- Email: [email protected]
Development of the east coast fishing industry
Development of the east coast fishing industry Assessment of Canadian government policies
Janet E. Forrest Since the implementation of the 200 mile limit, the Canadian changed nature of the fishery has promoted the introduction of many new policies. The author examines the effects of three Canadian policies, the ‘over-the-side’ sales policy, the developmental charter policy, and the commensurate benefits policy on the international expansion of the East Coast fishing industry. These policies have had varying degrees of effectiveness. The biggest criticism of both the developmental charter policy and the ‘over-the-side’ sales policy was that they benefhted one sector of the industry more than another. All were considered interim policies, and while devdopmental charters have already been phased out, the other policies should be phased-out in the future as the industry becomes more self-sufficient. More involvement by the private sector in policy making is conskiered vital.
Since the implementation of the 200 mile limit, the nature of the Canadian fishery has changed and several new policies affecting the fishing industry have been introduced. These have included policies such as developmental charters, ‘over the side’ sales and commensurate benefits policies. Historically, the Canadian fishing industry, especially the east coast industry, has had a poor record of performance. The early 1970s were particularly difficult times for the Atlantic fishery. ’ Because of inadequate fisheries management and overexploitation of the resource by foreign fleets, the Canadian groundfish catch fell to record low levels. Problems resulting from overcapacity and the reliance primarily on a single market, coupled, with inadequate marketing practices and lack of quality control, combined to make the east coast fishing industry an unstable one. The state of the industry was such that investors were not willing to introduce the needed investment capital required for long-term projects and for the acquisition of new technology. To prevent the collapse of the groundfish industry, it was necessary for the federal government to inject over $130 million into the industry. As it became increasingly clear that the continuing meetings of the UN Conference on Law of the Sea (UNCLOS) were not going to resolve the problems of jurisdiction, many states such as Canada pressed ahead and declared their own fisheries zones. On 1 January 1977 Canada declared its 200 mile zone; this legislation was enacted because of the state of crisis in the Canadian fishing industry. The increased jurisdiction meant that Canada would now have the power to implement the necessary controls Janet E. Forrest is with the Centre for to ensure the proper management of the fisheries resource. International Business Studies, School Since the introduction of this legislation, there have been many sigof Business Administration, Dalhousie nificant changes in the east coast fishing industry. With the restriction of University, Halifax, NS, Canada B3H fishing in Canadian waters to only those foreign nations having bilateral 4H8 (Tel: 902-423-4840) fisheries agreements with Canada, more of the fishery resource has become available to the east coast fleets. Increased availability of fish has
294
0308-597X/81/040294-08$02.00
0 1981 IPC BusinessPress
Development
of the east coastfishing industry
meant that fishermen and processors have reaped large economic benefits from the abundant harvest. New capacity has been added in the form of extra processing capacity, freezing capacity and cold storage facilities. Markets have changed in many instances but some processors are simply selling more fish in their traditional markets. Fish exports have increased significantly, and in 1978 Canada became the world’s number one exporter of fish, in terms of value. However, exports are still primarily of unprocessed or semi-processed fish because exports of processed fish products are constrained by the high tariff barriers of Canada’s main markets in the developed world. Resource prospects indicate that the east coast harvest of fish may double within the next five years. This increased harvest means that the industry will need to expand old markets and seek new markets for fish and fish products. This article assesses the effectiveness of policies for the development of the east coast fishing industry.
Canadian
fisheries policy
In 1976, prior to the introduction of the 200 mile limit by Canada, a ‘Policy for Canada’s commercial fisheries’ was outlined by the federal government.’ This policy aimed at revitalizing the fishing industry using government expenditures only until the industry could again stand on its own feet. Of importance for the east coast fishing industry were the objectives of the policy which stated that: where a resource is exploited internationally, it may be necessary to choose between: (a) optimizing returns in the domestic fishery, eg, by an appropriate reduction in foreign fleet operations; (b) optimizing economic and social benefits for the region affected or the nation as a whole, eg, through leasing to other countries the right to exploit certain stocks if this were proved desirable.3 This emphasizes that in some cases policies have not been established for the benefit of the local industry but for the benefit of the nation as a whole, and vice versa. An assessment of how governmental policies are perceived is of particular importance to the industry and government at this stage in the international expansion of the east coast fishing industry.
Developmental
IThe east coast fishery includes fish harvesting and processing based in the provinces of Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, and Labrador. 2Policy for Canada’s Commercial Fisheries, Environment Canada, Ottawa, Canada, 1976, Appendix I, p 3. ‘Ibid. Developfnent charters for nonCanada, traditional species, 1978 policy. “Ibid.
MARINE POLICY October 1981
charters
Since the implementation of the 200 mile limit,the federal government has enacted a policy of ‘developmental charters’, defined as ‘arrangements by Canadian fishing interests for the charter of foreign vessels to further the growth and development of the Canadian fishing industry’.“ These arrangements were initiated in 1977, and were designed to encourage the harvesting and processing of certain non-traditional fisheries such as offshore squid, grenadier and silver hake. The policy aimed at ‘maximum feasible utilization of the fisherv bv Canadians’.‘with greater employment of fishermen and processo;s,*and an in&eased source of supply of raw material for the processing plants. Other goals of the charters were increased product development, improved market access, and the training of fishermen in new harvesting and processing techniques. In the latter respect, the utilization of the most efficient vessels and equipment in the charters was encouraged. Whether or not
Development of the east coast fishing industry Table 1.Exampksof1979devekpmenta~~.
Canadian -wny Sovrybftouc Prcdintorg (USSR)
;.gn;trson
Nichiro Gyogyo Kaisha Ltd
Source: ments.
