Testimony

• Mr. J. Bruce McDonald

• Ms. Anu Mittal
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  Testimony

  Ms. Anu Mittal

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Witness Panel 2

• Dr. Scott C. Matulich
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  Witness Panel 2

  Dr. Scott C. Matulich

  Mr. Chairman, Committee members, my name is Dr. Scott Matulich. I am a Professor of Agricultural and Resource Economics at Washington State University; I am also an economic advisor to the Alaska Department of Fish and Game; and I am the progenitor of equitable rights-based fisheries management, including the use of processing quota. Congressional attention is warranted when user charges or other policy changes cause capital losses. This warning is the title of a 1982 GAO report to Congress (GAO/PAD-83 10). That report addressed the relatively simple problem of raising fees charged for water in federal irrigation projects. Four years later, the Secretaries of Interior and Agriculture issued the same general warning in reference to changing grazing fees on federal lands. That report focused the question a bit more on the issue of equity and fairness. In particular, it focused on the question of “Whose equity or whose economic welfare?” The general public? The permittee? Other farmers/ranchers? The GAO returned to this issue in 1991, with the same general conclusion. Since policy changes can affect asset values of current users, understanding who wins, who loses and how much, and then avoiding unintended consequences is a centerpiece of good public policy. This advice to Congress is just as sound today, as you consider the much more complicated problem of rationalizing the North Pacific crab fisheries and more generally, use of processing quota. Switching to rights-based fisheries management is more complicated because it involves a fundamental change in the property institutions that govern ex-vessel price formation at the dock. The impact of raising the cost of water or the cost of grazing stops ostensibly behind the farm gate. It does not extend to food processors or meat packers. The impact of switching to rights-based fishing, in contrast, extends to fishermen, processors and ultimately, fishery-dependent coastal communities. Whether that impact is win-win-win or detrimental to one or more of the prior participants that developed the crab fisheries in a partnership defined by the prior property institutions, is strictly a consequence of policy design. Prior to 1996, the presumptive allocation of individual transferable fishing quota (IFQ) only to harvesters never received any justification whatsoever in the scholarly literature, despite the fact that any allocation of quota is inescapably distributional. Fisheries economists simply embraced H. Scott Gordon's (1954) caricature of a commercial fishery in which only harvesters intervene between the fish stock and the consumer. This caricature, of course, is patently wrong for most commercial fisheries; the processing sector typically is just as crucial to utilizing fishery resources, as is the harvesting sector, particularly in the industrial North Pacific fisheries. And the wasteful open access externality continues until the raw product is stabilized (processed). Yet, this one simplification is largely responsible for the conventional wisdom of endowing harvesters with valuable rights and leaving processors and their communities with the consequences. (Dr. Bill Hogarth, National Marine Fisheries Service Administrator, noted that this incomplete and inappropriate definition of a fishery exists in the Magnuson-Stevens Act and should be changed. He recommended that processing be included in the definition of a “fishery.” In 2002, the Regional Council chairmen unanimously asked Congress to authorize processing quota at the discretion of the Regional Council.) In 1996, colleagues and I published a peer-reviewed, scholarly journal article that proved an allocation of ITQs only to harvesters causes an unintended, policy-induced redistribution of wealth from processors to harvesters (Matulich, Mittelhammer and Reberte 1996). This journal article remains unchallenged in the scholarly literature. The extent of redistribution depends primarily on the degree of capital non-malleability, i.e., the extent to which capital assets can earn an identical economic return in an alternative use. The degree of capital malleability will vary from fishery to fishery. However, capital non-malleability is particularly acute in the remote Bering Sea and Aleutian Islands crab fisheries or other fishery-dependent communities in which the economic base is defined by fishing/processing. Onshore crab processing assets are not only place-bound, they are specialized with no alternative use. The reason an allocation of IFQs only to harvesters unintentionally expropriates processing sector wealth is easily explained. The open access management system that causes fleet overcapitalization and the race to fish also causes overcapitalization in the processing sector. Processors must build sufficient capacity to handle the glut of fish hitting the docks during the Olympic-style, open access fishing derby. An IFQ allocation only to harvesters has the intended impact of ridding the harvesting sector of redundant, inefficient capital by promoting quota trading and thus, fleet consolidation. No harvester can be made worse off (assuming the initial allocation fairly reflected historical catch) because all trades are fully compensated. But fleet consolidation causes the season to elongate in order to harvest the same total allowable catch. This, in turn, leaves every processor with an excess demand for raw product, as they try to utilize existing daily processing capacity. This excess demand for raw fish is eliminated the same way excess demand is eliminated in any market…by bidding up the price paid to suppliers, in this case, to fishermen. Without the protection of quota, processors will be forced to transfer their capital asset values to harvesters through policy-induced price concessions—a consequence of giving individual transferable quota only to harvesters. My 1996 article concluded by speculating that alternative quota allocations could achieve the desired efficiency benefits without the regulatory expropriation of processing asset values. Subsequent peer-reviewed journal articles provided not only empirical evidence that the problem is real and severe, but also examined properties of alternative allocations that had the desired efficiency benefits without the redistributional consequences. Ironically, efficiency-minded economists would argue that it doesn't matter who receives the quotas, since net national benefit (economic efficiency) does not depend upon who receives the initial quota allocation. The initial quota allocation simply defines the winners and losers, not the magnitude of net national benefits. All that is required to maximize net national benefits is that the rights are exclusive, transferable and enforceable. These three attributes of quota are all that is needed to assure efficiency…to assure maximum net national benefits. The concept of efficiency is not unique. Any allocation of quota that satisfies these three attributes will maximize net national benefits, though the distribution of fishery benefits—all the economic benefits, not just the incremental benefits from rationalization—will differ. This is precisely why most of the squabble centers on the initial allocation of quota. It is the initial allocation that defines who wins, who loses and how much. Let me illustrate this point with several equally efficient individual transferable quota (ITQ) systems, none of which are equitable. For the sake of clarity, I assume harvesting and processing capital are perfectly nonmalleable. AUCTION Suppose the government auctions off quota to the highest bidder. · Government wins. It captures virtually all of the current capital asset values from industry participants—both harvesters and processors—because the government is the implicit initial recipient of all transferable quota. · All current industry participants lose. o Inefficient harvesters and processors cannot make winning bids and must exit. Their capital assets that were invested under the prior property state (open access management rules) are stranded and they are left absolutely worse off. o Efficient harvesters and processors who make winning bids will bid up to the variable cost of harvesting and processing. They effectively have to buy back their capital just to stay in business. They too are worse off. · Fishery-dependent communities lose. Displaced vessels and processors damage or destroy the economic base and infrastructure of fishery-dependent communities. All of these predictable consequences of an auction explain why one is hard pressed to find any federal resource that has been auctioned off AFTER industry invested in the use or extraction of that particular resource. And it is precisely why raising grazing fees or water fees has been so difficult for Congress. ITQF An allocation only to harvesters means harvesters become the auctioneer, capturing the composite economic value of the fishery, just like the government in the prior example. · Harvesters win, even those that exit. · Processors lose, even those that survive. Processors must “compete” for raw fish with ex-vessel price offers equal to the contribution value from harvesting plus the contribution value from processing. o Less efficient, exiting processors cannot compete for the raw fish. o Surviving processors transfer their wealth to harvesters in order to win the bidding war to process fish, as redundant processing capital is eliminated. · Fishery-dependent communities lose. ITQP An allocation of quota only to processors means processors become the auctioneer, capturing the composite economic value of the fishery, just like the government or the harvesters in the prior examples. · Processors win, including those that exit. · Harvesters lose, even those that survive. Harvesters must “compete” for catch and delivery privileges with low ex-vessel price offers. o Less efficient, exiting harvesters cannot compete at low, equilibrium ex-vessel prices. o Surviving, low-cost harvesters transfer their wealth to processors in order to win the bidding war for delivery privileges, as redundant harvesting capital is eliminated. · Fishery-dependent communities lose. Any ITQ system that intends to benefit existing participants—that provides security to current harvesters, processors and communities that invested in and developed the fishery—must allocate quota to these participants and/or provide explicit protection measures. This feature is the cornerstone of the NPFMC’s 11-0 vote to allocate separate harvesting quota to crab vessel owners and processing quota to plants, and to assure subsequent quota trading does not damage or destroy the economic base of fishery-dependent coastal communities. This innovative “three-pie voluntary cooperative” framework is rigorously anchored in peer-reviewed, scholarly literature. In fact, this framework evolved from knowledge gained in the process of developing that literature. For example, Matulich and Sever (1999) formally proved that a split allocation of IFQs between harvesters and processors and a so-called two-pie allocation (IFQs for harvesters and IPQs for processors) assured efficiency and benefited all participants in both sectors. However, splitting IFQs between both sectors was deemed problematic. Unlike the two-pie allocation, splitting harvesting rights is difficult because there is no way to determine the split or quota share each sector should receive. Furthermore, harvesters are likely to view IFQs as an entitlement not to be shared with processors, just as they did during the Council-sponsored, BSAI crab industry negotiations. One of the two market structures examined in my 1999 article reflects the fact that BSAI crab harvesters bargain for price through a collective bargaining association, thereby emulating a bilateral monopoly. That negotiation process is the price setting mechanism for all harvesters and processors, even though not all harvesters belong to the bargaining association. Based on this market structure, Matulich Mittelhammer and Greenberg (1995) were able to forecast accurately BSAI red king crab ex-vessel price as a formula price (profit sharing) contract under uncertainty. Formula price contracting is expected to become even more formal and precise after crab rationalization is initiated. Matulich, Sever and Inaba (2001) extended Matulich and Sever (1999) to examine the American Fisheries Act (AFA). AFA is a variant of the two-pie quota allocation. Like crab, price negotiations in the North Pacific pollock fishery closely emulate bilateral monopoly; AFA harvesters and processors negotiate ex-vessel price as a formula-driven, rent or profit sharing arrangement, albeit on a processor-specific cooperative basis rather than a fleetwide basis. Perhaps most notable for this Committee is the fact that this journal article was completed upon implementation of AFA in the inshore sector, i.e., in early 2000, well before there was any empirical evidence of how well AFA worked. We now know that conclusions from that article accurately forecast industry behavior under AFA; formula driven pricing developed quickly and revenues improved for fishermen. Yet, like the crab plan, AFA had its share of critics, many of whom are the same individuals that oppose the crab plan. Opponents to AFA argued fishermen would receive lower prices because they were tied to processors. Exactly the opposite occurred, as predicted in this journal article. Both harvesters and processors benefited from the AFA. This observation is perhaps the most compelling demonstration that rationalization need not be win-lose. The research reported in the peer-reviewed article by Matulich and Clark (2003) was initiated because many of the AFA detractors argued that the need to protect processors was theoretical and untested. Accordingly, I was asked by the State of Alaska to conduct this empirical study to measure the impact IFQs had on processors in the two largest IFQ fisheries—the Alaska halibut and sablefish fisheries. Profound damage was found. Ex-vessel prices paid to harvesters dramatically increased in both fisheries, wholesale values also increased, but processor margins plummeted. This time criticism came from the GAO, despite the fact that it made a fundamental numerical and analytical error. The GAO failed to calculate correctly processor margins adjusted for finished product recovery rates (see Appendix A). This mistake led it to erroneous conclusions. Had the GAO corrected that one error, it would have drawn identical qualitative conclusions to those reported in Matulich and Clark (2003). I am grateful to the GAO. The revision of this peer-reviewed article benefited from and responded to each of the criticisms the GAO raised. In fact, I included the GAO comments, the State of Alaska’s reply and the GAO’s response to that reply to the Journal editor upon resubmission for the second and final peer-review. The “three-pie voluntary cooperative” recently enacted into law for the Bering Sea and Aleutian Islands crab fisheries is the work-product of two-years of Council-sponsored industry negotiations. The plan followed the recommendations put forth in the majority report from this Council committee, April 2001. It followed a petition from 131 of 250 vessels asking that Congress initiate a two-pie allocation. And it followed a congressional directive that the Council consider IFQs, IPQs and CDQs as a way of benefiting all sectors involved in crab rationalization, as required by P.L. 106-554. After thousands of pages of analysis and interminable public debate, the plan reflects what is regarded as best for the unique circumstances of the industrial, North Pacific crab fisheries. It is, I believe, a needlessly complicated plan with many explicit protections as required under the Magnuson-Stevens Act and P.L. 106-554, and because it is innovative. The motion itself took 45 minutes to read into the record and two days to debate before the unanimous vote was achieved. Perhaps the most important protection element is a requirement that all quota recipients provide detailed cost and revenue information to the Council. The Council will use this data to assure its win-win-win policy goal is realized. And if not, it will modify the management system. Be advised that such revenue and cost information has never been collected in any fishery of the United States—testimony to how serious the North Pacific Fisheries Management Council is about its intent to assure the policy is win-win-win. Finally, it is important that this Committee understand that the application of IPQs in no way restricts markets for harvesters. Like IFQs, IPQs are fully transferable. Transferability, including leasing, will assure that IPQs trade into the hands of the most efficient processors that are able to pay the highest ex-vessel price for raw product. This point has been the source of much disinformation throughout this debate. Harvesters will not be forced to deliver to specific buyers. The market will dictate delivery patterns. CITATIONS Gordon, H.S. 1954. The Economic Theory of a Common Property Resource: The Fishery. Journal of Political Economics 62:124–142. Hogarth, William. 2002. Testimony to the Subcommittee on Fisheries Conservation, Wildlife and Oceans, Committee on Resources, United States House of Representatives, Hearing on Individual Fishing Quotas. February 13. Matulich, Scott C., Ron C. Mittelhammer and Joshua Greenberg. 1995. Ex-vessel Price Determination In the Alaska Red King Crab Fishery: A Formula Price Contract Under Uncertainty? Journal of Environmental Economics and Management 28: 374-87. Matulich, S.C., and M. Sever. 1999. Reconsidering the Initial Allocation of ITQs: The Search for a Pareto-Safe Allocation Between Fishing and Processing Sectors. Land Economics 75:203–219. Matulich, S.C., R.C. Mittelhammer, and C. Reberte. 1996. Toward a More Complete Model of Individual Transferable Fishing Quotas: Implications of Incorporating the Processing Sector. Journal of Environmental Economics and Management 31: 112–128. Matulich, Scott C., and Murat Sever and Fred Inaba. 2001. Fishery Cooperatives as an Alternative to ITQs: Implications of the American Fisheries Act. Marine Resource Economics 11: 1-16. Matulich, Scott C., and Michael Clark. 2003. North Pacific Halibut and Sablefish IFQ Policy Design: Quantifying the Impacts on Processors. Marine Resource Economics 18: 149-166. United States General Accounting Office. 1982. Congressional Attention Is Warranted When User Charges Or Other Policy Changes Cause Capital Losses. GAO/PAD-83 10. United States General Accounting Office. 1991. Range land Management: Current Formula Keeps Grazing Fees Low. GAO/RECD-91-185BR. United States Department of Agriculture and United States Department of the Interior. 1986. Grazing Fee Review and Evaluation: A Report from the Secretary of Agriculture and the Secretary of Interior.

