Thank you very much.
We're a little bit late getting here; we didn't think we'd ever have to use the GPS in Deer Lake to find the spot to get to, but we managed to get here.
Thank you for this opportunity to meet with your committee to discuss issues related to the snow crab sector. I have a presentation that will probably take about 12 minutes .
Last year in this province approximately 2,200 individuals were employed in our fishery, and close to two-thirds of those participated in processing and harvesting of snow crab. These individuals come from some 450 communities throughout our province, primarily from rural areas where few employment alternatives exist. Snow crab has become the most important species in the Newfoundland and Labrador fishery, so there is a keen interest in ensuring that this resource is well managed for the benefit of our rural communities.
During the next few minutes I'll be providing a brief overview of the importance of this resource to the province, outlining our views on resource management issues, providing an overview of the growth and status of the crab harvesting and crab processing sectors, and outlining the importance of the fishing industry renewal strategy and the memorandum of understanding on fisheries, fishing industry restructuring to improve the viability of these sectors. Following these statements, I certainly would be open for questions for more detail.
During the 1970s a directed snow crab fishery started to develop along the northeast and south coast of this province, in NAFO divisions 3L, 3K, and 3Ps. During the mid-1980s to late-1980s, the crab fishery expanded to the west coast and to Labrador. During this developmental stage, total landings were modest and only a very small proportion of the harvesters and plant workers were involved. At that time groundfish were still the mainstay of our fishery, and following the groundfish moratorium in the early 1990s, a more lucrative shellfish industry replaced the tradition of the groundfish industry.
Due in large measure to the tremendous growth of the snow crab and shrimp resources, total production value for the province's seafood industry peaked at $1.2 billion in 2004, the highest level ever achieved, even beyond the best years of the groundfish fishery. Since then production value was relatively stable at approximately $1 billion annually until 2009, when the value fell to $827 million due to weaknesses in the market and the strong Canadian dollar.
In 2009 the combined landings for all species in our province totalled just over 300,000 tonnes with a landed value of $420 million. Our crab landings totalled over 53,000 tonnes, which was more than half of the total crab landings in all of Atlantic Canada, and had a landed value of $165 million, almost 40% of the overall landed value for all species.
For most of the 1970s, snow crab landings in all areas combined for less than 5,000 tonnes but increased to over 10,000 tonnes by the end of the decade. Crab landing were more or less stable at these levels during much of the 1980s. However, with the decline in the groundfish stocks in the late 1980s and early 1990s, quotas in landings for snow crab grew rapidly and peaked in 1999 at more than 69,000 tonnes. Since then, landings have never been less than 44,000 tonnes and over the last two seasons have averaged 53,000 tonnes, and for this year, the quota is a little higher at approximately 55,000 tonnes.
Even though the biomass appears to be relatively stable over the past several years and overall landings have been relatively consistent over the past decade, there has been great variability in certain zones. For example, in Labrador 2J, troubling resource indicators required that quotas be reduced in the order of 50% a few years ago. Fortunately, this strong action has had a positive impact and quotas have subsequently increased in this area. More recently, scientific advice in 3K and 3L, the areas with the highest crab quotas, has been inconsistent from year to year. It's clear that considerable uncertainty exists about the overall status of the crab resource, with survey results varying from area to area in recent time periods.
Given the dependence that now exists on the snow crab resource, any significant downturn similar to what has occurred in the southern gulf would be devastating for our fishing industry. Therefore, it is essential that crab receive a high priority for science expenditures, and an abundance of caution must be employed in managing this resource.
To that end, we strongly endorse means such as quota reductions where necessary and soft-shell closures. We also encourage DFO and industry to seriously consider establishing the use of cod pot escapement mechanisms and biodegradable materials as mandatory requirements.
Driven by the growth of the crab resources, but more particularly by the collapse of the groundfish stocks and the lack of fishing opportunities for fishing enterprises, participation in the crab harvesting sector has expanded far beyond any sustainable level. Prior to the mid-1980s, there were 71 snow crab harvesters in Newfoundland and Labrador. They were designated as full-time licence-holders. Virtually all of these licence-holders currently operate vessels that are in the 50-foot to 64-foot-11-inch range.