Fshertes
and Oceans, various docu-
North Sydney, Nova Scotia
chmmtka tonnes
t-l. f3. Nickersonb & Sons Ltd, North Sydney, Nova Scotia
a At
the Canadian partner’s option, extra quantities could be harvested by the foreign partner, providing permission was recetved from Ftshertes and Oceans. b While the head offfce of this company was cited on the contract, the three charters mentioned here invotving this company occurred in diirent locations throughout the area. c Sovrybflot is a Soviet fishing enterprise, while Prcdintorg is an international trading agency. d While these are tradiiional species, the charter was for the purpose of catching and harvesting at sea.
species involved lllex (squid)
1088
Silver hake
2288
lllex Sitver hake Argentine
1500 1288 100
(Japan)
United Maritime Fishermen Co-op. Moncton, New Brunswick
Coop Trade Japan
(Japan)
lllex
1888
BCM lnvestment Ltd Liverpool, NS
Hoko Fishing Company Ltd
lllex
3500
(Japan)
Sitver hake
2w8
Ntiro Gyogyo Kaisha Ltd
Redfish American plaice Witch
2428 (total all species)
(Japan)
turbotd
H. B. Nickerson 8 Sons Ltd, North Sydney, Nova Scotia
charters were granted to Canadian companies or their partners depended on a host of factors6 In the past few years many east coast companies have been involved in developmental charters (as many as 50 arrangements have been made). Examples of some companies and the species and quantities they were 6lhe assessment of proposals depended on: the allowed to catch are shown in Table 1. Other companies such as National degree to whit such a charter would increase the development of a sm fishery; what level of Sea Products’ were also involved in developmental charters with vessels market expansion for this species could be from other countries such as East Germany. In all cases, the quantities attained compared to other means of achttving and catch areas for the non-traditional species were well defined. The this goal; the degree to which the projsct allowed processing for Canadian onshore workers; the agreements specified the amount of the catch harvested by the foreign level of beneftts (employment and income) resuttvessel which was to be processed onshore (in 1978 this amount was 25% ing from increased throughput for plants operating of the catch, while in 1979 it was 50%). below capacity; related social and econcxnic benefti at tfte community level and other benefits The developmental charter policy has been successful in that it has to the fishing industry; and the extent to which allowed some companies, such as the smaller processors who are unbenefits were complementary to departmental willing or unable to invest the required capital in harvesting capacity, to objectives in terms of fleet development, product upgrading and market development. The charters exploit the non-traditional species. It has also allowed Canadian comcould only have a maximum duration of one year, panies to acquire the know-how to harvest and process these species with and all proposals had to outline a developmental little risk involved. The charters have also enabled companies to underplan including training of local fishermen and of vessels which are reauired to harvest changes to t&t Canadian cr=. hb countries stand more clearlv 4 the tvnes ,1 1 wtth which Canada had bilateral agreements previously unharvested species, such that some companies formerly could partake in such developmental charters. Of opposed to freezer vessels now favour them. The developmental charters the soecies cauaht. no transshioment at sea was alto&d and, to &‘extentthat i was feasible,the were designed so that the various foreign companies wishing to particispecies were processed in Canada shore plants. pate could outbid one another, and it is generally believed that the ‘National Sea Products Ltd and H. B. Mckerson 8 partner has received ‘windfall’ profits from them. These profits Sons Ltd are the major companies in the fishing Canadian industry on the east coast of Canada. Both are have enabled the companies involved to greatly improve their financial vertically integrated companies, have plants in position, but whether or not these profits have been reinvested has not other countries and international sales offices. been disclosed.* H. B. Nickerson has a controlling interest in National Sea Products but the two companies The success of the developmental charter policy with respect to the operate quite independently. transfer of technology appears to have been only marginal, particularly in RActualfirm profit levels are not available because the case of hardware transfer such as in freezer trawlers where standard the major part of the east coast fishery is prfvately owned and financial data are not available. The processes similar to those used onshore were utilized. However, a certain industry as a whole did, however, receive an level of software transfer occurred, and new processing, handling and estimated gross revenue of $7 million from packaging techniques (particularly for squid) were learned from developmental charters in 1978.
MARINE
POLICY October 1981
Development
of the east coastfishing
industry
Japanese partners. Further, important knowledge was gained about the Japanese marketing system; this was of particular value to small processors who had not previously done business with Japan. One of the main criticisms of the developmental charter policy came from small and medium-sized processors who were not aware of the policy and thus unable to participate. In this regard the large processors have an advantage over the small processors because they were better informed and have more efficient lobbies,’ suggesting that the policy was more favourable to the larger companies. Another criticism of the policy was the bureaucratic tardiness; repeatedly, governmental approval for charters was too s10w.‘~ Because different terms and conditions were used from year to year, the parties involved could not make any long-term commitments or plan ahead. The policy thus discouraged capital investment in facilities for processing non-traditional species. Criticisms were also made with regards to the onshore processing stipulations; in some cases onshore processing merely involved onshore transshipment and it was necessary for the term ‘processing’ to be more clearly defined. Stipulating different levels of onshore processing was not satisfactory. While 100% onshore processing was considered desirable because it would result in more shore-based jobs, in some cases processors did not have the necessary capacity. The most economically feasible level should have been determined by the processors involved in the charters. In fact, greater efficiency in harvesting, processing and marketing would have been achieved if a total sales package had been involved, including market demand analysis, and a marketing policy in terms of product form, price, distribution and processors’ capabilities. However, the largest drawback of the charters was in the lack of application of the new technology by the industry; technology can only be transferred if it is utilized. Use of developmental charters was seen as a factor in forestalling the time when the east coast fleet had its own capability to catch such species, and the whole industry could benefit in terms of profits, employment and sales. Because developmental charters were used as a temporary means to utilize resources for which the industry did not have the capabilities to handle, they have since been discontinued and four licences have been issued for Canadian freezers to harvest non-traditional species.
Wesides National Sea Products and H. B. Nickerson 8 Sons, there are two more major companies on the east coast, namely The Lake Group and Fisheries Products - these are both based in Newfoundland. While onfy National Sea Products’ sales are public knowledge (in 1979, sales of $200 million were recorded) the other three companies also have large sales. Several medium-sized companies exist with sales in the
Over-the-side sales
Since 1976, just before Canada gained jurisdiction over the fishery resource, not all export sales of Canadian fish have been from a land base. Some sales have been made directly from the Canadian harvesting vessel ‘over-the-side’ to foreign ships anchored offshore. ‘Over-the-side’ sales have involved such snecies as mackerel. herring. gasnereau and sauid. L Yl” 1 A sales has been defined as providing ‘an ranae Of s1c-a5 mittionbut the ma** tover The purpose of ‘over-the-side’ several hundred) of fish processing companies opportunity for inshore fishermen to sell catches which are surplus to have sales of much less than $10 million. loFor example, a charter to catch silver hake was domestic processing and marketing capacity, or where no Canadian not successful. Delays in approval of the project market exists at economically acceptable returns to fishermen’. ” meant that it was carried out at the wrong time of ‘Over-the-side’ sales were first initiated to assist the orderly transition the year; by the time approval was granted the season was almost over and the overall harvest of the changeover of the Bay of Fundy herring fishery from a meal fishery was low. to a food fishery. The herring fishermen were organized into a cooperal’Personal communication from L. S. Parsons, sold through this organization. Sales to Polish Director General, Atlantic Operations, Atlantic tive and the food herring vessels anchored offshore resulted in prices being paid to the fishermen Fisheries, Fisheries and Oceans, Canada. MARINE POLICY October 1981
Development of the east coastfishing industry
WNCLOS rulings allow coastal states to have sovereign rights over the living resources within their economic zone, but also state that resources within the economic zone must be fully utilized such that if the sovereign state cannot use them, the surpluses can bs fished by other states.
