Fisheries Committee on May 5th, 2014

[The Chair, Conservative, Rodney Weston]

I call this meeting to order.

I want to thank our guests for being with us here today.

Minister, I believe you're going to lead off the presentation today and that are going to pass off, at some point, to your colleagues who are with you. I am hoping that you can introduce your colleagues and talk a little bit about the all-party committee that's been struck and, obviously, the message you want to leave with us here today.

When you are ready, you can proceed, Minister.

[Keith Hutchings, Chair of the All-Party Committee on Northern Shrimp Allocations, Member for Ferryland, Minister of Fisheries and Aquaculture, Government of Newfoundland and Labrador]

Thank you, Mr. Chairman.

First of all, thank you for the opportunity to present to the standing committee here this afternoon. My name is Keith Hutchings. I am the chair of the all-party committee, and Minister of Fisheries and Aquaculture for Newfoundland and Labrador.

My fellow committee members are Mr. Dwight Ball, leader of the official opposition, Newfoundland and Labrador; and Ms. Lorraine Michael, leader of the New Democratic Party of Newfoundland and Labrador.

We're here today as an all-party committee representing the people of Newfoundland and Labrador, to present a united position on the 2014 allocation of the northern shrimp resources adjacent to our province, announced on April 4, 2014. This committee was formed in early April to pursue the elimination of the last in, first out policy, also known as LIFO, and to seek a more equitable distribution of the northern shrimp quota allocation between the inshore and offshore fleets. This more equitable distribution should be based on adjacency and historical dependence. We have no desire to pit one sector against another, as both contribute significantly to the provincial economy. Instead, we seek a balance.

At this time we would like to provide an overview of the shrimp fishery off the coast of Newfoundland and Labrador, including the offshore shrimp fishery, and then discuss the development of the inshore fishery and DFO's last in, first out policy and its implications for Newfoundland and Labrador's inshore shrimp sector. Finally, at the end we will make some recommendations.

An overview of the shrimp fishery. I do believe you have before you some exhibits. Exhibit A basically outlines the offshore shrimp fishing areas from 0 through 7. Inshore access is essentially restricted to areas 6 and 7 off the island part off Newfoundland. There is also a small long-standing inshore fishery in the Gulf of St. Lawrence, off our west coast, of approximately 6,000 tonnes. This has been in place since the 1970s.

The offshore fleet has had exclusive access to areas 0 though 6 from 1978 to 1996. This fishery is conducted by offshore factory-freezer trawlers, which are effectively fishing vessels with an on-board fish-processing factory. These vessels catch, then process, shrimp on board.

There are 17 offshore licences, which are owned by 14 companies. Eight of these licences reside in Newfoundland.

The offshore is managed under an enterprise allocation system, which provides each license holder a prescribed amount of shrimp within all-shrimp fishing areas. In addition, there are a number of special allocations or community quotas that are also landed by offshore vessels. These allocations are purchased under royalty agreements and then harvested by the offshore sector.

Very little of this shrimp is sold in Canada. Most is sold as a high-value, shell-on product into Russia and China.

There are 10 vessels in the offshore fleet, with each vessel employing a crew of around 60 individuals—two rotating crews of 30 people. These vessels operate year-round.

There are approximately 80 total landings per year in Newfoundland and Labrador ports by Canadian offshore shrimp vessels.

The offshore fleet transships from four ports in Newfoundland: Harbour Grace, St. Anthony, Bay Roberts, and Argentia. Economic benefits are derived from the landings, purchase of goods and services, and the employment of the crews.

I refer to exhibit C, which references the offshore fleet quota and landings from 1977 to 1996. Fisheries scientists started to see a trend upwards in the shrimp resources in the late 1980s. The Newfoundland and Labrador inshore started to request access in the early to mid-1990s, replicated by the downturn in our groundfish. On the diagram in exhibit C, you will see the threshold level of 37,600 tonnes for the offshore fleet, meaning that regardless of new entrants after this point, the offshore fleet allocation would not go below this threshold amount. I note the offshore allocation peaked at about 66,000 tonnes in 2009, and under LIFO, in 2014, they retain approximately 60,000 tonnes, pending final decisions in a couple of northern areas.