• Dr. Robert Halvorsen
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  Witness Panel 2

  Dr. Robert Halvorsen

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• Mr. Richard Powell
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  Witness Panel 2

  Mr. Richard Powell

  Mr. Chairman and Members of the Committee, my name is Richard Powell. I would like to thank the Chairman and the Committee for your efforts on behalf of crab fishermen and for inviting me to present testimony before your committee today. I have been a resident of Kodiak, Alaska for 40 years and have been involved in the Alaskan king crab fisheries for that entire time. I first began fishing red and golden king crab in the Bering Sea and Aleutian Islands in 1980 and my vessels have continued participating in these fisheries each year since that time. In 1983 I converted a catcher vessel into a crab catcher/processor and this 130' crab vessel has fished the Aleutian Islands area almost exclusively since then. I am also part owner of two crab catcher vessels, one of which my son operates. For 15 of the past 21 years, I have purchased Aleutian Islands golden king crab from my catcher vessels and other crab vessels and processed them on my catcher/processor. I pay State of Alaska fish taxes for the crab I process, just like every other crab shore plant or catcher/processor. Mr. Chairman, I would like to first state my support for rationalization of the crab fisheries in the Bering Sea and Aleutian Islands. As we know from past experience in the sablefish and halibut IFQ fisheries, rationalization using individual fishing quotas (IFQs) results in better management of the resource. IFQs also make conservation goals easier to achieve. But the most important result of rationalization using IFQs is safety. The Alaskan crab fisheries have long been known to be the most dangerous of the commercial fisheries in the United States. The biggest reason for this is that the "race for fish" creates an environment where vessel owners or operators feel forced to carry loads of gear that may sometimes be unsafe in heavy or icing seas. The race to catch the fish due to shortened seasons and low harvest quotas, also pushes fishermen to fish in marginal weather. This situation has existed for too many years and fishermen in the Bering Sea and Aleutian Islands crab fisheries have been begging for IFQs for a long time. I think it is important to point out that Senator Ted Stevens has long been the strongest supporter of Alaska's commercial fishing industry. He recognizes the need for rationalization in these fisheries for all of the reasons stated above and he has many times clearly stated his position on this issue. Senator Stevens was instrumental in creating legislation for the desperately needed crab buyback program, which is in the initial bid process at this time. Senator Stevens, through legislation, directed the North Pacific Fishery Management Council to make it a priority to study how to rationalize the crab fisheries. The Council did that, and Senator Stevens got legislation passed to implement the Council plan. All of the crab fishermen in Alaska are grateful for his support throughout the years and his commitment to the commercial fishing industry. I have worked with Senator Stevens and his staff for over 15 years on fishery issues. While we have agreed most of the time over the years, we disagree on one important aspect of the Council plan – the issue of processing shares or IPQs. I strongly believe that giving exclusive processing privileges to a select group of processors will result in anti-competitive behavior. While others will debate the economic or antitrust considerations in the establishment of processing shares, I would like to limit my testimony to my own experience and how the processing share component of the rationalization program will impact the way I have done business for many years. As a longtime fisherman, coming from a fishing and processing family, I find it very difficult to believe that I can be told where I have to deliver my crab, and to whom I will have to deliver my crab. The Council’s crab plan, as passed by Congress, will not permit me to buy and process crab taken by my own catcher vessels. This, in spite of the fact, that for 15 of the past 21 years, I did just that. The reason I can’t buy crab from my own boats is that during the two processing quota qualifying years selected by the Council (1998 or 1999), the wholesale price of crab was such that it was not economic for me to process the crab from my catcher vessels. Therefore, under the Council plan enacted by Congress I can no longer choose to buy and process crab from my own catcher vessels. In addition, I will now be required to deliver 50% of the crab caught by my catcher vessels in the western Aleutians to a port in the western area. Currently, the only community in this area that would be appropriate for delivery purposes is the community of Adak. While there is one processing company located at Adak, to my knowledge that company does not qualify under the Council plan for any processing shares for the western Aleutians golden king crab fishery. This presents a dilemma. If I'm forced to deliver my crab to a processor that doesn't even have processing shares for my fishery, then what? Even if they had processing shares, what kind of price could I expect from a one-company town? My catcher vessels also fish for red king crab and opilio tanner crab in the Bristol Bay region. Like many other Kodiak based boats, during many of the seasons I chose to bring my crab back to my home in Kodiak to sell to local processors. Because of the two processor share qualifying years selected by the Council, I have lost that option as well. The Council was urged to choose these two qualifying years by the large shore-based processors. These two years disadvantaged many small processors, because those two years had very low quotas and large pot limits. The high pot limits meant that catcher vessels had to stay close to the crab fishing grounds in order to comply with State of Alaska rules about removing pots within 72 hours of the season closure. As a result, processors in Kodiak got less than 3 percent of the processor quota, which is far less than the amount of crab Kodiak based boats usually bring home. Now I can no longer choose to bring my crab to Kodiak to sell locally. Mr. Chairman, I don't have a degree in economics, nor am I a lawyer. But, I do understand that competition in the marketplace is good. Without competition, those who are forced to sell raw product will not receive a fair market price. The spillover effects to other fisheries will be apparent over time. Each fishery that gets closed to potential future processing companies will only keep new investment from coming into Alaska. This can't be good for the price to the fishermen. As fishermen begin receiving a lower price for their fish, the crew and boat shares go down. As crewmembers and skippers receive less money, their families suffer. The local businesses suffer, and the entire community is impacted in a negative way. I am convinced that years from now, the adverse impacts of processing shares will be fully realized and understood by all. While it seems nearly hopeless for the future of independent crab fishermen, I am a fisherman. Most fishermen are eternally optimistic and hopeful for the future. While trying to make lemonade out of this lemon, I can find a few good things to talk about. I would like to acknowledge the changes that Senator Stevens agreed to in the crab rationalization legislation before it passed the U.S. Congress. The legislation made clear that processors who use their A shares to leverage purchase of B shares will lose their processor shares. It also made clear that anti-trust law continues to apply. The required oversight by the Department of Commerce, Department of Justice, and Federal Trade Commission is greatly needed. The legislation also removed the confidentiality restrictions that made it impossible for the Council and the public to know exactly how much of the market each processor gets under the Council plan. Perhaps most importantly, the final legislation gave the North Pacific Fishery Management Council the authority to modify the program. I attended the Council meeting in Anchorage just two weeks after the legislation was approved by Congress, and am pleased to report that the Council voted unanimously to review the 90/10 processor share split between closed and open delivery shares. The analysis will look at other percentages, including a 50/50 split. While this is just a start, I am happy to see the review process commence on this important issue, and would like to thank Senator Stevens and other members of the Committee who worked on this legislation for giving the Council that flexibility. Now that the Congress has provided the authority for the Council to both implement and modify the plan as needed, fishermen want to see IFQs and the rest of the plan implemented as fast as possible. As always, crab fishermen will continue to work with the Council, NMFS, Senator Stevens and this Committee to try and improve the conservation and safety of the crab fisheries. The Council crab plan contains many new and untested ideas, so it is critical that Congress, the Council, and the Federal agencies keep a close eye on how the plan is working. This hearing gets that oversight off to a good start. For the record, I would like to state again my position on this important issue. It is my firm belief that the crab fishermen of Alaska should be able to sell their crab to the processor of their choice and they should be able to deliver their crab to the community of their choice. Processing shares are not appropriate at all for any fishery, including the crab fisheries of the Bering Sea and Aleutian Islands. Thank you again for the opportunity to present my thoughts to the committee.

