Fisheries Committee on May 5th, 2014

[The Chair, Conservative, Rodney Weston]

Mr. Kamp.

[Randy Kamp, Conservative, Pitt Meadows—Maple Ridge—Mission, BC]

Thank you, Mr. Chair.

Thank you, Minister Hutchings, and Ms. Michael and Mr. Ball for appearing before us. We appreciate that.

You're all experienced politicians, so let me just say by way of preamble that you understand that we at this table make no decisions about shrimp quotas. The minister has absolute discretion to make those decisions based on impact from her officials and the processes she goes through. Our role is to hear what witnesses say about this particular issue and decide whether we will make recommendations to the minister. We can do that.

Today my role is to understand your position, so that we're clear on that.

As a general question, would you agree that there is some inherent value in stable policies that then produce stable fisheries? We hear that from coast to coast—and I'm from British Columbia—that it's important for a fishery that's going to maintain some kind of economic viability that it understand the rules of the game so that it can make business decisions and so on.

Would you agree that it is an important principle?

[Keith Hutchings]

I agree that all players within an economic model, whether it's the fishery or any other industry, need to know, or have the normal expectation that if they invest, they're stakeholders and expect to have a return. So in that environment I think stable policy is very much needed, but when policy evolves.... As you said, we're politicians, we make policy. We often make a policy, and through experience and what happens in a particular area, that policy needs to be changed because the variables change.

So while I agree, in one sense, with stability in regard to the economic model in terms of the expectations, if the variables within a fishery or any other industry change, policy needs to change to reflect that, for the good of the industry as a whole, for the good of all those participants.

Everybody has a right to share in a public resource. We need to find a way to do it that allows them to share equitably, and if changes need to be made in the policy at some point after being in place for 10 or 15 years, well, I would suggest that the policy needs to change to reflect today's happenings in an industry.

[Dwight Ball]

I would add to that. Of course, in regard to stability, no matter what you do, when you're looking for investment you expect a return. That was the reason, I believe, that they established a threshold of 37,600 tonnes in 1997. That was the whole idea behind it. But when you advance the argument to 2007, adding a period of 10 years when there were temporary licence holders within this industry, that changed. Those temporary licence holders became permanent licence holders. The threshold is still intact, the 37,600—

[Randy Kamp, Conservative, Pitt Meadows—Maple Ridge—Mission, BC]

I'm sorry to interrupt, as my time is limited.

I did want to talk about that as well, because I think all of you have used the word “permanent” with respect to that, and I think some of my colleagues have as well. To be clear, the word is “regular”. There's no such thing, I think, as a permanent licence in the DFO world, but those licences that were temporary permits became regular licences. I think that's the right terminology.

In fact, both in the press release at the time, and then in the integrated fisheries management plan that followed, it said this:

To address the structural problems in the harvesting sector, fleet rationalization was implemented as part of the Canada-Newfoundland and Labrador Fishing Industry Renewal Initiative. This provided vessel owners with sufficient quota to extend their fishing season. To support the fleet rationalization initiative, DFO converted the temporary shrimp permits to regular licences. Converting permits to licences increases the economic security, thereby giving stability to enterprises and allowing the industry to be more attractive to financing arrangements. This initiative does not affect current allocation principles that have been in place since 1997. These principles include a “last-in, first-out” (LIFO) provision that ensures the current offshore shrimp licence holders will be protected at the 1996 quota levels for six Shrimp Fishing Areas should the quotas fall in the future.

I also have a letter from Minister Hearn, written in April 2007, in which he explains basically the same. It says in one paragraph, “It is important to note that the conversion of the inshore licences will not have an effect on current allocation arrangements.”

It seems clear to me that the intent in 2007 was not to change the basic approach in how the allocation arrangements—some call it access—were going to be applied if the stock were to decline, as it has now.

Can I get your comments on that?

[Lorraine Michael]

Maybe I'll make a comment first.

First of all, I'm going to address the LIFO issue. It has been pointed out—we've pointed it out, others will point it out to you, and I'm sure you're going to hear it again on Wednesday, knowing somebody who's going to be presenting to you—that there was no consultation. It was something that was decided and laid on the people in the industry. It doesn't exist anywhere else in the fishing industry, and to keep coming back to that, it wasn't part of 1997. For me it has no connection with the allocations. It's totally separate from that. It's an artificial thing that was laid on the shrimp industry, and I think that has to be recognized by this committee. The proof is there for that, and it has to be recognized.

I totally understand that ministers have the right to make the decisions that they make. But when ministers make decisions that go against some of the principles, such as adjacency, and we're told we can go against adjacency but we can't go against LIFO, which isn't even a principle that was laid down, then I have a real problem. That's what I see happening.

I would hope that the committee would see its responsibility to bring that message to the minister. I know you can't force the minister to make decisions with whatever decision she makes, but you have a responsibility to listen to what we're telling you, which is the experience of the people in Newfoundland and Labrador. You have a responsibility to bring that to the minister. I want to put that out. I think it's essential for us to make that strong point.

[Randy Kamp, Conservative, Pitt Meadows—Maple Ridge—Mission, BC]

With respect, your claim that there were no consultations, that somehow this LIFO policy was kind of foisted on the industry unbeknownst to anybody in the dark of the night, that's a claim we will investigate with the panel that's following you, with the minister.

But I'm curious about your explanation. When the stock started to fall in 2010 and 2011, it was clear that there were going to have to be some reductions. On what approach would be followed then, my understanding is—let me at least propose this—they followed this arrangement that had been in place since 1997, that there would be reductions based on the percentages that they went up. There were some questions in 2011 and 2012 whether this was the right approach, and an independent review was done of this. It clearly concluded that “It appears that...the appropriate departmental policies, principles and methodologies were used in the decision-making process.” That's a quote from the report. Another reads: “It appears that the policies, principles and methodology have been interpreted and employed correctly and consistently with the definition of the last in, first out principle...”.

Here's my final question, because I think I'm running out of time. It's not clear to me whether you're saying that the department really didn't follow the right principles in 1997 and 2003 and then in 2007, and they kind of misinterpreted and misapplied these principles when it came time to reduce, or you're saying that yes, they did the right thing based on the policies that they had, but the policy is wrong and needs to be changed.

[Keith Hutchings]

I think it's both. I don't think it's clear. There was confusion in the policy as we went from 1996 to 2007. There was confusion in terms of who was in and who was out, and what the expectation was.

In regard to the Ernst & Young report you referred to, the province was distinct at that time not to have a review of the current policy, because we didn't think the current policy was accurate. We wanted a review, for Ernst & Young to look at how there could be fair and equitable sharing of this resource, because we viewed at that point we weren't where we wanted to be. We wanted to be part of the Ernst & Young report, but it didn't do what we wanted to do.

I think you should go back and look at that, because I do believe that in that report it talks about that there was a lack of consultation, if I remember correctly, in regard to moving LIFO forward and how it had changed. So I think it's important to take a look at the Ernst & Young report as well.

[Randy Kamp, Conservative, Pitt Meadows—Maple Ridge—Mission, BC]

I've looked at that. It's not as clear on this point that you've made. I think it has made some suggestions that we do need to take a look at.

[Keith Hutchings]

Yes.

[The Chair, Conservative, Rodney Weston]

Thank you very much, Mr. Kamp.

I want to just say thank you very much on behalf of the committee for coming and meeting with us today and taking the time to answer committee members' questions. It certainly has been informative, and we do appreciate it as a committee.

This committee will suspend for a few moments until we set up our next witness.

[The Chair, Conservative, Rodney Weston]

We'll call this meeting back to order.

I'd like to thank our guests for being here with us again today. I appreciate you being here.

Mr. Bevan, I believe you're going to lead off with a presentation.

[David Bevan, Associate Deputy Minister, Department of Fisheries and Oceans]

Thank you.

I have a very short presentation, and then I'll turn it over to questions.

On the principles of fisheries management, DFO manages fisheries in accordance with our roles and responsibilities outlined in the Fisheries Act, and we use credible science, affordable and effective practices.

Key priorities include environmental sustainability, economic viability, and the inclusion of stakeholders in the decision-making process, but I would emphasize that ecological environmental sustainability is the cornerstone. We need that to have all things, because without it we have nothing else, we have nothing to allocate, etc. So that is the priority.

We make use of any instruments and policies to guide us in the conservation and sustainable use of the marine resources, and we've learned a lot from the past.

What we have done now is that we've created a sustainable fisheries framework, a framework of new and existing policies that provide the foundation for our ecosystem-based and precautionary approach. I'd refer you to Annex B, which outlines our precautionary approach in a very simple way.