which were many times higher than the Canadian producers were willing to pay. More recently, some ‘over-the-side’ sales deals of such species as mackerel were initiated at the request of the fishermen who could not get guaranteed prices and purchase commitments from their local processors. Those sales arranged with foreign vessels involved not only quantities of mackerel, but also guaranteed allocations of non-traditional species such as offshore squid or silver hake. These guarantees were included in the arrangements to reduce the financial risk of the foreign buyer; if the foreign buyer did not receive the contracted amount of fish from ‘over-the-side’ sales, he would be compensated with offshore allocations. Such ‘over-the-side’ sales have been extremely beneficial to certain inshore fishermen’s groups, such as the Bay of Fundy fishermen whose earnings increased substantially, and markets have been developed for surplus fish and new species. However, ‘over-the-side’ sales have been controversial since their implementation and have received wide press coverage. Most criticisms aimed at the policy have been that they have resulted in lost onshore jobs, loss of value added, increased prices for raw materials, and also that there has been a lack of any meaningful consultation between all groups involved. The most controversial issues have been the ‘give-aways’ of allocations in the form of guarantees tied to sales, and the belief that the fish purchased by the foreign vessels is purchased at a much lower price than it would have cost these fleets to harvest it. In the latter case, the low costs (particularly of the Eastern bloc vessels involved in the sales) enable the fish to be sold in international markets at low prices in direct competition with Canadian fish. The main problem with this policy is that one sector of the industry benefits at the expense of the other, and even one group within a sector. Because ‘over-the-side’ sales have been so beneficial to only certain groups of inshore fishermen, the policy has caused unrest among others, and more and more fishermen are now clamouring to be involved in these sales. Arguments favouring ‘over-the-side’ sales point to increased revenues to fishermen from this policy. For instance, herring sales to the Poles are said to have raised the price of herring fivefold. However, at the same time, the price of herring on world markets rose sharply because of reduced supplies as a direct result of the closure of the North Sea herring fishery; thus higher prices could have been received for this herring on world markets. More recently, when mackerel sales to foreign vessels were proposed, many processors offered to meet the established price for limited quantities. Previous to the sales arrangement, processors had not been willing to meet the price. Thus in this respect ‘over-the-side’ sales tend to make processors more competitive in the prices they are willing to pay to the fishermen. With regard to the guarantees, it has been rationalized that because of UNCLOS’* Canada’s excess stocks must be allocated to foreign fleets. However, with the ‘over-the-side’ sales arrangements, the excess stocks were allocated but Canada received a firm obligation to purchase other species in return. In the 1980 ‘over-the-side’ sales arrangement, the ‘guarantees’ were not referred to as such but as an extension of the commensurate benefits policy (see below). It can be argued that ‘over-the-side’ sales have not had the negative effect that the processing industry claims, and that in fact the actual MARINE POLICY October
1981
Development
of the east coast fishing industry
quantities of fish involved have been quite small. I3 ‘Over-the-side’ sales can only be justified when there is a genuine surplus of the resource, such that Canadian processors are unable to process all the catch efficiently, or where no adequate domestic market exists which will result in an acceptable economic return to the fishermen. In such cases, it is valid to allow foreign vessels to coordinate with the plant. When conditions do arise which warrant such sales, meaningful negotiations with those members of the industry directly involved should take place and arrangements should not be solely government-to-government. Provision of adequate cold storage facilities, where most needed, will help to reduce the need for ‘over-the-side’ sales. Any continuance of the policy should occur only with the consensus, if this can be obtained, of all those with vested interest. Policies such as the ‘over-the-side’ sales policy illustrate the lack of a comprehensive development and marketing plan for the east coast fisheries; such a plan is essential to allow the industry to make long-term plans with confidence.
Commensurate
031n1979, ‘over-the-side’ sales on the east coast represented 1% of total landings and less than 0.7% of total value. 14As an example, in Canada’s ‘Agreement between the Government of Canada and the Government of Bulgaria on Mutual Fisheries Relations’, Article VI states ‘The Government of Canada and the Government of Bulgaria affirm the need to ensure the conservation of the liiina resources of the high seas beyond the limits of national jurisdffion, and the special interest of Canada ___in such resources ._’ The ‘special interest’ in the breeding stock is an important goal in Canada’s bilateral fisheries agreements but is also embodied in the North Atlantic Fisheries Organization (NAFO) Convention. IsIncreased onshore processing occurs as the result of specific agreements, such as the agreements for foreign vessels to catch northern cod, to suppty Canadian onshore processing plants at a time when there was a resource supply problem. “For example, a regional carrier is benefttting to the extent of $100 Ooo or more per annum frcm Canada’s bilateral agreement with the USSR. Planes are chartered from the airline to transport Russian crews to and from central Canada where connectiins with the USSR are made. Personal communication, W.F. Gaudet, V.P. Marketing, Eastern Provincial Airways, Gander, Newfoundland.
