Fisheries and Aquaculture
December 21, 2012
New Agreements with OCI Revitalize Fortune Fish Plant Operation
The Provincial Government has finalized agreements with Ocean Choice
International Limited (OCI) that will ensure the continued operation of the
Fortune fish plant and secure over 110 processing jobs in that community.
Upon execution of the agreement, the fish plant will re-open in January to
process cod, and yellowtail flounder processing will commence within six
The announcement was made today by the Honourable Derrick Dalley,
Minister of Fisheries and Aquaculture. Minister Dalley was joined by the
Honourable Darin King, Minister of Justice and MHA for Grand Bank, Martin
Sullivan and Blaine Sullivan of OCI, and the Mayor of Fortune, Charles
“We are pleased that after months of intense negotiation, a deal to keep
the Fortune fish plant open, which will employ 110 people in processing and
result in jobs offshore, has been reached,” said Minister Dalley. “Our
government sought to achieve an agreement that represents the best possible
outcome for Newfoundlanders and Labradorians. We are forging a new
partnership here today that, as is the case in all successful partnerships,
each party needs the other. I thank OCI, the workers at the Fortune fish
plant, and the community of Fortune for their hard work and dedication in
ensuring a future for this fish plant.”
The yellowtail flounder agreement provides a framework for maximizing the
use of OCI’s yellowtail flounder quota. A minimum of 25 per cent of all
yellowtail flounder landings will be processed in Fortune. A separate
agreement has been reached on redfish.
The redfish agreement provides a framework for the maximum utilization of
OCI’s redfish quotas. To achieve this goal, a 100 per cent exemption to
provincial Minimum Processing Requirements for the export of redfish will be
provided. Redfish in particular is not economical to process in the
province. A number of processing companies have been granted exemptions to
export redfish in whole form in recent years.
Highlights of other requirements of OCI under the agreements include:
- A minimum investment of $1 million in capital improvements at the Fortune
fish plant within six months of the execution of the agreement;
- A minimum of 110 full time processing positions for a minimum of five
- Access to unused yellowtail quota to other licensed harvesters and
processors throughout the province;
- Opportunity for other provincial processors to purchase by-catch at
- A top-up of $2.50 per hour to a maximum of 560 hours to the Fish Plant
Worker Employment Support Program for each qualifying worker displaced by
the closure of OCI facilities at Marystown and Port Union; and,
- The company has committed to using a Canadian crew for harvesting of quota
under this agreement, subject to availability and to the satisfaction of the
Minister of Fisheries and Aquaculture.
As part of the agreements, OCI will initially charter an additional
vessel (over and above the two groundfish vessels it currently operates) for
harvesting of redfish and yellowtail flounder, with a goal to purchase a new
vessel within a year. In the case of redfish, the company would, upon the
purchase of a vessel for the identified fisheries herein, be granted a
redfish exemption for the debt amortization period, expected to be 10-15
years. In addition, OCI must live up to their commitment to Fortune for five
years as a condition of the redfish exemption. In the case of yellowtail
flounder, the exemption to export up to 75 per cent of the yellowtail
flounder harvested will only remain in place as long as OCI’s obligations to
Fortune are honoured. However, this exemption will be reviewed by the
Minister of Fisheries and Aquaculture at the end of 15 years to determine
its continued necessity. More information in respect to the exemptions and
the conditions surrounding them is provided in the backgrounder below.
“The Burin Peninsula has had a long-standing connection to the groundfish
industry in this province,” said the Honourable Darin King, Minister of
Justice and MHA for Grand Bank. “People are the most important aspect of
these agreements, and I am thoroughly pleased to see 236 jobs secured today.
The agreements have been a long time coming; however, based on what we see
today, a significant amount of work was required to meet the needs of all
involved and to find a solution that is balanced and appropriate for all
stakeholders. This is certainly a great day for the Burin Peninsula and the
province, and I am glad I have been a part of it.”
