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Report to the Chairman and Ranking Minority Member, Subcommittee on 

Oceans, Atmosphere, and Fisheries, Committee on Commerce, Science, and 

Transportation, U.S. Senate:



December 2002:



INDIVIDUAL FISHING QUOTAS:



Better Information Could Improve Program Management:



GAO-03-159:



GAO Highlights: 



Highlights of GAO-03-159, a report to the Chairman and Ranking Minority 

Member, Subcommittee on Oceans, Atmosphere, and Fisheries, Committee on 

Commerce, Science, and Transportation, U.S. Senate:



December 2002:



INDIVIDUAL FISHING QUOTAS:



Better Information Could Improve Program Management:



Why GAO Did This Study: 



To assist in deliberations on individual fishing quota (IFQ) programs, 

GAO determined (1) the extent of consolidation of quota holdings in 

three 

IFQ programs (Alaskan halibut and sablefish, wreckfish, and surfclam/

ocean 

quahog); (2) the extent of foreign holdings of quota in these programs; 

and 

(3) the economic effect of the IFQ program on Alaskan halibut and 

sablefish 

processors.



What GAO Found: 



All three IFQ programs have experienced some consolidation of 

quota holdings. 

Further, consolidation of surfclam and ocean quahog quota is 

greater than 

National Marine Fisheries Service (NMFS) data indicate, because 

different 

quota holders of record are often part of a single corporation 

or family 

business that, in effect, controls many holdings.



Program rules may affect the extent of consolidation in each IFQ 

program. 

While the Alaskan halibut and sablefish program set specific and 

measurable 

quota limits, the surfclam/ocean quahog and wreckfish programs 

did not, 

relying instead on federal antitrust laws to determine whether 

any quota 

holdings are excessive. Without defined limits on the amount of 

quota an 

individual or entity can hold, it is difficult to determine if 

any holdings 

would be viewed as excessive.



GAO did not identify any instances where foreign entities 

currently hold 

or control quota. While NMFS requires transfer applicants 

in the halibut 

and sablefish program to declare themselves to be U.S. 

citizens or U.S. 

entities, there is no similar requirement for the surfclam/

ocean quahog 

and wreckfish programs. As a result, in these programs, 

the potential 

exists for the transfer of quota to foreign entities.



The economic effects of the halibut and sablefish IFQ 

program are not 

uniform. Some processors were adversely affected by the 

IFQ program, 

while others benefited; however, it is difficult to 

quantify the actual 

effects. The only estimate of the program’s economic 

effect on processors 

is a 2002 study commissioned by the state of Alaska. 

This study estimated 

that halibut processors experienced a 56 percent loss 

in gross operating 

margins. While GAO could not validate or replicate the 

study’s results, 

its analysis of public data and the study’s methodology 

raised several 

concerns about the reliability of the study’s estimates. 

Also, the study 

did not take into account other factors that may affect 

profits, such as 

the diversity and value of other species processed.



Table: Fewer Surfclam Quota Holders Than NMFS Data Indicate:



[See PDF for image]



[End of table]



What GAO Recommends: 



GAO recommends that the Secretary of Commerce require:



* the National Marine Fisheries Service to collect and 

analyze information 

on quota holders, including who actually controls the use 

of the quota;



* the regional fishery management councils to define what 

constitutes an 

excessive share for a particular fishery in future IFQ 

programs; and 



* the National Marine Fisheries Service to provide guidance 

to the regional 

councils on the factors to consider when determining what 

constitutes an 

excessive share.



www.gao.gov/cgi-bin/getrpt?GAO-03-159.



To view the full report, including the scope and 

methodology, click on 

the link above. For more information, contact Barry Hill at 

(202) 512-3841 

or hillb@gao.gov or Keith Oleson at (415) 904-2218 or 

olesonk @gao.gov.



