Feb 9, 201201:11 PMBlog: Follow the Money
Rationalized fishing rights have buoyed Alaska fisheries
Alaska has long been at the forefront of global fisheries, benefiting from the rich waters of the Bering Sea and Gulf of Alaska. The Alaska fishing fleet is one of the largest in the world, with state of the art modern vessels that can operate in any weather condition. The capital investment required to support this fleet is tremendous, and it has been supported through the privatization of fishing rights.
The creation of transferable fishing rights in Alaska has increased the value of fisheries and opened the doors to new investments, efficiencies and advancements in Alaska’s fishing industry, both on shore and off shore.
The passage of the American Fisheries Act (AFA) in 1998 and formation of Quota Shares (QS) led to “rationalized” fishing rights that now provide significant economic benefits to the industry. AFA provided a framework for the industry to form private cooperative groups that created transferrable and assignable fishing rights. Fishery rationalization established the right to fish, and the quantity of fish that each quota holder can harvest or process.
Transferrable fishing rights can be controversial, as barriers to entry are created for new participants in the industry. However, from a lender’s perspective, transferrable and assignable fishing rights have provided tremendous economic benefits to fishermen and the industry. Benefits to the fishing industry and Alaska’s economy include:
Marketing efficiencies have been realized. Quota shares and cooperatives allow fishermen and processors to slow down, diversify processing capacity, and maximize their product selection based upon market demands and the size and quality of fish. Catcher-processors and shore-based seafood processing plants have added more fillet processing lines and opened more domestic and European markets for pollock, a previously little known species. The implementation of the Quota Share program helped eliminate “derby-style” fishing and increased the viability of the “fresh not frozen” market.
Fishermen are getting higher yields and fish prices have increased. The elimination of the “race for fish” has doubled recovery rates, increased the value of fish and led to further efficiencies. Catcher-processors can simultaneously sort smaller fish into surimi lines and larger fish into fillet lines for maximum efficiency. This practice ensures the optimum use of the entire harvest.
Vessel operation costs are reduced and business risks are lower. Transferrable fishing rights in Alaska have increased investments in fishing vessels to make harvesters more efficient. Investments have been made in more efficient engines, better electronics, bulbous bows, auto baiting machines, and other vessel improvements. Vessel owners can lease or buy incremental amounts of quota from each other to make for full boat loads and maximize the efficiency per fishing trip. Alternatively, in low quota years vessels can lease their quota and not fish if it is more efficient for other vessels to harvest for them.
Efficiency is increasingly important as expenses such as diesel fuel and marine insurance costs rise. Fishermen operating in rationalized fisheries also have more time to make repairs, mitigating lost cash flow during shore time.
The environmental stewardship of the fisheries has increased making fisheries more sustainable. Fishing rights give ownership of the resource to industry participants who become greater stewards of their property. For example, pollock trawlers have invested in salmon-excluders that reduce salmon by-catch. Vessels and on-shore plants are burning fish waste oil in diesel generators and engines to maximize the resource and reduce diesel oil consumption.
Alaska fisheries are safer since fishery rationalization. Alaska’s winter snow crab or opilio crab fishery has historically been one of the most dangerous professions in America. Now crab is harvested on larger, safer vessels, with no need to race to fishing grounds. The improved economics allow fishermen to reinvest in equipment and the maintenance of vessels, which has also improved the safety of the fishery.
The fishing rights are recognized as valuable assets by lenders in Alaska and worldwide.
As a result of rationalization, Alaska’s commercial fishing industry is stronger than ever. The prices paid to fishermen are higher, the recovery rates are higher, the fisheries are better managed and more sustainable and more investment is being made into vessels and plant improvements. From this lender’s perspective, fishery rationalization, including transferrable fishing rights, has added tremendous economic value to the Alaska fishing industry.
Sam Mazzeo is senior vice president for Wells Fargo’s Alaska Commercial Banking Group. Mazzeo has been lending to the Alaska fishing industry for 15 years. He can be reached at (907) 265-2916 or Samuel.g.mazzeo@wellsfargo.com.
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