The Achievements of the Pacific “Whiting Conservation Cooperative” Rational Collaboration in a Sea of Irrational Competition Gil Sylvia Marine Resource Economist Oregon State University Heather Munro Munroe Consulting

Pacific Whiting Management in 1996 Allocation to three sectors Olympic style fishing Overcapitalization Significant loss in regional and national fishery benefits Significant failure in meeting the objectives of the PFMC’s Groundfish Management Plan

Pacific Whiting Management in 2003 Allocation to (Four) Fleet Sectors Olympic Style Fisheries in only two sectors Overcapitalization in only two sectors Significant loss in regional and national fishery benefits to only two sectors One sector is achieving (most) of the PFMC’s Groundfish Management Objectives

T he Story of the Pacific “Whiting Conservation Cooperative” What happened before, during and after 1997? What led to the transformation of one sector while other sectors engaged in “irrational” competition? Can we apply principles to other fishery management challenges? Cooperation versus “Cooperatives”: Are Coops a substitute for ITQ’s?

Biology and Natural History Merluccius Productus A true “hake” (1 major and 2 minor stocks) Largest stock of fish south of Alaska Ecologically important “Average” stock size 1-4 MMT “Average” harvest 250 TM Range of potential harvest TMT

Biology and Natural History Merluccius Productus Average fish size: two pounds Moderately productive/long lived (15-20 yrs) Variable recruitment (.1-8 billion annually) Myxosporidean parasites-protease enzymes Mid water-long annual migrations

History of the Fishery Foreign Domination Sporadic small harvests back to 1880 Considered nuisance/trash fish 1950’s small domestic harvest animal food 1966 Soviet Union/Japan (H&G and fillet blocks, meal) 1970’s and 1980’s additional European and Asian vessels

History of the Fishery Domestication MFCMA—allocative preference for US fishermen 1978—first foreign/domestic joint venture –Soviet Union paid $.05/lb 1980’s Japanese begin producing surimi using protease inhibitors

History of the Fishery Regulatory Development Open Access (until 1994) Total Allowable Catch (TAC) Season opening—transitioning later –(April 15, May 15, June 15) Minimum mesh size Bycatch management/monitoring/quotas –Area closure S of 42 N for at-sea sector Sector allocation (1990’s)

History of the Fishery Allocation Wars —first factory trawler harvests by Alaskan pollock fleet –overcapitalization of factory trawler fleet –testing ability to make surimi from whiting 1991– fishery totally domesticated –at sea component harvests 91% of TAC –factory trawlers harvest 60% TAC

History of the Fishery Allocation Wars (continued) Olympic race for the resource among all sectors Seasons begin to decrease –maximize harvest and throughput per vessel – bycatch problems –10% reduction in potential TAC –decrease in product quality –decrease in product recovery

History of the Fishery Allocation Wars (continued) PFMC “shocked” at rapid capitalization –1991 Council tries to force vessels to either harvest or process – Commerce Disapproves plan –1992 Council allocates 98,000 mt to at sea processors and 80,000 shore based with reserve –1993 Council proposes 74% quota in favor of “shore- based priority” Commerce disapproves one day before season opening Approves 70% to at sea sector

History of the Fishery Allocation Wars (continued) Fall Industry Committee develops allocation plan –Three years –60% allocated open competition –40% onshore 1994 Groundfish Limited Entry –Factory trawlers are “shocked” -- don’t qualify Ten factory trawlers buy their way back in 10 –11 permits per factory trawler Buy out 109 groundfish $15 M total Four companies: Glacier Fish Company(1), Tyson Seafood Group (3), American Seafoods (5), Alaskan Ocean (1)

Formation of the Pacific Whiting Conservation Cooperative : “Irrational” competition continues Whiting season continues to shorten 1996 New approved five year allocation scheme –42% on-shore, –24% motherships, –34% factory trawlers, –tribal allocation off the top

Formation of the Pacific Whiting Conservation Cooperative (continued) Factory Trawlers develop common understanding of problems and opportunities Recognize advantages for cooperating and voluntarily allocating quota within their sector –Lengthening season –Reducing bycatch –Improving product recovery, quality, and “full utilization” –Meeting individual company needs Problem is Antitrust Laws

Formation of the Pacific Whiting Conservation Cooperative (continued) Investigated the formation of legal cooperative behavior –initial investigation for Alaskan pollock The Fisherman’s Cooperative Marketing Act –provides antitrust exemptions for the fishing industry –intended for “small” producers insufficiently integrated

Formation of the Pacific Whiting Conservation Cooperative (continued) 1996: Discussions with Anti-Trust Division - Justice Dept –potentially could allow limited harvesting arrangements if demonstrated “competitive” increased efficiency (lower production costs) increased production (higher product recoveries) potential price decrease

Formation of the Pacific Whiting Conservation Cooperative (continued) Based on preliminary discussions with Antitrust: – the four companies allocated shares in “one afternoon” “Membership Agreement” of WCC –transfer shares without constraint –full time observer coverage –report catches to private centralized reporting service –penalty agreements for exceeding shares –other private rights of action for violating the Agreement

Evaluating Success of the Whiting Conservation Cooperative May 27, 1997 Anti Trust Division issues favorable decision Season performance before and after May 27 decision: –multi-vessel companies immediately transferred excess capacity out of the fishery –“efficient” operators leased shares from “inefficient” operators –product recovery rates increased from 17.2% to 20.6% increased revenues of $5.1 Million (Profits $1-2 million) –reduced yellowtail bycatch from 2.47kg/mt to.99 kg/mt –total utilization of allocated strict total catch limit

Evaluating Longer Term Success of the Whiting Conservation Cooperative Longer seasons Reduced bycatch Higher product recoveries –24% recovery?? $10 M annual additional revenue ($2-4 M profits) Cooperative research (landings levy)

Pacific Whiting Fishery Season Length

Cooperative Management and Research Activities of the WCC Pre-recruit surveys Hydro-acoustic stock research Bycatch reduction management and research Future research and management projects –optimal timing of harvest? higher product recoveries higher surimi quality and prices higher TAC/OY balanced against opportunity costs of harvesting pollock

Risks to Whiting Conservation Cooperative Potential victim of own success? –more profit, and/or –increased quota, and/or –available cheap permits, then –profitable for new entrants into fishery without compensating existing members Growing bycatch constraints –Ex: widow rockfish may be only 1/3 amount available in 2004 (200 mt) compared to 2003

Why Are Other Pacific Whiting Sectors Still Engaging in “Irrational” Competition? Problem of “large numbers” and transaction costs Integrated versus non-integrated seafood sectors –shorebased processors cannot secure rights to the fish Antitrust impediments Overcapacity problem Ineffective institutions –limited entry not very limiting Ban on ITQ’s

Conclusion WCC succeeded due to: –small numbers/well known players –relatively secure allocation –defined rights (license holders) –integrated industry –mutual understanding of costs/benefits –similarity in operations (and harvest histories) –win-win for all players –and smart managers and lawyers

Conclusion “ Cooperative behavior” in managing a club good is a feature of fishery systems that allocate relatively secure rights IFQ’s, Cooperatives, and other institutional structures, are not mutually exclusive—they are complementary or mutually reinforcing given common needs and interests of the rights holders Whether Coops are a better approach than e.g., ITQ’s etc. depends on fishery management objectives, legal constraints, other factors –need empirical research