We have enhanced monitoring surveillance. So what have we added? We've added dockside monitoring, better use of observers, hail in hail outs, logbooks, etc. Those have all been added to the suite of monitoring control and surveillance tools to make sure that we have a better understanding of fishery-induced mortality, not just on the target species but also on bycatch, etc.

We have stable access and allocation, and predictable allocation and adjustment processes. That was done, and a bit more on that is on the next slide.

Integrative fish management plans detail how a fishery is managed, how access and allocation processes are established, and provide an implementation instrument for the sustainable fisheries framework and other management initiatives. Those are discussed on a regular basis with stakeholders, and in the public domain they are on our websites.

On slide 4, stability of access and allocation, prior to 2004 and following essentially what happened with the huge shift in resource availability and the moratorium on ground fish, etc., we had a lot of movement of fishermen from one fishery to another, or fish from one group of fishermen to another. It created a fairly chaotic and conflictual environment. It jeopardized the sustainable use of resources and self-reliance, people solving problems with somebody else's fish, and it impeded the proper business environment needed to get the better value out of the resource. It put us as a department and the minister in the middle of conflicts about sharing.

Subsequent to that, in 2004 we clarified the processes and the criteria for determining best use and acknowledging legitimate uses. We established decision-making guidelines for commercial access and allocation, stabilized sharing arrangements in quota-managed fisheries in the commercial fisheries, and we created a predictable operating business environment. We also changed policies to allow use of licences as collateral in dealing with banks, etc., and we gave enough stability to those processes to give some confidence on the part of lending institutions that they had the value of their loans covered by assets.

Slide 5, however, shows what you were talking to science about last week. Oceanographic conditions are changing quickly on the Newfoundland Shelf, more so than in other locations in the North Atlantic, and the green area shows you where the biggest changes are taking place. They are affecting resources.

Species that are particularly sensitive to these changing environmental conditions include shrimp and snow crab. I will be talking about snow crab, and you may wonder why. The offshore shrimp fishery is 85% dependent on shrimp. The inshore fishery has a varied dependency from 96% down to about 50% or a little bit over 50%. The rest of what they are dependent on is crab. So between those two species it makes up to 98% of the earnings of the inshore fleet so if something's happening to crab, it has an impact.

Given the life cycles of shrimp and crab, those fisheries are based on the relatively narrow range of ages. It takes a shrimp four years to enter the fishery to be big enough to be caught, and then we only fish it for a period of about six years. So you're highly dependent on recruitment, and it's the same thing for crab. It takes eight years to get big enough to be caught in the fishery, and then it's around for about five years thereafter.

On slide 6, the northern shrimp fishery, as noted by the previous witnesses, is a big fishery: $300 million from Baffin Island in the north to southern Newfoundland. It's managed under a precautionary approach with very conservative exploitation rates. When the stock was in its heyday, hitting a maximum of 176,000 tonnes, the harvest rates were very low. The markets were not there to take it all, and the process was such that in getting it to market, not all of it was used. The harvest rates were very low, and we were well within what was called the healthy zone.

That's changing now. Originally fished by a specialized offshore fleet that developed the fishery, it started to expand rapidly in the late 1990s, and it became a place where we could have some opportunities for displaced cod fishers and other interests. At the time of unprecedented growth, there was an expectation that it was too good to last, that we didn't want to enter into a fisheries management regime that didn't look at the possible downside of eventual declines. There were policies introduced at that time. Subsequent, however, to that growth, there were investments made in this fishery by both fleets. It provides employment, etc.

I would say, just regarding some of the questions that were asked before, with regard to the early entrants, it was a temporary permit with the understanding that should the resource fall back down to pre-growth levels, there would be people removed in the order in which they came. Subsequent to 2007, when the licences were made permanent...and that was as a result of over 40 meetings jointly held with communities and stakeholders by the Province of Newfoundland and Labrador, and by DFO. The RDG of Newfoundland region, and the deputy minister of the Department of Fisheries of Newfoundland and Labrador went to those communities and asked, “What do you need to change in the fishery?” As noted, there were changes to allow for use of licences as collateral. There were changes made to the tax system to allow for capital gains.

One of the things asked for was to move the shrimp fishery from temporary permits to permanent licences so there could be combining, etc. At the time that took place, that's when Minister Hearn made it abundantly clear that, okay, it's no longer an access issue. You don't get out altogether, you don't lose your temporary permit, but rather you have your allocation of the resource linked to that kind of policy framework that became known as LIFO in 2003.

