ARCHIVED - Enterprise Combining Implementation Guide - Newfoundland and Labrador Region

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Fisheries and Oceans Canada

Newfoundland and Labrador Region

February 21, 2008 

1. Background

On April 12, 2007, the Government of Canada and the Government of Newfoundland and Labrador (NL) announced the outcome of the federal-provincial Fishing Industry Renewal Initiative.  At that time, both levels of government announced several key policy measures which are intended to fundamentally change the NL fishery.

The introduction of a fleet self-rationalization or enterprise combining policy (in conjunction with a new approach to vessel replacement) represents a significant change in the management of the fishery in Newfoundland and Labrador.  It allows fishers greater control of their enterprise, more opportunities for individual choices based on economic and operational circumstances, and greater industry empowerment and accountability.

The introduction of enterprise combining will provide fleets with the flexibility to self-rationalize by voluntarily adjusting harvesting capacity as resource and economic conditions change.  Fleet rationalization is intended to improve the economic viability of fishing enterprises, to increase income levels for fish harvesters and to attract and retain fish harvesters in future.

Under the new policy, individual Independent Core (IC) enterprise holders can buy other IC licence holders (or Core licence holders) for the purpose of combining enterprises.  Any combining transaction must result in the removal of one IC (or Core) enterprise, a vessel registration and any duplicate species licences.

Initially, a maximum of two enterprises combining into one will be permitted - with the provision that individuals will be permitted to acquire up to two times the maximum Individual Quota (IQ) level (for a given species) in their fleet. 

Other combinations, such as two IC licence holders buying one enterprise, ten IC licence holders buying one enterprise, or a fleet buying out individual IC licence holders will be permitted, provided that the individuals remaining in the fishery do not exceed the permitted maximum quota accumulation level.

2. Implementation Process

The enterprise combining policy was developed after an extensive industry renewal consultation process in 2006.  This process included the Premier’s Summit on the NL fishery in May 2006, numerous government-industry working group meetings throughout the summer of 2006, and a series of province-wide consultation meetings with stakeholders in the fall of 2006.

Following the April announcement, the Department considered input received from the fishing industry renewal consultation process as well as input from further ad hoc consultations with individual fish harvesters, fleets and harvester associations.  Based on this input and other analyses, a proposed enterprise combining guidelines paper was developed which formed the basis for further formal consultations with fleets on the implementation of fleet self - rationalization.  The fleet consultation process concluded in December, 2007 and the input from this process was used to finalize the Enterprise Combining Implementation Guide.

3. General Approach

3.1 Combining Approach

Fleet self-rationalization will occur within specific fleets and geographic areas.  For enterprises within the over 40’ (formerly over 35’) fleet, enterprise combining will be permitted within NAFO Divisions.  For enterprises within the under 40’ (formerly under 35’) fleet, enterprise combining will be permitted within crab or lobster fishing areas. 

In all combining transactions, the Independent Core (or Core) status of one enterprise and at least one vessel registration will be permanently retired, with the provision that current licensing rules on the number of vessels that can be registered by an enterprise will remain in place.

3.2 Predominant Fisheries

For the purposes of combining, “predominant fisheries” have been determined.  These fisheries have been defined based upon the current management regime and/or the importance of the fishery in specific areas.

Concerns have been expressed with respect to the combining of 100% of certain entitlements in some predominant fisheries and the possible affect this could have on other enterprises.  In certain fisheries, particularly cod, individual quotas have been adjusted to reflect the level of licence inactivity that occurs.  In other fisheries, there are concerns with the acquisition of licences that are currently at low levels of activity.  In these situations, there will be an adjustment to the combined enterprise to ensure that the negative affect on other enterprises is minimized.

NAFO Divisions 2J3KL and the Placentia Bay portion of Subdivision 3Ps

Predominant fisheries in NAFO Divisions 2J3KL and the Placentia Bay portion of Subdivision 3Ps are defined as snow crab, cod and shrimp (in 2J3KL).

Entitlements for predominant fisheries will be permitted to be included in the enterprise combining process.  In most cases, individual quotas or harvesting limits will be combined.

Western portion of Subdivision 3Ps (Fortune Bay/Southwest Coast)

Predominant fisheries in the western portion of Subdivision 3Ps (Fortune Bay/Southwest Coast) are defined to be lobster, cod and supplementary/exploratory crab.

