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By Zeke Grader, Glen Spain
This Independence Day, or Bastille Day or Veinte Seis de Julio (Syttende Mai has passed) or whatever other liberation movement you celebrate this July, it may be well to reflect on where our fisheries and the independence fishermen have held dear are headed in the Brave New World of fishery management.
Independence is always mentioned by fishermen in talking about what they treasure most about fishing. Sure, money is important, but most are willing to risk the dangers of fishing, the vagaries of fish production and the economic uncertainty – many have foregone more lucrative and secure careers – for the independence and the lifestyle of fishing. One of the attractions of fishing as a career is the self-reliance, being able to choose when you go fishing and when you stay tied up, charting your own course, seeking the solace of the sea, being at the mercy of only Mother Nature and the Almighty, and not a manager or supervisor.
Success in our industry is measured by individual performance, not inheritance, outside wealth or promotions from others. We celebrate that independence. Indeed, “voice of the independent fisherman” is the banner over each issue of Fishermen’s News.
But this July also take a little time to think about just where our fisheries are headed – that is, if we restore and rebuild stocks like salmon and groundfish, and climate change doesn’t do us in. What is it about fishing for a living that you want to preserve? How would you like to conduct your operations, what do you want to pass on to future generations of fishermen? What do you want your legacy to be?
Fishing is America’s oldest industry and, unfortunately, remains this nation’s most dangerous. Our fisheries are public trust resources and because no one owns them in the open waters it has not always been possible to harvest them to meet peak market demand, or care for the catch to achieve the highest quality. Developing a sense of stewardship for our fish stocks can be more difficult because the resource has been held in common and not as private property. The famous “tragedy of the commons” is something we have to constantly guard against.
The old-style “derby fisheries” were also prone to not only the problems of depletion of the commons, but major safety problems when it was each boat for itself and people were forced to fish whether the weather was good or not. Anything we can do that will both increase conservation of the resource while also improving safety is all to the good.
The crux of the issue is: How to maintain independence in fishing while working to make it safer, to get more value out of each fish caught and, as individuals, do a better job of conserving the resources fishermen’s livelihoods depend upon?
The economic theory behind individual fishing quotas is this: If you “privatize” (i.e., divvy up) what is now a public resource and then hand slices of this resource to individuals within the fishing industry to personally own, they will value it more and thus conserve it better. Also, knowing that one can take a certain number of fish in a season in advance gives a captain the option of taking more time. Fishing can then be done when the weather cooperates and when it is safer to fish, and that way the effort of the harvest can be spread out over a much longer time period to take better advantage of both processor capacity and market demand. The Economists idea is to align the economic interests of fishermen with environmental and safety concerns.
There are a number of proponents of these types of private quota schemes, notably among some fisheries economists who have been developing these theories within academia for years. Several fishing groups, particularly those operating within the few existing pure derby fisheries, think this might be a good idea (mostly because they think they will get a big share). Among environmental groups the chief proponent has been Environmental Defense, which promotes creating market incentives for environmental protections generally. (EDF has also been a big proponent of water transfers, which requires a type of privatization to carry-out, as a solution to the scarcity of fresh water supplies)
Several economists have been developing this theory under the more general rubric “incentive based fishery management.” These schemes are also called IFQs or “individual fishing quotas,” or when they become property rights that are transferable to others they become ITQs (“individual transferable quotas”).
The most recent 2007 Magnuson Act Reauthorization Act also allows, under what are now called Limited Access Privilege Programs (LAPPs), what were essentially IFQs. Until that 2007 amendment, however, there was a de facto statutory moratorium on the issuance of private fisheries shares (P.L. 104-297, Sec. 303(d)), together with a requirement in the prior version of the Magnuson Act for NMFS to develop standards for such programs that, among other things “provides for a fair and equitable initial allocation” of such shares, and “prevents any person from acquiring an excessive share of the individual fishing quota issued, and considers the allocation of a portion of the annual harvest in the fishery for entry-level fishermen, small vessel owners, and crew members who do not hold or qualify for” such shares.
Unfortunately, NMFS completely ignored the prior statute and failed to develop these quota program standards. NMFS under the Bush Administration has been pushing for fewer standards rather than more, in the name of free market capitalism.