• Dr. Richard Young
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  Witness Panel 2

  Dr. Richard Young

  Good morning. I am Richard Young. I am here today as the Vice-President of the Fishermen’s Marketing Association. The FMA was established in 1952 and represents groundfish and shrimp trawl fishermen in California, Oregon, and Washington. Our members live in various ports all the way from Morro Bay, California to Bellingham, Washington. I am both pleased and honored to be here today to give you a fisherman’s perspective on processor quotas. Processor quotas are a new idea in fisheries management. In fact, they are so new that we have not actually seen processor quotas in action –yet. But we will, as they are part of the recently enacted Bering sea crab rationalization plan. Processor quotas are so new that the terminology is not yet standard. Processor quotas have been variously termed “two-pie quotas” or “processor recognition”, and some aspects of processor quotas have even shown up as part of fishing cooperatives. Despite the lack of history, processor quotas have quickly become popular among some segments of the fishing industry. Of course, the segment of the fishery where processor quotas are most popular is among large, established processors who stand to gain a great deal if they are implemented. What Processor Quotas Do. Among fishermen, I have never met a fisherman who really wants processor quotas. Let me sum up, in the fewest possible words, why it is that fishermen not only dislike, but actually fear, processor quotas. There are two critical things to remember about how fishermen view processor quotas, · first, processor quotas will restrict where fishermen can sell their fish. · second, the only reason to restrict where fishermen can sell their fish is so that processors can pay fishermen a below market price for their fish. It’s a pretty simple idea really. If you restrict where fishermen can sell their fish, then processors won’t have to pay fishermen a fair price. This is the key, fundamental point about processor quotas, and I can’t emphasize it enough. If you take nothing else away from my statement here, please remember that restricted markets for fishermen will inevitably lead to lower ex-vessel prices. Processor Quotas are the Wrong Answer. While I am extremely critical of processor quotas, I want to point out that I have no animosity towards processors. In fact, for a short period of time I was one. I was a member of a fisherman’s cooperative that bought a processing plant and processed our own fish. Even though I didn’t make any money, I gained an enormous respect for the job processors do as they take fish that are fresh from the ocean and get them quickly and efficiently to the consumer’s table. And I know that both the processing sector and the harvesting sector have had their share of troubles adjusting to changing fishery regulations. But processor quotas are NOT the answer to the problems of the fishing industry. Stranded Capital? Some say that processor quotas are needed because changing fishing regulations will lead to stranded capital in the processing sector, therefore processor quotas are necessary to protect processor’s investments. When you hear this argument, I hope you will ask yourself three questions. · What is the cost of protecting processors investments by the use of processor quotas? · Is processing capital really stranded? · Does stranded capital deserve to be protected as a matter of national policy? Taking each question in turn, Question One: what is the cost of protecting processor’s investments by the use of processor quotas? This question is important because processor quotas can only protect processor investments by degrading someone else’s investment. Whatever processors gain, fishermen, consumers, and communities will lose. Processor quotas will turn fishermen into a form of indentured servant. Because processor quotas will be codified in federal law, these servants will never have any hope of satisfying their indenture and escaping to the free market. They will be condemned to trade at the company store forever. Consumers will also lose because restricted entry into the processing sector will result in less competition and innovation in the processing sector. The Dept. of Justice put it very well in their letter of August 27, 2003 when they said processor quotas “ . . . could deter product innovation, reduce the incentive for processors to make optimal investment decisions, and raise prices for processed crab products . . . .” A stagnant processing sector and impoverished fishermen cannot be good for local communities either. Protecting processor’s investment will come at the expense of fishermen, consumers, and coastal communities. Question Two: Do processors really have capital stranded in the fishery?” In some circumstances, in some fisheries, changing fishing regulations might lead to stranded processing capital. But it is absolutely NOT TRUE that excess harvesting capital always leads to excess processing capital. An overcapitalized fishery does not always have too much processing capital. I can offer the example of the West coast groundfish fishery that I was part of for twenty-five years. This past year, bimonthly trip limits were at extremely low levels compared to what we used to catch in this fishery. But many vessels, including mine, did not catch these limits because we could not obtain a delivery appointment at the fish plant. West coast fish plants just did not have the capacity to process the fish we were capable of bringing them. The same held true in the state regulated shrimp fishery. Boats could not deliver what they could catch because our fish plants could not process what the boats could catch. Even if there is stranded capital in the fishery –as sometimes may happen-- the capital is not always owned by the fish processor. In the community where I live, for example, there are two fish processing facilities. Both are owned by the local harbor district and leased to fish processors. Either of these processors could end the lease and walk away from the community. They would suffer little capital loss because the majority of the capital belongs to the harbor district. Both Brookings, Oregon to the North of me and Eureka, California to the South of me find themselves in similar situations. In these ports, the local communities own much of the capital, not the processors. If there is stranded processing capital and if processors do own that capital, it is still important to ask, Question Three: Does stranded capital deserve to be protected as a matter of national