Individual Fishing Quotas
Economic Effects on Processors and Methods Available to Protect Communities Gao ID: GAO-04-487T February 25, 2004To address overfishing, the National Marine Fisheries Service started using individual fishing quotas (IFQ) as a fishery conservation and management tool in 1990. Under an IFQ program, a regional fishery management council sets a maximum, or total allowable catch, and allocates the privilege to harvest a certain portion of the catch in the form of quota to individual vessels, fishermen, or other eligible recipients. IFQ programs have achieved many of the desired conservation and management benefits, such as helping to stabilize fisheries, reducing excessive investment in fishing capacity, and improving safety. However, concerns have been raised about the economic effects of IFQ programs on fish processors and fishing communities, among others. This testimony is based on two GAO reports on issues related to the use of IFQs (Individual Fishing Quotas: Better Information Could Improve Program Management, GAO-03- 159, Dec. 11, 2002, and Individual Fishing Quotas: Methods for Community Protection and New Entry Require Periodic Evaluation, GAO-04-277, Feb. 24, 2004). Specifically, GAO addressed the (1) economic effects of the Alaskan halibut IFQ program on processors and (2) the methods available for protecting communities under an IFQ program.
The Alaskan halibut IFQ program has had varied economic effects on processors. The program extended the halibut fishing season to 8 months, allowing more halibut to be processed and sold as a fresh product. This shift to fresh product led to the emergence of the buyer broker, an increased competition for fish, and higher halibut ex-vessel prices (prices paid to fishermen for raw product). In addition, a net decrease of 12 shore-based plants that processed halibut occurred between 1995, when the IFQ program was implemented, and 2001, as well as a reallocation of market share. For the 28 companies that processed halibut in both 1995 and 2001, 15 lost market share and 13 gained market share. Factors other than the implementation of the IFQ program, such as the diversity and value of species processed, could also have impacted the wellbeing of Alaskan halibut processors. For example, halibut represented a relatively small portion of the fish processed by shore-based plants in Alaska and of total plant value. Specifically, from 1994 to 2001, halibut represented, on average, 2 percent to 4.1 percent of all fish processed at a plant and accounted for 4.4 percent of total plant value in 1994 and 7.9 percent in 2001. The only estimate of the program's economic effects on processors is a 2002 study commissioned by the state of Alaska. This study estimated that halibut processors experienced a 56-percent loss in gross operating margins. However, GAO's analysis, as well as the analyses of others, identified concerns about the study's assumptions, representiveness, and potential for participant bias that raise questions about the reliability of its estimates. Several methods are available for protecting the economic viability of fishing communities under an IFQ program. The easiest and most direct way is to allow communities to hold harvesting quota and decide how this quota is to be used. In addition, fishery managers can help ensure the economic viability of communities by adopting quota management rules aimed at protecting certain groups of fishery participants. However, protecting the economic viability of communities is a social objective, and realizing such an objective may undermine economic efficiency and raise questions of equity. For example, rules that allow communities to hold harvesting quota may result in allocations to communities that do not have the knowledge and skills to manage the quota effectively and thus increase costs and/or decrease revenues. Similarly, rules that appear to favor one group of fishermen over another may result in fairness and equity challenges. Fishery managers also face a number of challenges associated with the methods available to protect communities. The resolution of these issues ultimately will depend on the specific circumstances within a fishery and the overall program objectives.
GAO-04-487T, Individual Fishing Quotas: Economic Effects on Processors and Methods Available to Protect Communities
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Testimony:
United States General Accounting Office:
GAO:
Before the Committee on Commerce, Science, and Transportation, U.S.
Senate:
For Release on Delivery:
Expected at 9:30 a.m. EST:
Wednesday, February 25, 2004:
Individual Fishing Quotas:
Economic Effects on Processors and Methods Available to Protect
Communities:
Statement of Anu K. Mittal, Director:
Natural Resources and Environment:
GAO-04-487T:
GAO Highlights:
Highlights of GAO-04-487T, testimony before the Committee on Commerce,
Science, and Transportation, United States Senate.
Why GAO Did This Study:
To address overfishing, the National Marine Fisheries Service started
using individual fishing quotas (IFQ) as a fishery conservation and
management tool in 1990. Under an IFQ program, a regional fishery
management council sets a maximum, or total allowable catch, and
allocates the privilege to harvest a certain portion of the catch in
the form of quota to individual vessels, fishermen, or other eligible
recipients.
