improved, fishery managers would have to clearly define community
protection or new entry as an objective, identify data that isolate the
impact of community protection and new entry methods, collect these
data before implementing the program--baseline data--and compare these
data with data collected over the course of the program. This effort
would then allow managers to determine whether their community
protection or new entry methods are accomplishing their objectives and
whether they need adjustments to promote effectiveness or respond to
any unintended consequences.
Under the Magnuson-Stevens Act, fishery managers are required to
analyze the social and economic conditions of the fishery in developing
fishery management plans.[Footnote 16] These data could be used as a
baseline for the social and economic conditions in a fishing community.
In addition to baseline data, fishery managers need to collect data
once the IFQ program is established. For example, some fishery experts
told us that many fishing communities in Iceland collapsed when quota
was sold and left the community. However, other fishery experts and
Icelandic officials said that these communities would have collapsed
regardless of the IFQ, in part, due to the lack of educational and
employment opportunities and the movement of people to Reykjavik, the
capital, as the country modernized during this time period. This
difference in opinion exists partly because Iceland did not collect the
data needed to determine whether the IFQ program, or other factors, led
to the communities' demise. Recognizing the need for additional
information, Alaskan fishery managers will collect data each year on
the amount of halibut and sablefish quota held in each community to
help assess the effectiveness of its recent amendment allowing
communities to purchase quota. Similar issues arise in trying to
collect data that distinguishes new entrants from existing quota
holders. Without the data to clearly understand the changes occurring
in a fishery or community, fishery managers cannot effectively modify
their community protection or new entry methods.
IFQ Programs and Fishery Cooperatives Have Advantages and
Disadvantages:
During the moratorium on new IFQ programs in the United States, two
fishery cooperatives, among others, emerged as an alternative fishery
management approach--the Whiting Conservation Cooperative and the
Pollock Conservation Cooperative. (See app. III for a description of
each cooperative.) These cooperatives are voluntary contractual
agreements among fishermen to apportion shares of the catch among
themselves. In comparing the key features of IFQ programs and these
U.S. fishery cooperatives, we identified the advantages and
disadvantages of each approach in key areas. Given these differences,
an IFQ program combined with some characteristics of a cooperative,
such as provisions of New Zealand's cooperative-like stakeholder
organizations, may be beneficial.
IFQ Programs and Fishery Cooperatives Differ in Several Respects:
While both IFQ programs and fishery cooperatives can vary widely, the
general characteristics of IFQ programs and fishery cooperatives differ
in the areas of regulatory and management framework, number of
participants, quota allocation and transfer, and monitoring and
enforcement. (See table 1.):
Table 1: Differences between U.S. IFQ Programs and Fishery Cooperatives
in Key Areas:
Key areas: Regulatory and management framework;
IFQ programs:
* Established (and terminated) by regulations;
* Subject to fishery management council process;
Fishery cooperatives:
* Established (and terminated) by voluntary contractual agreements[A];
* Not subject to fishery management council process.
Key areas: Number of participants;
IFQ programs:
* Number may be large;
Fishery cooperatives:
* Number generally small.
Key areas: Allocation and transfer of quota;
IFQ programs:
* NMFS allocates quota to eligible entities;
* Quota traded on the open market;
* New entry requirements established by regulation;
Fishery cooperatives:
* NMFS allocates quota to cooperative, which, through negotiated
contract, allocates quota among members;
* Quota traded only within the cooperative;
* New entry closed at cooperative's discretion.
Key areas: Monitoring and enforcement;
IFQ programs:
* NMFS monitors individual participants for compliance with individual
TAC limits and other program rules;
* NMFS enforces;
Fishery cooperatives:
* NMFS monitors cooperative for compliance with TAC limits;
* NMFS enforces;
* Cooperative monitors its members for compliance with individual TAC
limits and contract terms;
* Cooperative members can bring legal action against another member
for breach of contract.
Source: GAO's analysis.
[A] Certain aspects of the pollock cooperative are governed by the
American Fisheries Act. For specific information on the whiting and
pollock cooperatives, see appendix III.
[End of table]
With respect to their regulatory and management framework and number of
participants, IFQ programs generally have greater stability, take
longer to establish, and manage larger numbers of participants than
cooperatives. IFQ programs have greater stability than fishery
cooperatives because they are established and terminated by federal
regulations, while cooperatives are established and terminated by
voluntary contractual agreements.
IFQ programs generally take longer to establish than fishery
cooperatives because of the fishery management council process. Fishery
councils must review the IFQ proposal, develop alternatives and
options, and analyze their potential social and economic effects before
submitting the proposal to the Secretary of Commerce for approval.
While the secretary is reviewing the proposal, NMFS must publish draft
regulations for public comment before the secretary makes a final
decision and the regulations are implemented. This process can be quite
lengthy; for example, it took 3 years for the North Pacific Council to
review, analyze, and adopt the proposed Alaskan halibut and sablefish
IFQ program and another 3 years to implement the program. In
comparison, because fishery cooperatives are voluntary, agreements can
be reached within a shorter period of time. For example, the contract
to form the whiting cooperative was negotiated in less than a day.