policy? Processors have made their investments in fishing with full knowledge of the risks and rewards that may accrue to them. In many cases, those investments have resulted in substantial profits over many years --profits that may well have repaid the initial investment many times over. The fact that fishery regulations may change so these profits will no longer be realized in the future is no justification for compensating processors. Changing fishery regulations cause windfall profits and windfall losses for both fishermen and processors all the time. Capital that has been fully depreciated, or has returned a profit many times it’s cost, is not stranded by changing fishing regulations. Processor Buybacks? IF stranded capital exists, and IF processors truly own the capital, and IF they deserve to be compensated due to unexpected changes in fishing regulations, THEN good public policy should seek a least cost solution to that problem. Stranded capital is a one time event, caused by an unexpected change in fishing regulations. Processor quotas are a permanent solution that will result in stagnation in the processing sector and will condemn fishermen to a future of sub-market wages. It would be far better to institute a cost-effective, and perhaps industry funded, buyback of excess processing capital. Such a buyback could remove the capital that needs to be removed, compensate those who deserve to be compensated, and would not distort the market system in our fisheries. The possibility of stranded capital is no argument for processor quotas. Processor Quotas and Individual Fishing Quotas. Some have also argued that if fishermen are to have Individual Fishing Quotas, or IFQs, then processors should also have quotas. But processor quotas and Individual Fishing Quotas are very different things. IFQs are designed to correct problems resulting from the common property nature of many fisheries. The stocks of marine fish along our coast belong to everyone –they are the common property of the people of the United States. Unfortunately, both economic theory and sad experience have demonstrated that when something belongs to everyone it is often treated as if it belongs to no one. But the common property problem occurs when fishermen are racing against one another to catch fish. It exists on the ocean, not at the dock. Once the fish are caught and on the boat, there is no longer a common property problem. A fisherman’s catch is, and always has been, private property. Fish can be bought, sold, or traded just like any other product. There is no market failure for selling captured fish as there is for catching common property fish stocks. So processor quotas contribute nothing to the efficient management of fisheries. Where IFQs are intended to correct a failed market, processor quotas create a barrier to competitive markets by restricting where fishermen can sell their fish. Worst of all, this barrier comes with no corresponding increase in economic efficiency and no conservation benefit to the resource Processor Quotas, IFQs, and Rational Fisheries. Both processor quotas and IFQs have been discussed as simply different aspects of a rationalized fishery. But the effects processor quotas and IFQs will have on our fisheries are very different. Having grown up in a fishing family and been around fishing and fishery management all my life, I believe rationalizing fishery regulations is the single most important task that fishery managers have before them. It ought to be our number one priority. But, too often, the discussion of rationalizing fishery regulations focuses just on the number of boats in the fishery and ignores other important elements. A rationalized fishery is about many other things than just “too many boats chasing too few fish”. A rationalized fishery is a fishery where fishermen can operate safely, and fishing is no longer one of the most dangerous occupations in our nation. A rationalized fishery is a fishery where both fishermen and processors can respond to market demands and produce wholesome seafood in a form, at a time, and at a price that consumers most desire. A rationalized fishery is a fishery where fishermen can keep what they catch, and where regulation induced discards are minimized. A rationalized fishery is a fishery where fishermen have a sense of ownership in the management and the future of their fishery. A rationalized fishery is a fishery where the public can be assured that fishing takes place efficiently and with the minimum possible ecological footprint. In short, a rationalized fishery is a fishery where conservation goals are routinely met and people in the fishing industry have some assurance that they will be able to earn a living. We need both biological sustainability and economic viability to have a rational fishery. Processor quotas contribute nothing to these important fishery goals. IFQs, on the other hand, have been proven to increase safety, increase the yield of fishery products, reduce discards and bycatch, increase the availability of fresh seafood, and improve fishing industry profits. IFQs contribute to safe, stable, jobs that pay living wages. They are a crucial part of a rational fishery. Processor quotas simply restrict where fishermen can sell their fish and will inevitably lead to below market prices for fish. They are an irrational part of a rationalized fishery. The world would be a better place if processor quotas were quickly forgotten. Thank you for giving me the opportunity to testify today. I will be happy to answer any questions you may have. Full Disclosure Richard D. Young grew up in a fishing family. His father and uncles were well known fishermen on the Pacific Coast. He earned a Ph.D. in economics from the University of California, Santa Barbara, in 1979. He participated in the Pacific Coast groundfish, crab, and shrimp fisheries for more than twenty-five years. He was the owner and operator of the fishing vessel City of Eureka and the owner of the fishing vessel Willola. He sold his fishing permits in December, 2003 to the Pacific Coast Groundfish Capacity Reduction Program and has also sold his fishing vessels. Dr. Young has participated in a variety of research and management activities related to fisheries. He was a member of the Scientific and Statistical Committee of the Pacific Fishery Management Council from 1985 to 2000, and is currently a member of their Trawl Individual Quota Committee. He is a past president of the Fishermen’s Marketing Association and is currently their Vice-President. Dr. Young will become the CEO of the Crescent City Harbor District on March 1, 2004.