Entitlements for predominant fisheries will be permitted to be included in the enterprise combining process.  In most cases, individual quotas or harvesting limits will be combined while, for lobster, the number of traps permitted will be combined.

Given the concerns with the lobster fishery in the western portion of Subdivision 3Ps (Fortune Bay/Southwest Coast), lobster licences will not be eligible for combining in this area  until further consultations with harvesters are held to discuss and resolve the management of this fishery.

NAFO Divisions 4R3Pn

Predominant fisheries in NAFO Divisions 4R3Pn are defined to be lobster, cod and shrimp.

Entitlements for predominant fisheries will be permitted to be included in the enterprise combining process.  In most cases, individual quotas or harvesting limits will be combined while, for lobster, the number of traps permitted will be combined.

For enterprises less than 40’and fixed gear enterprises over 40’, the predominant fisheries in this area are lobster and cod.  These fisheries are primarily managed through a competitive harvesting regime.  During the fleet consultation process, concerns were raised with regard to the implementation of enterprise combining in the lobster fishery in this area.  Fish harvesters expressed concerns about the potential movement of effort from areas of low productivity to areas of higher productivity.  Harvesters expressed similar concerns with regard to the implementation of enterprise combining in the fixed gear cod fishery in terms of the activation of currently inactive enterprises and what exactly could be combined, given the competitive nature of this fishery.

As a result, in Division 4R3Pn enterprise combining will not be implemented for the less than 40’ fleet and the fixed gear fleet over 40’ until further discussions have been held to determine the future management approach for the fisheries in this area.

3.3 Non-Predominant Fisheries

Licences and entitlements for most other “non-predominant fisheries” (including other groundfish) will not be eligible for combining.  For the most part, these fisheries are characterized by competitive management regimes, occur over very short periods of time, and/or are subject to high levels of inactivity.  While these fisheries may be of importance to individual harvesters, their economic significance to the fishery as a whole is often marginal.

Licences for most non-predominant fisheries may be reissued or transferred in accordance with current licensing policy.  These licences may be maintained in the combined enterprise if they are not duplicated.  Duplicate licences can be retained by the fish harvester relinquishing the enterprise for a period of up to 24 months.  During this time, the harvester may request a re-issuance of these licences to another eligible fish harvester.  However, these licences will not be permitted to be used in the fishery during this period, and if not reissued in the prescribed timeframe will be cancelled.

If any of these non-predominant fisheries move to an individual quota (IQ) management regime in the future, the IQs could become eligible for combining.  However, enterprises which were combined prior to the adoption of an IQ regime in a specific fishery will not have any rights to additional quota or the historic participation of the collapsed enterprise in this fishery.

Seal licences are issued to fish harvesters on an individual basis and cannot be re-issued.  Fish harvesters disposing of an enterprise will have the option to retain their seal licences.

Likewise, fish harvesters disposing of an enterprise will have the option of retaining their Professional Fish Harvester registration status (if qualified) and continuing to participate in the fishery as a crewmember on another fishing enterprise.  If qualified, these fish harvesters can also re-acquire an IC enterprise in future, subject to current policies such as the twelve-month rule.

3.4 Temporary Measures

In 2006, temporary policy measures, including the buddy-up option, were adopted for the over 40’ (formerly over 35’) fleet as a precursor to the introduction of a more durable and long-term fleet self-rationalization mechanism.  These temporary measures were modified in 2007 in an attempt to address concerns with the issue of rent extraction, via policy changes to eliminate the designation of an alternate operator in leasing arrangements and implementing a 6-month vessel registration requirement.

During the course of the consultations, many fish harvesters in the over 40’ fleet expressed concern with the elimination of the temporary measures that allowed harvesters to buddy-up during the 2006 and 2007 fishing seasons.  Some harvesters argued that these arrangements continue to be necessary, at least on an interim basis, to address the economic conditions still prevalent in the fishery. They also contend that time is needed to prepare for permanent combining. They also pointed out that work is still underway to address significant outstanding policy issues of issuing licences to corporations and access to capital.  Harvesters who are not currently involved in such arrangements are sympathetic to the requirement for a bridging mechanism but argue that without timely elimination of the temporary measures their access to enterprises for combining will be impaired.