In 1997, inshore harvesters were granted access to SFA 6 by the then minister Mifflin. The aforementioned threshold of 37,600 tonnes was established for the offshore, meaning the offshore allocation would not go below what they had the year prior to the entry of the inshore.

Minister Mifflin's press release, exhibit D, outlined new sharing principles. Specifically they referred to the principles that adjacency would be respected, that priority would be given to increasing participation of aboriginal people, that priority access would be given to inshore vessels less than 65 feet in length, and that employment would be maximized in both the harvesting and processing sectors where possible. I want to emphasize that there was no mention of LIFO at that time.

Minister Mifflin's announcement generated a great deal of fishing and economic activity over the next ten years, despite the fact that these inshore allocations were deemed temporary. The province saw more than $200 million of private-sector investment in both vessels and plants; 365 inshore fishing enterprises were licensed; at peak, in 2008, there were more than 3,000 inshore landings of shrimp per year; 13 onshore processing plants were established. For context, a shrimp plant is an expensive capital investment endeavour that can cost up to $16 million.

The province saw 3,500 direct jobs coming out of the inshore expansion. In 2007 the fishing industry renewal strategy was developed as a joint initiative of the Government of Canada and the Government of Newfoundland and Labrador. This strategy encompassed a number of federal and provincial programs designed to support an industry in distress.

On the provincial side we created programs to encourage innovation, support investments, and facilitate transparency in licensing.

On the federal side there were capital gains exemptions, enterprise-combining policies, the new ability to use licences as collateral, and most importantly for our discussion here today, the temporary allocations for shrimp harvesters were made permanent in 2007, leading them to believe that they were permanent stakeholders in the resource on a go-forward basis.

The changes in the licensing policy were tied to a surge in the resource. When the resource began showing some signs of decline in recent years, inshore quotas were reduced from a high of 77,000 tonnes in 2009 to 33,428 tonnes in 2014 based on the application of LIFO since 2010.

Furthermore, the inshore fleet took on more debt to take full advantage of becoming fully licensed participants in the shrimp fishery. The enterprise-combining policy, coupled with the ability to use a licence as collateral, encouraged significant investment in the inshore industry. With declining shrimp, the return on this investment is now diminishing. The 365 enterprises licensed in 1997 have since reduced to 280, with only 234 of these active.

Over this time, three onshore processing plants closed because of structural damage and one as the result of a business decision. At this time there are ten plants licensed to process shrimp in Newfoundland and Labrador. Exhibit E demonstrates where in Newfoundland and Labrador they exist.

This concludes the overview of the shrimp fishery.

At this time I'd like to turn to the management of the shrimp resource.

Since the inshore harvesting licences were made permanent in 2007, there have been changes to the integrated fisheries management plan or IFMP for northern shrimp. It was in 2003 that the IFMP first made a reference to LIFO. To quote from the 2003 IFMP:

Should there be a decline in the abundance of the resource in the future, temporary participants will be removed from the fishery in reverse order of gaining access—last in, first out.

In the 2007 IFMP there was a variation on this. To quote from the 2007 IFMP:

Should there be a decline in the abundance of the resource in the future, new participants/allocations will be removed from the fishery in reverse order of gaining access—last in, first out.

This changing dialogue caused much confusion. In 2007, with people being permanent stakeholders—there was an expectation that they were permanent stakeholders, as I said, in the industry—they invested and expected to be able to take a return on a go-forward basis, based on that investment.

These changes were made with little consultation or consensus from the Northern Shrimp Advisory Committee. The changes have major implications for the inshore harvesters who were made permanent in 2007, as many believed LIFO would no longer apply to their sector and invested based on that understanding.

The Government of Newfoundland and Labrador has made numerous representations against LIFO over the past number of years. Aside from the fact that LIFO is not applied to any other fishery, there are fundamental concerns with the policy.

First, it gives no consideration to differences in areas of access. I'll refer back to exhibit A showing the shrimp fishing areas. The inshore only has access to Areas 6 and 7, while the offshore has access to Areas 0 through 7.

The offshore can still retain well beyond its minimal threshold of 37,600 tonnes by accessing the resources in other areas. There is enough shrimp across the range of Areas 0 to 7 to allow both fleets to remain viable. LIFO places most the reduction on the inshore fleet.

Secondly, adjacency is not considered. For example, the Fogo Island Co-operative and the Innu nation have lost their allocations, while Prince Edward Island still retains an allocation in Area 7.

Thirdly, LIFO ignores the inshore private sector investment and contribution to rural communities that are intrinsic in the traditional allocation principles of adjacency and historic dependence.

Fourthly, LIFO treats inshore permanent licence holders as if they were temporary participants.

I will refer to exhibit F, which demonstrates the impact of the impact of the LIFO policy.

As you can see, the inshore represented by the yellow bars has declined by half since 2009. The offshore sector has declined by a much lower amount and will retain allocations above 60,000 tonnes in 2014. This is well above the threshold that I spoke of established in 1997. As well, a number of special allocation holders have been removed or reduced. Clearly, LIFO has impacted the inshore sector disproportionately.

Referring to exhibit G, we are presenting the quota implications of LIFO since 2009 in tonnes. The inshore has lost access to more than 43,000 tonnes of shrimp since 2009, or 56% of its allocation. This compares with about 6,700 tonnes for the offshore, or 10%. The offshore reduction will actually be less than represented here, pending the final decision for two of the northern shrimp areas, formerly SFA 2 and SFA 3. The special allocations have been reduced by 6,850 tonnes or 27% during this period, with allocations to adjacent quota holders as Fogo Island Co-op and Innu remove from SFA 6.

LIFO is simply a policy that the MInister of Fisheries and Oceans has the ultimate discretion to enforce or change. There is no historic significance, and there is no precedent. This policy administers a public resource and can and should be changed.

I will now ask my colleague to discuss the economic impacts we believe have resulted from quota reductions based on the LIFO policy.

Mr. Ball.

[Dwight Ball, Member for St.Barbe and Leader of the Official Opposition, Government of Newfoundland and Labrador]

Thank you, Keith.

My name is Dwight Ball. I want to thank the committee for taking the time today to meet with us as well.

I'm the leader of the official opposition of Newfoundland and Labrador. One of the key messages we want to convey today is that the economic impacts of any cut to the shrimp quota are significant, in particular when the cut is not distributed evenly between the inshore and the outshore fleets.

The inshore fleet is losing an equitable share of the shrimp resources based on this LIFO policy. Every 1,000 tonnes of quota reduced to the inshore sector in 2014 equates to approximately $1.5 million in lost revenue to inshore fishing enterprises, a loss of 20,000 person-hours of employment in inshore processing plants and of approximately $250,000 of wages, and more than $2.5 million in lost revenues to the 10 shrimp-producing plants.

The quota allocation decisions recently made by the federal government do not consider economic impact on rural communities and will affect more than 250 small-boat enterprises in the inshore fleet sector and more than 2,200 plant workers and businesses throughout the province that supply this industry. Overall, more than 100 communities in which the inshore shrimp harvesters and plant workers reside will be negatively impacted.

The total landed value of shrimp harvested in the province's offshore and inshore sectors in 2013 was $187 million. This speaks to the tremendous economic activity that the shrimp fishery generates in our province of Newfoundland and Labrador, and in particular in the rural areas of the province. A better distribution of the shrimp resource will ensure the economic well-being of those rural communities that are relying upon it.

I now ask my colleague Lorraine Michael to continue this discussion.

[Lorraine Michael, Member for Signal Hill - Quidi Vidi and Leader of the Third Party, Government of Newfoundland and Labrador]

Thank you, Dwight.

As has been said, I am Lorraine Michael, Leader of the New Democratic Party of Newfoundland and Labrador, and I, too, thank the committee for being able to be here today.

This all-party committee understands that there is a review of the underlying climatic and other conditions leading to a decline in the northern shrimp allocation. We are aware that this resource is changing and it is possible that quotas could continue to decline. We're not denying this fact.

Over time quota cuts will lead to a significant loss of employment in both harvesting and processing sectors and possible closure of more shrimp plants. The Government of Newfoundland and Labrador appreciates the need to make such cuts to protect the resource, but the way these cuts are administered will be crucial to the economic well-being of rural Newfoundland and Labrador. This issue has such serious implications for communities throughout Newfoundland and Labrador that all members of the provincial legislature joined with industry stakeholders, the business community, and municipal leaders to seek a better outcome. That is why we are presenting to you here today. If LIFO were eliminated now, it would reduce the immediate and drastic impact of current allocations on rural communities.

I will now hand the proceedings back to the chair of our all-party committee to outline our recommendations.

[Keith Hutchings]

Thank you, Lorraine.

Our all-party committee was created to present a unified position on shrimp quota allocations. At this point I'll conclude by discussing our recommendations.

Recommendation one: the committee is calling on the federal government to eliminate LIFO and establish a new sharing arrangement between the inshore and offshore through a process that is consistent with those applied in other fisheries.

Recommendation two: the committee is calling on the federal government to ensure that this sharing arrangement considers adjacency and reflects the history of both fleets in the northern shrimp fishery.

Recommendation three: the committee is calling on the federal government to carry out an immediate full scientific assessment on the northern shrimp resources and that full assessments occur annually during this time of apparent resource decline. The committee strongly believes quotas must be determined by full scientific reviews and not just surveys.

Recommendation four: the committee is calling on the federal government to implement a plan to study the impact of climate change on the ecosystem and the northern shrimp resources.

This concludes the remarks of our committee. We certainly invite, and look forward to answering any questions you may have.

[The Chair, Conservative, Rodney Weston]

Thank you, Mr. Minister.

We're going to start off with a 10-minute round, and we'll be led off by Mr. Chisholm.

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

Thank you very much.

To the witnesses, we appreciate your presentation. We appreciate how you come as representatives of the people of Newfoundland and Labrador and as the all-party committee.

We only have 10 minutes. I'm going to start off, and then hand it over to my colleague, who you may know, from St. John's South—Mount Pearl.

I wanted to ask you a couple of things.

What I hear you saying is this. You do recognize that there's been a change in the resource and that the federal government needs to respond to that in dealing with the quota. In your recommendations, though, you do say there needs to be more science and more study and that these decisions need to be made on that basis. I appreciate the recognition you've given to that.

Also, the question of this last in, first out policy is not set in stone. There are questions about how it was established in the first place, as I understand it, and there's the fact that it's not set in stone, right or wrong. The circumstances are such now that there needs to be equity in the way the reductions are implemented. I appreciate that.

It's interesting what you've said about the offshore versus the inshore. Relative to the reductions that began in 2009, and the impact that you've seen in the communities that you've spoken about in the inshore, could you speak briefly to the impact you're already seen, the economic impact, to the reductions that have already been borne by the inshore?

[Keith Hutchings]

Our coastal communities and rural communities in many regions are heavily dependent on the fisheries, you can understand—and certainly the processing facilities are. Any time we lose those two components—processing and, obviously, the harvesting sector with it—it has huge implications for the economy of those regions. It's not only the fishing activity, but it's also the supply and support services to small and medium enterprises. It's regional growth, which oftentimes stagnates or is eliminated as a result.

It's on both sides: it's on the harvesting side, it's on the processing side. And as I say, it's the community and the economic well-being and the sustainability of those communities. That's probably the most important element I could say to you. It's about sustainability and being able to drive those communities and maintain the people and families who live in those communities.

One of my colleagues would like to speak.

[Lorraine Michael]

Yes. It's just to say I know that there has been discussion over the decades, going right back to Michael Kirby, that we shouldn't make decisions in the fishery based on seeing it as a social program. I understood where Michael Kirby was coming from at that time, and I certainly agree with that.

But the point that we're making here today is that if the shrimp fishery is eventually going to phase out, then everybody who is involved in it at the moment should be dealing with that in an equitable way. It shouldn't be one group that's suffering all at once, and another group that's not suffering.

That's important for the communities. That's the way we're looking at it. I'm not looking at it from the perspective of small business or large business or anything like that. It is that if we're going to help the communities make the adjustment as things move in this fishery, then everybody should be treated equitably. I think that's an economic argument, not a social program argument.

It's essential that we make sure that as the shrimp fishery is dying, we know that the ground fishery is moving up. Changes are going to happen as a result, and adjustments have to be made, and it's this transition period that everybody should be helped through, not shutting out a whole section that's killing communities, that will kill communities.

[Dwight Ball]

Thank you. Not to really duplicate what we've already heard, but I think that 2007 was a defining moment, as I see it, in this fishery. Before 2007 we saw the system of temporary licence holders. That changed in 2007 when they were given permanent status. As a result of that, many of the inshore plants and harvesters went out and made significant investments. Obviously the revenue generated from that would be supported by having that permanency in place.

To me it's when LIFO actually changed in 2007, when temporary licence holders became permanent ones. It then gave people the courage to go out and seek that investment, which they did. So removing that in an inequitable fashion right now would result in undue pressure and challenges not only for the communities but also the harvesters and, indeed, this industry as a whole.

I also want to add that of the plants that we're talking about here, 10 in total, some of those are not just shrimp plants—albeit shrimp is an important component of the livelihood and the viability of those plants. So regardless of where you go, we're putting rural communities in Newfoundland and Labrador at significant risk with the reductions we're seeing from the type of management and decisions being made by the federal government.

[The Chair, Conservative, Rodney Weston]

Thanks very much.

Mr. Cleary.

[Ryan Cleary, NDP, St. John's South—Mount Pearl, NL]

Thank you, Mr. Chair.

Thank you for the witnesses travelling here from Newfoundland and Labrador. Your testimony before this committee is critical.

I'm taking a look at Fred Mifflin's press release—the former Minister of Fisheries and Oceans—from 1997, when he announced new entrants into this fishery, new inshore entrants. He's quite clear in terms of adjacency. He says, “Adjacency will be respected, which means that those who live near the resource will have priority in fishing it.”

It's quite clear. As your testimony has already outlined, there was no mention then of LIFO. So I have two questions. The first is, to what degree does the inshore fishery of Newfoundland and Labrador rely on other fisheries outside of shrimp? We know that cod, for example, has taken a hit in the last few years. The price of cod that a fisherman earns, I believe, is only about 50¢ a pound, and crab has also taken a hit. What other species, what other fisheries, do our traditional inshore fishermen have to rely on? That's the first question.

I want to get my questions out before you go because we have limited time. My second question is on these four points that you brought up, Mr. Hutchings, in terms of eliminating LIFO, adjacency, scientific assessment, and a plan to study the impact of climatic change. It is specifically in regard to number three, which is the scientific assessment of northern shrimp. My question is in terms of the management, in terms of the science right now on northern shrimp. We had a witness here from the seafood processors' association. You mentioned that we do assessments. DFO only has two scientists who are focusing on northern cod. Can you elaborate on why a scientific assessment is critical at this point?

[Keith Hutchings]

Mr. Cleary, your first question is related to capacity or what else is available for the inshore fisher to move on to from where we're at today. There are other species certainly, whelk, sea cucumber, mackerel, herring, turbot, that make up that enterprise, but for someone who holds the shrimp allocation, access to the inshore is extremely important. That varies among regions of the province, as you probably know.

The challenge here with the issue that we're facing is that some of the enterprises that left only have shrimp left and a reduction this year, and any future reduction under LIFO, is going to be devastating for them. You're talking about taking that enterprise out, because after what they've invested since 2007, as I indicated in regard to the permanent stakeholders, they will have nothing.

Shrimp is part of those other enterprises, and they have other varied species. When we're growing our fishing industry we need enterprises with multiple and we can't afford.... If we lose them through science, in this particular case it needs to be equally distributed so that everybody shares some of the pain.

In regard to your recommendation 3, as a province we've had concerns the past number of years about a pullback by DFO in science and research, to the point where we as a province have invested heavily in science and research in Newfoundland and Labrador, certainly for the centre for eco-research at the Marine Institute, and in looking at that ecosystem research and science. This is not looking at specific species, but at the interactions among species and what these mean. You make decisions based on the interactions of those species. It's extremely important.

This is what we're talking about, this is where we need to get to. We need to start that. It should have been done yesterday collectively by DFO, but we need to at least start now. We're doing our part, we've entered into areas that are under federal jurisdiction in regard to science, because we know it's a priority. We just think it's apparent as we go forward in managing the fishery that we have proper fishery management science and information to make those decisions.

[Dwight Ball]

First of all, to go back to your first question, Mr. Cleary, as you know in our province there are very little opportunities with all of those species. We're seeing challenges and pressures put on the biomass, certainly with crab, as you mentioned.

There are not a whole lot of other options for people when you look at the ten plants that we spoke about here today that primarily rely upon shrimp to make them viable. It's not as if they could actually have another option that they could easily go to.

To your second question about the science and the importance of science, we know that this is an interconnected ecological fishery that we're talking about here. Historically, if cod stocks are lowering will you see an increase in shrimp? Right now we're just seeing this transition taking place right now, or this is what people are telling us.

It's extremely important that we get the benchmarks in place so that we can properly assess and get an evaluation on how the stocks actually look. Not just in the shrimp stocks of course, but in all other species as well, it's important that we get those benchmarks in place because without that science it's really just a guess.

[Lorraine Michael]

I'll just add two points. I won't repeat what's been said.

In the presentation we heard from the Fogo co-op. They will be absolutely devastated by the loss of their shrimp quota. It was quite telling to see their presentation, to listen to their presentation, quite frightening. I'll just put that much out.

With regard to the scientific assessment, from my perspective, and I think all of ours, what we're talking about is getting real facts on the table, looking at what really is happening. We have decisions that are being made, it appears to us, based not on facts and the principles laid out by Mifflin. We think that has to end. I hope you will see a reason for that with our being here today.

[The Chair, Conservative, Rodney Weston]

Thank you, Mr. Cleary.

Mr. Sopuck.

[Robert Sopuck, Conservative, Dauphin—Swan River—Marquette, MB]

Thank you very much.

It's an honour to have you at our committee.

I want to make it really clear and to get on the table that all of you agree there is a conservation concern regarding the shrimp and that the TAC for northern shrimp needs to be reduced overall. The question is how to reduce it, of course, but it must be reduced to ensure the future viability of the stocks. Is that a given among all three of you?

[Dwight Ball]

Yes.

[Keith Hutchings]

Yes.

[Lorraine Michael]

That's right, yes.

Except for one point: we need to make sure that we have the full information backing that up.

[Robert Sopuck, Conservative, Dauphin—Swan River—Marquette, MB]

Sure. There are a lot of deficiencies in science given how difficult open ocean research is. From the information we received from DFO, they talked about SFA 4, where the biomass index has decreased by 21%; SFA 5, by 48%; and about a 33% decline in SFA 6; and 48% in SFA 7.

I don't think we want to leave the implication on the table that there are no good assessments being done, because the assessment at least was good enough to make those conclusions, and you all agree that the stock has declined and the scientific research that was done confirms that, so the science isn't all that bad is it?

[Lorraine Michael]

No, but we have an issue with management, and I think that's the bottom line here, the management and the decisions that have been made with regard to it. All of what you're saying may be true, but the bottom line is that we don't see an equitable sharing of the burden of what's going on. I think that's the bottom line here today. That's why our first recommendation has to do with the elimination of LIFO.

[Robert Sopuck, Conservative, Dauphin—Swan River—Marquette, MB]

Sure, but again, you said, and quite rightly so, that the more resources that are devoted to more accurate stock assessment, the better it is. But when people talk about the deficiencies in the science, I look again at the information available and the fact that last year, for example, DFO did 1,100 trawl sets and there were 233 vessel days at sea. I'm looking at the map of the trawl sets off the coast and there was a lot of work being done.

You're recommending that we need more than 1,100 trawl sets, that even with that effort, it's still not good enough. Is that what you're saying? Would that be fair to say?

[Keith Hutchings]

What trawl sets zones...? What zones were trawl sets in?

[Robert Sopuck, Conservative, Dauphin—Swan River—Marquette, MB]

It looked like it was well up to area 2. It went fairly far north. Most of it was around Newfoundland.