Processors sue after being cut out of rockfish program

The prospect of paying fishermen higher prices has processors protesting the new rockfish program.

Five companies with processing operations in Kodiak that took nearly every delivery under the expired Gulf of Alaska rockfish pilot program sued National Marine Fisheries Service Jan. 24 in the U.S. Western District of Washington to overturn the new program set to take effect this May.

Trident Seafoods, Ocean Beauty, Westward Seafoods, North Pacific Seafoods and International Seafoods of Alaska said in their complaint that competition from the other three Kodiak processors under the revised program will drive up prices paid to fishermen and cut into their profits. (See complaint here)

Seattle-based Trident Seafoods is the largest seafood company in the state. Bristol Bay Economic Development Corp., one of six western Alaska Community Development quota groups, owns 50 percent of Ocean Beauty, also based in Seattle. Westward Seafood is owned by Maruha Nichiro, North Pacific Seafoods is owned by Marubeni Corp. and International Seafoods of Alaska is owned by a subsidiary of the Rev. Sun Myung Moon’s church.

It was the second lawsuit in as many days to hit NMFS over the Gulf of Alaska rockfish catch share program. Loughbeg Fisheries Inc., also of Kodiak, filed suit in the U.S. Alaska District alleging the company will be short-changed on quota shares because agency failed to properly write the regulations regarding “entry level” catch from 2007 to 2009. (Read the Loughbeg complaint here)

Based on legal guidance from the National Oceanic and Atmospheric Administration, the North Pacific Fishery Management Council dropped the requirement that harvesters deliver to their historic processors when it reauthorized the program in June 2010.

The species allocated under the program to trawl catcher vessels and catcher-processors are northern rockfish, pelagic shelf rockfish, Pacific Ocean perch and secondary targets sablefish and Pacific cod.

While rockfish species are the target fish, the secondary catch of sablefish is the true payday for harvesters and processors. In 2006, the sablefish landings in Kodiak were a third of rockfish landings by weight at 2.4 million pounds, but accounted for eight times more than rockfish in ex-vessel revenue at $8.8 million.

The vessel quota shares are allocated to the cooperative, which then manages the harvest of the target species, secondary species and the halibut bycatch allocation for the sector.

Under the new rockfish program, vessels must form cooperatives to receive their shares and to associate with a processor, but are free to deliver to any processor during the season.

That means harvesters are going to deliver to the processor paying the best price, according to the complaint: “Processors will, therefore, unavoidably bid up the price for deliveries of rockfish and its associated bycatch such that they will cover only their variable costs of production for processing rockfish. All the rents generated from the fishery will no longer be shared, but instead will be transferred exclusively to the vessel owners who receive rockfish harvesting quota.”

The revised rockfish program is schedule to take effect when the season opens May 1. When the council took action in June 2010, it placed vessel use caps and processor use caps in the program to limit consolidation and encourage competition.

There is a 30 percent cap on processors, meaning at least four companies will take deliveries.

The council also lowered the vessel use cap to 4 percent of the allocation, assuring the fleet would not consolidate below the 25 vessels participating in the program. It also placed a 10-year sunset date on the program to limit speculative share purchases that drive up the cost of entry for new participants.

The council also took steps to reduce halibut bycatch and incentivize savings in by limiting the amount of bycatch that could be rolled from the rockfish season into the fall trawl fisheries.

The authority for the North Pacific council to tie harvesters to processors was established in the legislation authorizing the rockfish program attached as a rider by the late Sen. Ted Stevens to a 2004 appropriations bill.

That legislative authority to recognize historical processor deliveries under the rockfish program expired Dec. 31, 2011, and it is the interpretation of NOAA legal counsel that such ties are not allowed under the Magnuson-Stevens Act because shoreside processors are not “fishing” operations and therefore may not be allocated a share of the fishery.

The Kodiak processors suing NMFS allege that interpretation of the Magnuson-Stevens Act excluding shoreside operations is wrong, as is the conclusion that the authority for binding harvesters to processors under the rockfish program expired in 2011.

The complaint states that the legislation authorizing the rockfish pilot program in 2004 provided no directive for fixed-linkages between harvesters and processors, and they charge the council action violates the MSA, the Administrative Procedures Act and the National Environmental Policy Act.

Indeed, the 2004 rockfish legislation did not require linking harvesters to processors, only that the council devise a program that “recognizes the historic participation of fish processors” from 1996 to 2000 while setting aside 5 percent of the quota to processors not eligible for the pilot program.

Under the pilot program from 2007 to 2011, the processors state they took deliveries of 100 percent of the pelagic shelf rockfish, 100 percent of the Pacific Ocean perch and 99.9 percent of the northern rockfish allocated to the catcher-vessel sector.

The only other catch share program in the nation to have processor quota is the Bering Sea Aleutian Islands crab rationalization program, which was also authorized by a rider to must-pass appropriations legislation by Stevens in 2003. That program allocated 90 percent of the fishery as “A” shares that must be matched with corresponding individual processor quota, or IPQ, based on historical share of deliveries. 

As the North Pacific council constructed the crab rationalization program, the U.S. Department of Justice advised NOAA that it should oppose the creation of IPQ on antitrust grounds.

In an Aug. 23, 2003, letter to the Commerce Department, the Justice Department wrote IPQ should not be implemented because it, “will likely reduce beneficial competition among processors with no countervailing efficiency benefit.”

In testimony Feb. 25, 2004, before the Senate Commerce Committee, U.S. Deputy Attorney General Bruce McDonald of the Antitrust Division reiterated those concerns.

“Adding IPQ further distorts the market’s operation, and introduces competitive harm, without offering similar kinds of competitive benefits,” McDonald told the committee.

Under the Magnuson-Stevens Act, all regulations approved by the U.S. Commerce Secretary are subject to judicial review if a petition within 30 days of the final rule being published. The new rockfish program rules were published in the Federal Register Dec. 27, 2011, and the Commerce Secretary now has 45 days to file a response.