Introduction

The cooked and peeled shrimp industry has experienced rapid growth since 1997. An increasing abundance of shrimp off the east coast of Newfoundland and Labrador has provided the industry with significant resource opportunities. The industry has expanded at such a rapid pace that stakeholders have not taken the time to strategically plan a course for the industry’s development.

During 2001 the industry reached a crisis point that caused the Government of Newfoundland and Labrador in partnership with industry to undertake a comprehensive review. The review undertaken by the Inshore Shrimp Panel, chaired by Mr. David Vardy, focused on improving the efficiency, cost-effectiveness and competitiveness of the industry. The Inshore Shrimp Panel report of April 2002 discussed in detail the problems in the industry and made recommendations on each of the major issues. While industry stakeholders supported many of the reports findings and recommendations, they have not been able to work cooperatively and agree on how to implement change. Underlying the inability to cooperate and reach agreement has been a lack of trust among industry stakeholders. The level of mistrust has caused the industry to move from crisis to crisis over the past two years with no meaningful progress to resolve the structural problems facing the industry.

The Shrimp Industry Working Group (Working Group) was established in late July 2003. The Working Group was created through an understanding between the Fish, Food and Allied Workers Union/Canadian Auto Workers (FFAW/CAW), the Fisheries Association of Newfoundland and Labrador (FANL), and the Department of Fisheries and Aquaculture (DFA) during a period of long disruption in the shrimp fishery. During 2003, persistent challenges in the industry caused many shrimp enterprises, particularly those based in area 4R, to tie-up their vessels for an extended period.

The Working Group was mandated to prepare an implementation plan for the shrimp industry in the province based on the recommendations of the Inshore Shrimp Panel report. The terms of reference for the Working Group are included in Appendix I.

The Working Group is comprised of representatives of the FFAW/CAW, FANL, DFA and the Department of Fisheries and Oceans (DFO). The Working Group appointed two facilitators, Mr. Gabe Gregory and Mr. Bill Broderick, to conduct the work of the group with the assistance of, Mr. Paul Glavine- research analyst and Ms. Gloria Lefeurve- secretary, from DFA. The Working Group reviewed the work of the Inshore Shrimp Panel and conducted extensive consultations throughout Newfoundland and Labrador with shrimp harvesters, shrimp processors, relevant provincial and federal agencies, and research and development organizations. In addition, it visited a number of shrimp processing facilities. Consultations were well attended and focused on the recommendations in the Inshore Shrimp Panel report and ongoing challenges within the cooked and peeled shrimp industry (Appendix II outlines the consultations held by the Working Group). During the Working Group’s consultations FANL announced its dissolution, however, shrimp processors continued to support the Working Group throughout its mandate and have collectively undertaken to seek ratification of the implementation plan proposed.

Analysis was conducted of a number of issues relating to challenges facing the industry including:

· Scheduling;

· Trip limits;

· Handling;

· Transporting;

· Seasonality;

· Pricing;

· Quality;

· Vessel replacement and utilization;

· Processing capacity and utilization;

· Marketing;

· Gulf shrimp fishery; and

· The landed count pricing system.

These key challenges were discussed in detail over a two day period (September 24-25) with representatives of industry stakeholders. The Working Group was presented with analysis and a number of options to address each of the key challenges. The result of the consultations and the discussions was a broad industry consensus on an implementation strategy. The remainder of this report presents the analysis and implementation plans to be reviewed and ratified by the FFAW/CAW and shrimp processors within the Newfoundland and Labrador shrimp industry. The adoption of these implementation plans will fundamentally change the conduct of the province’s shrimp industry and set a course to realize significant economic benefits for harvesters, processors, and many Newfoundlanders and Labradorians who depend on this valued resource.

Scheduling and Trip Limits

Inshore shrimp landings in Newfoundland and Labrador occur over the period April to October with high seasonal landings occurring in the months of June through September. These high landings often occur when good weather conditions prevail and a large proportion of the inshore fleet is active. Daily shrimp landings can be more than double the production capacity of all the processing plants combined (Figure 1). This situation is exacerbated by the combination of landings over two or three consecutive days when landings exceed processing capacity. During weeks that landing patterns follow this trend total supplies have reached in excess of 12 million pounds. Such a ‘glut’ situation occurred in each of the weeks ending September 20^th and September 27^th.

Peak landings result in a backlog of raw material at processing plants. This backlog leads to less than optimal processing yields, downgrading quality of finished products, and inefficient utilization of capacity. Due to competitive factors within the industry, some plants may be forced to freeze raw material rather than allow it to spoil, while at the same time other plants may experience a shortage of supply. The lack of cooperation between harvesters and processors and the increasing shrimp allocations are leading the industry to operate more and more in a volume-oriented fashion. Peak landings produce high seasonal inventories that cause processors to extend their financial capacity, which in turn creates a situation whereby supplies are forced into the marketplace. This production-driven focus causes short-term pressure on market prices. Such market declines lead to further erosion in prices as the option to focus on marketing and managing inventory is displaced by a need to increase cash-flow, reduce inventory, and minimize market risks. Profitability is compromised for all participants with margins determined based on external market and exchange factors as opposed to business strategies determined within the industry.