The total Gross Domestic Product impact of OCI’s commitment to the
provincial economy is estimated between $30 -$35 million annually and will
result in 236 jobs, with direct labour income projected at $14 million
“Today marks a positive step in securing the future of flatfish and
groundfish production in Newfoundland and Labrador,” said Martin Sullivan,
Chief Executive Officer of Ocean Choice International. “Our family has been
part of the fishery for over a century, and we want to keep our business
here at home. This agreement is extensive and all encompassing, and we
believe is in the best interest of all those involved, including our
company. We sincerely look forward to working with the Provincial
Government, our employees and the people of Fortune to make this arrangement
work for the long-term. Our commitment has never been stronger, and we
commit to working tirelessly to make this business work. We acknowledge the
Provincial Government for their due diligence in structuring this deal and
ensuring the best possible economic benefit from our fishery for the people
of Newfoundland and Labrador.”
The yellowtail flounder and redfish resource will be harvested for the
benefit of the province, communities, and people who rely on OCI for their
livelihood – harvesters, plant workers, and supply and service workers.
Exemptions for both species have been permitted under Provincial Government
regulations on many occasions in previous years.
“Given the economic difficulties OCI has experienced with processing
yellowtail flounder and the associated market challenges, which were
confirmed by Deloitte last year, the province is confident it has negotiated
the best possible agreement that optimizes the value of the yellowtail
resource for the benefit of the province,” said Minister Dalley. “We had
always maintained the position that any agreement by government to relax the
province’s minimum processing requirements would need to take into
consideration OCI’s level of commitment in relation to employment and
production, and would have to respect a Newfoundland and Labrador-first
policy for the raw materials harvested. The agreement provides provincial
harvesters and processors the first option to attain unutilized resource and
thus offers further opportunities for employment and economic benefits as a
The legal agreements between the Provincial Government and OCI will not
be released publicly to respect the business interests of the company.
However, details of the agreements and further information on yellowtail
flounder and other groundfish is provided in the backgrounder below.
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Director of Communications
Department of Fisheries and Aquaculture
|Corey T. Parsons
Constituency Assistant to the
Honourable Darin King
MHA for Grand Bank
Ocean Choice International
Information Related to the OCI Agreement and Yellowtail Flounder
Details of the Agreements
- OCI will invest a minimum of $1 million into capital improvements at the
Fortune fish plant and commence production of yellowtail flounder and/or
other flatfish within six months of signing the agreement. Cod production
will begin in January 2013, with approximately 60 jobs being created.
- For five years commencing when the Fortune fish plant is fully
operational, OCI will employ a minimum of 110 full time positions at the
facility. OCI agrees to consider all applicants for employment, including
those formerly employed at OCI facilities in Marystown and Port Union.
- Where OCI demonstrates that it cannot catch its entire yellowtail flounder
quota by December 31, 2015, it will make surplus quota available to other
processors and/or harvesters licensed in Newfoundland and Labrador to
harvest and process that species where the potential buyer has agreed to pay
- OCI will offer to sell by-catch to processors licensed in Newfoundland and
Labrador at least on a quarterly basis provided that the offer meets or
exceeds market prices. If OCI does not receive any such offers, it may
process and/or market 100 per cent of by-catch harvested in a form the
market demands. This will be monitored by the Provincial Government.
- Once the Fortune fish plant is fully operational, a minimum of 25 per cent
of all yellowtail flounder and/or other flatfish will be processed at the
plant. In addition, OCI will process an amount equivalent to 25 per cent of
the fish harvested by OCI prior to the reopening of the plant, at the
Fortune plant or another Newfoundland and Labrador fish plant within three
- Other than its commitments to Fortune, OCI may process and/or market its
yellowtail flounder and/or other flatfish in a form the market demands,
unless it receives an offer from a processor licensed in Newfoundland and
Labrador, to purchase this fish for a price that meets or exceeds market
prices. The processor must demonstrate however that it will process this
fish in the province in accordance with the Minimum Processing Requirements.
This will also be monitored by the Provincial Government.
- OCI will continue to have access to the yellowtail flounder exemption
subject to proceeding with the purchase of a new vessel within one year.
- OCI may operate a bareboat charter for the purpose of harvesting
yellowtail flounder and redfish, and will retain access to yellowtail
exemptions if their commitment to Fortune is upheld. The Federal Government
will only allow OCI to utilize a foreign replacement vessel for a maximum of
18 months from now (December 2012).
- After 12 months from the commencement of the agreement, if OCI has not
purchased a new vessel and opts to continue using a bareboat charter,
redfish exemptions will cease and be assessed the same as any other request
for an exemption from any other company.
- If a new vessel is purchased within the 12-month period following the
commencement of the agreement, OCI will retain the redfish exemption for the
amortization period of the new vessel, to a maximum of 15 years. In this
case, the yellowtail flounder exemption will remain in effect if the
company’s commitment to Fortune is upheld.
- If Fortune commitments are not upheld for a five-year period, all
exemptions will cease. OCI’s eligibility for redfish exemptions will be
considered in the same manner and with terms and conditions comparable to
existing redfish exemptions that have been issued in the province.
- Whether OCI purchases a new vessel or uses a bareboat charter to harvest
its yellowtail flounder and redfish quotas, OCI will make best efforts to
have vessel 100 per cent crewed by persons from Newfoundland and Labrador or
other Canadians, to the satisfaction of the Minister of Fisheries and
- From the date the agreement is signed, if OCI decides to permanently close
or sell the Fortune fish plant, they must provide the province with six
- OCI will also immediately contribute a top-up of $2.50 per hour to a
maximum of 560 hours per worker to the Fish Plant Worker Employment Support
Program for each qualifying worker displaced by the closure of Ocean Choice
International facilities at Marystown and Port Union.
- In addition, the Provincial Government will assist OCI with the sale of
its assets in Marystown and Port Union in accordance with existing policies
Minimum Processing Requirements
- Minimum Processing Requirements are intended to maximize both economic and
employment benefits from fishery resources. They have been in place, to some
degree, since the 1970s and have evolved over time to reflect changes in
market specifications for certain product forms. From 2001 to 2011, 194
Minimum Processing Requirement exemptions were granted, of which nine were
issued for yellowtail flounder and 33 for redfish.
- The minister has the legislative authority to exempt processors from the
Minimum Processing Requirements.
- Species-specific exemptions have been granted on a case-by-case basis when
it can be demonstrated that the requested product form meets a final market
specification and is usually not subject to further processing outside the
province. Such decisions are for a specific volume over a specified period
of time, are subject to a number of conditions, and actively monitored by
Provincial Government inspection staff to ensure compliance.
- In 2007, the Minimum Processing Requirements were reviewed by an
independent consulting firm, Burke Consulting Inc., and the report concluded
that the province should maintain its Minimum Processing Requirements, but
should be guided by final market demands and economic feasibility.
Market Overview of Yellowtail Flounder, Redfish and Other Groundfish
- In December 2011, the Provincial Government contracted the McDowell Group
of Alaska to provide a market report on Newfoundland and Labrador yellowtail
flounder and redfish. It was received January 5, 2012 with an update on
flatfish markets provided in November 2012. Independent market research was
also conducted by Provincial Government officials. The McDowell report can
be found at
- Global whitefish supply is increasing, including farmed tilapia and
pangasius from low-cost producing countries such as China and Vietnam. The
global supply of wild whitefish (more than 10 different species; not
including flatfish) increased 11 per cent in 2011 to approximately 7 million
metric tons (MT) with similar volumes expected for 2012 and 2013.
- A key factor affecting the Newfoundland and Labrador industry’s ability to
compete in global flatfish fillet markets is the increasing volumes of sole
and flounder being processed in China and exported to traditional whitefish
markets in North America and the European Union. This has not changed in
2012, despite reports of increased processing costs in China.