The 2007 amendments to the Magnuson Act creating the LAPP programs (at Sec. 106) jettisoned several of the prior protections against abuse of these quotas, replacing them instead with an initial 5 year review, and followup reviews no less frequently than once each seven years – leaving the creating of such LAPPs largely to the Regional Councils.
Economics, however, was once described (by an Economist) as an advanced form of brain disease. So here we have this nifty (but untested) new fisheries economic management theory cooked up by academic economists that some people in the industry back because they figure they will profit from it, some non-profit environmental groups back because they think it will solve all the problems various fisheries are suffering from, and over which the Regional Councils will have most of the control – without, mind you, a whole lot of input from the guys in the boats who are most likely to be affected.
Unfortunately, there are several problems inherent in any fisheries privatization scheme that could become serious problems that, under the new LAPP format, have not really been addressed. Any of these problems could cause individual quota systems to seriously backfire to the detriment of rank-and-file fishermen and their communities. Some could be offset by careful design, while others are inherent in any market-based economic system. Those problems include:
Unless a LAPP or ITQ program is very carefully and fairly constructed from the beginning, there might well be inherent inequalities built into these programs which could never be overcome and which will only magnify over time.
For instance, if one sector or interest group is given a commanding share of the resource, that one interest may come to dominate the fishery and its markets for years to come, forcing others with much less market power to accept the prices it sets, eventually crashing the whole system and becoming a monopoly. In a fully allocated fishery, there will be winners and losers, especially since (unlike share amount) the actual biomass of a fishery may change radically from year to year.
The new LAPP provisions also talk about limiting share programs to specific “fishing communities” – but with only the vaguest definition of which such “fishing communities” will be included. Indeed, it is simply left to the Regional Councils to decide what the relevant criteria for determining a “fishing community” will be, subject only to final approval by the Secretary of Commerce.
With so much money – indeed entire livelihoods – at stake, these Council decisions are bound to be primarily politically driven. The most politically powerful stakeholders are almost certain to shove aside the little guys with less power or fewer votes at the table.
Devolving this amount of decision-making power back to the Council level also makes the whole process highly vulnerable to arm-twisting, voting trading and “fish mafia” style political back room deals that would severely distort the economic playing field.
A quota share might start out in the hands of a commercial fishermen, but when it becomes a property right, that quota could be sold, bought and freely liquidated – even pledged as collateral for a mortgage – as though it were any other asset.
People also die, leaving their “property” to unknown heirs who may have little connection with the fishery, and who then may transfer those shares at auction to the highest bidder. Ultimately large financial organizations such as banks will become share owners too, as they outbid private individuals for these shares or hold them as loan collateral.
We are a very property-oriented society. The U.S. and State Constitutions, and numerous Court ruling, protect the right of individuals and corporations to dispose of their property however they see fit. As a result, there is always a presumption under the law against any restrictions to the ability to sell or otherwise dispose of personal property.
However, the more these quota shares are “privatized” and the more “transferable” these ITQs become, the less control there is under the law for how they are bought and sold and to whom. In the end, unless there are stringent controls in place from the beginning of such programs to keep shares always in the hands of actual commercial fishermen, the largest blocks of shares will sooner or later be in the hands of various financial institutions and industry outsiders. The other problem is that eventually those controls could be undone.
Some quota systems, such as that for North Pacific halibut and blackcod, do require fisherman ownership of the quota shares. The problem is that many of the new programs being developed have been loathe to limit shares to captains and crew, much less require the quota owner to be on board when the fishing for that quota is occurring – thus the problem of “armchair fishermen.”
Even for fisheries currently limiting quota ownership to fishermen, the problem remains that in the future when quota holders begin retiring from fishing some will decide there’s more to be made by selling out to processors or other non-fishermen, and they will begin pressing to change the rules limiting quota ownership to those actually doing the fishing. Self-interest combined with political power can always change the laws. Even those well designed systems are likely to eventually self-destruct.
Once these quota shares are in the hands of non-fishermen, they are vulnerable to financial speculation. When this happens in any economic system, a few well-heeled speculators can jack up the market demand so high that it is more valuable to their holders to sell those shares than to keep them. This causes a rush to the door that can quickly escalate from a trickle to a flood.