IFQ programs have achieved many of the desired conservation and
management benefits, such as helping to stabilize fisheries, reducing
excessive investment in fishing capacity, and improving safety.
However, concerns have been raised about the economic effects of IFQ
programs on fish processors and fishing communities, among others.
This testimony is based on two GAO reports on issues related to the
use of IFQs (Individual Fishing Quotas: Better Information Could
Improve Program Management, GAO-03159, Dec. 11, 2002, and Individual
Fishing Quotas: Methods for Community Protection and New Entry Require
Periodic Evaluation, GAO-04-277, Feb. 24, 2004).
Specifically, GAO addressed the (1) economic effects of the Alaskan
halibut IFQ program on processors and (2) the methods available for
protecting communities under an
What GAO Found:
The Alaskan halibut IFQ program has had varied economic effects on
processors. The program extended the halibut fishing season to 8
months, allowing more halibut to be processed and sold as a fresh
product. This shift to fresh product led to the emergence of the buyer
broker, an increased competition for fish, and higher halibut ex-
vessel prices (prices paid to fishermen for raw product). In addition,
a net decrease of 12 shore-based plants that processed halibut
occurred between 1995, when the IFQ program was implemented, and 2001,
as well as a reallocation of market share. For the 28 companies that
processed halibut in both 1995 and 2001, 15 lost market share and 13
gained market share.
Factors other than the implementation of the IFQ program, such as the
diversity and value of species processed, could also have impacted the
well-being of Alaskan halibut processors. For example, halibut
represented a relatively small portion of the fish processed by shore-
based plants in Alaska and of total plant value. Specifically, from
1994 to 2001, halibut represented, on average, 2 percent to 4.1
percent of all fish processed at a plant and accounted for 4.4 percent
of total plant value in 1994 and 7.9 percent in 2001. The only
estimate of the program's economic effects on processors is a 2002
study commissioned by the state of Alaska. This study estimated that
halibut processors experienced a 56-percent loss in gross operating
margins. However, GAO's analysis, as well as the analyses of others,
identified concerns about the study's assumptions, representiveness,
and potential for participant bias that raise questions about the
reliability of its estimates.
Several methods are available for protecting the economic viability of
fishing communities under an IFQ program. The easiest and most direct
way is to allow communities to hold harvesting quota and decide how
this quota is to be used. In addition, fishery managers can help
ensure the economic viability of communities by adopting quota
management rules aimed at protecting certain groups of fishery
participants. However, protecting the economic viability of
communities is a social objective, and realizing such an objective may
undermine economic efficiency and raise questions of equity. For
example, rules that allow communities to hold harvesting quota may
result in allocations to communities that do not have the knowledge
and skills to manage the quota effectively and thus increase costs
and/or decrease revenues. Similarly, rules that appear to favor one
group of fishermen over another may result in fairness and equity
challenges. Fishery managers also face a number of challenges
associated with the methods available to protect communities. The
resolution of these issues ultimately will depend on the specific
circumstances within a fishery and the overall program objectives.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GA0-04-487T].
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Anu Mittel at (202)
512-3841 or mittala@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
We are pleased to be here today to discuss the economic effects of
individual fishing quotas (IFQ) on processors and methods available
for protecting communities under an IFQ program.
Overfishing is a problem with far-reaching ecological and economic
consequences. About one-third of the fish stocks assessed by the
Department of Commerce's National Marine Fisheries Service (NMFS) are
overfished or will become overfished if conditions do not change. When
a fishery”composed of one or more fish stocks within a geographic area”
cannot be sustained, the marine ecosystem can be transformed, thus
threatening the livelihood of fishermen and the way of life in many
communities.
Fishery management practices in U.S. waters are developed primarily by
regional fishery management councils established under the Magnuson-
Stevens Fishery Conservation and Management Act (Magnuson-Stevens
Act).[Footnote 1] Fishery councils, under the direction of NMFS, have
used several types of controls to maintain the health of U.S.
fisheries. In 1990, NMFS started using IFQs as a conservation and
management tool. Under an IFQ program, a regional fishery management
council sets a maximum, or total allowable catch, and allocates the
privilege to harvest a certain portion of the catch in the form of
quota to individual vessels, fishermen, or other eligible recipients.