Finally, IFQ programs can manage larger numbers of diverse
participants. At the end of 2002, for example, the Alaskan halibut and
sablefish IFQ program had about 3,500 participants, ranging from
crewmembers on small boats to owners of large freezer vessels. In
contrast, according to fishery experts, fishery cooperatives work
better with fewer and relatively homogeneous participants because it is
difficult for members to reach agreement where there are many
participants with diverse interests. For example, the whiting
cooperative has four participants and the pollock cooperative has eight
participants.[Footnote 17] In both cooperatives, the participants are
large harvesting and processing companies that own catcher-processor
vessels.[Footnote 18]
With respect to allocating and transferring fishing privileges, IFQ
programs provide greater transparency than fishery cooperatives. Under
an IFQ program, NMFS uses widely published criteria established by
fishery councils to allocate quota to individual entities, such as
individual fishermen or fishing firms. Under a fishery cooperative,
NMFS allocates quota to the cooperative, which, through negotiated
contract, distributes the quota among its members. For example, the
four companies that operated catcher-processor vessels in the Pacific
whiting fishery negotiated a private contract to divide up the sector's
quota using catch history, vessel capacity, and number of vessels.
When quota can be transferred, IFQ programs are less exclusive than
cooperatives, because they provide entry opportunities for fishermen
who can find and afford to buy or lease quota. In comparison,
cooperatives are exclusive contractual arrangements where quota is
transferred among the members, and potential entrants may have
difficulty entering the cooperative.
Finally, regarding monitoring and enforcement, IFQ programs are viewed
as being more difficult for NMFS to administer than fishery
cooperatives, because NMFS must monitor individual participants for
compliance with program rules, such as quota accumulation and catch
limits. In contrast, cooperatives are viewed as being simpler for NMFS
to monitor and enforce, because NMFS monitors one entity--the
cooperative--and the cooperative is responsible for monitoring the
actions of its members.
A Combined Approach May Provide Benefits in Some Cases:
For some fisheries, establishing a cooperative of quota holders within
the overall framework of an IFQ program to help manage fishing may
maximize the benefits of IFQ programs and fishery cooperatives while
minimizing their downsides. Some of the benefits of a combined IFQ/
cooperative approach are illustrated in the examples below, where
groups of New Zealand quota holders formed cooperative-like
organizations to help manage their fisheries, such as abalone, hoki,
orange roughy, scallops, and rock lobster.
With respect to regulatory and management framework and number of
participants, a cooperative of IFQ holders offers the following
advantages:
* A combined approach provides the stability of an IFQ program. Because
the IFQ program is set by regulations, it will remain in place even if
the cooperative dissolves. Also, should the cooperative fail to
perform, its management authority and responsibilities would revert to
the government. For example, according to New Zealand fishery managers
we spoke with, the Challenger Scallop Enhancement Company (Scallop
Company) has managed the scallop fisheries effectively, but should it
fail to perform, its responsibilities would return to the government.
* A combined approach can provide a way for large numbers of
participants to organize into smaller groups to help manage their
fisheries collectively. For example, New Zealand's rock lobster IFQ
quota holders formed nine regional cooperative groups under the
umbrella of the New Zealand Rock Lobster Industry Council. The council
and the regional groups provide advice on management of rock lobster
fisheries.
* A combined approach can provide the opportunity for fishery
participants to pool information, assess stocks, achieve economies of
scale in production and try other forms of cooperation. For example, a
cooperative of quota holders could decide to pool their quota and fish
in more economical ways, such as having only certain members fish and
then distributing the proceeds among all members. Similarly, a
cooperative of quota holders could agree to stop fishing in certain
areas or leave some of the quota unfished to protect the resource. In
New Zealand, for example, abalone quota holders agreed not to fish some
of their quota, because they believed that the TAC had been set too
high.
In terms of allocating and transferring fishing privileges, a combined
approach offers the following advantages:
* Under a combined approach, the fishery council, rather than the
cooperative, could make the difficult and often contentious decisions
regarding who can hold quota and how much quota an individual receives.
* A combined approach would also provide transparency, because the IFQ
program's quota allocation and transfer rules could be used to allocate
quota to members of the cooperative.
* Fishery managers could reduce the exclusivity of a cooperative by
requiring that the cooperative give each new quota holder the
opportunity to join. For example, membership in New Zealand's
stakeholder organizations is open to any entity that holds quota in the
particular fishery.[Footnote 19] Moreover, quota allocations are not
lost if a cooperative of quota holders dissolves, because each member
retains the quota allocated under the IFQ program.
In terms of monitoring and enforcement, under a combined approach, the
government could give some management responsibilities to the
cooperative, such as monitoring the actions of individual members for
compliance with certain program rules. New Zealand officials told us
that their government reduced its monitoring costs for its scallop
fisheries because the Scallop Company now performs this function.
Because of the size and common interests of cooperatives, members often
create peer pressure to conform to program rules. Self-regulation might
also decrease overall enforcement costs. Finally, a combined approach
would provide the enforcement mechanisms of an IFQ program should self-
regulation fail and/or should the cooperative fail to perform its other
management responsibilities. New Zealand, for example, devolved most
IFQ management responsibilities to the Scallop Company, but the
government has not lost its management authority.