MARINE
POLICY October 1981
benefits
The generally accepted rulings of UNCLOS are such that where nations have jurisdiction over their fishery resource, they must fully utilize this resource. Canada has bilateral agreements with several countries, many of which formerly fished in the waters off Canada which are now under Canadian jurisdiction. Through these bilateral agreements, these countries are now allowed to fish those resources surplus to Canadian needs. Built into Canada’s bilateral agreements are clauses which state that Canada must receive ‘something of value’ in return for allowing other states to fish the surplus resources. Receiving ‘something of value’ has been termed a commensurate benefit, although this term has recently fallen out of favour with government officials. Canada’s ‘something of value’ has involved two areas: a ‘special interest” in the stocks in the area beyond the 200 mile limit on the Atlantic coast, especially transboundary stocks on the ‘Nose’ and ‘Tail’ of the Grand Bank and the breeding stocks on the Flemish Cap, and provision for the expansion and diversification of export markets for Canadian fish and fish products. Although in certain years all surpluses were allocated, in 1978 certain stocks were maintained as reserves for later allocation. While some of these reserves were allocated to Canadian fishing interests, the remainder were auctioned for commensurate benefits. More offers were received than reserves were available. and Canada was able to select those offers which were most advantageous. The result was that many nations agreed to buy more Canadian fish than they normally purchased. Thus, potentially, the commensurate benefits policy results in greater exports sales as well as greater onshore processing. I5 Benefits resulting from allowing other nations to fish in Canadian waters can take many forms and can extend to industries far removed from the fishing industry.‘6 The extent to which Canada is benefitting from the commensurate benefits policy is a contentious issue. Like the other policies considered, the short time during which the policy has been in effect makes it difficult to assess its overall effectiveness. However, certain judgments can be made.
Development of the east c
fishing industry
The policy is considered to have been somewhat harmful to the larger fish processors, who, prior to the 200 mile limit, had developed markets with the Eastern bloc countries on their own initiative. Since the commensurate benefits policy has been introduced, market access has been reduced and the buying demands of the Eastern bloc countries have been distributed among the whole industry including the small processors. Reduction in the exports of the larger companies to the communist countries has made them critical of the ‘socialistic’ nature of the policy. The policy was questioned because it favoured Eastern bloc countries and did not benefit the markets of the Western World such as the EEC where the necessary hard currency was available. The policy does, however, appear to be more workable in countries where there is a central buying agency and where fish is purchased as a source of protein. In such cases, the species purchased are not as important as they are to private business firms in Western countries, which must satisfy consumer tastes. However, problems have occurred with certain countries because they have failed to uphold their commitments to purchase Canadian fish products because of a shortage of hard currency. Consequently, Canadian companies have spent unproductive time negotiating with these countries and the objectives of the commensurate benefits policy have not been met. The other primary benefit sought by the commensurate benefits policy, that of stock conservation, does not appear to have been achieved because it has not resulted in cessation of overfishing outside the Canadian zone and certain stocks are still endangered. An assumption behind the commensurate benefits policy was that Canada had the upper hand in negotiations, but the outcome of the negotiations depends on the bargaining power of the various participants. The policy was established on the premise that those nations, which formerly freely fished in waters now under Canadian jurisdiction, would readily allow market access for fish quotas. However, foreign nations are reportedly demanding greater and greater allocations of fish before making purchasing commitments, and in some cases deliberately overfishing stocks to gain greater access to Canadian surplus stocks. In some respects, the commensurate benefits policy has been successful because new markets have been developed and increased sales have occurred in established markets. However, the overall feeling of those involved in exporting Canadian fish and fish products is that fish sales should not be tied to fish quotas. Markets should be developed through the free market system and without direct government involvement, and Canadian fish should be purchased because it is a desirable commodity. In the long term the policy should be self-liquidating, because as Canadian catching capability improves fewer fish will be caught by foreign fleets.
Conclusions Although assessment could the development of the east policies, foreign investment marketing, the above three are new policies which have the fishing industry.
have been made of other policies affecting coast fishery, such as licensing policies, port policies and government involvement in policies have been considered because these only recently been derived and are unique to
MARINE POLICY October
1981
Development
Janet E. Forrest holds the degrees of BSc and MSc (University of Wales), and MBA in international business and marketing (Dalhousie University, Canada). She is currently employed by Maritime Ocean Resources Limited, as editor of the Canadian Fisheries and Ocean Industries Directory. She was previously Research Analyst at the Centre for International Business Studies, Dalhousie University. She has published many articles on organic chemistry; ‘Canadian Fishery Prospects in the UK’, Centre for International Business Studies, Dalhousie University, 1979; and is coauthor of ‘The Atlantic Fishery’, Atlantic Provinces Economic Council, Halifax, NS, forthcoming.
MARINE POLICY October
1981
of rhe east coast fnhing industry
The commensurate benefits policy has done least for the development of the east coast fishery. Although increased sales of fish have resulted in certain markets, inroads were not made in all those markets intended. Indeed, it can be said that this policy has had certain negative effects; indirectly it has resulted in overfishing outside Canada’s jurisdictional zone and has caused market access to be used as a bargaining tool. The only positive use of this policy has occurred when it has been used in combination with the ‘over-the-side’ sales policy; in this case sales have been guaranteed. On the other hand, both the developmental charter policy and the ‘over-the-side’ sales policy have resulted in increased sales of Canadian fish. However, they have only benefitted a limited number of participants in the industry. While it is clear that certain policies cannot be derived which directly benefit the whole industry, policies which result in select groups receiving excess benefits result in undue friction within the industry. The sale of Canadian fish should not be increased by direct government intervention; as with other Canadian products, sales of fish and fish products must be dependent on their competitiveness in world markets. The commensurate benefits policy should be withdrawn unless it can be changed so that it can be effectively implemented, while ‘over-the-side’ sales should only take place when genuine surpluses of fish exist and onshore processors are unable to process all of the catch. As with the developmental charter policy, the commensurate benefits policy and ‘over-the-side’ sales policy should only be interim policies and should be phased-out as the industry becomes more capable of handling and marketing the excess resource. Should it be necessary to continue these policies, it is vital that more direct involvement by the fishing industry in actual policy making should occur. Although this article evaluates Canadian policies for the development of the east coast fisheries, the difficulties encountered in such an evaluation-would not be exclusive to this jurisdiction. In most jurisdictions the benefits obtained for one sector of the fishing industry are frequently associated with costs to another sector of the industry, thus dictating comprehensive quantitative analysis to determine the overall value of the policies. If the economic benefits expected for a particular policy were outlined at its implementation, the success of the policy in obtaining those particular benefits could be more readily assessed. The quantitative evaluation of the costs and benefits associated with policies are particularly difficult in the fishing industry, as may be appreciated from the complexity of the interaction of the factors delineated in this article.
301
Janet E. Forrest Since the implementation of the 200 mile limit, the Canadian changed nature of the fishery has promoted the introduction of many new policies. The author examines the effects of three Canadian policies, the ‘over-the-side’ sales policy, the developmental charter policy, and the commensurate benefits policy on the international expansion of the East Coast fishing industry. These policies have had varying degrees of effectiveness. The biggest criticism of both the developmental charter policy and the ‘over-the-side’ sales policy was that they benefhted one sector of the industry more than another. All were considered interim policies, and while devdopmental charters have already been phased out, the other policies should be phased-out in the future as the industry becomes more self-sufficient. More involvement by the private sector in policy making is conskiered vital.
Since the implementation of the 200 mile limit, the nature of the Canadian fishery has changed and several new policies affecting the fishing industry have been introduced. These have included policies such as developmental charters, ‘over the side’ sales and commensurate benefits policies. Historically, the Canadian fishing industry, especially the east coast industry, has had a poor record of performance. The early 1970s were particularly difficult times for the Atlantic fishery. ’ Because of inadequate fisheries management and overexploitation of the resource by foreign fleets, the Canadian groundfish catch fell to record low levels. Problems resulting from overcapacity and the reliance primarily on a single market, coupled, with inadequate marketing practices and lack of quality control, combined to make the east coast fishing industry an unstable one. The state of the industry was such that investors were not willing to introduce the needed investment capital required for long-term projects and for the acquisition of new technology. To prevent the collapse of the groundfish industry, it was necessary for the federal government to inject over $130 million into the industry. As it became increasingly clear that the continuing meetings of the UN Conference on Law of the Sea (UNCLOS) were not going to resolve the problems of jurisdiction, many states such as Canada pressed ahead and declared their own fisheries zones. On 1 January 1977 Canada declared its 200 mile zone; this legislation was enacted because of the state of crisis in the Canadian fishing industry. The increased jurisdiction meant that Canada would now have the power to implement the necessary controls Janet E. Forrest is with the Centre for to ensure the proper management of the fisheries resource. International Business Studies, School Since the introduction of this legislation, there have been many sigof Business Administration, Dalhousie nificant changes in the east coast fishing industry. With the restriction of University, Halifax, NS, Canada B3H fishing in Canadian waters to only those foreign nations having bilateral 4H8 (Tel: 902-423-4840) fisheries agreements with Canada, more of the fishery resource has become available to the east coast fleets. Increased availability of fish has
294
0308-597X/81/040294-08$02.00
0 1981 IPC BusinessPress
Development
of the east coastfishing industry
meant that fishermen and processors have reaped large economic benefits from the abundant harvest. New capacity has been added in the form of extra processing capacity, freezing capacity and cold storage facilities. Markets have changed in many instances but some processors are simply selling more fish in their traditional markets. Fish exports have increased significantly, and in 1978 Canada became the world’s number one exporter of fish, in terms of value. However, exports are still primarily of unprocessed or semi-processed fish because exports of processed fish products are constrained by the high tariff barriers of Canada’s main markets in the developed world. Resource prospects indicate that the east coast harvest of fish may double within the next five years. This increased harvest means that the industry will need to expand old markets and seek new markets for fish and fish products. This article assesses the effectiveness of policies for the development of the east coast fishing industry.
Canadian
fisheries policy
In 1976, prior to the introduction of the 200 mile limit by Canada, a ‘Policy for Canada’s commercial fisheries’ was outlined by the federal government.’ This policy aimed at revitalizing the fishing industry using government expenditures only until the industry could again stand on its own feet. Of importance for the east coast fishing industry were the objectives of the policy which stated that: where a resource is exploited internationally, it may be necessary to choose between: (a) optimizing returns in the domestic fishery, eg, by an appropriate reduction in foreign fleet operations; (b) optimizing economic and social benefits for the region affected or the nation as a whole, eg, through leasing to other countries the right to exploit certain stocks if this were proved desirable.3 This emphasizes that in some cases policies have not been established for the benefit of the local industry but for the benefit of the nation as a whole, and vice versa. An assessment of how governmental policies are perceived is of particular importance to the industry and government at this stage in the international expansion of the east coast fishing industry.
Developmental
IThe east coast fishery includes fish harvesting and processing based in the provinces of Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, and Labrador. 2Policy for Canada’s Commercial Fisheries, Environment Canada, Ottawa, Canada, 1976, Appendix I, p 3. ‘Ibid. Developfnent charters for nonCanada, traditional species, 1978 policy. “Ibid.
MARINE POLICY October 1981
charters
Since the implementation of the 200 mile limit,the federal government has enacted a policy of ‘developmental charters’, defined as ‘arrangements by Canadian fishing interests for the charter of foreign vessels to further the growth and development of the Canadian fishing industry’.“ These arrangements were initiated in 1977, and were designed to encourage the harvesting and processing of certain non-traditional fisheries such as offshore squid, grenadier and silver hake. The policy aimed at ‘maximum feasible utilization of the fisherv bv Canadians’.‘with greater employment of fishermen and processo;s,*and an in&eased source of supply of raw material for the processing plants. Other goals of the charters were increased product development, improved market access, and the training of fishermen in new harvesting and processing techniques. In the latter respect, the utilization of the most efficient vessels and equipment in the charters was encouraged. Whether or not
Development of the east coast fishing industry Table 1.Exampksof1979devekpmenta~~.
Canadian -wny Sovrybftouc Prcdintorg (USSR)
;.gn;trson
Nichiro Gyogyo Kaisha Ltd
Source: ments.
