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.

Upon completion, SCC would categorize the vessel hold measurements based on increments and assign the carrying capacity of shrimp based on a common stowage factor for shrimp in bags at 25 pounds average weight with appropriate ice ratios.

SCC would notify each enterprise owner of the prescribed carrying capacity of their respective vessel. Once established the enterprise would have to maintain this limit for each trip. Any overruns would be administered in the same fashion and under the established rules that currently apply within the shrimp industry. In periods when vessels are delayed sailing, due to oversupply, then all enterprises would have an opportunity to land equivalent quantities of shrimp.

Vessels that utilize boxes would have no prescribed trip limits and would have a post-mortem age limitation at landing of 96 hours.

The quantity landed on any trip utilizing bags as the primary storage method would be limited by the carrying capacity of the vessel or by the post-mortem age limitation at the time of landing of 72 hours.

The plan outlined will be fair and transparent to all harvesters. It will ensure that when a harvester decides to engage in shrimp fishing, the economic viability of the trip will be influenced by the carrying capacity of the vessel as opposed to an arbitrary limit. Enterprises will be able to reduce the costs of harvesting by planning their operations and reducing the number of trips to harvest their allocations. There should be no negative consequences for the industry from this change however, participants will likely be delayed due to scheduling from time to time when the number of vessels active increases to a point where active harvesting capacity exceeds processing capacity. Such actions will only occur when necessary to avoid a ‘glut’ situation. Based on experience in recent years, delays will most likely occur over a period of five to six weeks during the season. Reducing the time that delays may occur will very much depend on achieving targets to balance the harvest more evenly over the spring, summer and fall periods. This issue is discussed at length later in the report under the topic seasonality and pricing.

Regulatory Change

The implementation of this recommendation requires no regulation by government. Trip limits have been developed and enforced routinely under collective agreements between harvesters and processors.

Handling and Transporting

One of the most important concerns of the Newfoundland and Labrador inshore shrimp industry is the excessive handling and transporting of raw material and the related costs to the industry. The Inshore Shrimp Panel highlighted these inefficiencies and compared the handling practices in Newfoundland and Labrador with European competitors. In particular, three key features of this province’s handling practices stand out:

· Shrimp is bagged at sea – competitors are boxing;

· Fresh shrimp is transported long distances by road – competitors land fresh shrimp directly at processing plants; and

· This province experiences a seasonal ‘glut’ problem – competitors schedule vessels to balance harvesting and processing capacity.

Handling

Following the Inshore Shrimp Panel report, several experiments/studies were conducted to evaluate the merits of various handling methods in the shrimp fishery. The Centre for Aquaculture and Seafood Development (C-ASD) at the Marine Institute prepared an evaluation of various holding methods during shrimp transportation and the effect on shrimp quality. Three different fishing boats, operating at various times of the fishing season (July, October, and November), were selected as being representative of a range of harvesting periods throughout the season and of vessels currently operating in the shrimp industry.

The conclusions of the study included the following:

1. Shrimp quality with respect to breakage is negatively impacted by transportation over extended distances irrespective of the method of holding and stowage.

2. The method of holding shrimp catches, either iced on the trailer bed or iced in insulated boxes, will have an insignificant impact on shrimp quality with respect to the rate of deterioration.

3. Holding shrimp under non-refrigerated conditions leads to a more rapid colour deterioration than if held under refrigerated conditions.

4. Harvesting and holding of shrimp during the summer months could exacerbate quality related problems if the catch is not handled and iced in a very diligent manner.

The C-ASD study observed that overland transportation of shrimp caused significant physical damage to the raw product. However, the rate of deterioration of shrimp quality and the levels of physical damage were not significantly affected by the method of stowage (bulk or containerized), provided that adequate temperature controls and good handling practices were maintained.

During the summer of 2003, the Canadian Centre for Fisheries Innovation (CCFI) completed an experiment with a 60’ inshore vessel. Carrying insulated boxes, the vessel boxed a significant portion of its catch and bagged the remainder. Overall, the vessel made six trips. The experiment found that boxed-iced refrigerated shrimp lasted one to two days longer than bagged-iced refrigerated shrimp. Moreover, it appeared that boxed shrimp had an improved colour, lower number of defects and a reduction in ‘yellowing’ observed in the finished product.

From an enterprise perspective, one of the obvious concerns with a conversion to a boxing system is reduction in vessel carrying capacity. During August 2003, the Ocean Engineering Research Centre of Memorial University conducted an evaluation of boxed shrimp handling systems for the Newfoundland and Labrador inshore shrimp fleet. To date, the project has measured nine fishing vessels out of 11 and recreated the fish holds using 3D-CAD drawings. The objectives of the project are:

· To determine the number of 360-litre boxes that could fit into each of the fish holds; and

· To look at the structural changes to the vessels that would be required.

During the course of the project, a different type of box was also examined. The dimensions of the new box were much smaller than the 360-litre box and, while carrying less weight per box (35.7 pounds) the carrying capacity of the vessels increased substantially. The project determined that the smaller boxes improve utilization of the fish hold. Table 1 below shows the total weight of shrimp and the percentage utilization of fish hold space using different box sizes.

Table 1 Vessel Carrying Capacity
Vessel Size	Hold Size (ft³)	360-litre box (‘000 lbs)	% of fish hold used	35.7 lb. box (‘000 lbs)	% of fish hold used
65’x23’	3320	37	49	59	71
65’x24’	2931	35	52	56	77
65’x22’	2507	30	52	49	79
60’x22’	2507	29	50	47	74
58’x18’	1766	21	52	33	74
55’x20’	1977	21	46	34	68
55’x18’	1519	17	47	30	80
45’x21’	2190	32	63	39	72
45’x16’	1201	10	35	22	74

Source: Ocean Engineering Research Centre, 2003

The Inshore Shrimp Panel made the following recommendation regarding the need to improve handling practices in the inshore shrimp fishery:

The Panel recommends that a design study be undertaken to develop a system to eliminate the bagging of shrimp and provide for less handling of raw material.

Industry Thoughts

The current handling system of bagging shrimp results in more damage to the product and improper and unnecessary handling. The bags are disposed of after a single use and the industry estimates this cost at approximately $1 million annually. A boxing system would positively affect handling onshore and improve the overall quality of landings, while at the same time allowing vessels to stay on the fishing grounds for a longer period. Several processors suggested that the quality of boxed shrimp, particularly colour, is significantly improved compared to bagged shrimp. In addition, it was noted that boxing can reduce the handling of shrimp at the port and result in less handling costs as compared to bagging.

In terms of incentives, harvesters suggest that conversion to a boxing system must yield reasonable economic returns for the investment. One processor recounted one boxing experiment using tote pans; where the percentage of broken shrimp was less than 1%. The boxing study conducted by CCFI measured the difference in the percentage of broken shrimp in boxes versus bags over six trips. Interestingly, the percentage of broken shrimp declined on average by 1.5% over the six trips. While a reduction in broken shrimp will certainly improve the return to the harvester, on its own it is not sufficient to support the investment in a boxing system. Processors agree that harvesters using boxes should be paid a reasonable share of the industry’s benefits on top of the minimum negotiated price.

Implementation Plan

The Working Group has concluded that further study is required to develop a system to eliminate the bagging of shrimp. Before the industry can move forward with a plan to convert the fleet to a boxing system, several projects must be completed. First, the estimated value of boxing to the shrimp industry needs to be determined. Second, a design study into the appropriate type and size of box for the inshore shrimp fleet must be completed. Limited research has been done; however, a standard box size for the fleet has yet to be determined. Third, the processing yield from boxed shrimp is reportedly lower as compared with bagged shrimp. Yield is determined as the weight of finished product as a percentage of the net purchase weight. The net purchase weight from boxes has not been calibrated to compare with the weight of shrimp in bags. In order to accurately determine the comparison of yields and the economic benefits of boxing, industry must conduct a study to calibrate the net weight of shrimp in boxes as compared to bags.

The implementation plan for boxing would include:

A study investigating the value of boxing including the calibration of net weights purchased using bags and boxes – completed during the 2004 season.

A study to determine appropriate box design for the inshore shrimp fleet- to be completed and field tested to demonstrate its efficiency during the 2004 season.

These studies would be funded through the inshore shrimp fund with matching contributions from shrimp processors combined with funding from research and development agencies such as CCFI.

Upon completion of the studies, the industry would adjust the determination of net weights for boxed shrimp to correlate with bagged shrimp. Implementation of boxing would follow positive findings on the economic benefits.

Boxing would be implemented on a voluntary basis. Incentives would be paid to individual enterprises that make investments in boxing. An addition to the base price would be negotiated in the collective agreement for boxed shrimp.

Regulatory Change

The implementation of a boxing system can only occur with industry action. Harvesters and processors must decide on the basis of economic and quality considerations whether it is feasible to convert to boxing. Through the collective bargaining process a price incentive for boxed shrimp must be established to reward harvesters for their investment.

Transporting

The trucking of shrimp has been a significant issue in the industry since the expansion of the fishery in the late 1990s. In 2002, approximately 80% of the shrimp landings in Newfoundland and Labrador were trucked to processing facilities (see Table 2).

Trucking of shrimp effects the quality of the raw material, as it results in additional and unnecessary handling, often delays the time that shrimp is processed, and downgrades the value of the finished product.

Table 2 Trucking from Region to Region, 2002 (millions of pounds)
From To	Northern Peninsula	Northeast Coast	Eastern	Total
Labrador	1.6	0	0	1.6
Nor. Pen.	27.4	0.6	0.2	28.2
NE Coast	3.1	10.2	3.0	16.3
Eastern	6.3	12.2	14.4	32.9
Total	38.4	23.0	17.6	79.0

As a priority, shrimp must be landed at processing facilities and the inefficiencies of trucking avoided. If shrimp has to be transported then it should be trucked to processing plants within close proximity to the port of landing. It must be recognized that it is not practical to assume that shrimp can be landed directly at all processing plants given their location in relation to landing sites.

The Inshore Shrimp Panel made the following recommendation with respect to the need to address the trucking problem:

The Panel has concluded that the trucking of shrimp is a serious problem for the industry, and recommends that the provincial government, in cooperation with FANL and FFAW/CAW, on an urgent basis (i.e. within 30 days), develop standards regarding the trucking of shrimp that preserve its quality, and ensure that these standards are rigidly enforced.

Industry Thoughts

Harvesters and processors agreed that the costs of trucking are excessive and significant savings can be realized through improving the logistics of handling and transporting shrimp landings. Throughout consultations with the Working Group, processors noted that during 2003, shrimp landed in distant ports from their processing facilities was often traded with shrimp processors in the local area where the landings occurred.

Harvesters expressed a willingness to land shrimp at or closer to processing plants, however, they observed that while costs in the industry would be reduced and quality improved, their operating costs would increase. The costs of fishing would rise due to steaming further distances and having to service vessels from ports outside their local area. Harvesters expressed the view that they must realize a reasonable share of any savings that could accrue from landing shrimp directly at processing plants. Processors accept the principle that shrimp landed at processing plants represents a saving in handling and transporting costs. Processors are committed to adjusting the port prices to reflect a reasonable share of the savings that result. They note that prior attempts to adopt incentive based pricing have failed due to the lack of any discipline to schedule and transfer raw material between plants.

Implementation Plan

The implementation plan to reduce trucking and improve quality is linked directly to the issue of scheduling. The Working Group sets forth the following plan to reduce trucking within the industry:

1. Harvesters and processors would agree to reduce the number of landing sites to the lowest number practical (during 2002 the number of landing sites was 56, the number in future would be reduced to approximately 25). Sites that are redundant or those that can be consolidated within a geographic zone would be eliminated and sites where processing occurs should be utilized to their capacity as a priority. Other sites within a geographic region would be included to the extent necessary to provide full servicing to the vessels operating in the area on turnaround.

2. Shrimp port prices would be increased to reflect the quantities of shrimp landed directly at processing plants. A base industry price would be negotiated prior to the start of the 2004 season and the price would be increased incrementally for shrimp landed directly at processing facilities.

Regulatory Change

Savings in distribution and handling costs can only be achieved through adopting disciplined scheduling and coordination of raw material among processing plants. Such arrangements can be incorporated into a collective agreement between harvesters and processors. In the absence of any industry agreement, the Department of Fisheries and Aquaculture should consider regulations to restrict the distance that shrimp may be transported.

Seasonality and Pricing

Seasonality

Seasonality is one of the biggest challenges to be addressed by the inshore shrimp industry. Since 1997, the northern shrimp cooked and peeled allocations have increased dramatically. Despite this growth, the industry has not been successful in spreading the harvest over a period of the spring, summer and fall. Figure 2 shows the landings by month for the years 2000 through 2002. Harvesting activity is highest during the late spring and summer periods. Landings are generally high over a period of three months with ‘glut’ situations occurring regularly during these periods. The highest northern shrimp landings by the inshore fleet in any month occurred in June 2002 when over 15,000 tonnes (32% of the total quota) was harvested and processed. This record was surpassed in September 2003 with total landings reaching approximately 18,000 tonnes.

Cooked and peeled shrimp quotas in Newfoundland and Labrador increased significantly in 2003, reaching a level of 70,561 tonnes. In order for the industry to fully utilize these allocations, it must find an effective means to spread harvesting activity over an extended period from April through October. Figure 3 shows the percentage of landings by fleet and month for the year 2002. As indicated, only the 4R fleet has a significant percentage (34 %) of its harvest in the early spring period (April/May). The 3K and 2J fleets had 19% and 13%, respectively, of their landings in April and May. The 3L fleet did not harvest any material quantity until the summer and fall months.

Figure 3

Several factors highlight the impediments to harvesting shrimp during the spring period. These include: interest in other species such as crab; ice and weather conditions; harvesting ‘caps’; higher counts; and relative port prices.

Crab is a much more valuable species and many harvesters prefer to land their quotas of crab in the spring. Crab is at its peak price during the spring and competition for raw material at this time generally causes the price to be even higher than at other periods of the year. Ice and weather conditions can restrict the fleets in 2J and 3K during the early spring. Harvesting ‘caps’ are relatively low in area 3L, given the number of licences, and harvesters can only make a couple of trips before being limited by the ‘cap’ system. Consequently, 3L based harvesters do not harvest any significant quantities of shrimp in the spring period. Re-allocation of the harvesting ‘cap’ system is not considered until after the summer shrimp fishery has occurred. Counts for northern shrimp on average are higher during the spring period than in the summer and fall. Port prices, which are correlated to the raw material counts, are higher in the spring than in the summer and fall. Thus, port prices are relatively low in spring, and given the counts are

Table 3 Comparison of Shrimp 2002
	Spring	Summer
Count of raw material	89	80
Yield	34%	27%
Count of finished product	262	296
Port Price	$0.49	$0.46

higher in spring, harvesters have little or no incentive to prosecute the fishery during the spring period. Table 3 shows the relative raw material counts and port prices for the spring versus summer periods.

The greatest opportunity to improve the value of the inshore shrimp fishery can be derived from harvesting and processing shrimp earlier in the season. Such an opportunity is most readily available to the 3L fleet, which has access to allocations in area 7. The Working Group analyzed the effect of landing the additional quotas available in a pattern similar to that in 2002 and concluded that there is inadequate processing capacity within the industry at this time to handle such a high peak harvest over a short period. The imbalance is clearly shown in Figure 4

The very high seasonal supply would lead some to suggest that the industry requires further capital investment in processing. Such investment would be counter-productive as the current utilization within the industry, as discussed later in this report, is unreasonably low by any practical measure. The present situation in the industry demonstrates that, as currently structured plants are marginal and harvesters are experiencing record low returns. Additional capital investment would only compound the economic woes of the industry and would likely depress market and port prices further. In the current environment a new plant would inhibit the ability of the industry to achieve a higher return.

During 2003, the Department of Fisheries and Oceans attempted to expand the industry by providing new allocations to the cooked and peeled industry in Newfoundland and Labrador. DFO allocated 3,400 tonnes of shrimp to Labrador interests and a further 3,400 tonnes to interests on the Northern Peninsula to enable the industry to access larger trawlers that can land shrimp throughout the year. These allocations will improve the economic prospects for processing facilities that secure these additional resources. It is likely that plants that secure access to additional raw material, particularly over an extended period of the year (i.e. spring and fall), will derive a substantial benefit over plants that continue to rely on peak seasonal landings over the summer period from the inshore fleet.

Recognizing the challenge to improve the seasonal pattern of the industry the Inshore Shrimp Panel made the following recommendations:

The Panel recommends that any increased quotas be directed to existing harvesters, particularly vessels of larger size that can use such allocations to extend the operating season and thereby improve utilization.

The Panel recommends that DFO release shrimp and snow crab management plans early in the year to enable harvesters to plan their fishing season.

Given the increases in allocations in 2003, the industry must make adjustments to utilize these quotas. In order to achieve this objective, shrimp vessels must increase their fishing period and thus an extension of the fishing season is required.

Industry Thoughts

Overall, there is industry-wide consensus supporting the need to extend the operating season. Industry remains uncertain as to the mechanisms that would best achieve this objective. Some processors suggest that the best option is to open the fishery on a competitive basis, while at the same time the majority of harvesters indicate that a competitive fishery is not an option. Enterprises want to maintain their right to harvest the resource in the season that best suits their own particular harvesting plans. Harvesters indicate that a competitive fishery would lead to a system of individual quotas (IQs). Such a system would likely minimize the possibility of landing the quotas due to the fact that many enterprises with licences have a minimal attachment to the shrimp fishery. The 3L fleet, in combination with their access to area 7 shrimp and the processing plants in the area, offer a real opportunity for the industry to extend the harvest of shrimp into the spring period. The industry expresses the need to ease restrictions it has placed on vessels and provide practical incentives to enterprises capable of harvesting shrimp during this period of the year. It was suggested that such incentives could include increases to the harvesting ‘caps’ that would be tied to actual harvesting activity in the fishery during the spring period.

Harvesters in 3L noted that they are constrained by low harvesting ‘caps’ when considering whether to gear-up for shrimp fishing in the spring. Harvesters further pointed out that shrimp counts are much higher early in the season and they can get as good a return in the summer when raw material counts are lower, given the current pricing structure. With regard to the time that the inshore fishery should start, harvesters and processors agree that DFO should have licences available prior to the end of March each year. Given the increased allocations and the desire of industry to have more of the harvesting activity in the spring, it is essential that DFO make licences available earlier to facilitate this objective.

Implementation Plan

As in most situations, the solution to resolving the challenge of seasonality is in finding a balance between varying and often competing demands within the industry. It is in this context that the Working Group sets forth the following implementation strategy:

1. The FFAW/CAW, in consultation with the harvesters in each area, would set forth a plan for the administration of harvesting ‘caps’ for the coming season based on the total available allocations to each area in 2003. The plan for each area would reflect an established target for shrimp to be harvested in the period up to June 23^rd, 2004 (i.e. spring target). Mechanisms to achieve the spring targets would be established as part of the master agreement.

2. SCC in consultation with the FFAW/CAW would establish procedures to review and adjust the harvesting ‘caps’ so as to ensure that the plans established in item #1 are achieved.

3. SCC would be granted full access to the database of landings by each shrimp enterprise in order to facilitate scheduling in the future. Such access would be provided by December 31, 2003.

4. DFO would issue shrimp licences to inshore vessels prior to March 15^th each year.

Regulatory Change

All aspects of the implementation plan can be achieved through collective bargaining between the FFAW/CAW and the shrimp processors. DFO’s cooperation is required to implement the start date for the fishery.

Pricing

There is a material difference in the processing yields derived from shrimp dependent on the seasonality of landings. Higher processing yields affect the product mix by improving the counts in finished products. Yields can be affected by many factors including: handling at-sea and onshore; trucking; timeliness to processing; holding temperatures; and processing. It has been recognized, for a number of years, that port pricing should vary by season to reflect the seasonal trend in processing yields.

The Inshore Shrimp Panel analyzed the seasonal effects on the industry and concluded that variations in average yield and product mix between the spring and summer had a very significant effect on the economic value of the industry. The difference between the peak spring return and the August low return is in excess of 30 cents per pound of raw material. Currently, less than half of this amount is reflected in port prices between spring and summer. Given the economic opportunity and the unutilized allocations, the industry must find a means to harvest and process shrimp earlier in the season to realize the economic opportunity.

The Inshore Shrimp Panel recommended that the industry adopt a variable pricing system reflective of changing processing yields:

The Panel recommends that the pricing system negotiated during collective bargaining take into account monthly variation in yields obtained by processors.

Industry Thoughts

Both harvesters and processors agree that variation in port pricing is required. Both sectors share the view that it is not practical to increase the frequency of price changes as it would likely lead to further disruption in landing and buying activity. Seasonal pricing over the spring, summer and fall period is preferred. Both harvesters and processors expressed the view that the seasonal pricing periods should be adjusted in June and September; however, the dates suggested by each group are marginally different (i.e. a week in each case).

Throughout the consultation process, harvesters suggested that if more shrimp is desired in the spring, when it is more valuable, then prices should be further adjusted relative to the summer to reflect a more reasonable spring price. Harvesters in 4R suggest that pricing should be averaged over a longer period of the season. There is consensus by both sectors, given the unique situation that exists in respect to the shrimp in 4R, that pricing for Gulf shrimp should be determined independent of the pricing for northern shrimp. The unique situation in 4R is part of a stand alone issue within the Working Group’s terms of reference and it is discussed separately later in this report.

Implementation Plan

1. Seasonal pricing would be reviewed as a mechanism to achieve the spring targets noted in item #1 – Seasonality–Implementation Plan. Differing prices between spring, summer and fall would be adjusted to achieve continuity of harvesting activity over all periods.

2. Seasonal pricing for Northern shrimp would be established based on the following seasons (adjusted to reflect end of week dates):

Spring: April 1^st - June 23^rd

Summer: June 24^th – September 8^th

Fall: September 9^th - December 31^st

Regulatory Change

Pricing is established based on collective bargaining. The seasonal pricing periods for shrimp would form part of the shrimp master agreement between the FFAW/CAW and shrimp processors.

Quality

Many quality related issues have been discussed as part of this report under the topics of scheduling, trip limits, handling, transporting, and seasonality in the industry. The quality of raw material and finished products will be significantly enhanced if the implementation strategy outlined thus far is adopted. Scheduling will eliminate the ‘glut’ situations that exist and trip limits based on vessel size will ensure shrimp is consistently iced. Initiatives to introduce boxing will improve the colour and provide participants with added flexibility regarding the timeliness of processing. A reduction in the quantity of shrimp transported by trucks will reduce breakage and improve quality, and increasing the harvest during the spring season will generate quality improvements as shrimp are naturally in better biological condition during this period.

The post-mortem age of shrimp has been an on-going issue in the industry. Currently, it is difficult to monitor the age of shrimp as vessels can be fishing without notice. The problem can be further compounded due to mixing various days catches in the fish hold or combining the catch during the discharge and handling processes. A partial solution to the issue may result from the recent introduction of regulations by DFO requiring vessels engaged in the crab fishery to install vessel monitoring systems (VMS). VMS is an electronic signal that can be monitored to determine the time that vessels begin harvesting. Therefore, it can be a reliable mechanism to monitor the maximum post-mortem age of the catch. Further improvements may be achieved through the introduction of boxing that will enable the catch to remain in the same container from the time it is stored onboard to the point it is processed.

The Working Group reviewed the quality standards within the industry and concluded that the FFAW/CAW and shrimp processors have developed a comprehensive suite of standards that reflect the industry’s needs and noted that the standards form part of the current collective agreement. These standards cover all aspects of the handling of the catch, from the time it is received onboard through to processing. Compliance with these standards is inconsistent and there is a need to create awareness among harvesters and shore based employees about the importance of improving and maintaining high quality standards throughout the industry. Stakeholders suggest that the best means to enhance awareness is for the industry to develop up to date training videos for at sea and onshore employees. The training videos would focus on demonstrating the proper procedures to be followed at various steps in the process. As procedures change there will be an increased need for the industry to focus on providing adequate training. New handling techniques such as boxing will require training to ensure that the investment yields the expected results. Such a practical training tool should be readily accessible to harvesters and shore based employees in rural areas.

Many of the quality challenges facing the industry were discussed in detail in the Inshore Shrimp Panel report and resulted in the following recommendations:

The Panel recommends that DFA require that shrimp be tracked continuously with post‑mortem age identification based on the date and time of each tow.

The Panel recommends that DFA implement as a condition of licence that no plant be permitted to process shrimp which has a post‑mortem age greater than six days.

The Panel recommends that there be mandatory training on the proper handling of shrimp for all those who work in the industry, and notes that a program is already in place at the Marine Institute of Memorial University. This training should be required as a condition of certification under the Professional Fish Harvesters Certification Board.

The Panel recommends that the province, FFAW/CAW, and FANL immediately develop a comprehensive set of quality standards for shrimp.

The Panel recommends that a system of shrimp price differentials, based on quality, be developed.

The Panel recommends the development of a "partnership for quality" program along the following lines:

· It should be established between shrimp harvesters and processors, sanctioned by government, with the objective to ensure that quality is maximized at all stages of the process from harvesting to market.

· This partnership would have the objective of ensuring that appropriate shrimp quality standards are developed, along with effective inspection procedures.

· It is further recommended that consideration be given by the government to appointing a fully dedicated individual acceptable to FFAW/CAW and FANL and reporting to the Minister of Fisheries and Aquaculture to oversee and assist in this undertaking.

Industry Thoughts

There is currently no consensus among harvesters or processors that DFA should or can regulate the post-mortem age of shrimp. DFA acknowledges that it is unable to objectively determine the post-mortem age and therefore, in its view it is not practical to regulate. During consultations it was suggested that the best means to accomplish this objective is through the use of VMS. VMS can determine the time that vessels begin harvesting and if monitored it can be a reliable mechanism to determine the maximum post-mortem age of the catch.

Discussion with industry representatives suggests that there is a need to improve communication and training among the workforce in the industry. There is recognition that to implement training programs there has to be commitment from plant workers and harvesters to ensure they acquire the knowledge to properly execute their respective roles in handling and maintaining the quality of shrimp.

Many quality standards for shrimp remain subjective and harvesters and processors indicate that it is not practical at this time to implement measures to establish quality-based pricing. The Working Group has concluded that until quality standards can be measured, pricing should not be changed to reflect quality.

Implementation Plan

The Working Group recommends implementation of the following initiatives to further improve quality within the shrimp industry:

1. VMS tracking would be utilized to monitor the post-mortem age of shrimp. SCC would access the tracking data from DFO and use it in combination with scheduling procedures to ensure shrimp is processed in a timely manner. DFA should monitor such data as part of its quality inspection procedures.

2. The FFAW/CAW and shrimp processors would adopt, as part of the master collective agreement, the thresholds for maximum post-mortem age for shrimp to be landed based on Implementation Plan items #5 and #6 referenced under Trip Limits.

3. The FFAW/CAW in cooperation with shrimp processors would initiate a proposal to DFA and other government agencies to secure funding to facilitate the development of video training modules covering all procedures for shrimp onboard vessels through discharge, transporting and processing. Such videos would be distributed to all shrimp harvesters and processors for use throughout the industry. The training material should be available for use prior to the start of the 2004 season.

Regulatory Changes

DFO would have to make provision for the VMS monitoring data to be transferred to SCC and DFA would initiate changes to its inspection procedures to include monitoring of the post-mortem age of shrimp.

Vessel Replacement and Utilization

The Inshore Shrimp Panel reviewed the vessel replacement rules of the Department of Fisheries and Oceans (DFO) and concluded that the regulations restrict harvesters from using vessels suitable to their needs in regard to safety and overall capacity to harvest shrimp during varying seasons. The Panel observed that the harvesting sector is characterized by many vessels that are inadequate from a safety, size and efficiency perspective. Out-of-date regulations have constrained the fleet and have little relevance to their current fishing activities.

In 2002, DFO released a discussion document outlining the department’s new approach to its vessel replacement policy. DFO’s objective is to simplify and increase the flexibility of the rules and improve safety, while at the same time ensuring that conservation requirements are not compromised. Proposals from commercial fleet sectors to have greater flexibility in the vessel replacement rules will be reviewed by DFO based on ten guiding principles, which are summarized as follows:

1. New rules for a particular fleet should not compromise conservation.

2. No increase in overall harvesting capacity, preferably new rules reduce capacity.

3. New rules encourage self-adjustment mechanisms.

4. New rules should not compromise safety and should be consistent with the regulations of other agencies responsible for safety at sea.

5. New rules contribute to improved economic viability of fleets and not generate pressures for expanded allocations.

6. New rules should not result in any changes in allocations, fleet shares or access.

7. Only core licence holders with permanent licences will benefit from changes.

8. New rules readily enforceable and should not increase administrative and enforcement workloads for DFO.

9. New rules consistent with objectives of current licencing policy including owner-operator rules and the emphasis on multi-licenced enterprises.

10. New rules take into account the fact that fishing enterprises may hold licences for more than one fishery.

In regard to harvesting capacity utilization, the Inshore Shrimp Panel noted that significant overcapacity exists in the inshore shrimp fleet. The Panel noted that the average number of days the inshore fleet harvested shrimp for the period 1999-2001 was 33. The Panel concluded that the capacity utilization of vessels harvesting shrimp was too low and that the economic efficiency and competitiveness of the industry were being compromised.

During 2003, the industry commissioned an independent study through the Marine Institute to investigate the feasibility of shrimp vessels at various lengths. Upon completion, the study should act as a guide to the DFO and industry as to the efficiency of larger vessels in the shrimp fleet compared with the existing vessels.

The Inshore Shrimp Panel made the following recommendations in regard to the need for flexibility in vessel replacement rules, fleet rationalization and utilization:

The Panel recommends that DFO's vessel replacement rules be made more flexible to allow enterprises to operate vessels that are suitable to their needs. Vessel safety should be an overriding priority. In the course of moving to larger and safer platforms, it is vital that fish harvesting capacity be reduced. Therefore, the Panel recommends enterprises should be combined as a means to reconfigure the existing fleet and to reduce its overall capacity.

The Panel recommends that there be a study into the design of the appropriate size of vessel for the shrimp fishery and the shellfish industry generally. Such a study should fully involve harvesters, and other industry stakeholders, to assess needs. DFO should adopt the appropriate vessel size recommended and, in the event that the recommended size is beyond the current limit, the necessary revisions be made to DFO policies.

The Panel recommends that rationalization occur on the basis of implementing earlier recommendations (6.2 and 6.3) regarding vessel size and fleet replacement. Rationalization should occur immediately for the 4R fleet.

The Panel recommends that no new shrimp harvesting permits be issued until fleet utilization significantly increases.

Industry Thoughts

During consultations, harvesters throughout the province agreed that there is overcapacity in the inshore shrimp fleet and that the shrimp fishery, as currently structured, is not viable. The fleet currently consists of 386 temporary shrimp permits (licences). The greatest overcapacity exists in areas 3K south (102 licences), 3L (166 licences), and 4R (62 licences). Fleets in areas 2J and 3K north have 35 and 21 shrimp licences, respectively. Overcapacity in these areas is not an issue. Indeed, the reality is that these fleets lack the fishing capacity to harvest their existing allocations, given the shorter seasons due to ice and weather conditions.

Harvesters in 4R are particularly frustrated with the economic prospects of the shrimp fishery as they have no access to other species to enhance the viability of their enterprises. During 2003, the fleet was tied-up most of the spring and summer due to port price disputes between processors and harvesters. Harvesters in other areas expressed concern about the future of the snow crab resource and the lack of viability in shrimp fishing, despite increasing allocations. The fishing enterprises in area 2J are already experiencing a decline in snow crab landings and are more anxious to see improvements in the shrimp industry.

Harvesters throughout the province agreed that DFO’s current cubic number restriction on vessel size should be removed. Indeed, many harvesters cited instances where the restrictions are blatantly disregarded. Still others noted how they remain constrained by restrictive cubic number measurements on vessels. Vessel length was the subject of considerable debate, with enterprise owners of vessels 45-60’ noting in particular that they should have the flexibility to increase the size of their vessels to the maximum 65’ limit. Enterprise owners of larger vessels in the fleet agree that smaller vessels are unable to operate in the conditions that often prevail on the Northeast coast. They would like to see the length restrictions adjusted to reflect their needs in the fishery, particularly to modify vessels to accommodate boxing. An over-riding concern of most harvesters relates to DFO’s fleet separation policy. They state that regulations on vessel size should be adopted to facilitate the changes required to improve the viability and safety of vessels while at the same time maintaining the fleet separation policy.

Implementation Plan

DFO has been reviewing its vessel replacement policy and has established guidelines for discussion to assist fleets in addressing the issue. DFO is willing to review proposals by fleets and indicates that the level of flexibility to vessel replacement rules will depend on the level of adjustment within the fleet. A primary condition is that fleet capacity not increase. In addition, DFO points out that if enterprises in the shrimp fleet have access to larger vessels, then they must ensure that such enterprises maintain their relative position in regard to other competitive fisheries such as turbot and monkfish. Thus, fleet rationalization must occur in order for DFO to adopt more flexible vessel replacement regulations and enterprises participating in such change would be required to endorse individual harvesting restrictions.

The implementation plan for changing vessel replacement regulations should proceed as follows:

1. The FFAW/CAW, on behalf of shrimp enterprises in each fleet (3K south, 4R, etc.), would prepare a detailed fleet rationalization proposal to DFO for submission prior to December 31, 2003. The key elements of the proposal would include:

· A fleet funded buy-back of shrimp licences. Harvesters wishing to sell their shrimp licence would be required to offer the licence to the remaining enterprises within their respective fleet. Such proposed sales would be offered on the basis of a right of first refusal. The remaining shrimp licence holders in the fleet would be given the option to participate in the buy-back. To the degree individual harvesters participate in the buy-back, their shrimp allocations would be increased accordingly. If the remaining enterprises in the fleet reject the offer, the selling enterprise could proceed with a sale to a third party.

· Shrimp enterprises would have the ability to combine shrimp licences and proportionately increase their harvesting ‘caps’ through the combining process. Recognition of the combination would have to be granted by DFO in the event that individual quotas are introduced at a future date.

· Proposals would specifically address each of the guidelines outlined by DFO and consider the study on vessel size being completed by the Marine Institute. The objective of all proposals is to ensure that harvesters have access to safe and efficient vessels that are capable of landing high quality shrimp. Moreover, proposals must ensure that enterprises in different areas have the capability to fully utilize their shrimp allocations in an economically viable fishery.

Regulatory Change

The FFAW/CAW is responsible for developing fleet proposals for submission to DFO that will establish vessel replacement rules that meet the needs of the various fleets. To facilitate change, DFO must formally recognize the harvesting ‘caps’ to allow enterprises to combine shrimp licences. In terms of fleet utilization, a commitment from DFO is required to ensure that no further shrimp harvesting licences are issued until current harvesting levels significantly increase.

Fisheries Loan Guarantee Program

In the early 1980s, the Fisheries Loan Guarantee Program was established between the chartered banking community and the Government of Newfoundland and Labrador. The process requires harvesters to send loan applications to the Department of Industry, Trade and Rural Development for consideration. The loan guarantee program can be approved for the purchase of used vessels, the construction of new vessels, vessel rebuilding and repair, engines and equipment, and refinancing. Under the program, loans are not considered for:

the purchase of fishing gear and licences;
the purchase of used equipment, machinery, engines;
regular vessel maintenance;
repair of machinery, engines, equipment;
the construction of vessels outside the province;
the purchase of existing enterprises; and
the refinancing of debt with chartered banks.

Loan amounts are considered to a maximum of $1.3 million. In the context of fleet rationalization, access to financing will be an important issue for harvesters. Enterprise licences are selling for in excess of $1.5 million, therefore the loan guarantee program must be reviewed and adjusted accordingly. Due to the significant financing required for enterprises to finance fishing licences, they rely on the processing sector to become involved. Harvesters are concerned because they do not have the financial capability to purchase or build a new vessel without assistance. Without an alternative through the processing sector, the independence of harvesting enterprises is compromised.

The Working Group met with officials from the provincial government regarding the status of the program and to seek clarification on whether the program would apply to enterprises that may wish to combine. The Working Group was informed that the program is currently under review and consultations with industry are on-going. As noted above, loans under the program are not considered for the purchase of licences, or existing enterprises.

The Inshore Shrimp Panel made the following recommendation with respect to the Loan Guarantee Program:

The Panel recommends that the government undertake a review of the timeliness of its loan guarantee process and ensure that harvesters receive a service that meets the standards for normal commercial loans at chartered banks. Government should also assess the financial requirements of fish harvesters who are seeking to combine enterprises.

Industry Thoughts

Harvesters expressed an interest in combining licences, generally as a fleet funded buyout to promote rationalization within the industry. However, consultations revealed that the approval process for loans through the loan guarantee program are not timely and in any event are not applicable to financing licence purchases.

Implementation Plan

The Working Group concluded that loan approvals under the program should be expanded to include the acquisition of licences either on an individual or fleet basis in order to promote rationalization in the inshore shrimp industry.

Regulatory Change

This aspect of the implementation plan requires the provincial government to review the Fisheries Loan Guarantee Program. Should harvesters be permitted to combine or purchase larger vessels, there will be a need to change the financing thresholds and accommodate licence purchases.

Processing Capacity and Utilization

Plant processing capacity has increased each year since the shrimp fishery expanded in 1997. While total quotas available to the cooked and peeled sector continue to increase, plant utilization is not improving due to expansion of processing capacity. The Inshore Shrimp Panel reviewed plant viability and recommended that plants should be targeting to process shrimp over a 24- week period. The Working Group updated the analysis of the Panel to reflect the current number of plants and quotas available. A comparison of processing capacity to available quotas is shown in Figure 5, assuming that all quotas are harvested. Plant capacity is defined on the basis that plants could operate for 7 ½ months from April through mid-November. During 2003, assuming landings of approximately 110 million pounds, plants will work about 10 weeks on average, assuming they operate at full capacity. Even if it is assumed that all the quotas available are landed, the plants, on average, would only have enough raw material to operate for a period of approximately 15 weeks at full capacity.

The over-capacity in the processing sector is reflected in the plant closures, very low utilization at some of the plants, the loss of processing employment, and the low prices within the industry. Upon completing its analysis, the Inshore Shrimp Panel recommended the following to the industry and government:

The Panel recommends that a reasonable target for plant utilization would be 24 weeks with an average quantity of raw material per operating facility of 8,000 tonnes.

The Panel recommends that industry and government take steps to rationalize processing capacity, improve capacity utilization, and enhance the competitiveness of the industry.

Industry Thoughts

Processors agree that the shrimp processing sector is over-capitalized and that this situation is largely attributed to activity in the snow crab sector. There is frustration within the processing sector that government has not established or adopted any policy in regard to plant licensing that would assist the industry to reach a targeted level of utilization or reasonable period of average operation. Employment within the processing plants continues to be marginalized and has reached a point where many skilled workers can no longer be attracted to the industry. Plant operators indicate they are not in a position to ensure that employees can reach the minimum levels of seasonal employment to qualify for social benefits.

Harvesters feel that the number and location of processing plants is detracting from the viability of the industry and reducing their competitive position in regard to achieving reasonable prices for their harvest. Expansion is occurring at a rapid pace with no investment made in market development. Many feel the shrimp industry has followed the same course as groundfish or capelin, one that is characterized as a volume-oriented industry based on low value and marginal quality.

Processors expressed the view that there should be a process for the industry to buy-back plant licences and rationalize capacity within the sector itself. Such a process would be voluntary and would require agreement with the provincial government. Contrary to the situation in Newfoundland, it was noted that Labrador is in a situation where quotas in the area exceed the processing capacity. There is an expressed view that capacity may need to increase in that region in the future, particularly if allocations to the harvesters in the area continue to grow.

Implementation Plan

The Working Group recommends that the following initiative be taken by Government:

1. The Government of Newfoundland and Labrador would continue the freeze on shrimp processing licences until the target (average of 8,000 tonnes per facility) recommended by the Inshore Shrimp Panel is achieved. Any expansion of the industry in Labrador would be achieved through the utilization or transfer of existing licences.

Marketing

Over the past number of years, the inshore shrimp fishery in Newfoundland and Labrador has experienced frequent industry shutdowns. A number of these shutdowns are the result of significant declines in market prices. The market declines have had a significant impact on price negotiations between harvesters and processors. Globally, supplies of shrimp have been increasing and, combined with strong market competition and a slowdown in world economies, have led to depressed prices. In terms of world demand, the EU is the largest market for cold-water shrimp, representing about 75% of world consumption. The EU is a mature market for coldwater cooked and peeled shrimp with established consumption patterns. However, shrimp landings in this province do not correspond to peak periods of market demand, and combined with the 20% tariff in the EU, places cooked and peeled shrimp from the province at a significant disadvantage to competing producers within the EU.

The Inshore Shrimp Panel made the following recommendation in regard to the need for a commitment to the marketing of shrimp from Newfoundland and Labrador:

The Panel recommends that governments and industry establish a market development fund. This fund should be cost shared among federal and provincial governments and industry. Funds from the program should target market and product development initiatives. The Panel recommends that this program be funded at one million dollars per year for five years.

Shrimp producers have been working in conjunction with The Seafood Market Council to identify market opportunities for cooked and peeled shrimp. Recently, the industry completed a comprehensive industry marketing program. The program focuses on the development of a five-year generic plan for the cooked and peeled shrimp sector, with promotion in both the foodservice and retail sectors of the United States market. These markets were identified as having the greatest potential for the industry in this province. The shrimp industry in Quebec has expressed interest in the program, however there are concerns regarding the level of industry investment required. Meanwhile, the New Brunswick industry has not yet endorsed the program.

The budget outlined for the five year plan has been set at $8.3 million. Financial support is available under the Canadian Agriculture and Food International Program offered by Agriculture and Agri-Foods Canada, and it is estimated that approximately 50% of the funding can be covered by this program. In addition, with support from the Atlantic region, it is likely that the industry can secure funding through the Atlantic Canada Opportunities Agency. Overall, it is not unreasonable to assume that approximately 75% of the funding can be derived from government agencies.

Currently, the United States market consumes over one billion pounds of shrimp annually and producers in Atlantic Canada have captured a minimal portion of that market (2-3%). The generic marketing program is considered to be an essential component in helping Atlantic Canadian shrimp producers avail of market opportunities in the United States. The marketing initiative would focus on educating consumers on the differences between cooked and peeled coldwater shrimp and small size warm-water shrimp from countries such as India. Currently, there is little investment in market promotion as the industry continues to operate in an uncertain manner, with no consistency in supply and low margins. In order for the marketing initiative to proceed, the industry must submit its proposal for funding to government agencies by the end of January each year.

Industry Thoughts

The shrimp processing industry in Newfoundland and Labrador does not consider this program to be an ambitious investment, considering it can have a significant impact on introducing Atlantic Canadian cooked and peeled shrimp to the United States market. Government assistance is not available to fund marketing programs for individual companies. Thus, the program will have to remain generic in nature and focus on the industry at large if it is to be successful and avoid countervailing actions from importing countries.

During consultations with shrimp producers it was noted that the status of the marketing program is currently at a standstill. Significant investment in a generic marketing plan is unlikely until substantial improvements to the industry occur. Processors noted that the seasonality of the fishery must change and consistency in supply must be achieved before such a marketing initiative could be advanced.

Implementation Plan

The Working Group’s implementation plan regarding marketing initiatives is as follows:

As part of the master collective agreement, the shrimp processors would commit to undertake the submission of the proposed marketing program and commit to fund the program in the amount of $250,000 annually for each of the next five years.

The shrimp producers would submit their market development proposal to Agriculture and Agri-Foods Canada for funding as proposed in the Canadian Northern Shrimp Marketing Program by December 15, 2003.

The industry funding would be committed to the program on the basis of a levy per pound of shrimp purchased. Such a levy would be administered by SCC on behalf of all processors and submitted to the appropriate marketing agency contracted by the industry.

The Gulf Shrimp Fishery

The terms of reference for the Working Group include a specific task to review the Gulf shrimp fishery and consider the special circumstances and opportunities in this area. The Gulf shrimp fleet is unique in that it is been successfully operating in the cooked and peeled industry for over 30 years. Unlike the northern shrimp fishery, the Gulf shrimp fishery occurs within very close proximity to the west coast of Newfoundland. Much of the shrimp is harvested in the Gulf within minutes of onshore processing capacity. A large portion of the trips are landed directly for processing and all landings are within close transport by road. The fleet often operates on a daily pattern of fishing therefore, frequent and small quantity landings provide the processors in the area with regular supplies of high quality shrimp as compared to landings from the Northern shrimp stocks. The frequent landings of fresh shrimp allow processors to handle and process the raw material in a timely manner which results in a high quality finished product. In addition, the Gulf shrimp fishery has traditionally taken place during the period of the year that shrimp processing is optimal – spring, immediately upon the ice breakup in the Gulf of St. Lawrence. Even during the peak of the cod otter trawl fishery in the Gulf the fleet harvested shrimp in the spring period. The shrimp fishery in the Gulf was concluded prior to the warm summer months. In general, the problems discussed in this report (scheduling, trip limits, seasonality, handling, trucking, vessel size, etc.) that challenge the industry overall are not prevalent in the Gulf shrimp fishery. A summary of the main characteristics of the Gulf fishery as compared to the Northern shrimp fishery is shown in Table 4.

Table 4 Key Attributes - Gulf Shrimp Fishery versus Northern Shrimp Fishery
Key Attribute	Gulf Shrimp	Northern Shrimp
Proximity to land	Often < 1 hour	Approx. 1 day
Post mortem age	Most < 1 day	3 days
Average catch per trip (2002)	14,087 pounds	32,257 pounds
Distance to processing plant	Landed direct or < 1Hr.	>80% trucked
% landed April/May (2002)	>50%	<15%

Due to their long experience in the industry, harvesters in 4R have a greater appreciation of the need to avoid ‘glut’ landings and have routinely expressed a willingness to cooperate with plants to schedule supplies. The practice of scheduling is common throughout all areas of the Gulf shrimp fishery, including harvesters and processors from Quebec and New Brunswick who also have a long track record in the industry.

Unfortunately, the rapid growth of the Northern shrimp fishery has had a negative effect on the shrimp fishery in the Gulf. Prices for Gulf shrimp have declined due to effects such as seasonality and trucking, that are pronounced in the Northern shrimp fishery. The frustration of Gulf shrimp harvesters was shown this past season by the prolonged shutdown of the fishery during the summer. Declining prices, combined with a notable lack of progress within the industry to deal with the challenges in the Northern shrimp fishery, caused many harvesters to tie-up their vessels in protest. Consequently, the industry on the Northern Peninsula experienced its worst year ever. Despite the poor prospects for Gulf shrimp harvesters over the short- term, it is likely that progressive change will begin to occur as the influence of the lucrative crab fishery along the northeast coast of Newfoundland begins to wane. This unfortunate reality is already affecting the harvesters in the most Northern areas. Shrimp is likely to become a more important resource within sectors of the industry over time and as its importance increases, so will the focus of industry participants to resolve the ongoing problems that plague the industry.

