A RMS pilot project was recommended by the Dunne Commission as part of its review of fish processing policy, as a means to bring stability to the industry. The approach being adopted is consistent with the Dunne recommendations. The Fishing Industry Renewal Board recommended a raw material sharing system in 1996, as did the Inshore Shrimp Panel in 2001.

2. How does an RMS system fit within the province�s new fish processing policy framework?

By implementing this recommendation, we are complementing other measures we have taken to increase industry stability, such as the move to species licensing, elimination of inactive licenses, and the establishment of the Fish Processing Licensing Board.

A raw material share is a cap on the amount of raw material a licensed crab processing plant can process. The name plant production quota suggests an entitlement to process an amount of raw material, which would be incorrect, as only harvesters have a quota or entitlement to a certain amount of resource.

4. Isn�t the raw material share really a community quota?

No, this is not a community quota. The raw material purchasing cap will be assigned to each individual fish processing facility, not to the community.

Raw Material Shares Pilot project - Crab

1. How will the raw material sharing system work in the crab sector?

Once the shares have been finalized by the arbitrator, the Minister will assign the shares to individual processors by way of a condition of license. Production will be monitored during the season to ensure that these caps are not exceeded, and substantial penalties will be applied to any overruns.

2. Why are you implementing an RMS system for snow crab this year? Why was it not done last year?

It was not possible to implement such a system in 2004, because there was not enough time to address the concerns expressed by some harvesters in time for an orderly fishery. We believe that the success of the shrimp project in 2004 has helped to allay the concerns of harvesters. Furthermore, the conditions facing the crab sector this year are of great concern. The high level of inventories, the declining market price, and the unfavorable exchange rate are reminiscent of the 1997 situation. Moreover, quota cuts appear likely in some areas this year. If we do not take decisive action to stabilize the crab sector and maintain order in the marketplace in 2005, the result could be drastic reductions in prices to harvesters, as in 1997, and some plants may be forced to close. Raw material shares will allow processors to maintain discipline and order, and not fall prey to destructive competition in the marketplace.

We understand the concerns of crab harvesters about price competition. However, last year saw a much better price-to-market formula, which served harvesters well. A raw material sharing arrangement is contingent on such a formula being continued. Furthermore, we will be requiring processors to provide timely and accurate sales records, so that we can track the market price and ensure that harvesters are getting the prices to which they are entitled. Government is also considering changes to the Fishing Industry Collective Bargaining Act to ensure that fair price arrangements can be collectively bargained and enforced. Finally, because fishermen still retain control over their own fish, processors will still see the need to maintain services to harvesters in order to secure raw material from their traditional suppliers.

No. During the course of the two-year pilot project, no permanent transfers will be permitted, and any temporary transfers will only be considered in very exceptional circumstances (for example, an inoperable plant). However, if the crab resource goes into serious decline and quotas are reduced significantly, it might be necessary to consider transfers at some time in the future.

The crab fishery in 2004 had a landed value of $301 million, which was the highest since 1999.

Bonus payments are not a major issue. However, destructive levels of competition can bring the fishery to a halt, as was the case in 2003.

The lesson is that when external factors line up to lessen the value of our fishery, the only hope of retaining its value is to ensure a stable and orderly fishery. The fishery has to start on time, prices to harvesters have to be fair and realistic, and processors must be able to plan how they will interact with the market. Otherwise, disorder ensues as in 1997, and everybody loses.

The terms of reference have not yet been finalized, but will be completed soon, in consultation with industry.

No. China is currently a minor factor in the crab sector. The key reasons for this system are the high inventories in the U.S., decline in market demand and prices, unfavorable shift in exchange rates, potential for substantial quota cuts, and general overcapacity in all aspects of the crab sector.

Government Acting in the Public Interest

This system is expected to provide for an orderly fishery, with timely opening dates, and ultimately result in better market prices than would occur in an uncontrolled situation. Similar benefits would be entrenched in the longer term as well.

2. What have stakeholders said about this model in consultations?

Some were supportive; some were apprehensive; some were opposed. This is understandable, as there is always a certain amount of fear of change. However, all industry participants have indicated a desire to see more stability in the fishery, timely opening dates, and better incomes, and we see the raw material sharing system as a means to pursue these objectives.