Conclusions:
No method will protect communities or facilitate new entry if the
fishery collapses. While an IFQ is a fishery management tool put in
place to protect the resource, as well as reduce overcapacity, these
laudable goals may have unintended consequences: the loss of
communities historically engaged in or reliant on fishing and reduced
participation opportunities for entry-level fishermen or fishermen who
did not qualify for quota under the initial allocation. New IFQ
programs or modifications to existing programs may be designed to
address these problems by incorporating community protection and new
entry goals. However, because the goals of community protection and new
entry run counter to the economic efficiency goals, fishery councils
face a delicate balancing act to achieve all goals. It is therefore
critically important for fishery councils to tailor IFQ programs to
achieve efficiency and conservation as well as social objectives.
However, without collecting and analyzing data on the effectiveness of
the approaches used, fishery councils will not know if the program is
meeting its intended goals and if mid-course adjustments need to be
made.
Recommendations for Executive Action:
To protect fishing communities and facilitate new entry into new or
existing IFQ fisheries, we recommend that the Director of the National
Marine Fisheries Service ensure that regional fishery management
councils that are designing community protection and new entry methods
take the following three actions:
* Develop clearly defined and measurable community protection and new
entry objectives.
* Build performance measures into the design of the IFQ program.
* Monitor progress in meeting the community protection and new entry
objectives.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Department of Commerce for
review and comment. We received a written response from the Under
Secretary of Commerce for Oceans and Atmosphere that included comments
from the National Oceanic and Atmospheric Administration (NOAA). NOAA
stated that our report was a fair and thorough assessment of community
protection and new entry issues in IFQ programs. NOAA generally agreed
with the report's accuracy and conclusions and agreed with the
substance of the report's recommendations. NOAA's comments and our
detailed responses are presented in appendix IV of this report.
NOAA indicated that it currently does not have the authority to direct
the councils to adopt the report's recommendations, because it cannot
direct councils to take actions that are not mandated by the Magnuson-
Stevens Act. We have revised our recommendations accordingly. However,
NOAA agreed with our recommendation to develop clearly defined and
measurable community protection and new entry objectives. NOAA noted
that clearly defined and measurable objectives are often hard to
identify, objectives may vary by IFQ program, and measurable objectives
require data that are not always available or regularly collected.
Nonetheless, it recognized that management objectives are important and
should be used as much as possible as yardsticks in developing IFQ
programs. NOAA agreed with our recommendation to build performance
measures into the design of the IFQ program, noting the importance of
selecting feasible and appropriate performance measures. Finally, NOAA
agreed with our recommendation to monitor progress in meeting the
community protection and new entry objectives. NOAA wrote that
provisions for the monitoring and review of new IFQ program operations
are addressed in the administration's Magnuson-Stevens Act
reauthorization proposal. NOAA also provided technical comments that we
incorporated in the report as appropriate.
We are sending 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 V.
Signed by:
Anu K. Mittal
Director, Natural Resources and Environment:
[End of section]
Appendix I: Scope and Methodology:
This is the second in a series of reports on individual fishing quota
(IFQ) programs. For this report, we reviewed foreign and domestic quota
programs and fishery cooperatives to determine (1) the methods
available for protecting the economic viability of fishing communities
and facilitating new entry into IFQ fisheries, (2) the key issues
raised by community protection and new entry methods, and (3) the
comparative advantages and disadvantages of the IFQ system and the
fishery cooperative approach.
For all three objectives, we visited Iceland, New Zealand, Scotland's
Shetland Islands, and Alaska and Maine in the United States, where we
interviewed fishery management officials, quota program participants,
researchers, and industry and community representatives and visited
fishing communities. We also visited the fishing communities of Kodiak
and Old Harbor, Alaska; and Jonesport, Portland, Stonington, and
Vinalhaven, Maine. In these communities, we interviewed fishery
participants, local government officials, and community
representatives, and visited fishing and fishing-related businesses. We
selected these countries and U.S. fishing communities in accordance
with suggestions from program managers and industry experts to obtain
coverage of a range of quota-based programs and fishing communities. We
also reviewed the literature on IFQ and other quota-based programs and
fishery cooperatives.
To determine the methods available for protecting the economic
viability of fishing communities and facilitating new entry into IFQ
fisheries and the potential limitations of each method, we identified
foreign and domestic programs with community protection or new entry
provisions. We interviewed and obtained the views of foreign and
domestic fishery management officials, program participants,
researchers, and industry and community representatives on methods that
are being used or could be used to protect communities and facilitate
new entry, as well as the potential benefits and limitations of each
method. We also searched for, but could not find, any studies and
assessments of the extent to which each program has met its community
protection or new entry objectives.
To determine the comparative advantages and disadvantages of the IFQ
system and the fishery cooperative approach, we identified and reviewed
fishery management plans, laws, and regulations related to existing IFQ
and fishery cooperative programs. We also reviewed and analyzed studies
and assessments of these programs and interviewed foreign and domestic
fishery management officials, researchers, and industry
representatives on the comparative benefits and downsides of each
approach.