Given the close proximity of the fishery to land-based processing, Gulf harvesters appear to have a strategic opportunity to explore and develop the means to land live shrimp. If such a system could be developed it would be possible for the Gulf harvesters to realize a greater value for their catch. Given their close proximity, it may be feasible to produce raw frozen shrimp products in market-ready form for the high-valued Asian markets. In addition, it would be possible for plants in the immediate area to diversify into cooked shell-on production, again offering more opportunity to trade-up the market value of Gulf based raw material. These opportunities clearly do not exist for the inshore Northern shrimp fishery due to the distance from port that the shrimp are harvested.

Implementation Plan

Given the significant differences between Gulf shrimp and Northern shrimp and the opportunities to possibly diversify production, pricing for Gulf shrimp should be separated from Northern shrimp. Harvesters and processors have agreed to adopt separate pricing regimes.

Gulf shrimp prices for 2004 and beyond would be negotiated separately from northern shrimp. Such negotiations would consider different seasonal pricing dates than those for the northern shrimp fishery as stated in item #2 of the Pricing-Implementation Plan.

The shrimp fund would initiate research and development of new methods of handling and holding shrimp onboard vessels based in 4R, in cooperation with processing plants in the area to explore opportunities to diversify and improve the value of the Gulf shrimp fishery along the west coast of Newfoundland.

Landed Price and Count System

The Working Group’s mandate includes a requirement to review the count system that determines the landed price for shrimp. Currently, the landed price of shrimp is determined based on random sampling of the catch at the time of discharge. The samples are counted and averaged to determine a weighted count for each trip. The process of counting and recording is performed manually. Price negotiations establish a single price correlated to each count size (e.g. <60 count, 61,62, etc). Count-based pricing is reflected as follows: the lower the count per pound of shrimp the higher the corresponding price.

Over the past few years, the FFAW/CAW has been actively seeking to improve the count price system by refining it to determine the size distribution of the shrimp within the catch and automate the counting through an electronic process. The Working Group reviewed the computerized system and found that it can readily determine the average count with reasonable precision in a much more efficient manner than the current manual counting process. In addition to automatically weighing each individual shrimp within the sample, the new system can determine the count and provide a size frequency distribution of the catch. The size distribution indicates the frequency in gram weight increments and reports the percentage of the catch of each gram weight size. Such distribution can be summarized to categorize the shrimp by weight ranges e.g. <2gram (reject), 2.1-5.9grams, 6.0-7.9grams, and 8.0grams+. The ranges can be set at varying agreed thresholds. The system provides the flexibility to establish pricing based on the size distribution within the catch. For example, ranges could be established for small, medium and larger sizes of shrimp, with corresponding prices for each size range and the overall price determined based on the percentage of each size range within each trip. Such a system would more objectively determine the price of the catch than the current average count system.

Industry Thoughts

During consultations harvesters stated that the current count system did not fairly reflect the value of the catch. They indicated that shrimp pricing should reflect the size distribution in relation to the grading of the finished product. Processors agreed that the electronic system would be more efficient and that the correlation between finished product counts and size ranges for raw material could be established. Concerns were expressed by processors on the level of infrastructure available at buying sites to support electronic systems. It was suggested that such a system should be implemented; however, it would be more reliable to do the independent grading at processing plants where computerized systems could be readily supported. Harvesters supported the suggestion and noted that costs at buying sites could also be reduced through making such changes.

Implementation Plan

The computerized grading system should be implemented prior to the start of the 2004 shrimp season. The following plan is set forth to accomplish this objective:

1. SCC would have as part of its mandate the responsibility to implement the computerized system. The necessary funding to acquire computer hardware and software would be cost shared equally by the FFAW/CAW shrimp fund and shrimp processors. There would be adequate hardware to facilitate the system at each processing location throughout the province.

2. The sampling process at the buying sites would be performed during the discharging of the vessel, similar to the process that is currently in place. Samples would be collected and forwarded with the entire shrimp catch to the plant that would be designated to process the raw material.

3. Upon receipt at the processing plants, independent graders would be employed to determine the distribution of the catch by size and report the statistics on the landing to the harvester and SCC. The landing statistics would be forwarded electronically to SCC to administer a database on all landings within the fleet. SCC would forward the report on each landing to the buyer and processor.

4. The FFAW/CAW and the shrimp processors would negotiate and establish, as part of the shrimp master agreement, the range of size distributions that would correlate the grading system for raw material with the count range of the finished products.

5. The pricing of each size range would be determined through seasonal negotiations between the FFAW/CAW and shrimp processors.

Appendix II

Consultations Sessions

Department of Fisheries and Oceans Mr. Roy Russell

July 29, 2003 Mr. Max Short

Canadian Centre for Fisheries Innovation Mr. David Foster

July 29, 2003

Transport Canada Mr. Mike Dwyer

July 31, 2003

Department of Fisheries and Aquaculture Mr. Ian Burford

Licencing and Inspection

July 31, 2003

Department of Finance Mr. Don Kavanagh

Department of Industry Trade and Mr. Earl Saunders

Rural Development Mr. Bill Woolridge

August 5, 2003 Mr. Bernard Madden

Tavel Limited-FFAW/CAW Mr. Edwin Hussey-Tavel Limited

August 11, 2003 Mr. Tom Brown-Tavel Limited

St. John’s, NL Ms. Shelley Rowe-FFAW/CAW

Mr. Scott Dredge-FFAW/CAW

2J Shrimp Fleet Met with 7-2J harvesters

August 18, 2003

Mary’s Harbour, Labrador

Labrador Fishermen’s Union Shrimp Company Ltd. Mr. Gilbert Linstead

August 19, 2003 Mr. Ken Fowler

L’anse aux Clair, Labrador

4R Shrimp Fleet Met with 24-4R harvesters

August 20, 2003

Quirpon, NL

3K North Shrimp Fleet Met with 11-3K north harvesters

August 21, 2003

St. Anthony, NL.

St. Anthony Seafoods Limited Partnership Mr. Dennis Coates

August 21, 2003 Mr. Brian Duffy

St. Anthony, NL. Ms. Caroline Davis

Fogo Island Coop Society Limited Mr. Glen Best

August 26, 2003 Mr. Ken Budden

Port Blandford, NL. Mr. Wayne Cull

Notre Dame Seafoods Inc. Mr. Jason Eveleigh

August 27, 2003

Twillingate, NL.

3K South Shrimp Fleet Met with 17-3K south harvesters

August 27, 2003

Grand Falls, NL.

3L Shrimp Fleet Met with 6-3l harvesters

August 28, 2003

St. John’s, NL.

FANL (Shrimp Processors) Met with 14 processor representatives.

September 3, 2003

St. John’s, NL.

4R Shrimp Harvesters Call with 6-4R harvesters

September 11, 2003

Conference Call (St. John’s)

Mr. David Vardy

September 12, 2003

St. John’s, NL.

Consultation on options 22 Industry/Government representatives

September 24-25, 2003

St. John’s, NL.