Initially these harvesters operated in areas fairly close to shore, but as access to the crab resource was expanded to include the small boat sector, these larger vessels have since been moved further offshore. They now harvest their crab between 50 miles to 200 miles from shore. In the mid- to late eighties, as the incomes for the groundfish harvesters suffered from declining groundfish resources and the value of the crab fishery became more evident, access to the crab resource was expanded beyond the initial full-time licence-holders to supplement declining groundfish revenues.
During the 1985 to 1987 period, approximately 650 supplementary licences were issued in 2J, 3K, 3L, and 3PS. Some supplementary licence-holders, in all areas, utilize vessels ranging from 34 feet, 11 inches, to 64 feet, 11 inches. In 1994 the supplementary fleet in 3L was subdivided into small and large supplementary fleets. The large supplementary fleet fishers fished farther from land in the same areas as the full-time fleet, and the small supplementary fleets fished inside the 50 miles. In divisions 3J, 2J, and 3K, the supplementary and full-time fleets fished in the same areas.
I know this is lengthy, but it provides the detail and background to point out some of the things we can't let happen again.
With the continued growth of the snow crab resource during the mid-nineties, and in recognition that the groundfish stocks were going to be more protracted than originally anticipated, in 1995 DFO issued 400 temporary seasonal snow crab permits to operators of vessels less than 35 feet to help offset the impacts of the loss of the groundfish. From 1996 to 1998, access to temporary seasonal permits was further expanded to include all heads of core enterprises with vessels less than 35 feet. The number of participating enterprises increased annually as overall snow crab quotas increased and groundfish declined, and the moratoria continued.
In 2003, the federal minister announced the conversion of these temporary seasonal permits to ensure snow crab licences. Any fisher who held a temporary snow crab permit in either 2000, 2001, or 2002 was eligible to receive an inshore snow crab licence. As a result of these various categories of licence over the past two decades, there are currently some 3,200 enterprises licensed to fish crab in Newfoundland and Labrador, of which nearly 2,500 are the inshore crab fleet of vessels that are less than 35 feet. These are traditionally fishing within 50 miles of land.
The crab harvesting sector is seriously oversubscribed. To a large extent harvesters are trying to make a livelihood on the strength of a crab resource that is spread too thin, particularly when market and exchange rates result in reduced raw material prices.
The high level of overcapacity also makes it more difficult to implement tough resource management measures when stock assessments suggest that quota reductions are required. Indeed, the FRCC report on snow crab in 2005 identified this concern and recommended that steps be taken to address the excessive fishing capacity.
Spurred by the tremendous increase in the crab harvesting capacity, which served to exacerbate the seasonality of crab landings, as well as the lack of recovery of groundfish, additional snow crab processing licences were issued in Newfoundland and Labrador. During the mid- to late 1990s, the number of snow crab processing licences more than doubled, ultimately peaking at 41 active plants. During the period from 1998 to 2003, it became increasingly clear to the provincial government that overcapacity in the crab sector could erode the industry's viability in the future even though good contribution margins in both the harvesting and processing sectors were still possible, largely as a result of the relatively weak Canadian dollar.
In 2003 there was a two-month delay in the start of the crab fishery because harvesters and processors were unable to reach an agreement on raw material price that would provide substantial returns for the large number of participants on both sides. The fishery finally got under way in June after the provincial government assured the processing sector that it would commission a review of the fish processing policy aimed at identifying measures to foster long-term viability.
In 2004 the Government of Newfoundland and Labrador implemented the recommendations of the Dunne report on fish processing licensing policy. As a result, this province now has the most rigorous processing licensing policies in Canada. New applications must go through a transparent approval process in which the proponent must advertise the intent to apply for a licence, and the application is reviewed by an independent licensing board, which makes a public recommendation to the minister. After receiving the board's recommendation, the minister retains the authority to approve or reject the application.
Under this new policy regime, the licence of a fish processing facility that has been inactive for two consecutive years is permanently cancelled. In addition, any inactive species authorizations associated with a facility licence will be removed after two years. The effect of this rigorous “use it or lose it” licensing policy has been to reduce the total number of species authorizations in the province's processing sector from 2,400 to less than 400. Latent capacity has been substantially eliminated.