We conducted our review from February through October 2003 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Descriptions of Selected Individual Fishing Quota (IFQ)
Programs:
This appendix describes IFQ programs in Iceland, New Zealand, and
Scotland's Shetland Islands, as well as the U.S. Mid-Atlantic surfclam/
ocean quahog IFQ program and the U.S. Alaskan halibut and sablefish IFQ
program. The term individual fishing quota as used in this report
includes individual transferable quota (ITQ) and individual vessel
quota (IVQ).
Iceland:
Iceland's economy depends heavily on the fishing industry, which
provides 70 percent of export earnings and employs 12 percent of the
work force. Iceland excluded foreign fishermen from its waters in the
1970s, when it introduced its exclusive economic zone. Nevertheless,
cod, Iceland's main commercial fish stock, had collapsed and other
essential stocks were reported to be near collapse by the 1980s.
In 1984, Iceland introduced individual fishing quotas for its major
fisheries. Fishermen indirectly hold quota in Iceland because Iceland's
individual fishing quotas are linked to fishing vessels rather than
persons. In 1990, Iceland allowed quota to be sold and leased,
transforming IFQs into individual transferable fishing quota. According
to fishery experts and managers, the fish in Iceland are property of
the Icelandic people rather than individual quota holders. As such,
quota allocations are indefinite in duration and could be revoked by
the Icelandic Parliament at any time.
While not explicitly designed with such objectives, Iceland's IFQ
program used the following provisions to protect communities and
encourage new entry:
* Community right of first refusal. This rule provides communities with
the right to veto the transfer of fishing vessels and associated quota
to someone outside of the community. To stop the sale, the community
must purchase the vessel at the market rate.
* Emergency community quota allocations. Iceland allocates small blocks
of quota to communities hurt by the transfer of quota from their area.
* Separate quota markets for large and small vessels. To help protect
small vessels, Iceland divided its IFQ system into two quota markets--
one for large vessels and another for small vessels. Quota allocated to
small vessels cannot be transferred to large vessels, and quota
allocated to large vessels cannot be transferred to small vessels.
Also, small-vessel fishermen can choose to fish a pre-set number of
fishing days (days-at-sea), instead of participating in the IFQ system.
New Zealand:
Seafood is New Zealand's fourth largest export, after dairy, meat, and
forestry. In 2000, seafood exports were worth about NZ$1.43 billion and
accounted for 90 percent of industry revenue.
New Zealand introduced individual fishing quotas in 1986 for some of
the most economically significant species to prevent overfishing in the
inshore fisheries while developing the unexplored deepwater fisheries.
Under the resulting quota management system, New Zealand manages about
50 species, such as hoki, orange roughy, and scallops. New Zealand's
IFQ fish accounted for about 95 percent of the fishing industry's value
in 2003.
New Zealand's system allows fishermen to buy or sell quota, as well as
lease quota on an annual basis.[Footnote 20] Fishery managers initially
established quota accumulation limits for the inshore and deepwater
fisheries. Furthermore, the allocation of quota changed from weight to
a percentage of the total allowable commercial catch in 1990.
According to New Zealand fishery managers, community protection was not
an objective of the quota management system, and New Zealand has few
fishing-dependent communities. However, the New Zealand government
allocated quota to the indigenous Maori tribes as part of the
settlement agreements resolving claims of ownership of the fisheries
under the Treaty of Waitangi Fisheries Commission. The commission is
leasing quota to fishermen while it develops a formula to distribute
quota to the Maori. Key barriers to reaching agreement on this
distribution formula include identifying membership in tribes and
agreeing on how much quota each tribe should receive.
In recent years, groups of quota holders have joined together in
cooperative-like organizations to help manage some of the fish stocks
under the quota management system. This co-management by government and
industry has led to the formation of key stakeholder groups in
fisheries such as hoki, orange roughy, rock lobster, and scallops.
Shetland Islands, Scotland (United Kingdom):
Fishing is integral to the economy and culture of Scotland's Shetland
Islands. In 1999, the value of the Shetland Islands' fishing industry
accounted for approximately one-fifth of the Shetland Islands' economy
and provided over 2,500 jobs. As part of the United Kingdom, Scotland
is party to the Common Fisheries Policy of the European Union. The
United Kingdom receives catch quotas for each species from the European
Union and then allocates portions of these quotas to groups of
fishermen known as producer organizations, such as the Shetland Fish
Producers Organization. The United Kingdom manages quotas under a fixed
quota allocation, an individual fishing quota that, in practice, allows
quota trades.
In the 1990s, because of concerns about high quota prices and
foreigners holding local quota, the Shetland Islands' fishing industry
developed the Shetland Community Fish Quota scheme to protect its
fishermen.[Footnote 21] The Shetland Fish Producers Organization
created and manages two pools of quota for Shetland Islands fishermen,
one for member fishermen and one for new entrants. Using oil settlement
monies, the local government purchased quota for the community fish
quota pool. This quota pool is available to those who have no quota as
well as those who need additional quota to participate in the fishery.
In 2002, 13 vessels used the pool, more than half receiving their
entire quota from the pool. The producers organization charges a fee
based on gross earnings rather than a fixed-term lease. Thus, new
entrants are charged only for fish landed and are not penalized for
leasing quota they cannot fish. The fee is based on the ratio of quota
held to quota borrowed. Table 2 shows how this fee is charged.
Table 2: Leasing Fees under the Shetland Community Fish Quota Scheme:
Percent of quota borrowed: 100;
Percent of quota already held: 0;
Fee charged (based on revenues from landings): 6.0% of all landings.
Percent of quota borrowed: 80;
Percent of quota already held: 20;
Fee charged (based on revenues from landings): 4.8% on 80% of the
landings.
Percent of quota borrowed: 50;
Percent of quota already held: 50;
Fee charged (based on revenues from landings): 3.0% on 50% of the
landings.
Percent of quota borrowed: 20;
Percent of quota already held: 80;
Fee charged (based on revenues from landings): 1.2% on 20% of the
landings.
Source: GAO analysis of Shetland Fish Producers' Organization data.
[End of table]
U.S. Mid-Atlantic Surfclam/Ocean Quahog IFQ Program:
The surfclam/ocean quahog fishery is a small, industrialized fishery
primarily located in the waters from Maine to Virginia, with commercial
concentrations found off the Mid-Atlantic states. The ocean quahog
fishery arose as a substitute for surfclams when the surfclam fishery
declined in the mid 1970s. While ocean quahogs are found further off
shore than surfclams, the same vessels are largely used in each
fishery. The surfclam fishery developed after World War II and was
being overfished by the mid 1970s. Disease and industry overfishing led
the Mid-Atlantic Fishery Management Council to develop a plan to manage
the fishery. The surfclam/ocean quahog fishery consists of small,
independent fishermen and vertically integrated companies.
Individual fishing quotas were established for the surfclam/ocean
quahog fishery in 1990; it was the first IFQ program in the United
States. The program was not designed nor does it have specific
objectives aimed at protecting fishing communities or facilitating new
entry; rather, it was designed to help stabilize the fishery and reduce
excessive investment in fishing capacity. The program included no
specific and measurable limits on how much quota an individual could
accumulate. However, allowing quota to be sold and leased provides the
opportunity for entry into the fishery.
U.S. Alaskan Halibut and Sablefish IFQ Program:
The Pacific halibut and sablefish fisheries are located off the coast
of Alaska. The fishing fleets are primarily owner-operated vessels of
various lengths that use hook and line or pot (fish trap) gear. Some
vessels catch both halibut and sablefish, and, given the location of
both species, they are often caught as incidental catch of one another.
Overcapacity of fishing effort led to fishing seasons that lasted less
than 3 days and a race to catch fish.
The Alaskan halibut and sablefish IFQ program was implemented in 1995,
shortly before Congress placed a moratorium on new IFQ programs. The
program was designed, in part, to help improve safety for fishermen,
enhance efficiency, and reduce excessive investment in fishing
capacity. The IFQ program includes the following community protection
or new entry provisions:
* Community quota. When the program was implemented, the council set
aside quota for a community development program to develop fishing and
fishing-related activities in villages in western Alaska. In 2002, the
council amended the IFQ program to allow certain Gulf of Alaska coastal
communities to buy Alaskan halibut and sablefish quota.
* Accumulation limits. The North Pacific Council adopted accumulation
limits ranging from 0.5 percent to 1.5 percent, depending on the
fishing area, to help protect the fisheries' owner-operator fleet,
which operates out of smaller communities.
* Vessel categories. The quota for each person eligible to receive
quota was permanently assigned to one of four vessel categories based
on vessel type and length.
* Quota blocks. The council permanently placed small amounts of quota
in blocks, in part, to help make quota available and affordable for
entry-level fishermen. Large amounts of quota remained unblocked.
Blocks can only be bought or transferred in their entirety. An
individual can hold two quota blocks; an individual who holds any
amount of unblocked quota can only hold one quota block.
* Crew consideration. Eligibility to obtain most quota by transfer is
limited to those who have 150 days of experience participating in any
U.S. fishery.
[End of section]
Appendix III: Descriptions of Selected U.S. Fishery Cooperatives:
A fishery cooperative is a group of fishermen who agree to work
together for their mutual benefit. Two fishery cooperatives emerged as
an alternative to IFQ programs in U.S. federal waters: (1) the Whiting
Conservation Cooperative, established in 1997 and (2) the Bering Sea
Pollock Conservation Cooperative, established in 1998. These
cooperatives are voluntary contractual agreements among fishermen to
apportion shares of the catch among themselves. Fishery cooperatives
operate under the Fishermen's Collective Marketing Act of 1934 (15
U.S.C. § 521), which provides an antitrust exemption to fishermen,
allowing them to jointly harvest, market, and price their product.
Whiting Conservation Cooperative:
The Pacific whiting fishery, located off the coasts of Washington,
Oregon, and California, is under the jurisdiction of the Pacific
Fishery Management Council. Whiting is harvested using mid-water trawl
nets (cone-shaped nets towed behind a vessel) and primarily processed
into surimi. The council has divided the Pacific whiting total
allowable catch (TAC) among three sectors--vessels that deliver to
onshore processors, vessels that deliver to processing vessels, and
vessels that catch and also process.