- Global harvests of sole and flounder have been generally between 650,000
to 750,000 MT over the past decade with the North American flatfish
fisheries accounting for 35 to 40 per cent. American and Canadian yellowtail
flounder harvests were down significantly in 2012 and remain a small
percentage of the global flatfish supply.
- Alaska is the largest flatfish producer in North America with total
harvests exceeding 200,000 MT in recent years. Over 80 per cent of the sole
and flounder caught in Alaska are in a frozen, headed and gutted form and
exported, mostly to China, for processing into skinless, boneless fillets.
These products are then exported to traditional whitefish markets.
- The US has been the primary export market for yellowtail flounder fillets
from Newfoundland and Labrador. Tariffs make it challenging to export
fillets to other countries. In particular, tariffs on yellowtail flounder
(depending on product form) are 15 to 18 per cent in the EU, 3.5 per cent in
Japan, and 10 to 12 per cent in China. All fish going into China for
reprocessing and export continues to enter China at zero tariff.
- China remains the dominant flatfish supplier to the US, accounting for
over 90 per cent of import volumes. As of September 2012, US imports of
Canadian flounder/sole are down 32 per cent by value and 36 per cent by
volume from the same period in 2011, and Canada accounted for less than 13
per cent of the total value of flounder/sole imported. This trend also
applied to other whitefish species. Prices for frozen flounder fillets in
the Northeast US wholesale market have remained steady or decreased through
- The McDowell report cites that flatfish and redfish fisheries in the
province have been negatively impacted by a strong Canadian dollar, rising
costs (inflation), and increased supply from competing species, such as
Alaska sole, tilapia and pangasius.
- Redfish is a low volume, niche product. There is not much published market
information readily available.
- Annual global supply for redfish has been steady in recent years at
approximately 160,000 MT. Iceland, Russia and EU/Greenland account for
approximately 80 per cent of this volume. In contrast, OCI’s redfish quota
is 7,154 MT (about four per cent of global redfish supply).
- Canadian redfish has been primarily processed into fresh or frozen,
skin-on fillets for retail markets in the United States. There is a strong
market for whole redfish in Japan and other Asia countries and Newfoundland
and Labrador has sporadically exported whole redfish to these countries.
Smaller redfish have also been exported to China for reprocessing because of
the high cost of processing this fish in Canada.
- U.S. redfish imports have declined from 24,600 MT in 1990 to 4,900 MT in
2010. Canada has always been the dominant supplier to the U.S. market, but
our share has declined from 90 per cent in 1990 to 54 per cent in 2010 (see
Annex 10). This has been the result of declining consumption of redfish in
the U.S. and increased imports of less-expensive frozen fillets (primarily
Alaska pollock, tilapia and pangasius as well as frozen redfish fillets from
- Canadian redfish fillets are generally more expensive than Alaska pollock,
tilapia and pangasius which are competing species according to import
statistics. This is primarily because most fillets exported to the U.S. are
fresh which are sold at slightly higher prices than frozen products.
- The global economy continues to play a major role in seafood markets. In
the US, an economic recovery seems to be underway but the EU’s continuing
debt and austerity problems are affecting seafood consumption. The stronger
Canadian dollar against the US dollar, Euro and British Pound continues to
negatively impact seafood producers. This is significant as the US and
Eurozone remain the world’s largest markets for whitefish products.
Yellowtail Flounder Historical Production
- An international fishery for yellowtail flounder began in the 1960s.
- In Newfoundland and Labrador, yellowtail flounder is most notably
harvested on the Grand Banks in Northwest Atlantic Fisheries Organization (NAFO)
Divisions 3LNO and is an offshore directed fishery, with Ocean Choice
International Limited (OCI) as the major stakeholder.
- This fishery was primarily exploited as part of a mixed fishery with cod
and American plaice. From 1974 to 1991, American plaice was the dominant
species caught in the flatfish fishery on the Grand Banks. American plaice
is currently under a moratorium.
- Yellowtail flounder landings peaked in 1973 at just below 28,500 tonnes;
however, have not exceeded 20,000 tonnes since that time.
- The average Canadian catch of NAFO Division 3LNO yellowtail flounder
averaged about 12,000 tonnes. Over the same time period, the average
Canadian catch of NAFO Division 3LNO American plaice was nearly 38,000
- During the mid-1980s and the early 1990s, there was a significant decline
in the stock of yellowtail flounder mainly due to overfishing and large
removals of juvenile fish.
- A moratorium was declared in 1994, and the Total Allowable Catch (TAC) was
set at zero for the period of 1995 to 1997. The fishery reopened in 1998 as
the stock showed signs of recovery.
- The biomass has continued to increase since 1998, and so has the TAC. The
TAC for yellowtail flounder has been set at 17,000 tonnes annually since
2009; however, scientific advice could support a larger harvest.
- Canada is allocated 97.5 per cent of this TAC, which means the Canadian
allocation since 2009 has been 16,575 tonnes, annually. Approximately 91 per
cent of the Canadian quota for 3LNO yellowtail flounder is allocated to OCI.
Average yellowtail flounder landings have been about 38 per cent of the
quota over the last several years, (2009-2011).
Economic Challenges Associated with Yellowtail Flounder Production
- There are notable challenges faced by Newfoundland and Labrador’s
yellowtail flounder product in the global marketplace, including the
inflated Canadian dollar, increasing operating costs, competition from
low-cost processing firms in Asia, as well as increased supply from
competing whitefish species.
- An appreciation of the Canadian dollar against other currencies results in
lower market returns for Newfoundland and Labrador seafood exports. The
Canadian dollar is expected to remain high relative to the US dollar for the
remainder of 2012 and into 2013. The Canadian dollar has also appreciated in
relation to other currencies around the world.
- Operating costs related to labour, insurance, utilities and transportation
have also increased. Fuel costs, in particular, have increased
- The tariffs on yellowtail flounder (depending on product form) are 15 to
18 per cent in the European Union, 3.5 per cent in Japan and 10 to 12 per
cent in China. Tariffs have limited market access into these markets.
- These economic challenges associated with processing of yellowtail
flounder have been well noted:
- Fisheries Products International Limited (FPI) claimed it could not fillet
yellowtail flounder that weighed less than 450 grams without losing money.
- In 2004, FPI was authorized to export approximately 1.5 million pounds of
yellowtail flounder that was deemed too small to be economically processed.
- The results from Deloitte’s report on FPI in 2006 concluded that the
company was experiencing dramatic losses on groundfish production, primarily
- Deloitte’s report on OCI in 2011 concluded that the fish plant in Marystown was a non-profitable venture that continued to lose a significant
amount of money as well. (//www.gov.nl.ca/releases/2011/fishaq/1125n04execsumm.pdf)
- Both Deloitte reports confirmed that a strengthening Canadian dollar,
increasing fuel prices, underutilization of the plant, an increased presence
from China in the marketplace, and labour costs were all contributing
factors to losses in Marystown.
- The department engaged Deloitte in 2011 to not only review the financial
status of the company, but to also perform an analysis of various scenarios,
using historical data, to ascertain whether there was any situation in which
the company might have a positive Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) while processing at either the Marystown plant
or the Fortune plant. Deloitte also verified financial
information on the company’s Fortune and redfish operations.
- Deloitte’s analysis determined that under the current economic conditions,
any substantial improvements to the operations or increased plant efficiency
would not result in a profitable EBITDA for the Marystown plant. A
profitable EBITDA at Marystown would require over 20 per cent improvement in labour efficiency and a considerable reduction in fixed
which are both very difficult to achieve in the industry.
- Again, according to Deloitte, processing at the Fortune fish plant would
produce an improved EBITDA, but one that is still negative. The improved EBITDA results from lower fixed costs and lower labour costs.
- Under the current forecasted conditions, no break-even point would be
possible for any mix of frozen-at-sea versus processed in-plant production.
The only situation that produced a positive EBITDA was frozen-at-sea
production with 100 per cent export of that production.
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