Consolidation April 2006 Marcus Hartley Presentation to Pacific Fishery Management Council Workshop on Trawl IQs

Forces that May Affect Consolidation of the Industry Initial Allocation Accumulation Caps Use Caps or Vertical Integrations Limits (none included) Sector Definitions Harvesting and Processing Costs Observer and Monitoring Costs

Initial Allocation We heard in Small Group Sessions that the allocations to processors will affect consolidation in terms of: Who will buy QS How fast consolidation will occur If processors get 25% rather than 10%, those processors will be able to purchase more QS in the future.

Economic Theory Those to whom the QS are issued may be able to capture the extra rents in the fishery—not just in current period, but for all periods in the future. Note that perfect information of future stock sizes, future input and product prices, etc. would be required to extra all of the extra rent. Purchasers of QS will be able to make normal business profits, but probably won’t be able to generate extra rents, unless they made a really good purchase deal on QS.

Initial Allocation of Harvest Shares for Catcher Vessels (See Page 26) Catcher vessel permit owners will receive quota shares based on their permit history plus an equal division of the quota that could be attributed to permit history of bought-back permits (catcher- processors permit owners will not receive a portion of the quota shares distributed on an equal sharing basis) Suboptions for incidentally caught overfished species, either: (a) same as for OTHER FISH (b) equally divide quota for incidentally caught overfished species

Initial Allocation of QS The graphic below is an initial representation of the potential allocation of QS (shown on a percentage basis) based on Program A—pure catch history allocation, without the recent participation criteria or minimum landings criteria.

Example Allocation for Petrale Sole

Accumulation Caps Program A: 50% or No Limits Program B: Consider all limits (1%, 5%, 10%, 25%, or 50%, No limits) Program C: 1%, 5%, 10%, or 25%

Whiting Sector Definitions Discussed in Afternoon Session on April 19 Participants indicated a general feeling that whiting would be consolidated to the CP sector if unconstrained by sector designations

Other Factors Harvesting and Processing Costs Observer and Monitoring Costs Vessels and Processors with highest net revenue per fish are in the best position to purchase QS\QP Purchasing QS\QP will increase overall cost per fish and thus reduce net revenue per fish. Those that have to purchase less QS\QP to get back to pre-IFQ levels, have an advantage, compared to those that have to purchase more QS\QP to get back to pre-IFQ levels.

Methods to Assess Consolidation Examine Initial Allocation Conduct key informant interviews Examine cost and revenue information Factor in accumulation limits Make an educated projection Bound projections with Scenarios

Consolidation Scenario 1 Assume a moderate fleet consolidation: In this scenario it would be assumed that QS are transferred and vessels drop out of the fishery such that the average vessel remaining in the industry fishes an average of 150 days per year. For this scenario, the average number of fishing days per vessel per year was chosen somewhat arbitrarily, and could be adjusted based on comments. Is this scenario reasonable?

Consolidation Scenario 2 Assume a high fleet consolidation such that the average vessel fishes 270 days per year: In this scenario it would be assumed that QS are transferred and vessels drop out of the fishery such that the average vessel remaining in the industry fishes an average of 270 days per year. This scenario was chosen based on the assumption that a single vessel is unlikely to be able to fish more than 300 days in a given year. Is this scenario reasonable?

Consolidation Scenario 3 Assume a very quick transition to a moderately consolidated fleet: In this scenario it is assumed that the fleet undergoes a “moderate” consolidation during the first year of the IFQ program—the average vessel fishes 150 days per year. Theoretically, overall efficiency of the fleet—once it is consolidated—would not be affected by how quickly or gradually it consolidates. However, the impacts on communities and fishing crews are likely to be much more noticeable if the transition to a consolidated fleet is relatively quick. Is this scenario reasonable?

Consolidation Scenario 4 Assume a gradual transition to a moderately consolidated fleet: In this scenario is assumed that the fleet undergoes a “moderate” consolidation over the first five years of the IFQ program —the average vessel fishes 150 days per year. Is this scenario reasonable?

Other Questions What might be reasonable scenarios for consolidation of processors? Should other initial allocation options be included for CVs?