» Pacific Coast Fishermen’s Conservation Company Ecotrust Canada
An innovative business model called a quota and licence bank seeks to improve both the economic viability and sustainability of local fishermen.

“Too many fishermen chasing too few fish.” This mantra drove fisheries reforms in the 1990s. Ottawa financed buy-back schemes and imposed new individual quota systems to downsize BC’s commercial fishing fleet. While these policies drastically cut the number of fishing vessels—and disproportionately affected rural and Aboriginal fishermen—they also created problems of their own. This “Catch-22” was the finding of a groundbreaking 2004 report by Ecotrust Canada.

While capitalization in vessels dropped by more than fifty percent in the 1990s, the money invested in licences and quota soared. The price of halibut quota climbed from $9 per pound in 1991 to $27 in 2004. Sablefish prices jumped from $5 to $25 in the same period. Rural and Aboriginal fishermen, who often lack sufficient home equity and capital, simply could not afford to pay these inflated prices. Quota lease rates became exorbitant too. In the halibut fishery, lease rates are as high as seventy percent of the landed value, leaving little money to pay crewmen and vessel expenses.

These financial inequities and mounting costs threaten the survival of many small-boat fishermen. “The price of everything has gone up,” says Dave McLellan, a hook-and-line fisherman. “It costs about $2,500 to untie the boat from the dock and make a trip for dogfish… With food, fuel, bait, monitoring, and hiring deckhands, it is a pretty expensive fishery.”

New business models are needed to help fishermen overcome financial barriers while That’s where quota and licence banks come in.

The business model is called a “bank” because it’s ultimately about setting up a legal entity to securely hold licences and quota. Fishermen themselves own the bank in partnership with outside investors or community groups. Member fishermen lease quota and licences from the bank as their individual needs require. By pooling capital and operating according to principals of fairness and sustainability, the bank provides fishermen with access to licences and quota that they couldn’t otherwise obtain.“We designed the licence bank model to achieve two goals,” says Tasha Sutcliffe, Ecotrust Canada’s Fisheries Program Manager. “First, it would help secure access to fisheries resources for local fishermen and improve their financial performance. Second, it would help to create more local, sustainable fisheries. Small-boat fishermen operate closer to home, deliver their products closer to home, and provide more benefits to rural communities.”

The new model was first introduced to help a group of small-boat fishermen respond to huge changes in BC’s groundfish fisheries in 2006.

New Ground Rules

Groundfish refers to a variety of fish including rockfish, flatfish and cod species caught in bottom trawls and longlines in BC. Trawlers catch many species while longliners are licensed to target specific ones: sablefish, halibut, dogfish, lingcod and rockfish. In the past, fishermen would simply discard any fish caught that wasn’t their targeted species. So sablefish fishermen discarded halibut, halibut fishermen discarded dogfish, and so on.

Discarding “bycatch” is incredibly wasteful, especially since many fish are dead by the time they reach the surface. The government had only rough estimates of bycatch, and these numbers weren’t included in the total allowable catch for each species. By the late 1990s, some in-shore rockfish stocks were severely depleted, resulting in catch reductions. Rockfish conservation areas were imposed to act as refugia to rebuild stocks. Fishermen faced the bleak possibility of large-scale closures to protect a few dwindling rockfish species.

Fishermen responded by developing a plan for the “integration” of all commercial groundfish fleets. That means common rules to keep all fishermen within strict catch limits for each species. Individual transferable quotas (ITQs) had already been introduced for trawl, halibut and sablefish fleets, and were expanded into the lingcod, dogfish and rockfish fisheries. Each fleet also had to have 100-percent onboard monitoring through observers or video cameras.

Under the new rules, if a halibut fisherman catches a yellow-eye rockfish, he cannot discard the fish. In fact, he must lease or purchase quota that allows him to keep this non-targeted catch. As a result, every rockfish caught is accounted for and bycatch has been severely reduced. That’s a win for conservation.

Yet under these strict conservation rules, small-boat fishermen faced new monitoring costs and the prospect of buying or leasing quota, at inflated prices, to keep non-target species. Without these quotas, a fishing boat can’t even untie from the dock let alone bait a hook.

A Cooperative Approach

Individual transferable quotas are a marketbased system allowing fishermen and even non-fishermen to buy, sell, trade and lease fishing quotas, which are either a defined amount or a percentage share of the total catch. It’s a laissez-faire approach akin to a stock market. Some even consider quotas a form of resource privatization. With quotas, fishermen no longer compete in derby-style fisheries, but rather compete with each other to buy the licences and quota needed to go fishing. Fishermen can even buy out each other, thereby consolidating fleets into fewer vessels. ITQs can have several adverse effects, including undue corporation concentration and absentee owership of the fisheries resource.

Recognizing these problems, seven smallboat fishermen, who use hooks and lines to catch spiny dogfish, partnered with Ecotrust Canada to pool the risks and share the benefits of buying quota and licences through a collectively owned bank. Together, they formed the Pacific Coast Fishermen’s Conservation Company and invested in a rockfish (ZN) and halibut (L) licence and quota. They account for 60 percent of dogfish caught on longlines each year in BC.

“It is a really good concept,” says Dave McLellan, a dogfish fisherman and member of the licence bank. “It has helped me a lot already. I have been in a bind where I have not been able to find the quota, and if you can’t find the quota, you are tied to the dock. The licence bank had the fish (quota) in it and I could go out fishing again.”

Banking on each other

How does the licence bank work? The fishermen, Ecotrust Canada and Blue Mosaic, a Ucluelet-based consultancy run by one of the member fishermen, came together around two fundamental objectives: to improve conservation and to increase the viability of the small-boat fleet, especially rual fishermen.

The partners evaluated several incorporation models—cooperatives, limited liability companies, nonprofits—but ultimately decided to set up a corporation with shareholders.

This structure allowed both flexibility and the possibility to issue dividends from the bank to investors and fishermen. Each fisherman brought a small amount of capital and personal financial guarantees into the bank, which leveraged debt financing from Ecotrust Canada’s capital corporation. The Gordon & Betty Moore Foundation in San Francisco also provided a start-up grant. Blue Mosaic brought administrative capacity to manage the bank’s system of quota leasing and trading.

The bank’s shareholder agreement outlines each fisherman’s obligations to the bank, to each other and to the resource. The shareholders agreed to common rules for operating the bank, including “fair trade prices” for quota leasing and a “conservation covenant.” This code of conduct prescribes responsible fishing practices that minimize habitat damage (especially to corals and sponges), discarding small fish and other negative impacts.

The covenant is enforced first through peer pressure, but ultimately through threat of financial sanctions. Ecotrust Canada can recall its loan if member fishermen violate the conservation covenant. The shareholder agreement also allows the bank to apply briefing financial penalties to members who “hoard quota beyond the reasonable expectation of need.”

In this way, the bank also provides benefits to non-fishermen: environmental groups wanting to provide incentives for conservation, or municipalities and First Nations wanting to secure long-term access to adjacent fishing grounds for local fishermen.

“Traditionally, the small-boat fleet— particularly those of us who live in small
communities—have less access to capital than urban-based fishermen and corporations,” says Dan Edwards, a member fisherman and partner in Blue Mosaic. “One of Ecotrust Canada’s objectives is to stabilize employment in rural communities. What the licence bank does is it starts to reverse the trend of having fishing licences and quota owned by corporations or concentrated in urban areas. It allows rural fishermen to survive in the fishery.”

“Cooperatively working together,” Edwards adds, “can bring you more benefits than just working individually.”

 

Learn more about licence banks with our Start-up Guide to Fisheries Licence Banks.