• Mr. Joseph T. Plesha
  Read statement

  Witness Panel 2

  Mr. Joseph T. Plesha

  Our Nation’s fishery resources belong to the general public. Logically then, the general public should receive the full economic benefit from the resources they own—through a simple auction by the Federal government to the highest bidder—when fishery stocks are rationalized. Neither processing plant owners nor fishing vessel owners have an absolute right to be included in the allocation of the public’s fishery resources. If a large stock of cod were discovered off a remote U.S.-owned island in the Pacific ocean and fishery managers wanted to rationalize it, I assume the Federal government would auction the rights to this undeveloped cod resource instead of allocating rights to vessel owners or processors based in Portland, Oregon or Portland, Maine. Why should any participant in the seafood industry be allocated rights when open access fishery resources are rationalized? Under most circumstances there is a compelling reason to include both fishing vessel owners and primary processing plant owners in the allocation. In an overcapitalized “open access” fishery that is capital intensive, and where that capital invested in fishing vessels and processing plants is relatively non-malleable, the owners of that capital will suffer enormous losses during the transition between the open access and rationalized fishery equilibrium conditions. The capital investments in primary processing and harvesting are transferred to quota owners when an open access fishery is rationalized. Simply put, you do not need all of the harvesting and processing capacity that exists when an overcapitalized fishery is rationalized. Primary processing plants and fishing vessels with no alternative uses become nearly worthless. Both fishing vessel owners and processing plant owners should, therefore, receive rights in a rationalized fishery as compensation for having the value of their existing investments expropriated by the new management system. Although including processors in the allocation of rights may be controversial, it should be embraced by fishing vessel owners. The rationale for including primary processing plant owners in the allocation of rights is also the only rationale for including vessel owners. Otherwise, open access fisheries should be rationalized by the Federal government through an auction of the resource to the highest bidder. Our Nation’s fishery resources are owned by the general public after all, and not a group of fishing vessel owners. The need to include processors in the initial allocation of rights is especially critical in some regions of the United States, such as Alaska and areas of the Pacific Coast. In these locations the plants can be enormously expensive, highly sophisticated, and have no alternative uses. For some plants in these regions it may well be that the level of non-malleable capital investment in primary processing exceeds the level of non-malleable investment in the vessels that deliver fish to the plants. Trident’s plant in Akutan, Alaska is an example. Trident is a company owned by former fishermen who risked everything trying to help develop the fisheries of the North Pacific. Construction of the Akutan plant began when foreign fishing fleets still harvested and processed virtually all of the groundfish and much of the crab off Alaska’s shores. Akutan is a remote Aleutian Island. There is no airport, boat harbor or even paved road in Akutan. You travel to Akutan by first flying to Dutch Harbor and then flying in a pre-World War II Grumman Goose from Dutch Harbor. It is an adventure right out of an Indiana Jones movie just to get to Akutan. Despite its remoteness, Akutan is home to the largest and one of the most modern seafood processing plants in North America, if not the world. (See Figure One, below.) Akutan is the second largest port in the United States for seafood landings. The Akutan plant alone was built at a cost of well over $100,000,000. There is absolutely no use for this facility except to process seafood harvested from the Bering Sea. Figure One. Trident’s Akutan Plant Another similar example is Trident’s plant on the remote Pribilof Island of St. Paul. Trident’s Akutan plant processes pollock, crab and cod, whereas crab constitutes over ninety-five percent of the St. Paul plant’s production. My point is that to the degree vessel and plant owners have non-malleable capital invested in the open access fishery, each sector must receive rights when the fishery is rationalized or they will have the value of their investments expropriated by the government. There is no rational basis for treating one sector of investors differently from the other. The two ways to include both primary processors and vessel owners in the allocation of rights when fisheries are rationalized are: 1. The allocation of harvesting rights to both vessel and plant owners; and 2. The allocation of harvesting rights to fishing vessel owners based on a vessel’s catch history with the requirement that the fish be sold to processing plants in the same proportion as the plant’s historical usage. No rationalization program in the United States has yet allocated harvesting rights to owners of processing facilities, except as those entities might also own vessels. (Harvesting rights have been allocated to communities, however, in the North Pacific’s Community Development Quota program.) There have already been two rationalization programs allocating processors the right to buy their historical share of the harvest. The first was the American Fisheries Act (“AFA”), the most successful Federal fishery legislation since passage of the Magnuson-Stevens Act. The second is the recently enacted Bering Sea crab rationalization program. The Experience of the American Fisheries Act With passage of the AFA in October of 1998, Congress rationalized the Bering Sea Pollock fishery, the largest commercial fishery in the United States. The inshore fishing vessels and processing plants were rationalized based on the concept of protecting harvesting and processing market shares. Here is how it works. Inshore vessel owners receive allocations of harvesting quota when they join cooperatives. The processor, however, must first agree to the cooperative being formed. Moreover, the AFA protected a pollock processor’s market share by requiring that each vessel deliver its harvest of pollock to its historical market! A fishing vessel that was allocated quota could not deliver anywhere else. The vessel’s pollock harvest was locked-in to a particular processor. Finally, the AFA also prohibited any new processing facilities from buying pollock except for the seven plants that historically processed Bering Sea pollock. On top of locking harvesting vessels into their historical market, the AFA created a limited entry system for processors. Although the structure of these inshore cooperatives was negotiated among the affected parties, there was still a great deal of criticism of the new system. Immediately after the AFA was enacted a group of vessel owners petitioned the North Pacific Council to amend the AFA by removing the requirement that a vessel deliver its pollock to a particular processor. This became known as the Dooley-Hall proposal. To quote one of the Dooley-Hall sponsors: Under the language of the American Fisheries Act, pollock vessels which enter into co-ops and deliver into shorebased processors are prevented from forming a co-op if the processor doesn’t bless it first. They’re inhibited in their ability if a co-op is formed to get the best fair price. They are prevented from entering into a co-op with a different processor in the following year. And last, they are prevented from freely moving between competing buyers. We are requesting that the Council consider and analyze regulations which would support reasonable vessel/plant