Letter:



Results in Brief:



Background:



Consolidation of Quota Holdings Occurred in All Three IFQ Programs:



No Foreign-Owned Entities Currently Hold Quota:



Economic Effects on Halibut and Sablefish Processors Varied and Are 

Difficult to Quantify:



Conclusions:



Recommendations for Executive Action:



Agency Comments and Our Evaluation:



Appendix I:



Appendix II:



Appendix III:



Appendix IV:



Appendix V:



Appendix VI:



Tables:



Table 1: Examples of IFQ Program Objectives:



Table 2: Summary of Quota Allocation and Accumulation Rules, by IFQ 

Program:



Table 3: Halibut Buyers, by Category, 1995 and 1999:



Table 4: Changes in the Number of Plants Processing Halibut and 

Sablefish, 1995 through 2001:



Table 5: Price Margins in Selected Pre-and Post-IFQ Years:



Table 6: Average Product Value Percentage, by Species, for Plants 

Processing Halibut and Sablefish, 1994 and 2001:



Table 7: Alaskan Halibut and Sablefish Quota Holders, 1995 through 
2001:



Table 8: Wreckfish Quota Holders, 1992 to 2002:



Table 9: Surfclam and Ocean Quahog Quota Holders, 1990 to 2002:



Table 10: Surfclam and Ocean Quahog Processors, 1990 and 2000:



Table 11: Largest Alaskan Halibut Ports, 1995 and 2001:



Table 12: Largest Alaskan Sablefish Ports, 1995 and 2001:



Figures:



Figure 1: Halibut Being Displayed:



Figure 2: Photograph of a Sablefish:



Figure 3: Drawing of a Wreckfish:



Figure 4: Drawing of a Surfclam:



Figure 5: Drawing of an Ocean Quahog:



Figure 6: Fewer Surfclam Quota Holders Than NMFS Data Indicate:



Figure 7: Fewer Ocean Quahog Quota Holders Than NMFS Data Indicate:



Figure 8: Fresh Halibut as a Percentage of Total Halibut Production, 

1984 through 2001:



Figure 9: Ex-Vessel Halibut Prices, 1984 through 2001:



Figure 10: Map of Alaskan Ports and Major Transportation Networks:



Abbreviations:



IFQ: individual fishing quota:



NMFS: National Marine Fisheries Service:



NOAA: National Oceanic and Atmospheric Administration:



Letter:



December 11, 2002:



The Honorable John F. Kerry

Chairman

The Honorable Olympia J. Snowe

Ranking Minority Member

Subcommittee on Oceans, Atmosphere, and Fisheries

Committee on Commerce, Science, and Transportation

United States Senate:



Overfishing is a problem with far-reaching ecological and economic 

consequences. When a fishery--one or more stocks of fish within a 

geographic area--is unable to sustain itself, it transforms the marine 

ecosystem and threatens the livelihood of many U.S. fishermen. About 

35 percent of the U.S. fish stocks assessed by the Department of 

Commerce’s National Marine Fisheries Service (NMFS) are overfished or 

will be overfished if conditions do not change. Furthermore, while the 

domestic commercial fish catch in the United States remained relatively 

the same in 2001 as it was in 1990, U.S. consumption of domestic and 

imported fish increased by 13 percent.



Fishery management practices in U.S. waters are developed primarily by 

regional fishery management councils established under the 

Magnuson-Stevens Fishery Conservation and Management Act 

(Magnuson-Stevens Act).[Footnote 1] Fishery management councils, under 

the direction of NMFS, have used several types of controls to maintain 

the health of a fishery. One set of controls focuses on the way fishing 

is conducted, such as placing restrictions on gear (e.g., type and 

amount), vessels (e.g., size), areas fished, times when fishing can 

occur, or the number of people allowed to fish. Another set of controls 

is designed to directly limit the amount of fish caught by setting 

catch limits for the entire fishery or for specific vessels, owners, or 

operators. In some instances, councils may use both types of controls. 

These efforts have sometimes had unintended consequences: fishermen 

used larger vessels and more gear to catch the same amount of fish, and 

fishing conditions became unsafe when fishermen raced to catch as much 

fish as they could within the time period allowed. Such outcomes have 

led to the search for innovative fishery management tools that balance 

the competing interests of those who depend on fishing for their 

livelihoods and the health of the fish stock.



In 1990, NMFS started using individual fishing quotas (IFQ), a 

conservation and management tool that sets catch limits for individual 

vessel owners or operators. Under an IFQ program, a regional fishery 

management council sets a maximum, or total allowable catch, in a 

particular fishery--typically for a year--based on stock assessments 

and other indicators of biological productivity, and it allocates the 

privilege to harvest a certain portion of the catch in the form of 

quota to eligible vessels, fishermen, or other recipients. These quota 

holders may then fish their quota or lease, sell, or otherwise transfer 

their quota according to program rules. These rules must be consistent 

with U.S. law and regulations. For example, among other things, the 

Magnuson-Stevens Act prohibits any entity from holding an excessive 

share of quota in any particular fishery. In addition, the implementing 

regulations of each program, in effect, generally preclude foreign 

individuals or entities from holding quota.



At the time of our review, NMFS had implemented three IFQ programs: 

(1) the Alaskan halibut and sablefish (black cod) program in 1995, (2) 

the South Atlantic wreckfish (snapper-grouper complex) program in 1992, 

and (3) the Mid-Atlantic surfclam/ocean quahog program in 1990. In 

addition, IFQ programs are being considered for several fisheries, such 

as the Bering Sea crab, the Gulf of Alaska groundfish (e.g., pollock, 

cod, and sole), and the Gulf of Mexico red snapper.



IFQ programs have achieved many of the desired conservation and 

management benefits, such as helping to stabilize fisheries, reducing 

excessive investment in fishing capacity, and improving safety. 

However, they have also raised concerns about the fairness of quota 

allocations, the potential for quota consolidation among a few holders, 

and the economic effects of IFQ programs on the fishing industry and 

fishing communities. Responding to these concerns, Congress, through 

the Sustainable Fisheries Act of 1996, placed a moratorium on new IFQ 

programs. Congress later extended the moratorium through September 30, 

2002, and then allowed it to expire.



To assist in deliberations on IFQ programs, you asked us to determine 

(1) the extent of consolidation of quota holdings, (2) the extent of 

foreign holdings of quota, and (3) the economic effect of IFQ programs 

on seafood processors. Regarding the economic effect on processors, we 

limited our review to the Alaskan halibut and sablefish processors 

because few of these processors were eligible to hold quota under the 

provisions of the Alaskan IFQ program. In contrast, processors could 

hold quota under the surfclam/ocean quahog program, and most of the 

wreckfish quota was not being fished. See appendix I for additional 

details on our scope and methodology.



Results in Brief:



All three IFQ programs have experienced some consolidation of quota 

holdings, and the extent of this consolidation may be affected by each 

program’s governing rules. According to NMFS data, from 1995 through 

2001, the number of halibut and sablefish quota holders decreased by 

about 27 and 15 percent, respectively. From 1992 to 2002, the number of 

wreckfish quota holders decreased by 49 percent. From 1990 to 2002, the 

number of surfclam and ocean quahog quota holders decreased by about 17 

and 34 percent, respectively. According to our analysis, however, 

consolidation of surfclam and ocean quahog quota is greater than NMFS 

data indicate, because different quota holders of record are often part 

of a single corporation or family business that, in effect, controls 

many holdings. For example, for 2002, we determined that consolidation 

of quota in the surfclam program was about twice that indicated by NMFS 

data and that one entity alone controlled at least 27 percent of the 

quota. Program rules may affect the extent of consolidation and the 

information collected in each IFQ program. In particular, the Alaskan 

halibut and sablefish program has specific and measurable limits on how 

much quota any one individual or entity can hold. Limits on individual 

halibut quota holdings, for example, range from 0.5 percent to 

1.5 percent, depending on the fishing area, and sablefish holdings are 

limited to 1 percent. In contrast, the surfclam/ocean quahog and 

wreckfish programs have no specific and measurable limits on quota 

holdings, relying instead on federal antitrust laws to determine 

whether any quota holdings are excessive. As a result, NMFS does not 

routinely gather and assess information on who controls the use of the 

surfclam/ocean quahog and wreckfish quota. Furthermore, without defined 

limits set by the councils on the amount of quota an individual or 

entity can hold, it is difficult to determine whether any quota 

holdings in a particular fishery would be viewed as excessive, as 

prohibited by the Magnuson-Stevens Act.