The inshore shrimp fishery is now similar to the seasonal inshore cod fishery of decades ago. Over-capitalization, which pervades the industry, is likely to continue as capacity ever increases to meet peak short-term supply. During the cod ‘glut’ seasons of the past large freezer and factory vessels were brought in to assist in processing the over supply. The provincial government set up a ‘glut’ desk to coordinate supplies between plants and cod was split and salted in an effort to address the imbalance between harvesting and processing. Despite many efforts raw material was routinely dumped because of spoilage prior to processing and the industry failed to achieve reasonable market returns compared to its international competitors. Unfortunately, the inshore shrimp fishery appears to be following this same path.

A system that allows companies to balance harvesting and processing capacity will provide the opportunity to concentrate on market demand, achieve relatively high returns from the marketplace, and provide stable work for those employed in the industry. These goals have evaded the participants in the inshore shrimp fishery to date. In fact, the shrimp fishery along the west coast of the province that once experienced relative stability and operated in a disciplined manner has been negatively affected by the almost total lack of discipline in the inshore shrimp fishery along the Northeast coast.

Currently, the inshore shrimp fishery’s best attempt to control raw material supply has been to limit the quantity of shrimp that any one vessel can catch on a particular trip. This ineffective mechanism has only increased the costs of harvesting the resource and further marginalized the economic performance of fishing enterprises. Economic performance within the industry has reached a point of indifference by harvesters and processors with businesses in both sectors choosing not to participate due to poor returns. The result is that resource opportunities are not being realized (thousands of tonnes of shrimp worth millions of dollars are being left uncaught) and rural employment is being further eroded. Processing employment in the shrimp sector is so unstable that workers are now choosing to leave the province or are opting to secure social benefits through employment on government sponsored ‘make-work’ projects rather than risk falling short of qualifying for Employment Insurance at shrimp processing plants. Due to poor returns, fishing crews on shrimp vessels are also choosing to leave the industry in favour of employment in other provinces.

Scheduling

The Inshore Shrimp Panel made the following recommendation in regard to the need for cooperation in scheduling within the sector:

The Panel recommends that vessel scheduling be addressed as a critical issue which is vital to improving quality and industry viability. Both parties should consider alternatives to obtain a workable solution for vessel scheduling. The Panel recommends that processors and harvesters consider the following options to improve the scheduling of shrimp landings:

· The establishment of a single organization for the purchasing and transportation of shrimp, and scheduling of landings, so as to minimize processing delays and optimize transportation.

· The creation of a process whereby individual harvesters and processors enter into a mutually acceptable arrangement to co-ordinate landings with processing capacity. This arrangement could be renewed on an annual basis.

Industry Thoughts

During recent consultations both industry sectors viewed the scheduling of shrimp landings as a high priority for the industry. Both groups fully realize the significant imbalance that exists within the industry and the consequences of not addressing the issue. The ongoing lack of industry cooperation has caused large quantities of shrimp to be transported by road, further increasing costs through additional handling and negatively affecting industry viability.

Harvesters expressed the view that they must be free to sell their catches to the buyer of their choice, while at the same time processors stated they wish to maintain their relationships with harvesters. Both groups expressed a willingness to trade and transfer shrimp supplies between processors to reduce excessive handling and transporting costs, improve the timeliness that shrimp raw material is processed, and cooperate to schedule harvesting activity with processing activity. Many expressed the view that landings within geographic regions should be processed within the region to the greatest extent possible.

Implementation Plan

A balance between harvesting and processing capacity can only be achieved through a cooperative working relationship between shrimp harvesters and processors. Groups of harvesters and processors have attempted to implement scheduling as well as trade and transfer raw material; however, competitive factors within the industry prevent any real sustained progress.

There is consensus between harvesters and processors on the need to implement an effective scheduling regime. The Working Group considered the issue and set forth a scheduling system based on coordination between and among harvesters and processors in distinct geographic regions as a solution. The key principles of the system are to balance landings and processing capacity within and among geographic regions (e.g. Labrador, Northern Peninsula); to distribute, trade and transfer shrimp supplies between processors; and to coordinate vessel scheduling in combination with the administration of harvesting quotas (‘caps’).

An organization would be established - the Shrimp Coordination Center (‘SCC’) and function as follows:

1. SCC would be an organization created solely for the purpose of coordinating and managing shrimp landings. All day-to-day business activities of SCC would be conducted by independent staff. SCC would have a board of directors comprised of six harvesting representatives and six processing representatives with ex-officio representation by DFA and DFO. SCC would be established immediately following ratification of the implementation plan, prior to November 30^th, 2003.

2. Coincident with the establishment of the SCC, shrimp processors would set forth the trading and transferring arrangements between themselves encompassing the entire allocations for the cooked and peeled shrimp industry. All such arrangements would be registered with SCC and be administered in a fair and equitable manner under the direction of its Board.

3. Establish four regions to coordinate shrimp landings within the province:

· Labrador - the landings generally available to harvesters in the region in combination with the plant at Charlottetown.

· Northern Peninsula – the landings generally available to harvesters in 4R and 3K north in combination with the plants at St. Anthony, Black Duck Cove, Anchor Point, and Port au Choix.

· Northeast coast – the landings generally available to harvesters in 3K south in combination with the plants at Jackson’s Arm, Twillingate, and Fogo.

· Eastern area – the landings generally available on the Bonavista and Avalon peninsulas in combination with the plants at Port Union, Clarenville, Old Perlican, Bay de Verde, and St. Joseph’s.

4. Before December 31^st, 2003SCC would complete a database of all shrimp harvesting enterprises within the province. Harvesters would be required to notify SCC of: the particulars of their enterprise; contact information; name of the buyer of their choice; current preferred landing site; carrying capacity of the vessel; and harvesting quota (‘cap’).

5. Processors would be required to provide to SCC, by the same deadline noted in item #4 above: their location; contact person and related contact numbers; daily processing capacity by shift; and targeted supply per week.

6. A master collective agreement for shrimp would be negotiated and signed between the FFAW/CAW and the shrimp processors based on each group ratifying the implementation plan. Such an agreement would be similar to the current master agreement between the FFAW/CAW and FANL. It would include articles on recognition, funding for SCC and related activities, fish discharge, quality, dockside monitoring, fish prices (except the schedule of prices for shrimp to be negotiated seasonally), and all noted contractual requirements to effect other industry changes in the implementation plan. The term of the master agreement would be for an initial period of three (3) years. The deadline for an agreement would be December 15^th, 2003. Failure to reach agreement on any major issue(s) following negotiation would be subject to a process of final binding arbitration similar to the process of final offer selection. In any event, a collective agreement would be established prior to December 21^st, 2003.

7. SCC would require processors to establish an open purchase order for a supply of shrimp (limited to 7 days or one week). Harvesters would be required to hail-out stating their intention to fish. Upon calling, SCC would assign a specific trip number to the harvester confirming the expected date and location of landing. The harvester’s stated buyer would be notified of the confirmed trip by SCC.

8. SCC would coordinate all landings as they occur, direct shrimp supplies as they are landed to processors and meet the targeted capacities of processing plants within the regions. Landings within the region would be coordinated giving preference to supply landings to processors based on the relationship registered between harvesters and processors and the transfer arrangements between plants. In other words, landings from harvesters aligned with a particular processor would be directed to that processor where possible. Landings exceeding the capacity of that processor would be re-directed to other plants within the region. Shrimp would be transported to the plant in closest proximity to the landing.

9. The landings schedule would be reviewed and modified regularly, adjusting for the number of vessels active and the processing capacity on stream at any particular time.

10. The buyer would pay the harvester as is currently the process. SCC would settle the purchase with the buyer of the shrimp and pay the buyer for the related servicing to the vessel. SCC would charge the processor to which the shrimp was directed. Processors would be required to have advanced funds on deposit to ensure that shrimp supplies are forwarded as requisitioned from SCC. No shipments would be made to a processor without advance payment.

11. SCC would administer inter-regional trades and transfers when landings exceed processing capacity within a region. Processors transferring shrimp to other processors would be paid a reasonable fee on the price to compensate for their costs. The receiving plant would pay for the shrimp at a standard rate, above the port price paid, to cover out of pocket costs such as ice and discharge services.

The system outlined would resolve the current problems in the industry. Scheduling within geographic regions would enable plants in closest proximity to landings to process the raw material in a timely manner, optimize handling and transportation, improve quality, and significantly enhance the overall value of the industry. Harvesters would benefit because of greater flexibility in trip limits (subject to quality considerations only), reduction in costs due to more efficient harvesting (fewer trips to catch the same quantity), and increased trip limits would encourage larger vessels to fish in the spring, thereby improving the scheduling of smaller vessels during the summer period. Overall the costs to administer SCC will be less than the costs of maintaining the current industry servicing and grading functions that do not provide the inherent benefits that will be derived from the new system.

