Reflections on More Than 40 Years in the Industry

This will be my last column in The Navigator.

I am retiring from the Canadian Centre for Fisheries Innovation (CCFI) at the end of September.

In one way or another, I have been involved in the capture fishery for over 40 years. For my final column, I will reflect on events in the industry during that time.

Opportunity

As I consider what has happened over the past 40 plus years, the first word that springs to mind is opportunity. Although that may surprise some people, the fact is we were presented with many wonderful opportunities during my time in the industry.

The first big one was increasing world-wide market demand for fish and seafood. In 1950, world population was approximately 2.5 billion and global fish production totaled about 20 million metric tonnes. Currently, world population is somewhere around 7.8 billion — more than a three-fold increase in 70 years — and global fish production is pretty close to 180 million metric tonnes — a nine-fold increase.

In short, over the past 70 years, an increasing number of people have been eating increasing quantities of fish, greatly expanding the market. The growth in consumption has been phenomenal.

However, the capture fishery has not been able to keep up with that growth.

Since the 1980s, catches from capture fishing have hardly increased at all. Globally, the industry has pretty much maximized what it can harvest and resources have been overfished in many areas. The shortfall has allowed aquaculture to expand at a rapid rate, so it now provides more than half the fish for human consumption. For the foreseeable future, any additional increase in supply will have to come from further expansion of aquaculture.

For the capture fishery here in Atlantic Canada, the second big opportunity was getting the 200-mile limit that came into effect in 1977 and allowed us to expel the foreign fishing fleets that had been fishing all around us, pillaging our resources as they tried to feed expanding world markets. With those fleets forced outside 200 nautical miles, it opened up new opportunities for our local industry to expand.

Fueled by generous government assistance, huge investments were made in vessels, fishing gear, plants and processing equipment, bringing new employment to people living in rural communities throughout the Atlantic Region, many of whom were baby boomers coming of age and needing jobs.

The combination of increased access to fish and the increasing numbers of baby boomers needing jobs seemed to be a marriage made in heaven. But it wasn’t.

By 1981 — just four years later — Newfoundland and Labrador’s inshore fishery was struggling financially, leading to appointment of a Royal Commission to study the problem.

By 1982, practically the whole industry on Canada’s Atlantic coast was either bankrupt or very close to it, prompting the Government of Canada to appoint the Task Force on Atlantic Fisheries, led by Michael Kirby, to investigate the reasons and come up with solutions.

Although I didn’t grow up in a rural community, I was one of the baby boomers attracted to the industry by the opportunity presented by the 200-mile limit, getting involved in a few fish-related ventures, starting in 1977. I worked for the Kirby Task Force, helping them understand why some fish plants were profitable and others were not. That led to several years working with companies to help them survive and improve profitability.

Jennifer Oake photo

At the time, we still believed in the opportunity, but we also believed we had scaled up our industry on a bad business model. The industry was restructured — with substantial investment of government money — and a lot of work was done to improve harvesting, handling, processing and marketing to improve raw material quality, produce different products and sell them for higher prices. Over time, profitability improved.

By 1987, it was becoming clear we had been overfishing our resources and needed to reduce fishing quotas.

That led to the appointment of the Task Force on Northern cod, which I also did work for, to consider the impacts on fish plants, the numbers likely to survive with less raw material and the impacts on profitability and employment.

Although quotas were reduced, they weren’t reduced enough, so we fished our way into a whole series of moratoriums on harvesting Atlantic Canadian groundfish stocks, starting in 1992, many of which are still in force today.

The moratoriums displaced many people, forcing them to leave the industry and their rural communities, in search of better opportunities elsewhere. Newfoundland and Labrador’s population dropped by nearly 80,000 people in a few years.

It was a very dark time in the industry. Literally billions of dollars of government money were spent, through programs such as NCARP and TAGS, on assistance to the industry and the people displaced from it.

But it didn’t take long before new opportunities came along.

During the mid-to-late 1990s, it became apparent that snow crab — once considered a nuisance species, because they would get tangled up in gill nets — and Northern shrimp were increasing in abundance, seemingly due to reduced predation by cod and other groundfish.

The increasing quantities allowed a substantial scale-up of those fisheries, with many new harvesting and processing licences being given out to support an industry suffering from excess capacity. But there weren’t enough crab and shrimp to support all the capacity, so the resources were spread very thin and the industry’s financial struggle continued.

Crab landings peaked in 2001 and have gradually decreased since then. Since 2007, shrimp landings have also been decreasing. To supplement the lower landings, we began looking at a range of other species that might offer potential for development. That led to some small, but lucrative fisheries for what used to be called underdeveloped species, notably surf clams, sea cucumbers, whelks and sea urchins.

In the mid-to-late 2000s, lobster started to increase in abundance and catches doubled within a few years. The increased catches of lobster, combined with rising market prices and favourable currency exchange rates, have driven up the value of Canada’s fish and seafood exports to record levels, making it appear the industry is doing just fine. But it is not. Under that thin veneer, there are a whole host of problems.

Although we have repeatedly been presented with great opportunities by markets and resources, our performance in taking advantage of them has been poor and, at times, disastrous. As market demand for fish and seafood was increasing, our resources were diminishing, limiting our capacity to supply.

Some of the decrease in landings was due to factors we could not control, such as climate change, but some was self-inflicted through overfishing our stocks.

Total Canadian harvests of wild fish are lower now than they were in 1995, after implementation of the moratoriums on harvesting groundfish throughout Atlantic Canada. Harvests are much lower here in Atlantic Canada, but they are also much lower on the Pacific Coast, where salmon harvests are a fraction of what they once were.

Throughout, our capture fishing industry has struggled to achieve financial viability, requiring ongoing infusions of public money from one program or another. The bankruptcies of the early 1980s, fleet reductions and plant closures following the moratoriums and the struggles of the early 2000s leading to the so-called MOU report in Newfoundland and Labrador in 2011 offer plenty of evidence that the industry has not done well.

A more recent analysis by Agriculture and Agri-food Canada showed that returns on capital investment in the industry have been dismal, either non-existent or much lower than is typical in other sectors of Canada’s food industry.

In the search for improved profitability, there has been an increasing worldwide trend toward raw materials harvested in affluent countries like Canada, where costs are high, being shipped for processing to low-wage countries, like China, Vietnam, Poland or Lithuania. That has meant less value is now added to our raw materials before we sell them than used to be the case.

Our processing sector and the people who work in it have suffered more than the harvesting sector, because of that. During the 1980s, there were more plant workers than fish harvesters. Now, it’s the other way around.

Because of the industry’s financial struggles, seasonal operations and competition from low-wage countries, incomes earned by people in the industry have been low, requiring heavy supplementation by Employment Insurance to keep people in the industry and living in rural communities.

Young people have not been attracted to the uncertainty, seasonality, low incomes and dependence on EI the industry offers, so they have left rural communities in droves, giving those communities a bleak outlook for the future.

But there is nothing about the capture fishery that dooms it to providing low incomes and poor profitability, as we can see in Iceland. The problems in our industry are of our own making, as I will discuss further below. And when we get the fishery wrong, it is very costly for taxpayers.

So, what went wrong?

The capture fishing industry in Atlantic Canada does not operate like a normal business. We don’t live in our own little world, where the normal rules of business do not apply. But we seem to think we do.

Without customers willing to pay for what we do, there is no business.

But even if customers are willing to buy, that is not enough.

Business success comes from managing resources well, obtaining good value from them, getting good prices for our products, and operating efficiently, as they do in Iceland. We have performed poorly in these areas.

We export the vast majority of our products to other countries, mainly the United States, the European Union, Japan and China. These are the most affluent countries in the world and everyone who has fish to sell wants to sell it in those countries, so we have a lot of competition.

