Backgrounder:
Need for Stability Model in the Snow Crab Sector

Newfoundland and Labrador�s new fish processing policy framework (announced on February 23, 2005) provides the basis for an open and accountable licensing system. It will bring stability to licensing; however, it will not resolve the problem that has been created by the unbridled expansion of the snow crab sector. The failure of government to find a solution to problems plaguing the sector would only result in uncontrolled plant closures, displaced plant workers, lower raw material prices, and the potential for our reputation in the marketplace to be damaged. There are about 5,000 plant workers dependent on snow crab processing and about the same number of people involved in harvesting. The livelihoods of many people are tied to this sector. Government must act to ensure stability for these people.

Many factors contribute to ongoing instability in the snow crab sector. These include overcapacity, a declining resource base, weakening markets, an underutilized labour force, the appreciation of the Canadian dollar against other currencies and an inefficient distribution system. In addition, snow crab is one of the fisheries where both harvesters and processors make a reasonable return on their investment. Crab represents 50 percent of the landed value and most of the profit margin for both harvesters and processors.

The industry has expanded plant capacity to meet peak seasonal landings, higher quotas and competition from other processors. Through the late 1990s, government policy was focused on increasing the number of operators to maximize the number of plant workers. The result is that the incomes of workers have been placed in a precarious position. The policies of the 1996-2002 period have resulted in a situation where the province now has the processing capacity to process many times the world�s landings of snow crab.

Crab stocks are showing signs of stress. Catch rates are declining and there has been an increase in the occurrence of soft-shell crab. Quotas in northern and southern areas have been reduced in each of the last two years. Crab in 3K had a very high incidence of soft-shell in 2004 and there were indications of lower catch rates in most areas, including 3L. A continued decline in resources will adversely impact all industry participants and the provincial economy in general.

Many processing plants are only providing the minimum number of hours for their workers, and changes in quotas have the potential to have a significant impact on all operators and workers. At the same time, market prices are declining and the appreciation of the Canadian dollar against the US dollar has reduced the relative income received from the marketplace since 2002. Furthermore, the difficulty experienced by industry over the past two years in setting prices will likely continue into this season.

These factors, left unchecked, will likely lead to a very volatile situation in 2005. Given the critical importance of the crab sector to the fishing industry and the economy of rural areas, government has no choice but to act in the public interest and impose stability.