A good analogy of how this could work against the fishing industry comes from the west coast timber industry example of the MAXXAM company takeover more than 20 years ago of a small timber company in northern California called Pacific Lumber Company. For generations this family-owned timber company was running a sustainable timber operation, harvesting mostly old-growth redwoods, but cutting only at or less than the annual forest growth rate.
But then the speculators swooped down on them. Financing a hostile corporate takeover entirely through high interest “junk bonds,” the MAXXAM holding company took over control of the Pacific Lumber Company, pledging the “assets of the company” (i.e., all its old-growth forests) as security on these junk bonds.
But just as soon as it acquired the company, MAXXAM ramped up the timber harvest to levels that made it very clear they were determined to liquidate the entire old-growth forest in a few decades. More than 20 years later, this fight is still raging. Now in the bankruptcy courts, much of that original forest has been clearcut to pay MAXXAM’s junk bond debts, and most of its employees are long gone.
Don’t think this sad tale of junk bond-financed corporate raiders and speculators could not be just as easily applied to the fishing industry. The more freely transferable these fishery quota shares are, the easier pickings they would be for financial speculators and corporate raiders.
The other negative thing that often happens in an unconstrained economic system is that the larger shareholders have an economic and competitive advantage over the smaller and less well capitalized ones. Ultimately, this results in a kind of economic cannibalism in which the larger shareholders simply force the smaller ones out of business, or buy up their assets out of their much deeper pockets.
This quickly results in one or a handful of larger (usually corporate) owners that are well enough financed to simply force out (i.e., out-compete) the small mom-and-pop operations that are the backbone of our fishing industry.
This is how the laissez faire capitalism of the late 1800’s finally came to an end – by 1900 nearly all of America’s industries were in the hands of a handful of extremely rich and powerful family monopoly empires. When the owners of industry are allowed to set their own conditions for economic competition, all unconstrained economic systems become abusive Trusts. Anti-Trust laws can into being about 1900 to prevent those kinds of anti-competitive price fixing abuses.
The larger companies, of course, are primarily beholden to their corporate owners, not to local fishing communities they operate in. Nor do the profits of these large corporations get recycled back into these local communities anywhere near as well as with the small, locally-based mom-and-pop outfits. More often those profits get shipped out of state and wind up in the hands of financial institutions or rich speculators who could care less about local coastal communities.
Another consequence of a quota system is that it makes it that much harder for the young guys to get into the game. Once all it took was a boat – which you could even build yourself – a cheap license, a little money for equipment and some guts to make a place for yourself in the fishing industry.
But with quotas locked up and a fishery totally allocated, in addition to the boat and guts you need to have money – sometimes a lot of money – to buy a share of that quota. Often there is no quota for sale, certainly not at any price a newcomer just starting out could afford. So how does the new guy on the block get into the game without the ante? The answer is, that he usually doesn’t.
This concern is why the 2007 Magnuson Act amendments carried over the prior requirement that when designing a LAPP, some consideration must be given to setting aside some little bit of quota shares for entry-level fishing operations as well as small-vessel owner-operators, captains, crew and fishing communities (Sec. 106(5)(C)).
Just how this will be done, and whether these measures will be sufficient to mitigate for this inherent recruitment problem, is still a big question mark.
Even if there is a set aside, or quota to purchase, for entry-level fishermen the question is still at what price. Incurring a great deal of debt just to buy quota share, often with a loan from a fish company, leaves a heavily-leveraged young fisherman with little independence particularly if the lender is telling them when to fish and at what price.
Great claims have been made for both the conservation and safety benefits of ITQ/IFQs and similar assigned right quota systems, particularly by Environmental Defense, some of its foundation sponsors, and a few scientists.
Its almost certainly true that, compared to the old-style “derby” type of come-one, come-all fishery management, an assigned quota system has at least the potential to both better conserve the resource and make fishing less risky. But are these claims true in real practice?
Unfortunately, nearly all the legitimate scientific comparisons are between some specific (and often unique) ITQ system, and the old-style open derby fisheries. These are the extreme cases.
There is far less evidence that a privatized quota system works any better than combinations of the more modern fishery management tools, such as limited weekly take or trip limits, staggered entry or limited entry systems.