negotiations. Our proposed change would allow vessels in a co-op to deliver their catch history to the market of their choice. For example, if one plant would pay nine cents a pound because they are producing fillets and another would pay eight cents because they are producing surimi, we feel that we should be able to deliver to the plant with the highest price, even though we may not have been in the co-op delivering to them with that processor in the previous year. Margaret Hall, Testimony before the NPFMC, (Feb. 13, 1999) p. 1. (Attachment 1.) There was also an effort launched to have the AFA’s protection of processors’ market shares removed by Congressional action. The attorney representing this effort noted: Instead of a rough balance of power between the fishermen and processors, the closed class and the processor control of the AFA coops result in fishermen having no choice but to sell their catch of pollock and other species to the AFA-eligible processor at whatever price they set… If that processor withholds his agreement, the fishermen are forced into an open access fishery against boats owned or controlled by that very processor. This can be deadly for independent fishermen. The processor controls who gets to unload fish when at the company dock, and in what order. In fact, the processor may decide not to process your fish at all if you make him mad — he could make you sit there until your fish rots in the hold. With the closed class, the processor need not fear that the pollock will be delivered to any new processor. Memo from Earl Comstock to Jeanne Bumpus (May 28, 1999), p. 2 and 3. (Attachment 2.) The North Pacific Fishery Management Council hired an economist to assist with its analysis of the Dooley-Hall proposal. The resulting “Halvorsen Report” was released to the public on March 9, 2000. Its authors were asked to examine whether AFA inshore cooperatives would have beneficial or adverse effects on vessel owners compared with (1) the situation prior to passage of the AFA; (2) the AFA without inshore cooperatives; and (3) the AFA with Dooley-Hall type inshore cooperatives. In comparison with the benchmark of the AFA without cooperatives the Halvorsen Report concluded, “there is a significant probability that ICV’s (Independent Catcher Vessels) will be adversely affected by the AFA’s provisions for cooperatives.” In other words, the authors of the Halvorsen Report concluded that there was a good chance vessel owners would be better off under open access instead of operating under AFA cooperatives. In comparison with the benchmark of the inshore sector prior to passage of the AFA, the Halvorsen Report stated it is possible that vessel owners as a group will do worse under AFA cooperatives than they did prior to the AFA. This was a shocking position for authors of the Halvorsen Report to take. The AFA had increased the inshore allocation from 32.38% to 45% of the Bering Sea pollock Total Allowable Catch. Therefore, the inshore fishing vessels received a 39% increase in the amount of pollock they could harvest. For the fleet to be worse off under AFA cooperatives than prior to the AFA, the ex-vessel price paid for pollock would have to take a huge decline as a result of the processor linkage in the AFA. The Halvorsen Report reached its conclusions based on the fact that the processing sector is highly concentrated , with only three major companies legally authorized to process pollock and new entrants blocked from entry. Processors also owned a substantial percentage of the fishing vessels delivering pollock to their plants so were not as dependent upon the independent fleet and there is no effective bargaining association for pollock fishermen. (It is worth noting that none of these conditions apply to the Bering Sea crab fishery, where there are many more processing companies, very little ownership of harvesting vessels by processors, and a longstanding effective bargaining association for vessel owners.) The North Pacific Fishery Management Council wisely did not adopt the Dooley-Hall proposal, keeping the AFA’s inshore processor provisions intact. The Halvorsen Report’s conclusions have proven incorrect and, despite all the predictions of doom from those who advocated adoption of the Dooley-Hall proposal, the AFA has proven to be remarkably successful from the viewpoint of inshore pollock harvesting vessel owners. Whether measured in price per pound or percentage of finished product sales price paid for a vessel’s harvest, pollock vessel owners receive more for their catch now than they did prior to passage of the AFA. Trident’s pollock fishermen are now typically paid on a share basis, instead of a flat rate per pound of pollock. In 1998, for example, the year prior to passage of the AFA, Trident’s pollock fishermen received $0.05 per pound for their pollock plus 30% of the revenue from the sale of pollock roe. After passage of the AFA Trident pays a base price of 36% of the FOB Akutan sales proceeds for the primary products (including roe) produced from the fish, or a minimum price agreed upon prior to the season, whichever is greater. The average price paid to pollock fishermen in Akutan from 1993 to 1998 (prior to the AFA) was 8.5 cents per pound. Since the AFA, the average price paid to pollock fishermen delivering at Akutan has been 10.5 cents per pound. This is despite the fact that markets for most pollock finished products have sharply declined. Below is a historical review of the average ex-vessel prices Trident paid for pollock delivered to Akutan. (See Figure Two, below.) Figure Two. Ex-Vessel Prices for Pollock 1993-2003 Not only have ex-vessel pollock prices increased since passage of the AFA, but the value of pollock vessels have dramatically increased. Vessels are now bought and sold not on the value of the hull, but on the harvesting quota associated with the vessel. Currently, inshore pollock harvesting vessels sell for a price from $1225 to $1250 per metric ton of quota assigned to the vessel. It is now relatively simple to determine the value of an AFA inshore pollock vessel. The fishing vessel Pacific Prince, for example, is partially owned by one of the sponsors of the Dooley-Hall proposal. Prior to the AFA that vessel was worth about $7 million. The Pacific Prince has been allocated 1.185% of the Bering Sea pollock TAC (after CDQ) under the AFA. The Pacific Prince is now worth about $18,000,000. The Bering Sea Crab Experience In reaction to the success of the AFA, many crab vessel owners sought similar legislative action rationalizing their fisheries. In September of 2000, one hundred and thirty-one vessel owners signed a petition asking for passage of federal legislation directing the North Pacific Council to adopt a management plan with harvesting quota and individual processing quota “at the rate of 80%-90%” by September of 2001. (See Attachment 3.) In October of 2000 Congress reacted to the vessel owners’ petition with passage of the Consolidated Appropriations Act of 2001, directing the North Pacific Council to “[a]nalyze individual fishing quotas, processor quotas, cooperatives, and quotas held by communities. The analysis should include an economic analysis of the impact of all options on communities and processors as well as the fishing fleets.” Following the direction of Congress, the North Pacific Council undertook an extensive analysis of crab rationalization, including formation of a committee with industry participation. As a participant in the Crab Advisory Committee it was clear to me that the concept of processor quota, instead of being locked into delivering to a particular processor under AFA-style cooperatives or allocating harvesting quota to processors, was preferred by most crab vessel owners. After nearly three years of staff analysis and public input, the Council voted unanimously to recommend that Congress enact the Bering Sea crab