With the introduction of enterprise combining in 2008, the option for buddy-up will no longer be available to this fleet sector. However, a bridging mechanism will be available in 2008 to harvesters who are already committed to quota arrangements developed in light of last year’s temporary measures. These harvesters are eligible to apply, on a case-by-case basis, to have the arrangements continue in 2008.  The written applications will be considered on an individual basis by senior management in the Department.

Fish harvesters are required to sign a declaration as to the temporary nature of the bridging arrangement and their understanding that it will not be available beyond 2008.   They are also required to file with their application a PIIFCAF declaration as to whether or not they are subject to a controlling agreement.

The issue of rent extraction in the industry continues to be a major concern and the restriction on the designation of alternate operators in leasing arrangements will be continued.  In addition, the 6-month vessel registration requirement implemented in 2007 will be eliminated and the 12-month vessel registration rule will be reinstated in accordance with established licensing policy.

3.5 Buddy-Up In The Less Than 40’ Sector

Buddy-up in the less than 40’ sector will continue.  In this fleet sector it has practical application (i.e. two enterprise heads actually on board), has been in place for several years and continues to be strongly supported by fish harvesters.  However, concerns have been raised that new entrants into the sector could gain a competitive advantage though the buddy-up of combined enterprises.  In order to provide existing fish harvesters some protection in a rationalization approach, new entrants (as Core enterprise heads) to the less than 40’ sector will be permitted to either combine or buddy-up, but not both, for a five (5) year time period following the acquisition of a Core enterprise in this sector.

4. Detailed Approach

4.1 Fleets

Enterprise combining will be permitted within the following fleets:

  • NAFO Divisions 2J/3K/3Ps
    • Over 40’ (formerly over 35’) fleet within NAFO Division.
    • Under 40’ (formerly under 35’) fleet within Crab Fishing Area (or the case of Fortune Bay/South Coast within Lobster Fishing Area).
    • No combining of lobster licences in LFA 11 will be permitted until consultations on the management of the lobster fishery are completed.

     

  • NAFO Division 3L
    • Over 40’ (formerly over 35’) fleet within the fulltime and large supplementary crab fleets.
    • Over 40’ (formerly over 35’) fleet within the small supplementary crab fleet.
    • Over 40’ shrimp fleet, provided the crab remains within the designated fleets.
    • Under 40’ (formerly under 35’) fleet within Crab Fishing Area.

     

  • NAFO Divisions 3Pn4R
    • Groundfish mobile gear and shrimp mobile gear fleets.
    • No combining of lobster licences in 4R3Pn will be permitted until consultations on the management of the lobster fishery are completed.
    • No combining of fixed gear enterprises (under 40’ or over 40’) will be permitted pending further discussion on the management of the fishery in this area.

4.2 Combining Rules

Details on the entitlements which can be combined for particular fisheries/licences are as follows:

  • Snow Crab

Generally, 100% of the individual quota (IQ) held by the exiting enterprise will be permanently combined.

For the fulltime and supplementary fleets in 2J and 3K and the fulltime and large supplementary fleets in 3L, the amount of crab that any enterprise can acquire for combining purposes is the maximum individual quota held by the full - time fleet in these areas.  However, further restrictions will apply in terms of how much of this maximum quota amount can be acquired from the supplementary fleet.  The maximum amount of quota that a full - time or supplementary enterprise can acquire from the supplementary fleet is the maximum individual quota in the supplementary fleet.

In Division 3L, a small supplementary enterprise will be permitted to acquire a maximum of two times the maximum individual quota in the small supplementary fleet.  Likewise, supplementary crab enterprises in Subdivision 3Ps will be permitted to acquire up to two times the maximum individual quota in this fleet.    

Enterprises may combine portions of crab individual quotas from different enterprises in order to reach the quota accumulation cap.

In the inshore fleets in CFA 11 (Fortune Bay/South Coast) and Divisions 4R3Pn (excluding CFA 13), no inshore crab IQs can be combined due to the limited resource in these areas.  Crab licences in these areas can remain with the combined enterprise, if they are not duplicated, or may be re-issued to another eligible fish harvester within 24 months.