Currently, about two-thirds of global seafood exports come from low-wage developing countries. And the increasing prominence of aquaculture has changed people’s expectations about the consistency of supply, quality and pricing of fish and seafood.

Because of strong market demand, we have been able to sell our products but that does not mean we are competitive. Competitiveness has more dimensions than that, including how the prices we get for our products and our costs, incomes and returns on investment compare with those of our competitors.

It is easy to sell products if you price them low enough. But even if prices are the same, our costs per unit of output are high, due to excess capacity and short operating seasons that translate into low capacity utilization. The carrying costs of all the surplus capacity make it difficult to provide good incomes and earn good returns on investment.

For a business to be successful, it first must establish a good business model. Then, it must continue to adapt that model as markets, customers, competition, resources, technology and people change.

That was one of the lessons from the bankruptcies after we got the 200-mile limit.

With the increased amount of fish we had access to, we produced more products but consumers did not want more of the products we produced — mainly saltfish and frozen groundfish blocks. Consumers wanted to eat seafood, but in different product forms from the ones we were producing. Our products backed up in unsold inventories, so companies didn’t have enough cash to continue operating. To clear the inventories and generate cash, prices fell to the point where we could not cover our costs and the industry went bankrupt.

When I was working to help processing companies survive and improve profitability, our main focus was to increase product yields and change the type of products we were making. That was difficult because the raw materials we had to work with were very poor in quality, due to the way they were caught, handled and transported. The poor quality limited the products we could make, the markets we had access to, and the prices we could get. Making improvements required changes throughout the entire production and marketing system, so it required investment and took time to do but we made progress.

Our industry does not have a good business model, because its focus is not on being competitive in serving markets and customers, ensuring the sustainability of our resources or operating efficiently. Instead, our focus has been on harvesting fish as the basis for creating seasonal jobs in rural communities to allow people to qualify for EI. In other words, our focus has been on the opposite end of the value chain from where it should have been.

To maximize and distribute the number of seasonal jobs, licensing, resource management policies and ongoing infusions of public money enabled and supported way too much excess capacity. That created zombie fishing enterprises and processing companies that were essentially dead but wouldn’t lie down. They were not profitable but didn’t lose enough money to go bankrupt. They couldn’t afford to pay good wages or invest in the things needed to adapt to changing circumstances and make them successful. And they made it difficult for those who were better positioned to be successful, as well.

Ongoing excess capacity and financial weakness in both harvesting and processing meant that everyone was desperate for access to more raw material, with a number of undesirable side-effects. It shifted the focus from markets to raw material supply and created heavy pressure to overfish our resources. Any raw materials were better than none, so there was no incentive to improve raw material quality, effectively encouraging poor harvesting, handling and transportation practices and reducing the value we could get from our fish catches.

Although plants paid as much as they could afford for raw material — and sometimes more — the prices paid were never enough to satisfy harvesters, creating animosities between the sectors. And, instead of seeing competition as coming from other jurisdictions, it was viewed very locally, so rivalries between companies became intense, making it difficult for them to collaborate on initiatives that could benefit the whole industry.

In the harvesting sector, there was some consolidation as a few fishing enterprises purchased others, mainly for their quotas, rather than their vessels and fishing gear. But there was little consolidation in the processing sector, because companies had little control over their raw material supply and couldn’t guarantee a new owner would have access to it.

As long as they had debts to pay and needed to operate to pay them, the struggling companies couldn’t leave the industry. But they didn’t have enough working capital to carry inventories, so they had to sell products almost as soon as they were produced, taking less for them than they might have gotten otherwise and lowering prices for everyone.

Quality issues have been a longstanding problem that has affected the products we have been able to produce and severely decreased our output value.

We have also harvested during times of the year when supply from other sources is abundant and market prices are low. Over the years, I have seen a lot of output value lost, because we weren’t focused on what markets want and are willing to pay for, ensuring the quality of our raw materials could give us access to the best markets, or harvesting fish at the wrong time.

So, doesn’t the industry know better?