Limited trading of raw material in 2003 has demonstrated the benefits that can be derived from cooperation between processors. Indeed, current allocations have increased to such an extent that all plants are able to increase supply while at the same time achieving a reasonable balance. Such a collective approach however, can only be effective if agreement is reached in a fair and transparent manner. The administration of such an arrangement would be a function of the coordination center established by the harvesters and the processors under a collective agreement. The benefits derived from such arrangements are significant and processors have agreed in principle that upon negotiation, shrimp prices would be adjusted through collective bargaining to reflect a reasonable sharing of these benefits.

Regulatory Change

Scheduling involving an independent organization can only be achieved by agreement between harvesters and processors. It is not practical to consider third party regulation to cause effective scheduling. The arrangements set forth can be enforced through a collective agreement under the Fishing Industry Collective Bargaining Act.

Trip Limits

The inshore shrimp industry has been self-regulating trip limits for a number of years. The limits have varied by season in an attempt to limit the ‘glut’ landings during periods when the number of vessels active in the fishery increases. During 2003, trip limits for the spring were set at 55,000 pounds compared with 38,000 pounds for the summer. While vessel size and carrying capacity varies greatly within the fleet, the limits imposed do not consider these factors. The Working Group initiated research to determine the general variation in vessel size and carrying capacity within the inshore shrimp fleet. The results are summarized in Table 1 (page 18). As demonstrated, smaller vessels (45’ x 16’) have a fish hold capacity that is only 1/3 that of larger vessels. Indeed, such vessels do not have the capacity to carry the trip limits established, particularly considering quality standards such as the ratio of ice and shrimp.

Analysis conducted by the Working Group revealed that the larger vessels (60’-65’) within the fleet harvest more shrimp per trip than vessels of smaller sizes despite the trip limits. This results from the fact that larger vessels can take advantage of the higher seasonal trip limits in the spring and fall when smaller vessels are limited due to ice and weather conditions.

Trip limits are also a disincentive to fishing enterprises that are able to convert to boxing. Boxing, as compared to bulk bagging of shrimp, enables vessels to maintain raw material quality at sea for an extended period. Therefore, to take advantage of this improved method of storage, harvesters suggest that the time limit of 72 hours post-mortem age be lengthened. Such an extension can only benefit the fleet if the trip limit is increased, as the vessels can readily achieve the trip limit within the prescribed time of 72 hours. Vessels that are able to box shrimp should have no prescribed trip limit, but should be subject to quality considerations such as a prescribed post-mortem age at the time of landing.

In considering trip limits one must also acknowledge the economic impact on harvesting enterprises. Trip limits increase the cost of harvesting causing significant inefficiency for enterprises, particularly given that catch rates are high. The high cost of fuel and the proportionately low period of fishing time over the trip increase the unit costs to the point that the enterprise’s margin is very low. Many harvesters suggest that trip limits are severely affecting the profitability of the shrimp industry. Enterprises are making more trips than are necessary to harvest the same quantity of shrimp under the current structure. In summary, from any perspective – vessel size, carrying capacity, boxing, or utilization of fishing time, the ‘one size fits all’ approach to trip limits is not practical.

In order to resolve the inefficiency resulting from trip limits the Inshore Shrimp Panel made the following recommendation:

The Panel recommends the implementation of seasonal trip limits that recognize differences in vessel size and carrying capacity.

Industry Thoughts

Consultations with the various shrimp fleets and shrimp processors confirmed that there is consensus among industry supporting the need for flexibility in establishing trip limits. For the most part, harvesters commented that the current ‘one size fits all’ approach to trip limits is unacceptable. In such a marginal industry, trip limits are adding costs that are making the industry inefficient. Typically, harvesters recount their voyage describing the steaming time to the fishing grounds to be 22-30 hours, then noting that they harvest the trip limit (38,000 pounds) within 28-48 hours and then steam back to port another 22-30 hours. This pattern is routine for many vessels. Harvesters conclude that in order for a shrimp vessel to be economically viable, it must be permitted to fish to its capacity, while still maintaining quality. Harvesters accept the need to limit trip duration to maintain quality standards within the industry and indicate that the implementation of boxing should eliminate the need for trip limits for vessels that are so equipped.

Implementation Plan

Any implementation plan must be fair and equitable to all harvesters. Analysis suggests that implementation will require each vessel within the fleet to be categorized by size, with an objective measure of the average carrying capacity of vessels within the categories to be determined. The overall objective of the plan would be to allow ‘scheduled’ vessels to harvest shrimp to their carrying capacity, while at the same time maintaining the quality standards (post-mortem age).

Implementation would be as follows:

All vessels within the shrimp fleet would be categorized by size (e.g. 65’ x 23’, 55’ x 20’, 45’ x 16’) and the cubic size of the fish holds would be measured for all of the vessels currently registered within the fleet as of the date of ratification of this plan. The categorization of vessels would be fair and equitable to all harvesting enterprises.

Vessel measurements would be completed over the months of November and December 2003, and would be undertaken by an independent contractor. The project would be funded by the inshore shrimp fund.