So they made investments, and that's not disputed. There's a lot of money associated with this particular fishery. Special allocations were provided as well to aboriginal groups and other organizations that were allowed to benefit from the tremendous growth. It went from 37,000 tonnes, as I said, to 176,000 tonnes, so there was a lot of growth.

Since that time, however, scientific advice indicates the size of the northern shrimp biomass has been trending downwards, more predominantly in the south than in the north. As much as 70% to 90% in southern Newfoundland over the last six or seven years has been lost. The total allowable catches have declined by 47% in areas 6 and 7, from the peak. You'll note the total allowable catch hasn't declined as much as the biomass. The reason for that is the harvest rates, as I mentioned earlier, were very, very low. Our target is to keep them in the 15% range, with a cap at 20%. So we were able to keep harvesting opportunities available by having the TAC reduced, yes, but by allowing the harvest rate to go up, but not into a dangerous level of harvest.

Just on the life cycle, you heard last week that there was a problem in linking shrimp abundance to the temperature of the water. It relates, however, to that pelagic larval, one- to four-month stage. If that happens to coincide with a good bloom of algae, as it does in cold-water years, then there's a high degree of productivity. If it happens after the bloom of algae because it's a warm-water year, then the larval shrimp don't have as much food. The males recruit into the fishery. They're big enough to catch after they're about four years old, and then they're available as males for three years and as females for three years and then they're dead.

On other fisheries, the key one being snow crab, as I mentioned, between snow crab and shrimp, those enterprises that fish shrimp in Newfoundland and Labrador are 92% to 98% dependent on those two species. So we harvest only mature males. There are no juveniles or females fished, which allows them to reproduce before being fished. The males are harvested at a rate in the 30% range. That allows most of the males to reproduce before they're caught in a fishery, and the way they reproduce is such that even after they've mated, the females will use sperm from a sperm sac for up to two years after they've mated. So even the fish that are caught in the fishery may still be reproducing under those circumstances.

Overall, exploitable biomass has changed little since the mid-2000s, but the biomass in 3LNO has gone up and the biomass everywhere else has gone down, and in 3K it has gone down by two-thirds, 66%. So there's a real issue in that particular area, and the reason for that is the water temperatures in 3K are warmer than in 3LNO. We expect further declines.

Changes in the ecosystem over the long term may help groundfish, and here you can see the size difference, on page 8 or 9, and that shows you how we can configure the gear to avoid catching anything else.

Page 10 shows that what's in the square is about what's going to be big enough to catch in the fishery in the next couple of years. You can see healthy stocks in 99 and not too bad in 2009. What's there in 2013 means that there's very little recruitment into the fishery expected in the next number of years. That's a very bad sign and indicates that we are going to have further drops in the crab resources.

We will continue to discuss with industry the best response to changing environmental conditions, but I would say that based on all the information we've received from science to date, on crab it looks like a lean period of years and on shrimp, while the predictive capacity of science is less so, we are expecting to see further declines in shrimp as well. So between the two of those, it's a problem.

On cod, we see high productivity on the Flemish Cap, good productivity on 3PS, and while there have been some encouraging signs on cod in 2J3KL, the northern cod stock, it is not yet there to take up the slack from shrimp and crab. And even if it were back in prior abundance, the value would not be enough to make up for the shrimp and crab.

We don't have good news, evidently, and we are going to have to look at a way forward on this fishery.

[The Chair, Conservative, Rodney Weston]

Thank you very much, Mr. Bevan.

We're going to start off with Mr. Chisholm.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

Thank you very much.

Thank you to the officials from the department.

If members of this committee understand one thing, it's just how complicated the decisions are that need to be made around management in your department. In this particular circumstance, it seems to me that the evidence we've been hearing is that people recognize that there's been a change in the resource and that there needs to be a response to it. I think everybody acknowledges that.

There certainly has been some question as to whether there's enough science being done, but people don't seem to be arguing about that. They're saying, let's try to resolve this question of sharing what is there at this particular point and then add in more work down the road, in terms of better science or giving you better or more tools to allow you to do your work.