In the 1990s, the fishery was overcapitalized and fishing companies
were engaged in a race for fish. In 1997, four companies operating the
10 catcher-processor vessels in the fishery voluntarily formed the
Whiting Conservation Cooperative, which is organized as a nonprofit
corporation under the laws of the state of Washington. The overall
purposes of the cooperative are to (1) promote the intelligent and
orderly harvest of whiting, (2) reduce waste and improve resource
utilization, and (3) reduce incidental catch of species other than
whiting. The specific goals are to (1) eliminate the race for fish and
increase efficiency, (2) improve the efficiency of the harvest by using
an independent monitoring service and sharing catch and incidental
catch information, and (3) conduct and fund research for resource
conservation. The cooperative is not involved in matters relating to
pricing or marketing of whiting products.
The cooperative's contract allocates the Pacific whiting TAC for the
catcher-processor sector among the cooperative's members, who agree to
limit their individual harvests to a specific percentage of the TAC.
Once individual allocations are made, the contract allows for quota
transfers among member companies. To monitor the catch, the contract
requires the members to maintain full-time federal observers on their
vessels. Member companies bear the cost of observer coverage. The
contract also requires members to report catches to a private
centralized monitoring service. To ensure compliance, the contract
contains substantial financial penalties for members exceeding their
share of the quota.
Pollock Conservation Cooperative:
The pollock fishery off the coast of Alaska is the largest U.S. fishery
by volume. The fishery is under the jurisdiction of the North Pacific
Fishery Management Council, which sets the TAC each year. About 5
percent of the TAC is held in reserve to allow for the incidental
taking of pollock by other fisheries, 10 percent is allocated to
Alaska's community development quota program, and the remainder, called
the directed fishing allowance, is allocated to the pollock fishery.
Like whiting, pollock is harvested using mid-water trawl nets. Pollock
swim in large, tightly packed schools and do not co-mingle with other
fish species. Pollock are primarily processed into surimi and fillets.
In the 1990s, the Bering Sea pollock fishery was severely
overcapitalized, producing a race for fish. As a result, the fishing
season was reduced from 12 months in 1990 to 3 months in 1998.
The fishery is composed of three sectors--inshore, offshore catcher-
processor, and offshore mothership (large processing vessel).[Footnote
22] The American Fisheries Act[Footnote 23] statutorily allocated the
pollock fishery TAC among these three sectors and specified the
eligible participants in each sector.[Footnote 24] The nine companies
that operated the 20 qualified catcher-processor vessels formed the
Pollock Conservation Cooperative in December 1998.[Footnote 25] The
purpose of the cooperative was to end the race for fish.
Under the cooperative's agreement, members limit their individual
catches to a specific percentage of the total allowable catch allocated
to their sector. Once the catch is allocated, members can freely
transfer their quota to other members. The American Fisheries Act
requires each catcher-processor vessel to have two federal observers on
board at all times. Member companies bear the cost of observer coverage
on their vessels. A private sector firm also tracks daily catch and
incidental catch data to ensure that each member stays within its
agreed upon harvest limits. To ensure compliance, the contract contains
substantial financial penalties for members exceeding their share of
the quota. The cooperative is not involved in matters relating to
pricing or marketing of pollock products.
In addition to operating under the terms of the cooperative's contract,
members of the cooperative must conduct fishing activities in
compliance with certain NMFS and council requirements. Specifically,
NMFS is responsible for closing the fishery when the sectoral
allocation is reached. NMFS and the council set the season, impose
restrictions against fishing in certain areas and at certain times, and
set incidental catch limits for other species.
[End of section]
Appendix IV: Comments from the Department of Commerce:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
UNITED STATES DEPARTMENT OF COMMERCE
The Under Secretary of Commerce for Oceans and Atmosphere
Washington, D.C. 20230:
Ms. Anu K. Mittal
Director, Natural Resources and Environment
United States General Accounting Office
Washington, D.C. 20548:
Dear Ms. Mittal:
Thank you for the opportunity to review and comment on the General
Accounting Office's draft report entitled, "Individual Fishing Quotas:
Methods for Community Protection and New Entry Require Periodic
Evaluation," GAO-04-277. Enclosed is the National Oceanic and
Atmospheric Administration's comments on the draft report.
These comments were prepared in accordance with the Office of
Management and Budget Circular A-50.
Sincerely,
Signed by:
Conrad C. Lautenbacher, Vice Admiral, U.S. Navy (Ret.)
Under Secretary of Commerce for Oceans and Atmosphere:
Enclosure:
NOAA Comments on the Draft GAO Report Entitled:
"Individual Fishing Quotas: Methods for Community Protection and New
Entry Require Periodic Evaluation" (GAO-04-277/February 2004):
Recommended Changes for Factual Information:
NOAA finds that the draft GAO report on individual fishing quotas
(IFQs) was well researched through field trips and literature searches
and did not contain any significant errors of factual information.
General Comments:
The draft GAO report on IFQs does a fair and thorough job in assessing
community protection and new entrant issues in IFQ programs. The
report's discussion of the various methods available to the Regional
Fishery Management Councils (hereafter referred to "Councils") and the
Secretary of Commerce as delegated to the National Marine Fisheries
Service (hereafter referred to "NOAA Fisheries") to achieve these
objectives is generally well-informed, thorough, and balanced. At the
same time, the draft report seems to draw almost exclusively from
information on programs in Alaska, New Zealand, and Iceland, while the
United States also has IFQ programs in the Mid-Atlantic and South
Atlantic. In addition, the Gulf of Mexico Fishery Management Council
has worked for years on an IFQ program in the red snapper fishery.