IFQ programs have achieved many of the desired conservation and
management benefits, such as helping to stabilize fisheries, reducing
excessive investment in fishing capacity, and improving safety.
However, concerns have been raised about the economic effects of IFQ
programs on fish processors and fishing communities, among others.
Our testimony is based on two reports we prepared at the request of
this Committee's Subcommittee on Oceans, Fisheries, and Coast Guard.
[Footnote 2] The first report focused on the consolidation and foreign
holdings of quota and the economic effects on processors. The second
report addressed the methods available to protect the economic
viability of communities and facilitate new entry into IFQ fisheries.
For our study of the economic effects on processors, we focused on the
Alaskan halibut IFQ program, which began in 1995. We interviewed
fishery participants, visited processing plants in Alaska, analyzed
public data, and reviewed the only study that attempted to quantify
the economic effects of the program on processors. For our study of
community protection methods available under an IFQ program, we
visited domestic and foreign fishing communities in Alaska, Maine,
Iceland, Scotland, and New Zealand In these communities and elsewhere,
we spoke with fishery managers, participants, and researchers;
reviewed literature on domestic and foreign quota-based programs; and
reviewed key regulations and studies. Our testimony today discusses
the (1) economic effects of the Alaskan halibut IFQ program on
processors and (2) the methods available for protecting communities
under an IFQ program.
In summary, we found the following:
* The Alaskan halibut IFQ program had varied economic effects on
processors”some processors were adversely affected while others
benefited. First, the program extended the halibut fishing season to 8
months, thus allowing more halibut to be processed and sold as a
higher-value fresh product than as a lower-value frozen product.
Second, this shift to fresh product led to the emergence of the buyer
broker, generally a one-person operation with lower overhead costs,
which resulted in increased competition for fish and contributed to
higher ex-vessel prices (prices paid to fishermen for raw product) for
halibut. Third, there was a net decrease of 12 shore-based plants that
processed halibut between 1995 and 2001-68 plants stopped processing
halibut and 56 started. Over three-quarters of the plants that stopped
or started processing processed less than 100,000 pounds of halibut
annually. Finally, there was a reallocation of market share. Of the 28
companies that processed halibut in both 1995 and 2001, 15 lost market
share and 13 gained market share.
* The economic well-being of processors may also have been impacted by
factors other than the implementation of the IFQ program, such as the
diversity and value of species processed. Our analysis indicates that
halibut represented a relatively small portion of the fish processed
by shore-based plants in Alaska. Specifically, from 1994 to 2001,
halibut represented, on average, 2 percent to 4.1 percent of all fish
processed at a plant and accounted for 4.4 percent of total plant
product value in 1994 and 7.9 percent in 2001.
* We identified only one study that estimated the economic effects of
the IFQ program on halibut processors. This study, commissioned by the
state of Alaska, concluded that halibut processors experienced a 56-
percent ($8.7 million) loss in gross operating profits, primarily
because of the IFQ. However, our analysis, as well as the analyses of
others, identified concerns about the study's assumptions,
representiveness, and potential participant bias, that raise questions
about the reliability of the study's estimates.
* Several methods are available to help protect the economic viability
of fishing communities under an IFQ program. The easiest and most
direct way is to allow the communities themselves to hold harvesting
quota and decide how this quota is to be used. In addition, fishery
managers can help ensure the economic viability of communities by
adopting quota management rules aimed at protecting certain groups of
fishery participants. However, it is important to recognize that
protecting the economic viability of communities is a social
objective, and realizing such an objective may undermine economic
efficiency and raise questions of equity. For example, rules that
allow communities to hold harvesting quota may result in allocations
to communities that do not have the knowledge and skills to manage the
quota effectively and thus increase costs and/or reduce revenues.
Similarly, rules that appear to favor one group of fishermen over
another may result in fairness and equity challenges. Fishery managers
also face a number of challenges associated with the methods available
to protect communities. The resolution of these issues ultimately will
depend on the specific circumstances within a fishery and the overall
program objectives.
Background:
The Magnuson-Stevens Act granted responsibility for managing marine
resources to the Secretary of Commerce. The Secretary delegated this
responsibility to NMFS, which is part of Commerce's National Oceanic
and Atmospheric Administration. The act established eight regional
fishery management councils, each with responsibility for making
recommendations to the Secretary of Commerce about management plans
for fisheries in federal waters.