The issue is the question of sharing. I want to ask one question and then I'm going to pass it on to my colleague; we have a few minutes. It's the way the LIFO policy appears to come in. The Ernst & Young report, in their review of 2012, observed that the definition of LIFO appears to have evolved over time—this is something that they reported they had heard from a number of representatives, and it was again cited by the all-party committee that was here earlier—that the change in definition of LIFO from 2003 to 2007 was not presented to stakeholders at the Northern Shrimp Advisory Committee meeting and was made without consultation. The principles that were established in 1997 resulted after a fair bit of consultation with the industry.

But then the LIFO policy came in. Everything before 2007 was about temporary licences, and then—you, Mr. Bevan, used the word “permanent”, though I know it says “regular licences” in the document—people thought they were in. And they were, I would suggest, equal participants in the industry.

I want to ask you to comment on this: that while some observers may suggest that it was clear when LIFO came in what it meant, there were many people who, in some of the documents we have read, don't indicate that there was that clarity.

Even so, are you suggesting that the policy is, in effect, written in stone? If we discover that it was presented and that there was full consultation and everybody understood the rules of the game and so on and that here we are seven or eight years later and circumstances have changed, and yet regardless we have to follow that policy, would you not agree, given what we heard from our guests earlier, that now is a good time for us to review how it is that we're going to respond, from a sharing point of view?

[David Bevan]

I think first we should just go back to 1997. It was very clear at that point that people getting into the fishery over each of the subsequent years from 1997 on to 2007 were informed that in the event that the stock went back down, they were out. That was the reality at that point.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

It was called a temporary licence then; isn't that right?

[David Bevan]

That's correct. So it was pretty clear.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

That changed in 2007.

[David Bevan]

After all those meetings that I mentioned between the province, DFO, and the stakeholders, a whole suite of changes took place and were announced jointly by the province and by Minister Hearn.

Included in those was the change in the status of the licences for the inshore shrimp fishery. But to reinforce the fact that if the stocks went back down there would be a process for dealing with the decline in them, the whole issue of LIFO was reinforced to say that this does not mean you have permanent access to quota. It means that you have a licence, but it doesn't mean that you have permanent access to quota; in the event of declines, access will be applied according to LIFO as it evolved in 2003, 2007, and so on.

The basic premise was, though, that if the stocks go down there will be a predetermined process for making those declines. Now, whether it can stay in the face of what may happen next year is going to be up to the minister to decide at that time.

I would point out as well that when the minister made the decision this year, she talked either face to face—or on the phone, for those who couldn't meet her—with every one of the major stakeholders before taking that decision. So it wasn't taken in isolation; she considered all the facts and came to the decision that took place a month ago.

We'll see what the data says next spring when the final stock assessments are in and when we have to go to the minister for a decision. It is at that point that the decision will be made as to how to handle what is likely to be a very difficult set of circumstances.

[The Chair, Conservative, Rodney Weston]

Okay, thank you.

Jack.

[Jack Harris, NDP, St. John's East, NL]

Thank you.

[The Chair, Conservative, Rodney Weston]

You have three and a half minutes.

[Jack Harris, NDP, St. John's East, NL]

Thank you, Chair, and thank you, Mr. Bevan.

I have a bit of an overriding question.

I'm familiar with how the shrimp was developed. There were some very creative decisions made during this process—the allocation to the Fishermen's Union Shrimp Company and to Torngat Fisheries, based on community ownership of the allocation, essentially. But there are also individuals or investors who developed this fishery.

I have a sense that outsiders who know nothing about this are appalled that the minister has absolute discretion here. I know that there are policies and there is a framework and everything else, but it seems that although we're talking about adjacency principles—and you heard the representations about the adjacency principle—these are add-ons to the original development of the fishery. But it seems to me that this part of it is set in stone.

We're talking about whether LIFO comes in as an add-on. But is there not a way to look at the matter holistically and see that maybe there is a way of imposing another level of fairness on this? I understand what happened in 1997 and what was said then and what has been said now, but it's not written in stone and it's not written in law; it's a matter of policy over time. Can that policy not evolve into different principles along the way?

[David Bevan]

The Fisheries Act does provide a great deal of discretion to the minister; the minister has that kind of discretion.

We had a review of access criteria by the Independent Panel on Access Criteria. They said that adjacency, historical attachment, etc., were all considerations. They did not provide us with a hierarchy.

As for new access and new quotas coming into the fishery, those were provided based on adjacency. That's why, under LIFO or under the process in place, 90% of the quota went to the inshore folks close to the resource, on the understanding that the offshore would be protected in the event that the stocks dramatically fell and went back to levels that were more historically sustainable.