How Should We Define Success?

How should we define success in the fishery in Atlantic Canada?

It is an important question, because how we define success determines what we do to achieve it.

Essentially, there are four dimensions to having a successful industry.

First, we sell practically all our output in markets outside Canada, where we must compete with similar products supplied by others. Our competitiveness in those markets determines how successful we are likely to be.

Unfortunately, competitiveness is not a well-understood term. Some people think we are competitive as long as we can sell our products. That is not the case. The overall market for seafood is made up of many niches — different geographical areas, different users and uses and different times of the year — that want different products and are willing to pay different prices.

Which niches we have access to largely determines the value we get for our products. It is always possible to sell products, if we offer prices low enough. But if we sell at low prices, we have trouble covering our costs, providing incomes and earning reasonable returns on investment.

Photo by David Greening

As the foregoing suggests, the first measure of competitiveness is whether we can sell our products. The second measure is the prices we get for those products and how they compare with prices our competitors are getting for similar products. And the third measure is the incomes and returns on investment we are able to generate from the prices we get — and how these compare with similar measures for our competitors.

Based on these measures, competitiveness has been an ongoing struggle for our industry, as will be discussed below.

Not only that, but competition has been increasing in intensity, raising the level of performance we need to achieve. Aquaculture has taken over many markets that were previously supplied by the capture fishery. And more fish products are now produced in low-wage developing countries for sale in the United States, Europe, Japan and other high-value markets that we have long depended on.

Second, in selling our products, we need to be able cover our costs, provide incomes and earn a reasonable return on the substantial investments made in vessels, fishing gear, plants, processing equipment and working capital needed to allow the industry to operate. In other words, the economic viability of industry participants is an important measure of success.

Third, fish resources are renewable, if they are managed properly, so sustainability of our resources is a key indicator of how long we can expect to enjoy success. There is no point in maximizing our take today, if we have no resources to support the industry in the future.

For centuries, sustainability was not much of an issue. But as populations increased, demand for fish products grew, fishing fleets expanded and technologies for finding and catching fish became ever more powerful, it became increasingly clear in the 1960s and 1970s that we humans were capable of catching more fish than nature could provide.

Fish stocks began to decrease dramatically here in Atlantic Canada and other parts of the world, but it was very difficult to reduce fishing effort. The greatest threat to sustainability is excessive economic dependency.

Fourth, the industry provides jobs, incomes and the economic base for many communities throughout the Atlantic region, many of which have few alternative generators of economic activity. In other words, they are very dependent on fish resources and the money that flows from them.

All four of these dimensions of success are important. The challenge we run into repeatedly is that there are tradeoffs among them. We cannot maximize one dimension of success without negatively impacting on one or more of the others. That means we need to find the right balance in what we can achieve on all four measures.

But finding the appropriate balance is difficult.

How can we optimize our harvesting of fish resources to be competitive internationally, have a viable industry and provide economic benefits for people and communities, while keeping them sustainable?

For a start, different interest groups don’t agree on what the right balance is.

The processing sector is very concerned with international competitiveness. Both harvesting and processing are concerned with economic viability. Harvesters, processing companies, many customers and environmental groups want sustainability. And people and communities are primarily interested in jobs, incomes and the economic viability of their local areas. No matter what decisions are made, one group or another will not be happy.

These same issues have been with us for a long time — five decades, at least. So, we have some history we can look back over, to assess how we have been doing in finding an appropriate balance.

The salt fish industry that sustained our region for hundreds of years more or less collapsed during the 1960s, but it wasn’t for lack of fish. Increasing use of refrigeration technology was leading to increasing demand for and supplies of fresh and frozen products. We didn’t have the right products for the times and got poor value from our catches, so we weren’t covering our costs.

To adapt, our industry made the transition from salted to frozen products and we sell very little salt fish today. But it is worth noting that other countries — particularly Iceland and Norway — still produce large quantities of high-quality salt fish, which they are able to sell for good prices in Spain and Portugal. We were not able to produce similar products consistently and get similar prices for them, indicating our industry was not competitive.

Unfortunately, the transition to frozen products didn’t turn out particularly well, either.

In the 1970s, low catch rates caused by foreign overfishing of our stocks led to creation of the 200-mile limit. Once we were able to exclude the foreign fleets, we scaled up our industry to take advantage of what was perceived to be a big opportunity.

During the late 1970s, we built more vessels, more plants and created a lot of jobs for baby boomers then coming of age. And those jobs were in rural communities that needed them. Indeed, every community wanted its own fish plant and the result was we created too much harvesting and processing capacity that has been a burden on the industry ever since.

Unfortunately, the industry then went bankrupt in the early 1980s.

When we made the transition to frozen products, our main product was blocks made from cod and other species, destined to be turned into fish sticks and breaded and battered fish portions. They were low-value products, selling for low prices. As the industry scaled up after we got the 200-mile limit, we were producing much larger quantities than our markets couldn’t absorb. That caused prices to drop even more and we were unable to cover the costs of our newly expanded industry. In other words, our main problem was then economic viability.

But it is also worthy of note that Icelanders were producing similar products to ours, but getting better prices for them, so we also had a competitiveness problem.