Today nearly all U.S. fisheries today have extensive time, trip, area and various gear limitations, bycatch “caps” and numerous maximum take provisions, including in some cases weekly harvest caps that help spread out the effort and accomplish many of the same goals that are also attributed to privatized quotas.
In other words, the rather drastic step of privatization of what has always been a public resource may make little or no conservation or safety difference as compared to the currently available positive impacts of the numerous other (but non-property driven) fishery management tools already used to limit impacts, conserve stocks and prevent accidents. The scientific jury is still very much out on this question, and research to date is inconclusive. This alone should give managers serious pause before they irrevocably commit to a property right-driven experimental system that also may have some serious sociological and economic downsides.
The conservation record of other massive privatization systems is nothing to be proud of either, and provides few good examples. Privatizing public forests has resulted in not only corporate hyper-concentration within the timber industry but also widespread forest liquidation, mono-crop plantation forestry, and numerous environmental problems. Privatizing public water resources has resulted in drying up major salmon rivers and destroying many important riparian functions rivers provide. Privatizing open range-land has led far more often to unwieldy urban sprawl and massive ecological disaster than to healthy human communities to live in.
Generally speaking, privatized quota systems are much less able to control or deal with over-capacity than other fisheries management tools such as buy-outs and permit retirements. Quota fisheries can be over-allocated just like water diversion systems, and the end result is merely escalating conflicts among users, not a net reduction in demand.
If, after better information is available, a fishery is determined to be over-fished in spite of a quota system, the only real option then is likely to be capacity buy-out programs of the sort that have already been instituted and which do not need a quota system to be effective. If there were no fixed quota shares, such a buy-out would also be much cheaper.
Some of the more devastating issues our fisheries face today stem from loss of habitat. No quota system is likely to make much difference for, say, salmon runs whose rivers are blocked by dams and whose spawning and rearing areas are disappearing more each year. When habitat loss is a factor is a fish species’ decline, the best remedy is to identify and protect that habitat, not to create a harvest quota. Time and area limitations of the sort we already use as habitat protections are the proper cure here, not privatization.
The ultimate problem with privatizing any public resource is that it is nearly politically impossible – and nearly always very costly – to undo property rights if the system starts to go wrong.
While the 2007 LAPP amendments to the Magnuson Act (Sec. 106) make it clear that the “property right” inherent in a LAPP quota system is limited, and that there is no right to compensation if the quota is adjusted or (in some cases) terminated, this is still a very slippery slope to walk on. There will inevitably be a strong political push by quota owners to have more security than that, by redefining these quotas as entitlements.
Both the U.S. and every State Constitution prohibit public use of private property without “just compensation.” The stronger a “property right” these quota shares become, the more costly it will be to buy back or retire these rights to convert them back to the public domain.
A handful of large corporations already control most energy sources, control most food production, excepting fisheries, and now seek to privatize and control water. Companies like Tyson Foods have failed in the past to dominate fisheries only because they could not control or exercise ownership over them. Tuna and menhaden fisheries have been the exceptions, but most others have eluded control by these large food processors.
Unfortunately, the new Magnuson Act provisions for LAPPs specifically include “processing or fishery-dependent support businesses” among the groups that are eligible for fishery quota shares. IFQs, along with processor quotas, could be slippery slopes to corporate consolidation of control or ownership over our fisheries, and the subsequent takeover of these fisheries by large food corporations.
Among the most serious threats to an independent fishery are processor quotas. Once processors formally control significant shares of a fishery, they can then dictate whatever price they pay as well as all other aspects of the fishery with impunity. They will no longer have to worry about organized fishermen’s “union” resistance – for once they own the quota they will then effectively own the fishermen and their unions.
Processors are to fishermen as the Company is to the Labor Union. The only bargaining leverage rank-and-file fishermen have in their annual negotiations with processors over ex-vessel prices at the dock is by sticking together. If fishermen present a united front and strike for higher prices, then fishermen must be bargained with for without us the processors have no product.
Change that balance of power even a little bit by giving processors their own captive quota-fleets harvesting their own quota, and the relationship becomes more like the Company Store in a coal town. Fishermen will gradually cease to exist as independent businessmen, and become little more than ocean-going sharecroppers.
Processor quotas violate every principle of modern Anti-Trust law, and are little more than an organized (but legalized) form of price-fixing. This is why the Anti-Trust Division of the Department of Justice in the Bush Administration (of all people) was adamantly opposed to the “crab rationalization” plan recently adopted by the North Pacific Council for blue crab – because of the processor quotas built into that system. The best way to crash any free market system is to create controlled monopolies such as processor quota.
Indeed, most of the consolidation and downsizing feared then as the result of that “rationalization” plan has now occurred. Today there are far fewer fishermen in that Alaskan fishery, working for far less profit margin, and the processors there have all the bargaining power – because they have nearly all the quota.
Currently both the North Pacific and Pacific Council’s are undertaking the establishment of individual quota systems for their groundfish fisheries as Amendments 20 and 21 of the Groundfish Fishery Management Plan. These will be crucial decisions.
The North Pacific Council has seemingly learned little from its BSAI crab rationalization scheme (or “crab ratz”), and the Pacific Council at its June 2008 meeting selected a “preferred alternative” for the Pacific Groundfish trawl fishery IQ system that is nearly as bad (see: www.pcouncil.org/groundfish/gffmp/gfa20.html).
Among other things, the Pacific Council’s preferred alternative would give processor’s 20 percent of the groundfish quota off the top. Worse, there’s no limit on how much of the catch quota they could eventually come to own through buyouts, retirements, price-fixing or skullduggery. This thus sets the stage not only for a sharecropper fishery, such as Mid-Atlantic surf clam, but the type of privatization and consolidation that will make this fishery an attractive take-over target for the really large food corporations – global corporations dwarfing even the likes of Pacific Seafood.
Worse, these proposed groundfish quota don’t just affect trawling. In this scheme, the lion’s share of the resource will go to the bigger trawlers, meaning there is no chance to reallocate back any portion of the rockfish resource to the small hook-and-line fleets who lost much of their catch during the allocations of the 1980’s and 1990’s, when trawl representatives on the Pacific Council (in spite of an obvious conflict of interest) secured most of the rockfish quotas in the groundfish fishery for their own fleets.
Thus, while Environmental Defense, who led the Pacific Council IFQ effort, argues for lower bycatch and higher value fisheries, the IFQ plan they have backed will actually result in higher bycatch and lower value for rockfish than if more of that portion of the fishery had gone back to the much more selective and sustainable hook-and-line or trap fisheries the big guys had unfairly pushed aside.
The Pacific Council trawl IFQ “rationalization plan,” under the current preferred alternative, will also result in a massive gift of a public resource to the remaining trawl fleet. This is because quotas for many groundfish stocks are expected to significantly increase in the coming years following rebuilding and generally excellent oceanic conditions (e.g., the abundance of krill this year). Fishermen are already reporting large numbers of different rockfish populations currently – far more than PFMC’s science panels acknowledge exist. This shifting of quota and locking that quota up into IFQs now (while harvests are still thin) will guarantee huge windfalls to these same folks once these stocks recover – to the exclusion in advance of everyone else.
The Pacific Council’s Draft Environmental Impact Statement for its trawl IFQ scheme is expected in September 2008, with an October comment period prior to an expected November 2008 decision. Fishermen are encouraged not to just take our word for the proposal but to review it carefully and make written comments. There is still the possibility it can be changed, and your written comments will make a big difference.
Lastly, when considering the current PFMC groundfish IFQ proposals, and other proposals that will be coming down the road for others fisheries with individual quota schemes or other alternatives under the LAPPs rubric, consider carefully just how they will affect your independence and the independence of your sons and daughters you may want to pass this heritage on to.
Be wary of those promising wealth and safety for what in reality could, for the vast majority, become a sharecropper existence under the thumb of corporate globalized food giants. We have seen many other industries go that way in the past, but that is not the direction most of us would like to see for our own industry’s future.
Zeke Grader is the Executive Director for the Pacific Coast Federation of Fishermen’s Associations (PCFFA), and can be reached at PCFFA’s Southwest Regional Office at PO Box 29370, San Francisco, CA 94129-0370, by phone to (415) 561-5080 x 224. Glen Spain is PCFFA’s Northwest Regional Director, in its Northwest Regional Office at PO Box 11170, Eugene, OR 97440-3370, or by phone to (541)689-2000. PCFFA’s web site is at: www.pcffa.org. Email to: fish1ifr@aol.com.
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