Well, it does or, at least, the processing sector understands the value we are losing, because of its connection to the market.

Some in the harvesting sector do, as well, but that sector has little or no direct connection to the market, so most people in the sector don’t know about the opportunities and product value that have been lost. But, essentially, the industry has been prevented from doing better.

Underlying all these issues is the fact that the industry is dependent on publicly-owned and publicly-managed common property resources. For that reason, decisions made in the public sector determine the basis on which private industry must try to build successful businesses. It is not easy.

The federal government has constitutional responsibility for oceans, fish resources, fishing vessels, harvesting, inter-provincial trade and export sales, while provincial governments have authority over land-based activities within their boundaries, including processing — which is where fish are turned into products and how we obtain value from the fish caught. The different levels of government make decisions independently, without much effort to coordinate what they do.

Gail Shea, when she was Minister of Fisheries and Oceans, explained to me one time at the Boston Seafood Show that the processing sector was not a factor in her decision making, except for the companies that had fishing quotas.

That is reflected in a lack of coordination between the industry’s harvesting and processing sectors, as well, which creates many problems in processing and marketing. And it leads to tremendous loss of output value.

Some years ago, DFO had a Marketing Branch and a Development Branch, each of which worked with industry on a daily basis and helped it improve in a variety of ways. Successive budget cuts led to abandonment of those activities, so DFO no longer has the understanding of the industry, its opportunities, its problems and its needs that it used to have.

Decisions made by the federal government determine what resources are fished, the allowable catches from those resources, how the allowable catches are divided into fishing quotas, how many vessels and people have access to those quotas and under what conditions, the locations of the fishing effort, the technologies that can be used, and the times of year when fishing is allowed to take place.

In addition, the Department of Fisheries and Oceans has maintained the Fleet Separation Policy and Owner-Operator Policy, essentially to prevent processing companies from controlling quotas and fishing effort.

Is there any other industry in which a company is expected to invest millions of dollars in land, buildings and equipment, without any assured supply of raw materials to support its operations? None that I am aware of.

In the United States, the Magnusson-Stevens Act requires that fishery management decisions be science-based. In contrast, Canada’s Fisheries Act gives the Minister of Fisheries and Oceans absolute discretion to make decisions. Because DFO has jurisdiction over resources and harvesting, that means resource management decisions have become highly politicized.

Provincial governments determine the number and location of fish plants and the species they are allowed to process. Those decisions have been politicized, as well.

In an industry where economies of scale and bargaining power in dealings with large customers are extremely important for business success, our industry has been fragmented and prevented from expanding. In Newfoundland and Labrador, there are also Minimum Processing Requirements that require companies to process fish to specified levels before they can be sold.

In other words, unlike other industries, most of the industry’s main major structural elements are determined by government, not by industry and those decisions have substantial impacts on both the opportunities available to industry and its costs. That is the price that must be paid to invest your money and your life in the industry.

We have been doing this for so long, most people in the industry seem to think it is a normal way to operate. But it is not.

It is a complete contrast to the way other — more normal — businesses operate. No other business I know of is required to operate in this way, even other businesses based on publicly-owned and publicly-managed resources, such as forests, minerals or petroleum.

The hopes, dreams and expectations of many people and communities depend on decisions made by government, so they try to influence the decisions that are made. In many ways, that is understandable, because that is the way things have been set up. Nevertheless, the people managing the resources should know better than to give in to such pressures, when it is detrimental to resources and the industry based on those resources.

David Greening photo

Decisions are not based on what is best for the resource or to help industry be competitive in international markets and be financially viable. They are based on what is best for the party in power and/or the minister’s own political interests. It is not an approach that leads to business success. People in the industry work very hard and try to succeed but the odds are stacked against them.

Many of today’s issues in the capture fishery come from a couple of observations made by Romeo LeBlanc, when he was Minister of Fisheries and Oceans.