  • Shrimp (Otter Trawl Licences)

The inshore northern shrimp fishery is managed by DFO on a competitive basis.  The fishing industry has implemented a system of industry managed harvesting caps to facilitate sharing of the resource among enterprises.  Industry representatives have confirmed that they will facilitate the combining of harvesting caps within the current system to facilitate fleet self-rationalization.  It is proposed that 100% of the harvesting cap will be combined.  The industry managed harvesting cap system should not be a barrier to combining; and Fisheries and Oceans Canada will recognize any combined harvesting caps if fish harvesters move to an individual quota regime in the future.

In the Gulf shrimp fishery, 100% of the individual quota held by the exiting enterprise will be permanently combined.

  • Cod

In NAFO Divisions 2J3KL, 100% of the individual quota in the cod stewardship fishery will be combined.  If this fishery moves to a commercial fishery in the future, a combined enterprise will be eligible to receive an IQ equal to twice the individual entitlement based on an equal distribution of quotas.  However, if the IQ regime is adjusted to compensate for inactivity, a combined enterprise will only receive an adjustment equivalent to the adjustment for a single (non-combined) enterprise.

Cod overlap privileges cannot be re-issued (transferred) or increased through combining. 

In Subdivision 3Ps individual cod quotas will be combined, but the combined enterprise will only receive an adjustment equivalent to the adjustment for a single (non-combined) enterprise.  This is necessary to compensate for the adjustment for inactivity that has been built into the current cod IQ program in this area.

In the mobile gear enterprise allocation fleet in Divisions 4R3Pn, 100% of the individual cod quota held by the exiting enterprise will be combined to the maximum cap permitted under the established enterprise allocation guidelines.  Any cod in excess of the permitted cap could be transferred to another enterprise.

  • Lobster

Lobster licences are not eligible for combining in Divisions 2J3KL and CFA 10 (Placentia Bay).  They may remain with the combined enterprise, if they are not duplicated, or may be re-issued to another eligible fish harvester within 24 months.

In the western portion of Subdivision 3Ps (Fortune Bay/Southwest Coast) and Divisions 4R3Pn, the combining of lobster licences will  be postponed until further consultations are held with fish harvesters to discuss and resolve issues associated with the management of the lobster fishery in these areas.

  • Capelin (Fixed Gear IQ Fishery)

Individual capelin quotas will be combined, but the combined enterprise will only receive an adjustment equivalent to the adjustment for a single (non-combined) enterprise.  This is necessary to compensate for the adjustment for inactivity that has been built into existing capelin IQ programs.

  • Small Pelagics (Mobile Gear IQ Fishery)

In fisheries where individual quota programs exist, 100% of the individual quota held by the exiting enterprise will be permanently combined.

  • Other Groundfish

Groundfish licence validations, such as lumpfish or trap, may remain with the combined enterprise, if they are not duplicated, or may be re-issued to another eligible fish harvester within 24 months.  Duplicate groundfish licences will be eliminated.

  • Small Pelagics, Scallop, Tuna, Swordfish, Rock Crab, Toad Crab and Shrimp Beam Trawl (3Ps)

These licences are not eligible for combining.  They may remain with the combined enterprise, if they are not duplicated, or may be re-issued to another eligible fish harvester within 24 months.

  • Eel, Trout, Arctic Char and Shrimp Beam Trawl Permits (3KL)

These licences/permits are not eligible for combining or re-issuance and will be cancelled at the time of the combining request.

  • Seals

Seal licences are issued on an individual basis and cannot be combined or reissued.  Fish harvesters disposing of an enterprise have the option to retain their seal licences.

4.3 Divestiture

When combining occurs a Core enterprise designation and a vessel registration is permanently retired.  However, in future, some fish harvesters may wish to downsize a combined enterprise if their individual circumstances change.  While enterprise and licence combining is not reversible, fish harvesters will be provided with an opportunity to downsize a combined enterprise.  This “divestiture” provision will allow fish harvesters to revert to their former status by moving all of the entitlements acquired in a prior combining transaction to another eligible fish harvester or group of eligible fish harvesters.  All entitlements received in the previous combining transaction must be removed or divested at one time.  Fish harvesters who utilize this provision will not be eligible to acquire additional entitlements (i.e. participate in another combining transaction) for a period of two (2) years.


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