Table of
Contents
Vessel
Replacement and Utilization
Processing
Capacity and Utilization
List of Figures:
Figure 1-Daily Shrimp Landings vs. Processing Capacity 2002
Figure 2- Landings of Inshore Shrimp 2000-2002 .
Figure 3 - Percentage of Shrimp Landings by Fleet and Month 2002
Figure 4- Inshore Shrimp Landings Pattern
Figure 5 - Annual Processing Capacity and Quotas ...
List of Tables:
Table 1 - Vessel Carrying Capacity
Table 2 - Trucking from Region to Region, 2002 ..
Table 3 - Comparison of Shrimp Spring/Summer ..
Table 4 - Key Attributes-Gulf Shrimp Fishery
versus Northern Shrimp Fishery
...
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
industrys 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 Groups 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 provinces 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.
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 20th and September 27th.
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 fisherys 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.
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.
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.
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 30th,
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 Jacksons 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. Josephs.
4.
Before December 31st,
2003 SCC 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 15th,
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 21st,
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 harvesters 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.
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.
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 enterprises 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.
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.
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: