Minister releases interim report from the panel on the
Structural Study of the Inshore Shrimp Fishery

Gerry Reid, Minister of Fisheries and Aquaculture, today released the interim report from the panel on the Structural Study of the Inshore Shrimp Fishery. The panel, which was announced in December 2001, is chaired by David Vardy and assisted by Ross Peters and Brian Delaney.

"The shrimp fishery faced some serious problems in 2002, including a closure which negatively impacted thousands of Newfoundlanders and Labradorians," said Reid. "As such, this panel was established to examine the challenges facing the shrimp fishery, with a view to recommending ways to improve efficiency and cost effectiveness in the industry. The panel commenced their work immediately upon being appointed, and this interim reports outlines the work of the panel to date."

On July 3, 2001, the shrimp fishery in the province closed, creating months of uncertainty for harvesters and plant workers. After unsuccessful negotiations between the FFAW and FANL to reopen the fishery, the government, at the request of the two parties, agreed to facilitate an agreement. As a part of the resolution, the three parties agreed to undertake a structural review of the shrimp fishery which would involve stakeholders.

"I am pleased with the interim report and look forward to receiving the panel�s final report which will certainly assist us in developing sound future fisheries policies, as we continue to grow this billion dollar industry," said Reid.

Media contact: Elizabeth Matthews, Communications, (709) 729-3733, or (709) 727-3438.

Interim Report
Inshore Shrimp Panel

Creation of the Inshore Shrimp Panel was announced by the Minister of Fisheries and Aquaculture on December 10, 2001. The release noted that the panel had been asked to provide an interim report by February 20, 2002. The terms of reference for the panel are attached to this interim report. The panel has been mandated to carry out a structural review of the inshore shrimp industry with the objective being to improve the efficiency, cost-effectiveness and competitiveness of the province's inshore shrimp industry. The panel is examining the Newfoundland and Labrador inshore shrimp industry in the context of the global competitive environment for coldwater cooked and peeled shrimp (Pandalus Borealus).

The inshore shrimp industry has experienced phenomenal growth with the inshore quota rising from 3,500 tonnes in 1996 to 50,000 tonnes in 2001. As a result, Newfoundland and Labrador is now the largest producer of cold water cooked and peeled shrimp. Our shrimp industry has responded quickly to the higher quotas and, since 1997, the number of harvesting licenses has increased from 47 to about 380 and the number of processing plants increased from two to 12. Correspondingly, there has been approximately $200 million in private sector investment. The rapid growth in capacity, however, has outpaced the growth in quotas and created a situation where underutilised capacity is significantly impacting the competitiveness of the industry.

A vital part of the work of the panel has been the creation of a database to analyse the issues on which we have been tasked to report. In order to enhance the database readily available to us from government and industry sources, we have commissioned a number of studies. These projects deal with the tariff upon cooked and peeled shrimp exported to the European Union, the effect of seasonality upon processing yields, product mix, and product prices; the costs of shrimp harvesting enterprises; and the transportation and handling of shrimp. These studies will be used in the development and assessment of options for structural changes in the industry and in making policy recommendations to government.

The panel has received input from a variety of sources, but most particularly from harvesters and processors directly involved in the shrimp industry. The panel has met with each of the five regional shrimp committees throughout the province and with each of the firms that have been active in processing shrimp in 2001. We have also met with DFO scientists and with resource management personnel, as well as with officials of the province responsible for licensing of plants, quality control and marketing.

There is a high level of convergence in the identification of issues by harvesters and processors. Both sectors identify problems associated with the high seasonality of the industry which compromise the quality of the product produced and materially impact upon financial returns to the industry. They both identify a number of alternatives which could mitigate seasonal �gluts,� including lower trip limits and seasonally adjusted prices. They also highlight the underutilisation of capacity in both the harvesting and processing sectors and the need for greater effort in marketing and market development.

Harvesters advise that one solution to the problem of seasonality is to allow them the flexibility to move to larger, more versatile vessels (within the 65-foot limit for the sector). This would safely extend the harvesting season and thereby reduce the peak catches in the summer period. Harvesters have emphasized the need for the fishery to remain open throughout the summer period and to avoid summer closures like the one which occurred last summer. The summer closure adversely impacts smaller vessels and vessels located in northern areas. Harvesters indicate that the high level of underutilised capacity, combined with the short operating season, affects enterprise viability. In light of this, there is support for policy changes that will accommodate the combination of enterprises. Furthermore, harvesters advise that excessive trucking compromises the high quality standards that the industry must achieve. Some other issues raised by harvesters are:

• the need for greater transparency in price setting;
  
• the importance of having a fishery management plan in place at an early date;
  
• vessel financing;
  
• increasing costs of insurance; and
  
• the downloading of costs by governments to harvesters.