Fshertes
and Oceans, various docu-
North Sydney, Nova Scotia
chmmtka tonnes
t-l. f3. Nickersonb & Sons Ltd, North Sydney, Nova Scotia
a At
the Canadian partner’s option, extra quantities could be harvested by the foreign partner, providing permission was recetved from Ftshertes and Oceans. b While the head offfce of this company was cited on the contract, the three charters mentioned here invotving this company occurred in diirent locations throughout the area. c Sovrybflot is a Soviet fishing enterprise, while Prcdintorg is an international trading agency. d While these are tradiiional species, the charter was for the purpose of catching and harvesting at sea.
species involved lllex (squid)
1088
Silver hake
2288
lllex Sitver hake Argentine
1500 1288 100
(Japan)
United Maritime Fishermen Co-op. Moncton, New Brunswick
Coop Trade Japan
(Japan)
lllex
1888
BCM lnvestment Ltd Liverpool, NS
Hoko Fishing Company Ltd
lllex
3500
(Japan)
Sitver hake
2w8
Ntiro Gyogyo Kaisha Ltd
Redfish American plaice Witch
2428 (total all species)
(Japan)
turbotd
H. B. Nickerson 8 Sons Ltd, North Sydney, Nova Scotia
charters were granted to Canadian companies or their partners depended on a host of factors6 In the past few years many east coast companies have been involved in developmental charters (as many as 50 arrangements have been made). Examples of some companies and the species and quantities they were 6lhe assessment of proposals depended on: the allowed to catch are shown in Table 1. Other companies such as National degree to whit such a charter would increase the development of a sm fishery; what level of Sea Products’ were also involved in developmental charters with vessels market expansion for this species could be from other countries such as East Germany. In all cases, the quantities attained compared to other means of achttving and catch areas for the non-traditional species were well defined. The this goal; the degree to which the projsct allowed processing for Canadian onshore workers; the agreements specified the amount of the catch harvested by the foreign level of beneftts (employment and income) resuttvessel which was to be processed onshore (in 1978 this amount was 25% ing from increased throughput for plants operating of the catch, while in 1979 it was 50%). below capacity; related social and econcxnic benefti at tfte community level and other benefits The developmental charter policy has been successful in that it has to the fishing industry; and the extent to which allowed some companies, such as the smaller processors who are unbenefits were complementary to departmental willing or unable to invest the required capital in harvesting capacity, to objectives in terms of fleet development, product upgrading and market development. The charters exploit the non-traditional species. It has also allowed Canadian comcould only have a maximum duration of one year, panies to acquire the know-how to harvest and process these species with and all proposals had to outline a developmental little risk involved. The charters have also enabled companies to underplan including training of local fishermen and of vessels which are reauired to harvest changes to t&t Canadian cr=. hb countries stand more clearlv 4 the tvnes ,1 1 wtth which Canada had bilateral agreements previously unharvested species, such that some companies formerly could partake in such developmental charters. Of opposed to freezer vessels now favour them. The developmental charters the soecies cauaht. no transshioment at sea was alto&d and, to &‘extentthat i was feasible,the were designed so that the various foreign companies wishing to particispecies were processed in Canada shore plants. pate could outbid one another, and it is generally believed that the ‘National Sea Products Ltd and H. B. Mckerson 8 partner has received ‘windfall’ profits from them. These profits Sons Ltd are the major companies in the fishing Canadian industry on the east coast of Canada. Both are have enabled the companies involved to greatly improve their financial vertically integrated companies, have plants in position, but whether or not these profits have been reinvested has not other countries and international sales offices. been disclosed.* H. B. Nickerson has a controlling interest in National Sea Products but the two companies The success of the developmental charter policy with respect to the operate quite independently. transfer of technology appears to have been only marginal, particularly in RActualfirm profit levels are not available because the case of hardware transfer such as in freezer trawlers where standard the major part of the east coast fishery is prfvately owned and financial data are not available. The processes similar to those used onshore were utilized. However, a certain industry as a whole did, however, receive an level of software transfer occurred, and new processing, handling and estimated gross revenue of $7 million from packaging techniques (particularly for squid) were learned from developmental charters in 1978.
MARINE
POLICY October 1981
Development
of the east coastfishing
industry
Japanese partners. Further, important knowledge was gained about the Japanese marketing system; this was of particular value to small processors who had not previously done business with Japan. One of the main criticisms of the developmental charter policy came from small and medium-sized processors who were not aware of the policy and thus unable to participate. In this regard the large processors have an advantage over the small processors because they were better informed and have more efficient lobbies,’ suggesting that the policy was more favourable to the larger companies. Another criticism of the policy was the bureaucratic tardiness; repeatedly, governmental approval for charters was too s10w.‘~ Because different terms and conditions were used from year to year, the parties involved could not make any long-term commitments or plan ahead. The policy thus discouraged capital investment in facilities for processing non-traditional species. Criticisms were also made with regards to the onshore processing stipulations; in some cases onshore processing merely involved onshore transshipment and it was necessary for the term ‘processing’ to be more clearly defined. Stipulating different levels of onshore processing was not satisfactory. While 100% onshore processing was considered desirable because it would result in more shore-based jobs, in some cases processors did not have the necessary capacity. The most economically feasible level should have been determined by the processors involved in the charters. In fact, greater efficiency in harvesting, processing and marketing would have been achieved if a total sales package had been involved, including market demand analysis, and a marketing policy in terms of product form, price, distribution and processors’ capabilities. However, the largest drawback of the charters was in the lack of application of the new technology by the industry; technology can only be transferred if it is utilized. Use of developmental charters was seen as a factor in forestalling the time when the east coast fleet had its own capability to catch such species, and the whole industry could benefit in terms of profits, employment and sales. Because developmental charters were used as a temporary means to utilize resources for which the industry did not have the capabilities to handle, they have since been discontinued and four licences have been issued for Canadian freezers to harvest non-traditional species.
Wesides National Sea Products and H. B. Nickerson 8 Sons, there are two more major companies on the east coast, namely The Lake Group and Fisheries Products - these are both based in Newfoundland. While onfy National Sea Products’ sales are public knowledge (in 1979, sales of $200 million were recorded) the other three companies also have large sales. Several medium-sized companies exist with sales in the
Over-the-side sales
Since 1976, just before Canada gained jurisdiction over the fishery resource, not all export sales of Canadian fish have been from a land base. Some sales have been made directly from the Canadian harvesting vessel ‘over-the-side’ to foreign ships anchored offshore. ‘Over-the-side’ sales have involved such snecies as mackerel. herring. gasnereau and sauid. L Yl” 1 A sales has been defined as providing ‘an ranae Of s1c-a5 mittionbut the ma** tover The purpose of ‘over-the-side’ several hundred) of fish processing companies opportunity for inshore fishermen to sell catches which are surplus to have sales of much less than $10 million. loFor example, a charter to catch silver hake was domestic processing and marketing capacity, or where no Canadian not successful. Delays in approval of the project market exists at economically acceptable returns to fishermen’. ” meant that it was carried out at the wrong time of ‘Over-the-side’ sales were first initiated to assist the orderly transition the year; by the time approval was granted the season was almost over and the overall harvest of the changeover of the Bay of Fundy herring fishery from a meal fishery was low. to a food fishery. The herring fishermen were organized into a cooperal’Personal communication from L. S. Parsons, sold through this organization. Sales to Polish Director General, Atlantic Operations, Atlantic tive and the food herring vessels anchored offshore resulted in prices being paid to the fishermen Fisheries, Fisheries and Oceans, Canada. MARINE POLICY October 1981
Development of the east coastfishing industry
WNCLOS rulings allow coastal states to have sovereign rights over the living resources within their economic zone, but also state that resources within the economic zone must be fully utilized such that if the sovereign state cannot use them, the surpluses can bs fished by other states.