The Magnuson-Stevens Act also established national standards for
fishery conservation and management. These standards, among other
things, require the fishery management councils to consider the
importance of fishery resources to fishing communities. The 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 fish processors based in the
community. NMFS guidance further defines fishing community to mean a
social or economic group whose members reside in a specific location.
[Footnote 3]
Alaskan Halibut IFQ Program Resulted in Changes That Harmed Some
Processors and Benefited Others:
The Alaskan halibut IFQ program changed the environment in which
traditional shore-based processors operated by extending the halibut
fishing season from several days to 8 months. Before the IFQ program
was implemented, fishermen had just a few days to fish the total
allowable catch for the year. Consequently, they provided processors
with large amounts of fish in a very short period of time, and
processors organized their operations to process under these
conditions. With the implementation of the IFQ program, the "race for
fish" was eliminated because fishermen had more flexibility in
choosing when to fish. As a result, processors received halibut in
smaller quantities over a longer period of time. This extended fishing
season enabled more halibut to be processed and sold as a fresh
product. Consequently, the fresh halibut market, as figure 1 shows,
increased from 15 percent of the total halibut market in 1994 to 46
percent in 2001.
Figure 1: Fresh Halibut as a Percentage of Total Halibut Production,
1984 through 2001:
[Refer to PDF for image: line graph]
The graph depicts fresh halibut as a percentage of total halibut
production, 1984 through 2001, with an indication that the IFQ program
began in mid-1995.
Source: GAO analysis of Alaska Department of Fish and Game, Commercial
Operators Annual Report data.
[End of figure]
However, to take advantage of the fresh market and its potential for
higher wholesale prices, processors needed ready access to highways
and air transportation. As a result, processors with access to
transportation systems may have been competitively advantaged, while
those who were in more remote locations may have been competitively
disadvantaged because transportation costs were higher for them. For
example, one processor estimated that the costs of transporting fresh
product from Kodiak Island, Alaska, to Seattle, Washington, was about
20 cents a pound higher than from Seward or Homer, Alaska, which has
ready access to a major road system to Seattle. Also, processors
located near providers of fuel, ice, stores, and entertainment, said
that fishermen were more willing to deliver fish to them than if these
providers were not available.
The shift toward fresh product in the halibut market led to the
emergence of the buyer-broker, an intermediary who buys fish at a port
and ships it fresh to market. Processors told us that the emergence of
buyer-brokers, generally one-person operations with lower overhead
costs, increased competition for fish and contributed to the increase
in ex-vessel halibut prices. As table 1 shows, the percentage of
halibut purchased by buyer-brokers increased from 3.7 in 1995 to 17.4
in 1999.
Table 1: Halibut Buyers, by Category, 1995 and 1999:
Category: Buyer-broker;
Percentage of halibut purchased 1995[A]: 3.7;
Percentage of halibut purchased 1999[B]: 17.4.
Category: Shore-based processors;
Percentage of halibut purchased 1995[A]: 84.9;
Percentage of halibut purchased 1999[B]: 73.8.
Category: Other;
Percentage of halibut purchased 1995[A]: 11.4;
Percentage of halibut purchased 1999[B]: 8.8.
Category: Total;
Percentage of halibut purchased 1995[A]: 100.0;
Percentage of halibut purchased 1999[B]: 100.0.
Source: NMFS.
[A] 1995 was the earliest year for which NMFS data were available.
[B] 1999 was the most recent year we could analyze because, starting
in 2000, buyers could identify themselves in multiple categories.
[End of table]
Along with an increase in buyer-broker halibut purchases, there was a
net decrease in the number of individual shore-based plants that
processed halibut. While some plants stopped processing halibut,
others decided it was beneficial to start. Between 1995, when the IFQ
program was implemented, and 2001, 68 plants stopped processing
halibut and 56 started, resulting in a net decrease of 12 plants. Most
of the shore-based plants that stopped and started processing were
relatively small in comparison to other processors. About 80 percent
of the shore-based plants that stopped processing halibut and 75
percent of those that started purchased less than 100,000 pounds of
halibut annually.
The IFQ program alone did not necessarily cause a plant to stop
processing halibut. For example, one processor with a freezing
operation bought halibut, but its primary business was buying salmon
from &oilers and then selling it. When the supply of farmed salmon
increased, contributing to price decreases, the owners decided to sell
the plant. According to industry and government officials, other
plants stopped processing halibut because plant management made poor
business decisions that were unrelated to the IFQ program, the plant
burned down, or the plant was closed for personal reasons.