Processors indicate that the summer shutdown in 2001 enabled the industry to produce a better quality and higher value product. They further stated that a summer shutdown will improve yields and create a higher valued product mix for the benefit of all sectors of the industry. They agreed with harvesters that the biggest challenge from a quality perspective is caused by seasonality. As noted, harvesters do not support summer closure.

Processors emphasized that underutilisation of capacity is a fundamental problem that impacts severely upon the economy of shrimp processing plants and the duration of employment. They indicate that shrimp processing is uneconomic. They state that their investments were predicated upon a licensing regime that restricts entry and they advocate a disciplined process for the issuance of licenses. Processors agree that the policy environment and economics of the industry are not sufficiently stable to justify the increased marketing effort that is required.

The panel visited Iceland and Norway, along with a group of harvesters and processors, to examine the structure of their industry. In both of these countries, there has been a massive rationalization of plant capacity achieved through an open access licensing system for the processing sector. In Norway, 30 plants have been reduced to seven while, in Iceland, the number of shrimp plants has declined from 25 to18, of which five are temporarily closed. Other observations were as follows:

• plants generally operate on a year-round basis, processing 5,000 to 10,000 tonnes of shrimp annually;
  
• boxing is usual where shrimp is landed fresh;
  
• landings are scheduled to processing plants and little trucking occurs;
  
• processing and harvesting operations are essentially vertically integrated in Iceland;
  
• in Iceland, individual transferable quotas are well established, albeit still a subject of intense public policy debate;
  
• in Norway, fleet separation is mandated by government policy and individual quotas are established, and
  
• Notwithstanding that the plants visited were highly automated and modern, the panel was told that plants require major reinvestment every three to five years.

The panel and industry representatives met with major distributors of shrimp in the European Union and with processors in Denmark and Norway. Exports to Europe purchased for use in brining operations qualify for entry under the Autonomous Tariff Rate Quota (ATRQ) which provides for a tariff reduction from 20 per cent to 6 per cent. Exports which are not utilized for further processing must face the full 20 per cent tariff. This high tariff forecloses much of the market to Canadian producers.

The European market for cold-water shrimp is very large and the United Kingdom represents about half the market for cooked and peeled shrimp in the world. While the potential is great, our exports are minimal, falling well behind competitors such as Iceland, Norway, Greenland and the Faeroes. These producing countries have preferred market access and face either zero or very low tariff rates. Buyers in the UK would like to see some reduction in the tariff, however, to date their interests have been secondary to protecting the EU�s domestic processing industry.

The panel was advised that there has been improvement in product quality since 1997. Further improvement is necessary in the industry. It was noted that 2001 production was of better quality, however, quality remains inconsistent and there is a need for greater marketing discipline.

The panel convened a meeting of harvesters and processors on February 18, 2002 to present its understanding of the issues and to seek feedback on a number of options for change. The meeting focussed upon the following issues:

• seasonality;
  
• quality;
  
• harvesting and processing capacity/viability;
  
• public policy, as it relates to economic regulation;
  
• markets and market access; and
  
• other structural issues, including vessel financing, the proliferation of fees and the downloading of costs to harvesters and processors.

Participants agreed that the province is in a strong position to become a competitive supplier of high quality cold-water shrimp. This strong position arises from:

• a relatively healthy resource;
  
• a successful history of harvesting and processing in the Gulf;
  
• plants on par technologically with competitors in Greenland, Iceland and Norway;
  
• wide range of product sizes demanded by the market; and
  
• experienced harvesters and processors.

The panel presented a variety of options for consideration and direction and the participants responded with their comments and guidance. The panel will continue its fact finding and consultative process in preparation for its final report.

Upon completion of its work, the panel will put forth recommendations that will assist the industry in the upcoming season. Other measures recommended will take a longer period to implement. The industry has many strengths and the panel is confident that with a strong spirit of cooperation and commitment from industry participants, resolution can be found to the issues facing this new industry.

2002 02 22                        11:25 a.m.