In a speech to the Atlantic Provinces Economic Council in 1974, he said, “When fish are counted, it’s people that count. Any plan in the fisheries has really one basic criterion of judgement: does it improve life?” He was referring to the life of people, not of fish. Later, he declared he was “minister, not of fish, but of fishermen.”

Because of this view, DFO has strayed from its legislated mandate to manage fish resources into a focus on managing the number of people allowed to fish and the incomes they are able to generate.

Over the years, the long-term health of fish resources has continually been compromised in the short-term political interests of allowing too many people to fish and spreading the industry’s revenue over as many people as possible. The groundfish moratoriums came about largely because of that thinking. And there is little evidence to show it has changed.

In today’s world, we can readily see what happens when politics overrides science. Donald Trump has ignored science in the interest of politics in his disastrous response to COVID-19.

Essentially, we have been focused on the wrong objectives. Jobs and prosperous rural communities should not be the goal but by-products of a prosperous industry.

Shouldn’t the government department with responsibility for managing a publicly-owned resource have an obligation to maximize the value the resource contributes to the Canadian economy? Instead, for decades, our resource management decisions have been made for short-term political gain, leading to long-term biological and economic pain, with the cost underwritten by taxpayers. And we are now living with the long-term pain.

Unfortunately, all these issues have negatively affected the success of the industry dependent on our fish resources. But it also hasn’t had the effects that were intended.

Rural communities throughout Atlantic Canada are struggling to survive. Young people have left because they don’t want the life their parents had. An industry organized to provide jobs and support rural communities has endangered their continued existence. Now, many fish plants are dependent on temporary foreign workers for labour. Is this really what we want?

It simply isn’t possible for a struggling industry to provide a stable economic base for rural communities. The irony is that, if the industry had been organized to serve customers, use resources wisely, and operate efficiently, it would have been much more successful, providing more and better jobs and a better base for rural communities. And it would have been less costly for Canadian taxpayers.

All in all, the past 40 plus years have been quite a ride.

As the discussion above illustrates, there have been some recurring themes: opportunity, overfishing, quality problems, poor business models, financial struggles, government control of the industry and dependence on the public purse. And the industry seems to have an infinite capacity for surprise. Change of one kind or another has been another ongoing feature.

So, is the industry any better off than when I started?

Although I can point to things I — and others — have done to bring about improvements in various ways, the answer is no. Things are worse today, because of the steady erosion of our resources over time.

David Greening photo

Governments have tried to satisfy unlimited and unrealistic demands and expectations based on limited and fragile resources that are part of changing ecosystems, with detrimental effects on the resources, the industry based on those resources and the people and communities dependent on the industry.

Now, we are increasingly becoming suppliers of unprocessed or semi-processed raw materials to other countries, allowing them to capture most of the value from our resources. And we import people to do some of the processing. How is that a lot better than the situation before we got the 200-mile limit?

As I have said in this column before, we could lose this industry because no one will want to invest in it or work in it. Nothing short of a major overhaul is needed if we want the industry to survive and prosper in the future. But that will be difficult.

Everyone knows the industry is in a bit of mess, but where will the leadership come from to make the changes needed? Certainly not from the public sector.

Politicians want to be associated with good news and are allergic to bad news. They have shown they are not capable of making the tough decisions needed. They are afraid of initiating change, because of the intense criticism they are likely to be subjected to by one interest group or another. And the private sector is too fragmented to speak with a united voice. So where do we go from here?

I was part of the last major overhaul, but my time is up. It’s time for a younger generation to take over and hopefully, do a better job.

All I can do is make the case that change is needed and hope someone will come forward to lead the charge. Unfortunately, I suspect that won’t happen until we are faced with another major crisis, like the one we had in the early 1980s.

Despite the wonderful opportunities we have had, it’s not a great legacy we baby boomers are leaving for the next generation.

Editor’s Note: The Navigator would like to thank Bob for his contributions to the magazine and wishes him well in his retirement.

 

Robert Verge

Managing Director of the Canadian Centre for Fisheries Innovation — Newfoundland

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