In addition to changes in the number of plants processing halibut,
companies experienced some change in their market share.[Footnote 4]
Some processing companies lost market share, while others gained
market share. Comparing market shares for 1995 and 2001, we found that
of 28 companies that processed halibut in both years, 15 experienced a
decrease in market share and 13 experienced an increase.
Factors other than the IFQ program's implementation could also have
contributed to changes in the economic well-being of processors. For
example, according to NMFS officials and industry experts, most
processors handled other species of fish in addition to halibut, and
the relative proportion and value of these species will affect the
economic condition of processors. According to our analysis of data
from the Alaska Commercial Operators Annual Report, halibut
represented a relatively small portion of the fish processed by shore-
based plants. Specifically, from 1994 to 2001, halibut represented, on
average, 2.0 percent to 4.1 percent of all fish processed at a plant.
In terms of value, as shown in table 2, halibut was 4.4 percent of
total plant product value in 1994 and 7.9 percent in 2001. (These
ranges are averages for all plants processing halibut and a particular
plant may process a higher percentage of these fish.) In these
circumstances the drop in salmon prices most likely had a larger
effect on economic well-being of processors than the halibut IFQ
program.
Table 2: Average Product Value Percentage, by Species, for Plants
Processing Halibut and Sablefish, 1994 and 2001:
Species: Halibut;
Percentage of product value, 1994: 4.4;
Percentage of product value, 2001: 7.9.
Species: Sablefish;
Percentage of product value, 1994: 4.7;
Percentage of product value, 2001: 5.3.
Species: Cod;
Percentage of product value, 1994: 5.7;
Percentage of product value, 2001: 9.5.
Species: Pollock;
Percentage of product value, 1994: 12.6;
Percentage of product value, 2001: 27.6.
Species: Salmon;
Percentage of product value, 1994: 46.7;
Percentage of product value, 2001: 35.1.
Species: Other species[A];
Percentage of product value, 1994: 25.9;
Percentage of product value, 2001: 14.6.
Species: Total;
Percentage of product value, 1994: 100.0;
Percentage of product value, 2001: 100.0.
Source: GAO analysis of Alaska Department of Fish and Game, Commercial
Operators Annual Report data.
[A] Other species include crab, flounder, greenling, herring, lingcod,
octopus, perch, prowfish, rockfish, shrimp, skate, sole, and turbot.
[End of table]
To determine the IFQ program's effect on processors, Alaska's
Department of Fish and Game commissioned a study to examine how
halibut and sablefish processors were affected economically.[Footnote
5] This was the only study we could find that attempted to quantify
the economic effect the IFQ program had on halibut processors. Using a
sample of halibut processors, the study assessed the change in
processors' gross operating margins (revenues minus variable costs of
processing). The study used the periods 1992-1993 for pre-IFQ margins
and 1999-2000 for post-IFQ margins. According to the study's principal
author, these years were chosen because they provided the longest
possible length of time between the pre-and post-IFQ years for which
data were available. The study estimated that halibut processors
suffered a 56 percent, or $8.7 million, loss in gross operating
margins because the IFQ program caused halibut prices to increase and
processors' market shares to change.[Footnote 6]
While we could not validate or replicate the study's results because
the proprietary data used in the study were confidential, we
identified a number of concerns with the study's assumptions,
representiveness, and potential for participant bias that brings into
question the reliability of the study's estimates. First, we
identified several issues of concern about the assumptions used in the
study. For example, the study assumes that all costs, except labor and
material inputs, remained fixed from 1992 through 2000. However, as
pointed out in a critique of the study,[Footnote 7] this assumption
would not be appropriate for a period as short as a year, and is
clearly unjustified for the 7-year period evaluated, because the
longer the time period assessed, the more likely costs will change.
Even if the study's assumption about costs were valid, the pre- and
post-IFQ periods examined identify a greater negative change in gross
operating margins than might have been identified if different or
longer periods had been used. The changes in gross operating margins
and the estimated economic effects are influenced by the fact that ex-
vessel halibut prices dipped in the period 1992-1993 and were near
their peak in 1999-2000. (See figure 2.) Ex-vessel halibut prices in
1999-2000 were 44.5 percent higher than they were in 1992-1993.
However, when different base years, such as 1991-1992, are compared
with 1999-2000, the price increase is 22.7 percent. If these different
periods had been used in the study, the estimated loss in processor
gross operating margins would have likely been much less.
Figure 2: Ex-Vessel Halibut Prices, 1984 through 2001:
[Refer to PDF for image: line graph]
The graph depicts halibut prices per pound, 1984 through 2001, with an
indication that the IFQ program began in mid-1995.
Source: GAO analysis of Alaska Department of Fish and Game, Commercial
Operators Annual Report data.
Note: Ex-vessel halibut prices were adjusted to 1996 dollars using the
Bureau of Economic Analysis's Gross Domestic Product implicit price
deflator.
[End of figure]
The influence of the choice of base years and the corresponding ex-
vessel prices can also be demonstrated by looking at the difference
between the price a processor pays for raw fish and the price a
processor receives for the processed fish”the processor's price
margin. We calculated a simplified version of the price margin to
demonstrate the sensitivity of the margin to the choice of the time
period examined. As table 3 shows, comparing the study's pre- and post-
IFQ price margins of 47.3 percent and 24.1 percent, respectively,
shows a 23.2 percentage point decrease in margins. However, comparing
the price margins for 1991-1992 with 19992000 shows a 13.0 percentage
point decrease and comparing 1993-1994 with 1998-1999 shows a 1.1
percentage point increase. Again, the Alaskan study's estimated loss
in processor gross operating margins would have likely been less if
different time periods had been used.
Table 3: Price Margins in Selected Pre- and Post-IFQ Years:
Pre-IFQ Years: 1991-1992;
Pre-IFQ Price margin[A]: 37.1%.
Pre-IFQ Years: 1992-1993[B];
Pre-IFQ Price margin[A]: 47.3%.
Pre-IFQ Years: 1993-1994;
Pre-IFQ Price margin[A]: 30.3%.
Post-IFQ Years: 1998-1999;
Post-IFQ Price margin[A]: 31.4%.
Post-IFQ Years: 1999-2000[B];
Post-IFQ Price margin[A]: 24.1%.
Post-IFQ Years: 2000-2001;
Post-IFQ Price margin[A]: 23.3%.
Source: GAO analysis of Alaska Department of Fish and Game, Commercial
Operators Annual Report data.
[A] The price margin is the percentage by which real wholesale price
exceeds real ex-vessel price, excluding other variable costs. We did
not incorporate recovery rates (the amount of raw product required to
produce the finished product) or product mix in price margin
calculations.
[B] Years used in the Alaska study.
[End of table]
Second, the study's results may not be representative of the industry
as a whole. Responses were used from processors representing only 52
percent of all halibut purchased in the pre-IFQ years and 61 percent
of all halibut in the post-IFQ years.[Footnote 8] The study does not
provide the actual number of participants whose data were used.
Without knowing the number of participants or the characteristics of
the respondents whose data were used, we cannot determine whether the
study's estimates are representative of the industry as a whole.
Third, the survey the study's authors used to request economic
information from processors may have biased participant responses. In
the preamble to the survey, participants were told, among other
things, that the purpose of the study was to test the theory that a
harvester-only quota allocation transfers wealth from processors to
harvesters and that the survey's results would be used to assist in
designing future IFQ or other fishery rationalization programs. Such
statements leave little doubt as to how responses could benefit or
harm processors with economic interests in other fisheries. According
to standard economic research practice, these types of statements are
to be avoided when designing a survey because they can influence the
results.
Several Methods Are Available for Protecting Communities:
We identified several methods that could be used to protect
communities. First, allowing communities to hold harvesting 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.
Second, fishery managers can establish rules governing quota
transfers, i.e., quota sales-to protect certain groups of fishery
participants. We identified the following approaches used in foreign
IFQ programs that were aimed at protecting communities:
* Prohibiting quota sales. Fishery managers in Norway prohibited all
quota sales to protect fishing communities in certain locations.
* Placing geographic restrictions on quota transfers. Iceland and New
Zealand fishery managers have 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. New Zealand's
Chatham Islands community trust has, in effect, used residence in the
Chatham Islands as a requirement to lease its quota.
Finally, according to fishery managers and experts we spoke with,
fishery managers can help protect fishing communities by (1) setting
limits on the amount of quota an individual or entity can hold, (2)
requiring quota holders to be on their vessels when fish are caught
and brought into port, and (3) restricting the ports to which quota
fish can be landed.