After making extensive changes in the way the industry operated during the 1980s, to improve its viability, we came to the realization that our fish stocks had been overfished. Ultimately, that led to a series of moratoria on fishing groundfish stocks, many of which are still in place today.

We had overfished our resources to improve industry viability and provide the jobs and incomes people needed, but the benefits were temporary. Our resources and our industry were not sustainable.

Later in the 1990s, we were fortunate to find that shellfish resources were increasing in abundance, so we began to build an industry on that foundation. As the resource base grew, the industry expanded, as well, providing fewer jobs than before, but many of those jobs provided better incomes.

During the early 2000s, increasingly unfavourable currency exchange rates negatively affected the industry, reducing incomes and returns on investment and leading to vessels, plants and people having a hard time making ends meet. Some left the industry.

In Newfoundland and Labrador, the so-called MOU report released in 2011 that discussed the problems in the industry at the time made the following observations:

“the industry may not be strong enough financially to withstand two successively poor fishing seasons. The analysis suggests that in the event of such an occurrence, the magnitude of potential losses could be very dramatic, thus accelerating the closure of a number of marginal plants that have been the mainstay of their respective communities.”

“The financial analysis of the harvesting sector that was undertaken by Deloitte suggested that between one-third and two-thirds of the fish harvesting operations currently operating in N.L. are viable, depending on the viability measure employed.”

“The financial analysis of the processing sector that was undertaken by Grant Thornton suggested that the level of profitability in the N.L. seafood processing sector is well below the Canadian seafood processing sector norm and is unacceptable. The profitability level in particular is not sufficient to allow participants to secure capital and make the types of investments in plants and equipment that are required to achieve long-term viability.”

Another benchmarking study done for the N.L. Department of Fisheries and Aquaculture in 2015 observed in relation to groundfish processing that, “Due to the diversity of species, sizes, product forms and number of producers, adoption of technologies to be internationally competitive is challenging. This has resulted in many species being processed to minimal requirements, whole frozen or H&G and a general lack of investment in state-of-the-art processing technologies.”

In other words, we were not competitive and were not getting good value for our catches.

Over the past few years, lobster catches have increased and market prices and currency exchange rates have been more favourable, providing substantial revenues for the industry. But as that has been happening, shrimp and crab resources have been diminishing, endangering the livelihoods of many people and the viability of many fishing enterprises and processing companies. More people have left the industry as a result.

In short, our track record as measured by international competitiveness, economic viability and sustainability has not been good. The industry has struggled to find the right combination of these factors, each of which has been an acute problem at times.

Through it all, the federal government, in particular, has literally spent billions of dollars — first to help the industry expand, then to deal with the bankruptcy and later to provide income support following the moratoria.

But our track record in providing jobs, incomes and a stable economic base for communities hasn’t been good, either. When the industry that supports a community’s economy goes bankrupt, it doesn’t provide good jobs or incomes or a stable economic base. And when the resource that supports the industry diminishes, the investment in plants and boats becomes hard to sustain, so they leave the industry, taking their jobs and incomes with them.

Rural communities have been losing people for a long time now.

In the 1950s, 1960s and 1970s, there was a steady flow of people from Atlantic Canada to Ontario. In the 1980s, many started going to Alberta or British Columbia in search of better opportunities.

After the moratoria of the early 1990s, Newfoundland and Labrador’s population dropped by 80,000 people. Those who continued to work in the industry told their children to get an education and look for better opportunities outside the industry.

Indeed, the industry’s uncertainty, seasonality and low incomes have prompted young people to look for better opportunities elsewhere. Now, our labour force is predominantly baby boomers nearing the end of their working lives and we can’t replace them.

Young people have voted with their feet and moved to urban areas or other provinces. They don’t want the lifestyles their parents had. Other seasonal industries have seen much the same thing happen.

What all this adds up to is that our definition of success in this industry has to change and we need to find new ways of achieving success.

In 2013, the Government of Nova Scotia appointed a commission chaired by Ray Ivany, then President of Acadia University, to look at how these and other issues might be expected to affect Nova Scotia. The commission issued its report in 2014.  It said,

“ …it will not be possible to turn around our economic outlook as a province unless we significantly improve productivity and competitiveness in our traditional rural industry sectors (i.e. fishing, farming, forestry).”

“For many years the highest public policy priority for these sectors has been simply to maintain jobs in rural communities. But today we find that many business operators are insufficiently profitable to support the investments in product quality, plant productivity, worker training and market expansion that are needed to maintain and grow market share. In some sectors it is increasingly difficult to find local workers to take the low-wage and seasonal jobs many employers offer. As a result, young people are leaving rural communities, other countries are out-competing us in the marketplace, and the province is not realizing the full value of our asset base. These business models need to be revised if the province and our rural communities are to escape the current pattern of weak economic growth and population decline.”

The same things could be said about the other Atlantic provinces, as well.

It’s time we revisited what we think is success in this industry. And we have to reconsider what it takes to be successful. Specifically, we must reconsider the trade-offs among our objectives related to international competitiveness, economic viability, sustainability and support for jobs and rural communities.

What we have been doing simply hasn’t been working — for anybody.