Finally, the draft report did not review the British Columbia (Canada)
individual vessel quota program for Pacific halibut, which served as a
model for the Alaskan halibut and sablefish IFQ program.
NOAA believes that the most important sections of the report deal with
remedial measures and the issues raised by these programs. There are
many methods of dealing with community protection and new entrants, and
practically all of them present a host of policy and implementation
issues. The most serious issue is the tension that many of these
protective measures create between economic efficiency and social
equity. Notably, the draft report acknowledges that managers will have
a difficult time choosing between the two goals, in large part, because
the practical outcomes of proposed measures may be unknown. In light of
all these uncertainties, the draft report correctly avoids endorsing
any specific policy or course of action, but calls instead on NOAA
Fisheries and the Councils to develop more clearly defined objectives,
to build performance measures into IFQ programs, and to monitor
progress. Given all the questions attached to the proposed remedies,
NOAA Fisheries finds that these kinds of recommendations are probably
as far as we can go at the present time and in the foreseeable future.
Specific Comments:
Page 6, bulleted list:
The list of National Standards could be expanded by adding National
Standards 7, 9, and 10 (dealing respectively with cost minimization,
by-catch, and safety-at-sea), which also have implications for IFQ
programs.
Page 7, paragraph 1:
At the end of the first paragraph, add the following: "Additionally,
NMFS is preparing a draft proposed rule to implement a Council
recommendation to include the guided sport sector in the commercial
halibut IFQ program (this is the first known application of an IFQ
program to a sport fishery). Up to two percent of the combined
commercial and guided sport halibut quota will be set aside for certain
Gulf of Alaska coastal communities for two years to encourage
development of additional guided sport operators.":
Page 8, paragraph 1, line 2:
Note that the fishing season was increased to eight (not ten) months.
It has since been expanded by an additional two weeks.
Page 18, bottom of page:
Footnote 13 is not completely accurate. The North Pacific Council,
while managing fisheries in waters off one state (Alaska), still
manages access by fishermen from other states (e.g., Washington).
NOAA Response to GAO Recommendations:
The GAO report states, "To protect fishing communities and facilitate
new entry into new or existing IFQ fisheries, we recommend that the
Director of the National Marine Fisheries Service direct regional
fishery management councils that are designing community protection and
new entry methods to take the following three actions:":
NOAA Response: NOAA agrees in substance with this recommendation, but
notes one important point relating to the relationship between NOAA
Fisheries and the Councils. The current obligations of the Councils
with respect to fishing communities and new entrants in IFQ programs
are spelled out in the Magnuson-Stevens Fishery Conservation and
Management Act (MSA), especially in sections 301(a)(8) and 303(d). NOAA
Fisheries can only "direct" the Councils to develop plans that are in
conformity with the MSA and other applicable law. Conversely, the
Councils cannot be directed to undertake actions that are not mandated.
However, it should be noted that the Administration's June 2003 MSA re-
authorization proposal would require new Council IFQ programs to the
extent practicable to maintain the basic cultural and social framework
of the fishery and the sustained participation of dependent fishing
communities. The proposal also includes requirements for measures to
assist participation of entry-level and small scale fishermen,
captains, and crew, and provisions for the regular review and
monitoring of program operations. These proposed legislative
requirements are consistent with the intent of the GAO recommendations.
Recommendation 1: "Develop clearly defined and measurable community
protection and new entry objectives.":
NOAA Response: NOAA agrees that management objectives are important and
should be used as much as possible as yardsticks in developing IFQ
programs. However, "clearly defined and measurable... objectives" are
often hard to identify. Objectives may vary from one IFQ program to
another (a fact noted in the draft report's discussion of the surfclam/
ocean quahog and Alaskan halibut/sablefish programs), and measurable
objectives require data that are not always available or regularly
collected. NOAA Fisheries will formally request that all Councils
preparing new IFQ programs include clearly defined and measurable
objectives that address community protection and new entrants:
Recommendation 2: "Build performance measures into the design of the
IFQ program.":
NOAA Response: NOAA agrees with this recommendation and will formally
request that all Councils preparing new IFQ programs include
performance measures in the design of these programs. A critical task
will then be the selection of feasible and appropriate performance
measures. "Performance standards" already exist in the Alaskan halibut
and sablefish IFQ program and the western Alaska and community
development quota (CDQ programs. However, it is not clear that these
"performance standards" are the same as "performance measures" proposed
by GAO. More fundamentally, the term "performance measures" could be
used, perhaps inappropriately, as yardsticks to judge the success or
failure of IFQ programs. For example, performance measures could place
too much responsibility on IFQs for changes in the structure of fishing
communities that were brought about by other factors. Finally,
performance measures may be a crude and inexact way to distinguish
between efficiency and equity objectives. For example, measures to
protect communities and facilitate new entrants may succeed, but at the
expense of excessive lost efficiency.