which were many times higher than the Canadian producers were willing to pay. More recently, some ‘over-the-side’ sales deals of such species as mackerel were initiated at the request of the fishermen who could not get guaranteed prices and purchase commitments from their local processors. Those sales arranged with foreign vessels involved not only quantities of mackerel, but also guaranteed allocations of non-traditional species such as offshore squid or silver hake. These guarantees were included in the arrangements to reduce the financial risk of the foreign buyer; if the foreign buyer did not receive the contracted amount of fish from ‘over-the-side’ sales, he would be compensated with offshore allocations. Such ‘over-the-side’ sales have been extremely beneficial to certain inshore fishermen’s groups, such as the Bay of Fundy fishermen whose earnings increased substantially, and markets have been developed for surplus fish and new species. However, ‘over-the-side’ sales have been controversial since their implementation and have received wide press coverage. Most criticisms aimed at the policy have been that they have resulted in lost onshore jobs, loss of value added, increased prices for raw materials, and also that there has been a lack of any meaningful consultation between all groups involved. The most controversial issues have been the ‘give-aways’ of allocations in the form of guarantees tied to sales, and the belief that the fish purchased by the foreign vessels is purchased at a much lower price than it would have cost these fleets to harvest it. In the latter case, the low costs (particularly of the Eastern bloc vessels involved in the sales) enable the fish to be sold in international markets at low prices in direct competition with Canadian fish. The main problem with this policy is that one sector of the industry benefits at the expense of the other, and even one group within a sector. Because ‘over-the-side’ sales have been so beneficial to only certain groups of inshore fishermen, the policy has caused unrest among others, and more and more fishermen are now clamouring to be involved in these sales. Arguments favouring ‘over-the-side’ sales point to increased revenues to fishermen from this policy. For instance, herring sales to the Poles are said to have raised the price of herring fivefold. However, at the same time, the price of herring on world markets rose sharply because of reduced supplies as a direct result of the closure of the North Sea herring fishery; thus higher prices could have been received for this herring on world markets. More recently, when mackerel sales to foreign vessels were proposed, many processors offered to meet the established price for limited quantities. Previous to the sales arrangement, processors had not been willing to meet the price. Thus in this respect ‘over-the-side’ sales tend to make processors more competitive in the prices they are willing to pay to the fishermen. With regard to the guarantees, it has been rationalized that because of UNCLOS’* Canada’s excess stocks must be allocated to foreign fleets. However, with the ‘over-the-side’ sales arrangements, the excess stocks were allocated but Canada received a firm obligation to purchase other species in return. In the 1980 ‘over-the-side’ sales arrangement, the ‘guarantees’ were not referred to as such but as an extension of the commensurate benefits policy (see below). It can be argued that ‘over-the-side’ sales have not had the negative effect that the processing industry claims, and that in fact the actual MARINE POLICY October
1981
Development
of the east coast fishing industry
quantities of fish involved have been quite small. I3 ‘Over-the-side’ sales can only be justified when there is a genuine surplus of the resource, such that Canadian processors are unable to process all the catch efficiently, or where no adequate domestic market exists which will result in an acceptable economic return to the fishermen. In such cases, it is valid to allow foreign vessels to coordinate with the plant. When conditions do arise which warrant such sales, meaningful negotiations with those members of the industry directly involved should take place and arrangements should not be solely government-to-government. Provision of adequate cold storage facilities, where most needed, will help to reduce the need for ‘over-the-side’ sales. Any continuance of the policy should occur only with the consensus, if this can be obtained, of all those with vested interest. Policies such as the ‘over-the-side’ sales policy illustrate the lack of a comprehensive development and marketing plan for the east coast fisheries; such a plan is essential to allow the industry to make long-term plans with confidence.
Commensurate
031n1979, ‘over-the-side’ sales on the east coast represented 1% of total landings and less than 0.7% of total value. 14As an example, in Canada’s ‘Agreement between the Government of Canada and the Government of Bulgaria on Mutual Fisheries Relations’, Article VI states ‘The Government of Canada and the Government of Bulgaria affirm the need to ensure the conservation of the liiina resources of the high seas beyond the limits of national jurisdffion, and the special interest of Canada ___in such resources ._’ The ‘special interest’ in the breeding stock is an important goal in Canada’s bilateral fisheries agreements but is also embodied in the North Atlantic Fisheries Organization (NAFO) Convention. IsIncreased onshore processing occurs as the result of specific agreements, such as the agreements for foreign vessels to catch northern cod, to suppty Canadian onshore processing plants at a time when there was a resource supply problem. “For example, a regional carrier is benefttting to the extent of $100 Ooo or more per annum frcm Canada’s bilateral agreement with the USSR. Planes are chartered from the airline to transport Russian crews to and from central Canada where connectiins with the USSR are made. Personal communication, W.F. Gaudet, V.P. Marketing, Eastern Provincial Airways, Gander, Newfoundland.