However, in designing and implementing community protection methods,
fishery managers face multiple issues/challenges. How these
issues/challenges are met depends on the fishery's circumstances and
the program's objectives. First, fishery managers face an inherent
tension between the economic goal of maximizing efficiency and the
social goal of protecting communities. According to fishery experts we
spoke with, this tension occurs because a community often may not be
the most efficient user of quota. For example, according to Icelandic
fishery experts, some communities did not have the knowledge and
skills to manage their quota effectively and eventually sold it,
reducing the communities' economic base. Adopting rules that constrain
the free trade of quota, such as those designed to protect
communities, 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.
Methods for protecting communities may also raise concerns about
equity. In the United States, 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 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.
Second, fishery managers face several definitional issues in allowing
communities to hold and trade quota, and communities must decide how
to best use the quota.
* Fishery managers need to define the community. However, fishery
managers and experts told us that communities can be defined
geographically, such as island communities, and nongeographically,
such as fishermen who use the same type of fishing gear (e.g., hook-
and-line or nets) for a particular species.
* Once fishery managers define the community, they must then determine
who represents it 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.
* 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. Moreover, the
balance of industries making up a community's economy may change over
time when the area becomes more modernized or a new industry enters.
* Community representatives 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 9]
Third, along with these definitional challenges, fishery managers and
communities have to consider issues associated with quota transfers.
* 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.
* Geographic restrictions on quota transfers can be easily
circumvented. 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.
Finally, fishery managers also face challenges associated with (1)
setting limits on the amount of quota an individual or entity can
hold, (2) requiring quota holders to be on their vessels when fish are
caught and brought into port, and (3) restricting the ports to which
quota fish can be landed. Monitoring and enforcing quota accumulation
limits can be extremely difficult when fishermen create subsidiaries
and complicated business relationships that enable them to catch more
than the quota limit for an individual quota holder. Requiring quota
holders to be onboard their vessels can be impractical, especially for
small businesses where the same person would have to be on board at
all times. According to fishery experts we spoke with, an onboard rule
would require so many exceptions, such as for emergencies and illness,
that it would be meaningless. Requiring fishermen to bring their catch
into ports in a particular geographic area may not be healthy for a
community's economy in the long term. 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 received a price
far below the market value, and the processor would have had no
incentive to restructure into the competitive business it is today.
Mr. Chairman, this completes my prepared statement. I would be pleased
to respond to any questions that you or other Members of the Committee
may have at this time.
Contacts and Staff Acknowledgments:
For further information about this testimony, please contact me at
(202) 512-9846. Keith Oleson, Susan Malone, Mark Metcalfe, and Tama
Weinberg also made key contributions to this statement.
[End of section]
Footnotes:
[1] Pub. L. No. 94-265 (1976) (codified as amended at 16 U.S.C. §§
1801-1883.
[2] Individual Fishing Quotas: Better Information Could Improve
Program Management, [hyperlink,
http://www.gao.gov/products/GAO-03-159] (Washington, D.C.: Dec. 11,
2002) and Individual Fishing Quotas: Methods for Community Protection
and New Entry Require Periodic Evaluation, [hyperlink,
http://www.gao.gov/products/GAO-04-277] (Washington, D.C.: Feb. 24,
2004).
[3] 50 C.F.R. § 600.345(b)(3).
[4] The market share of a company is the amount of halibut purchased
by that processing company as a percentage of total halibut purchased
by all processing companies. Processing companies, in this context,
are those companies that own one or more of the individual shore-based
plants that process halibut.
[5] Matulich, Scott C., and Michael Clark, Efficiency and Equity
Choices in Fishery Rationalization Policy Design: An Examination of
the North Pacific Halibut and Sablefish IFQ Policy Impacts on
Processors, Washington State University, January 2002.
[6] The study also estimated that gross operating margins for
sablefish processors decreased by 75 percent, on average. However, we
did not review the sablefish estimates because the methodology and
adjustments used in the study were not clear to NMFS economists or us.
[7] Halvorsen, Robert, Comments on the Matulich and Clark Report,
"Efficiency and Equity Choices in Fishery Rationalization Policy
Design," University of Washington, April 2002.
[8] In total, 53 halibut processors, representing 88 percent of all
halibut purchased in the study years, were asked to participate in the
survey.
[9] 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.
[End of section]
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