Recommendation 3: "Monitor progress in meeting the community protection
and new entry objectives.":
NOAA Response: NOAA agrees with this recommendation and notes that
provisions for the monitoring and review of new IFQ program operations
are addressed in the Administration's MSA re-authorization proposal.
NOAA will write to the Councils, formally urging them to implement this
recommendation.
The following are GAO's comments on NOAA's written comments provided by
the Under Secretary of Commerce for Oceans and Atmosphere's letter
dated February 6, 2004.
GAO Comments:
1. The report provided examples of National Standards relating to
issues discussed in the report (overfishing, equity, efficiency,
community protection, and new entry). We did not include National
Standards relating to cost minimization, by-catch, and safety-at-sea,
because we did not discuss these issues in the report.
2. We revised the text to make it clear that we were providing examples
of commercial fisheries where new IFQ programs were being considered.
3. We revised the text to reflect that the halibut season was increased
to 8 months.
4. We deleted the footnote relating to the uniqueness of Alaska, which
is regulated by the North Pacific Council, from states covered by the
other fishery councils, which regulate fisheries in multiple states.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Keith W. Oleson, (415) 904-2218:
Staff Acknowledgments:
In addition to those named above, Doreen S. Feldman, John S. Kalmar,
Jr., Susan J. Malone, Mark R. Metcalfe, Carol Herrnstadt Shulman, and
Tama R. Weinberg made key contributions to this report.
FOOTNOTES
[1] These programs are frequently called individual transferable quota
(ITQ) programs.
[2] U.S. General Accounting Office, Individual Fishing Quotas: Better
Information Could Improve Program Management, GAO-03-159 (Washington
D.C.: Dec. 11, 2002).
[3] Pub. L. No. 94-265 (codified as amended at 16 U.S.C. §§ 1801-1883).
[4] Pub. L. No. 104-297 (1996).
[5] 50 C.F.R. § 600.345(b)(3).
[6] Dinneford, E., K. Iverson, B. Muse, and K. Schelle, Changes Under
Alaska's Halibut IFQ Program, 1995 to 1998, Abstract, Alaska Department
of Fish and Game, Commercial Fisheries Entry Commission (November
1999).
[7] For example, the Clean Air Act provides for the Environmental
Protection Agency to withhold a proportion (2.8 percent) of utilities'
annual sulfur emissions allowances and offer a portion of them for sale
in an auction, and to set aside another portion for direct sale at a
price specified in the statute.
[8] 16 U.S.C. § 1853(d)(4).
[9] 16 U.S.C. § 1855(h).
[10] National Research Council, Sharing the Fish: Toward a National
Policy on Individual Fishing Quotas (Washington, D.C.: National Academy
Press, 1999), 8.
[11] Lenders file against identifiable groups of quota shares and not
against quota holders.
[12] More than one person may have reported an interest against the
same group of quota shares.
[13] In December 2003, legislation was introduced in the New Zealand
Parliament that, among other things, sets out the allocation formula to
be used to allocate quota to the Maori tribes.
[14] Rock lobster traditionally sells for high prices, particularly in
the large Asian market. However, the Asian market price temporarily
collapsed in 2003 when the Severe Acute Respiratory Syndrome epidemic
broke out and fewer Asians were eating in restaurants.
[15] As we noted previously, the Magnuson-Stevens Act's limitation on
fees may effectively preclude auctions.
[16] In particular, National Standard 8 of the Magnuson-Stevens Act, as
amended by the Sustainable Fisheries Act, requires that fishery
conservation and management measures take into account the importance
of fishery resources to fishing communities in order to provide for the
sustained participation of fishing communities, and to the extent
practicable, minimize adverse economic impacts on fishing communities.
A fishing community, in turn, is defined as one that is substantially
dependent on or engaged in the harvesting or processing of fishery
resources to meet social and economic needs.
[17] Nine companies formed the Pollock Conservation Cooperative. One
company later transferred its allocation to other member companies.
[18] Some cooperatives have more participants. In 2002, for example, 77
permit holders in the state of Alaska's Chignik salmon purse seine
fishery joined a cooperative to fish sockeye salmon.
[19] These organizations can also have members who do not hold quota,
such as fish processors and exporters.
[20] New Zealand allows individuals to buy or sell an annual catch
entitlement (ACE). This trading of ACE is theoretically equivalent to
leasing quota for 1 year.
[21] The European Union found that parts of this scheme were
noncompliant, largely because it gives preferential treatment to
Shetland fishermen. Fishery managers are currently working to modify
the scheme in order to continue community ownership of quota.
[22] The inshore sector is comprised of catcher vessels harvesting
pollock for processing plants located on or near the shore. The
offshore catcher-processor sector is comprised of catcher-processor
vessels (vessels that both catch and process pollock) and catcher
vessels catching pollock for processing by catcher-processors. The
offshore mothership sector consists of catcher vessels harvesting
pollock for processing by motherships (large vessels that process but
do not catch fish).
[23] Pub. L. No. 105-277, Division C, tit. II (1998).
[24] The inshore sector received 50 percent of the directed fishing
allowance; the offshore catcher-processor sector received 40 percent;
and the offshore mothership sector received 10 percent.
[25] Four of the companies are also members of the Whiting Conservation
Cooperative.
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