3. Isn�t the government just encouraging the demise of marginal fish plant operations?

No, the RMS system will bring stability to all crab processing operations.

4. How does this announcement affect crab boat owners and crew members?

In conjunction with revisions to the collective bargaining system and mechanisms to ensure accurate market information for price setting, this system will provide better and more stable prices than if we just let the chips fall where they may.

The RMS system will bring stability to the industry, which will enable processors to deal more effectively with the market and help avoid a price collapse generated by instability.

It will result in greater certainty and stability for harvesters and plant workers.

The only legislative changes being contemplated relate to collective bargaining and the Fishing Industry Collective Bargaining Act. No legislative changes are required to implement raw material shares, as necessary authority is already contained in the Fish Inspection Act.

There is no role for the Licensing Board with respect to the raw material shares pilot project. All recipients of raw material shares will already have processing licenses.

The Labour Relations Agency will be considering the collective bargaining legislation, with a view to making revisions to make the legislation more responsive and versatile for harvesters and processors.

Assessing the Raw Material Shares Pilot Project - Crab

1. Has the provincial government deviated from what the Dunne Report recommended?

No, the pilot project is consistent with the Dunne recommendations.

We will monitor production daily to ensure that the processing caps are not exceeded. A rigorous penalty system will be implemented to discourage overruns.

We can never be absolutely certain about the impacts of a new system until it is tried. However, we know that the RMS system brought benefits to the shrimp sector in 2004. We also know that a laissez faire approach in crab resulted in serious disruption in 1997, the last time the various market factors were lined up against us like they are this year. We also have more crab processing licenses than in 1997, which further contributes to instability.

There are two types of rationalization: controlled and uncontrolled. Rationalization is the elimination of overcapacity and creation of stability through a good balance between production capacity and raw material availability, so that harvesters, processors and plant workers all earn stable and reasonable incomes. The raw material share system brings about stability in the short term. If the balance is not reasonable in future, transfers of shares would provide a means to improve the situation for participants. Whereas free market rationalization is immediate and uncontrolled, RMS will provide for a planned approach if warranted.

Independent assessments will be conducted. An interim assessment will be conducted after the 2005 season. A comprehensive assessment will be conducted, in consultation with stakeholders, after the 2006 season.

We will decide at the conclusion of the pilot project whether to continue the system after the independent comprehensive assessment. If it is successful, that would be a good reason to continue it.

Alternatives to the Raw Material Sharing (RMS) System - Crab

The only other option is to adopt a laissez faire approach�to take a hands-off approach and let the chips fall where they may. Such an approach was adopted in 1997, and we almost lost the crab fishery for the year, with a huge decline in prices, high landings of soft- shell crab, and tremendous loss of value to our industry. We must act decisively to protect the industry and the people who depend on it.

The collective bargaining process needs to have set timelines for agreements to be reached; arbitration models to establish agreements where they can�t be reached by bargaining; means by which an agreement of the majority can be binding on all; means to ensure all participants contribute equally to the process; and effective deterrents to noncompliance.

The processors have opted out of FOS, and based on the structural problems that became evident in this system in the past 2 or 3 years, the industry will not support its reinstatement.

An auction is not possible for crab, given the high number of landings, many of very small lots. We believe an auction could have been achieved in the shrimp sector, but in crab it could not offer more than a small part of a larger solution.

When free market forces are allowed to prevail they bring about a period of tremendous upheaval before any measure of stability is achieved. Left to the free market, some plants would close immediately, throwing communities and workers into chaos.

Raw Material Shares - Shrimp

The shrimp raw material sharing arrangement set caps on the amount of raw material each licensed shrimp plant could process. This pilot project was quite successful, especially considering it wasn�t implemented until part way through the season. We believe this arrangement was instrumental in ensuring that the full inshore shrimp quota was landed in 2004, the highest landings ever recorded. Most of the feedback we have received from harvesters and processors about the pilot project was very positive, so we intend to continue the project in 2005.