rationalization plan. Like the AFA, the Council’s crab plan has generated opposition. We see the same individuals, groups and hired consultants making the same accusations that were made when changes to the AFA were being advocated. Some vessel owners, who will be allocated harvesting quota with a value of many multiples of the costs of the vessels they own, want to minimize processors participation in the program so the can receive an even better “best fair price.” The Department of Justice was asked by the North Pacific Council whether the sharing of historic price information by processors in the arbitration process might violate antitrust laws. The Department responded by concluding “[f]or a harvester and processor to independently choose to use arbitration to develop the price at which they will agree to trade crabs would not violate antitrust laws.” The response goes further. Without explaining why investors in fishing vessels should be treated better (or differently) than investors in processing plants, the Department of Justice expresses the view that processor quota will deter the development of new products, reduce incentives for processors to make efficient investments and thereby reduce the number of new products on the market. With all due respect to the opinions of the Department of Justice, the same arguments were made against the AFA. The Committee should be aware that Trident is already working to develop higher valued products as a result of crab rationalization. We are looking at expansion of live crab markets, making investments to increase production of three and five kilogram packages, and investments to increase recovery of finished product. Even though the plan is a year and a half from being operational, our production group is thinking about what will be necessary to be as efficient as possible. When a processor can share in the economic benefit, they have every incentive to invest in producing a higher valued product simply because they expect to receive a return on that investment. For example, since the AFA, Trident has invested about twenty million dollars to improve pollock recovery and increase product quality. That is a large sum of money for our company. Trident made those investments because we believed, as participants in the rationalized pollock fishery, we would share in the economic benefits that derived from those investments. If only owners of fishing vessels received quota under the crab plan, we would not invest anything into making our crab plants more efficient because we would not expect to receive a return on our investment—as the value would simply be transferred to the owners of the quota. Opponents of the crab plan have also retained Dr. Halvorsen, who has said that the crab rationalization plan is fundamentally different than the AFA, noting that rationalization of crab will not result in the large net economic benefits that were seen in the AFA and that the current crab plan is highly unlikely to provide a reasonable balance between the interests of processors and harvesters. If the crab plan does not result in a large increase of net economic benefits, and vessels are disadvantaged compared to processors as a result of the plan, clearly the crab plan would be disastrous to the vast majority of crab vessel owners. But if the Committee wants to know the economic impact of the crab plan, it does not need to hear from more hired economists and lobbyists. The market—the true test of the plan’s economic viability—has already spoken. If the prediction that the crab plan “overwhelmingly benefits processors” were true, you could expect that the value of crab vessels would plummet with the recent Congressional enactment of the plan. To quote Dock Street Brokers, a firm which handles many of the fishing vessel transactions in the Northwest, since the crab rationalization plan was proposed “the prices of vessels with attached catch history have increased dramatically, ranging from $900,000 to over $2,000,000 or more, depending on the strength of the catch history. … For example, a vessel that might have sold for $1,000,000 several years ago, before rationalization was proposed, could be worth $2-3,000,000 now...” (Attachment 5.) An example is the fishing vessel Constellation, a vessel that was purchased by an individual whose vessels deliver crab to Trident. The boat is a typical 127 foot crab vessel with an average catch history. A few years ago the vessel was worth about a million dollars. Since that time the Bering Sea crab stocks have generally declined. Because of the Council’s crab plan, however, the Constellation recently sold for a reported $2.3 million. Crab vessels now sell at a price that is dependent upon their catch history and the amount of harvesting quota the vessel is expected to receive. Today, crab vessels trade for 3.5 to 3.7 times the ex-vessel value of the amount of quota the vessel is expected to receive. So, as a hypothetical example, consider a standard crab vessel that before rationalization might be worth a million dollars. But that vessel now may have an expected history resulting in 75,000 pounds of Red King crab quota and 120,000 pounds of Opilio crab quota and therefore would have the following value: Current Red King crab ex vessel price = $5.00 x 75,000 = $375,000 Current Opilio Crab ex vessel price = $2.00 x 120,000 = $240,000 Total ex vessel price x expected quota = $615,000 Multiplier = x 3.5 Current Value $2,152,500 There is a bank near Trident’s offices which finances a large number of the crab vessels operating in the North Pacific. In response to my question on how the crab plan impacts their portfolio, they responded: It is a well known fact that the AFA has produced very favorable economic benefits, not only for fishermen and processors, but in terms of improved employment and economic stability for the local economy of Ballard. Similar benefits have already developed for the crab industry because of the recently enacted Crab Rationalization Program. At present, due to low harvest levels and overcapacity, there are few vessels operating with a consistent profit margin. Some vessels with loans at our bank were in serious financial trouble and several have been in technical default on their loans. The Crab Rationalization Program will enable vessel owners to stack quota shares and reduce costs. It will restore profitability to the fleet, with downstream, long-term benefits to the communities where vessel owners live and work. Because of the benefits of the Crab Rationalization Program, the value of these vessels has already increased substantially, allowing us to continue to help provide financing for the industry. It is clear to Viking Bank Directors that without the Crab Rationalization , marginal fleet revenues would have driven many vessels into bankruptcy. Independent vessel owners would have disappeared, with the loss of many small businesses in our community. Letter from Patrick D. Redmond, President and CEO, Viking Bank, to Joseph T. Plesha, General Counsel, Trident Seafoods (Feb. 19, 2004). (See Attachment 6.) Conclusion There are two fishery rationalization programs in the United States that assure processors their historical market share: The AFA and the crab rationalization plan. The AFA has proven to be a successful and balanced rationalization program, despite the criticism that resulted from its enactment. The crab rationalization plan was passed by Congress just last month. It has already produced many of the same benefits for the industry, especially vessel owners, that were seen from the AFA. To quote from a letter from the bank which finances many of these crab vessels, “we want to express our appreciation for Senator Stevens’ support of this legislation. His work in passage of the crab rationalization plan has preserved the independent crab fleet, while restored profitability to the industry.”