In the case of snow crab, no new processing licences will be considered until a resource threshold, an average amount of snow crab available for plant, is achieved. The resource threshold for snow crab is currently 2,200 tonnes, whereas the average amount currently available per active plant is only about 1,500 tonnes. At today's quota levels, 10 crab processing licences would have to be eliminated before consideration will be given to issuing any new licences. Based on this more rigorous processing policy framework, there has been a reduction in the number of snow crab processing licences. In 2009 there were 33 active snow crab plants, a significant decline from the 41 active licences in 2002.
Nevertheless, despite the relative success to date of this passive policy approach to snow crab processing capacity rationalization, market weakness and a much stronger Canadian dollar over the past two years in particular have made it clear that a more aggressive approach is required. Building on the fisheries summit initiated by Premier Williams in cooperation with the Minister of Fisheries and Oceans, our perspective governments jointly developed the Canada, Newfoundland and Labrador fishing industry renewal strategy, which was announced in 2007.
During this process, both our governments committed to creating a sustainable, economically viable, internationally competitive, and reasonably balanced industry that is able to adapt to changing resource and market conditions, extract optimal value from world markets, provide an economic driver for communities in vibrant rural regions, provide attractive incomes to industry participants, and finally, to attract and retain skilled workers.
Some key elements of that strategy included federal fleet rationalization measures, including new combining rules, revisions to vessel length restrictions to allow a move to vessels up to 89-foot-11, and facilitating the use of fishing licences as collateral; changes to capital gains rules applicable to the sales of the fishing enterprises; improvement to the provincial vessel loan guarantee program; further strengthening of the provincial process licensing policy; a provincial R and D program for the industry; provincial funding for market promotion; provincial funding to improve fishing industry occupational health and safety; and provincial funding for a workforce adjustment program for workers affected by permanent fish plant closures.
While progress has been made on the implementation of some key elements of the strategy, in the case of the harvesting sector rationalization—this is a really important point—DFO has not yet adequately addressed the issue of facilitating the use of the fishing licences as collateral. This has impacted on the province's ability to effectively modify its vessel loan guarantee program. While some permanent enterprise combining has occurred over the past two years even in the absence of these elements, harvesting sector rationalization efforts will not accelerate until they have been addressed.
The renewal strategy approach consists primarily of regulatory reforms that provide for a passive approach to the industry renewal. However, the global economic crisis, the cost of fuel, the adverse exchange rates that have arisen since the strategy was announced, have had a profound negative impact on our fishing industry and require a more rapid and more aggressive level of intervention.
The recessionary pressures of 2009 were quite alarming to our fishing sector and underscored its precarious position. The continued ability to maintain viable operations and to make a reasonable livelihood from the fishery has been called into question. Although there had been recognition during the development of the FIR strategy that this was the case, the recession delivered this message loud and clear. At the behest of the Newfoundland and Labrador fishing industry in July of 2009 the provincial government signed a memorandum of understanding with the Association of Seafood Producers and the FFAW, aimed at addressing and finding satisfactory solutions to structural, resource, market, and policy issues that negatively impact on the economic viability of the industry.
The Department of Fisheries and Oceans has committed resources from the Newfoundland and Labrador region in an ex officio capacity to work with the parties on these issues. Specifically, work under this MOU is building on the momentum of the FIR initiatives by focusing on the identification of more aggressive capacity reduction options, whether you're in the harvesting and processing sectors, and on the development of new seafood marketing initiatives.
The Government of Newfoundland and Labrador committed $800,000 to cover the operational and administrative costs to pursue the MOU objectives. Mr. Tom Clift, a professor of marketing with the school of business at Memorial, is overseeing the work being conducted under the MOU as the independent chair of the steering committee comprised of the FFAW and the ASP, as well as DFA and DFO officials from Newfoundland and Labrador region who participate in an ex officio capacity.
To date, financial assessments have been completed on the status of the fish harvesting and the fish processing sectors. The results indicate that a significant portion of our fleets and our processing sectors are not viable. Working groups are currently assimilating this information and developing and examining options to promote long-term viability--