MARINE
POLICY October 1981
benefits
The generally accepted rulings of UNCLOS are such that where nations have jurisdiction over their fishery resource, they must fully utilize this resource. Canada has bilateral agreements with several countries, many of which formerly fished in the waters off Canada which are now under Canadian jurisdiction. Through these bilateral agreements, these countries are now allowed to fish those resources surplus to Canadian needs. Built into Canada’s bilateral agreements are clauses which state that Canada must receive ‘something of value’ in return for allowing other states to fish the surplus resources. Receiving ‘something of value’ has been termed a commensurate benefit, although this term has recently fallen out of favour with government officials. Canada’s ‘something of value’ has involved two areas: a ‘special interest” in the stocks in the area beyond the 200 mile limit on the Atlantic coast, especially transboundary stocks on the ‘Nose’ and ‘Tail’ of the Grand Bank and the breeding stocks on the Flemish Cap, and provision for the expansion and diversification of export markets for Canadian fish and fish products. Although in certain years all surpluses were allocated, in 1978 certain stocks were maintained as reserves for later allocation. While some of these reserves were allocated to Canadian fishing interests, the remainder were auctioned for commensurate benefits. More offers were received than reserves were available. and Canada was able to select those offers which were most advantageous. The result was that many nations agreed to buy more Canadian fish than they normally purchased. Thus, potentially, the commensurate benefits policy results in greater exports sales as well as greater onshore processing. I5 Benefits resulting from allowing other nations to fish in Canadian waters can take many forms and can extend to industries far removed from the fishing industry.‘6 The extent to which Canada is benefitting from the commensurate benefits policy is a contentious issue. Like the other policies considered, the short time during which the policy has been in effect makes it difficult to assess its overall effectiveness. However, certain judgments can be made.
Development of the east c
fishing industry
The policy is considered to have been somewhat harmful to the larger fish processors, who, prior to the 200 mile limit, had developed markets with the Eastern bloc countries on their own initiative. Since the commensurate benefits policy has been introduced, market access has been reduced and the buying demands of the Eastern bloc countries have been distributed among the whole industry including the small processors. Reduction in the exports of the larger companies to the communist countries has made them critical of the ‘socialistic’ nature of the policy. The policy was questioned because it favoured Eastern bloc countries and did not benefit the markets of the Western World such as the EEC where the necessary hard currency was available. The policy does, however, appear to be more workable in countries where there is a central buying agency and where fish is purchased as a source of protein. In such cases, the species purchased are not as important as they are to private business firms in Western countries, which must satisfy consumer tastes. However, problems have occurred with certain countries because they have failed to uphold their commitments to purchase Canadian fish products because of a shortage of hard currency. Consequently, Canadian companies have spent unproductive time negotiating with these countries and the objectives of the commensurate benefits policy have not been met. The other primary benefit sought by the commensurate benefits policy, that of stock conservation, does not appear to have been achieved because it has not resulted in cessation of overfishing outside the Canadian zone and certain stocks are still endangered. An assumption behind the commensurate benefits policy was that Canada had the upper hand in negotiations, but the outcome of the negotiations depends on the bargaining power of the various participants. The policy was established on the premise that those nations, which formerly freely fished in waters now under Canadian jurisdiction, would readily allow market access for fish quotas. However, foreign nations are reportedly demanding greater and greater allocations of fish before making purchasing commitments, and in some cases deliberately overfishing stocks to gain greater access to Canadian surplus stocks. In some respects, the commensurate benefits policy has been successful because new markets have been developed and increased sales have occurred in established markets. However, the overall feeling of those involved in exporting Canadian fish and fish products is that fish sales should not be tied to fish quotas. Markets should be developed through the free market system and without direct government involvement, and Canadian fish should be purchased because it is a desirable commodity. In the long term the policy should be self-liquidating, because as Canadian catching capability improves fewer fish will be caught by foreign fleets.
Conclusions Although assessment could the development of the east policies, foreign investment marketing, the above three are new policies which have the fishing industry.
have been made of other policies affecting coast fishery, such as licensing policies, port policies and government involvement in policies have been considered because these only recently been derived and are unique to
MARINE POLICY October
1981
Development
Janet E. Forrest holds the degrees of BSc and MSc (University of Wales), and MBA in international business and marketing (Dalhousie University, Canada). She is currently employed by Maritime Ocean Resources Limited, as editor of the Canadian Fisheries and Ocean Industries Directory. She was previously Research Analyst at the Centre for International Business Studies, Dalhousie University. She has published many articles on organic chemistry; ‘Canadian Fishery Prospects in the UK’, Centre for International Business Studies, Dalhousie University, 1979; and is coauthor of ‘The Atlantic Fishery’, Atlantic Provinces Economic Council, Halifax, NS, forthcoming.
MARINE POLICY October
1981
of rhe east coast fnhing industry
The commensurate benefits policy has done least for the development of the east coast fishery. Although increased sales of fish have resulted in certain markets, inroads were not made in all those markets intended. Indeed, it can be said that this policy has had certain negative effects; indirectly it has resulted in overfishing outside Canada’s jurisdictional zone and has caused market access to be used as a bargaining tool. The only positive use of this policy has occurred when it has been used in combination with the ‘over-the-side’ sales policy; in this case sales have been guaranteed. On the other hand, both the developmental charter policy and the ‘over-the-side’ sales policy have resulted in increased sales of Canadian fish. However, they have only benefitted a limited number of participants in the industry. While it is clear that certain policies cannot be derived which directly benefit the whole industry, policies which result in select groups receiving excess benefits result in undue friction within the industry. The sale of Canadian fish should not be increased by direct government intervention; as with other Canadian products, sales of fish and fish products must be dependent on their competitiveness in world markets. The commensurate benefits policy should be withdrawn unless it can be changed so that it can be effectively implemented, while ‘over-the-side’ sales should only take place when genuine surpluses of fish exist and onshore processors are unable to process all of the catch. As with the developmental charter policy, the commensurate benefits policy and ‘over-the-side’ sales policy should only be interim policies and should be phased-out as the industry becomes more capable of handling and marketing the excess resource. Should it be necessary to continue these policies, it is vital that more direct involvement by the fishing industry in actual policy making should occur. Although this article evaluates Canadian policies for the development of the east coast fisheries, the difficulties encountered in such an evaluation-would not be exclusive to this jurisdiction. In most jurisdictions the benefits obtained for one sector of the fishing industry are frequently associated with costs to another sector of the industry, thus dictating comprehensive quantitative analysis to determine the overall value of the policies. If the economic benefits expected for a particular policy were outlined at its implementation, the success of the policy in obtaining those particular benefits could be more readily assessed. The quantitative evaluation of the costs and benefits associated with policies are particularly difficult in the fishing industry, as may be appreciated from the complexity of the interaction of the factors delineated in this article.
301