We did not identify any instances where foreign entities currently hold 

or control quota. In the surfclam/ocean quahog program, however, a 

U.S. member firm of a foreign business that provides financial services 

recently held quota while acting as a transfer agent in the sale of the 

quota, but it did not control the use of the quota. In addition, two 

surfclam/ocean quahog processors owned by foreign companies controlled 

the use of quota. In one case, a subsidiary of one foreign-owned 

company received quota; however, foreign control of the quota ended 

when a group of Americans bought out the foreign owners. In the other 

case, a foreign-owned company sold its fishing vessels with qualifying 

catch histories to an individual qualified to receive quota in exchange 

for control over the quota use; control of the quota remained with the 

foreign-owned processing company until the processing company was sold 

to a U.S.-owned firm. The implementing regulations of each program, in 

effect, generally preclude foreign entities from holding quota. The 

Alaskan halibut and sablefish program explicitly prohibits foreign 

citizens and businesses from holding quota and requires all quota 

transfer applicants to declare themselves to be U.S. citizens or U.S. 

entities. In contrast, the surfclam/ocean quahog and wreckfish programs 

tie eligibility for holding quota to the requirements for owning a 

U.S.-documented vessel engaged in the fisheries of the United States, 

that is, being a U.S. citizen or an entity 75 percent owned and 

controlled by U.S. citizens. However, these two programs do not require 

quota holders or transfer applicants to declare that they are U.S. 

citizens or U.S. entities. As a result, the potential exists for the 

transfer of surfclam, ocean quahog, and wreckfish quota to foreign 

entities.



The economic effects of the halibut and sablefish IFQ program are not 

uniform. Some processors were adversely affected by the implementation 

of the program, while others benefited. It is difficult, however, to 

quantify the actual effects. With respect to halibut, in particular, 

the IFQ program extended the fishing season from a “race for fish” of a 

few days to a season of 8 months. This resulted in a significant 

increase in the fresh halibut market for some processors and a 

corresponding decrease in the frozen halibut market for others. 

Sablefish did not undergo a similar market change and remained 

primarily a frozen product sold in the Asian market. While we can 

determine some general effects on processors, information is not 

available to precisely quantify these effects. The only estimate of 

the IFQ program’s economic effect on processors is a 2002 study 

commissioned by the state of Alaska. The study concluded that 

processors were hurt significantly by the IFQ program and estimated 

that halibut processors, for example, experienced a 56 percent 

($8.7 million) loss in gross operating margins. However, we could not 

validate or replicate the study’s results, because we did not have 

access to the proprietary data used. Nonetheless, our analysis of 

available public data and the methodology used in the study, as well as 

the analyses of others, raised several concerns about the reliability 

of the study’s estimates. For example, the study used pre-IFQ processor 

margins for 1992-1993--a time period where, coincidentally, there was a 

dip in halibut prices--and, therefore, a comparison with post-IFQ 

margins may indicate greater economic losses to processors than would 

be indicated if different base years were used. Also, the study did not 

take into account other factors that may affect profits, such as the 

diversity and value of other species processed.



We are making several recommendations to the Secretary of Commerce to 

collect and analyze information on quota holders, require regional 

fishery management councils to define what constitutes an excessive 

share for the fishery in future IFQ programs, and provide guidance to 

the councils on the factors to consider when determining what 

constitutes an excessive share. In commenting on a draft of this 

report, the department agreed in principle with our recommendations to 

collect and analyze information on quota holders and to provide 

guidance for setting limits on quota holdings in future programs. The 

department, however, disagreed with our recommendation to set limits on 

the amount of quota an individual or entity may hold in future IFQ 

programs, stating that such limits might be warranted and necessary in 

certain cases, but not in all IFQ programs. The Magnuson-Stevens Act 

clearly mandates that new IFQ programs prevent any person from 

acquiring an excessive share of quota. We agree that market performance 

and other issues should be considered and did not mean to imply 

otherwise. We continue to believe that without a specific and 

measurable definition, it would be difficult for the councils and NMFS 

to know whether any quota holding could be viewed as excessive. We have 

revised our recommendations to reflect the full range of considerations 

that need to be taken into account when defining what constitutes an 

excessive share and to focus on the need to provide guidance for making 

this determination in future programs.



Background:



The Magnuson-Stevens Act granted responsibility for managing 

marine resources to the Secretary of Commerce. The Secretary delegated 

this responsibility to NMFS, which is part of Commerce’s National 

Oceanic and Atmospheric Administration (NOAA). The act established 

eight regional fishery management councils, each with responsibility 

for making recommendations to the Secretary of Commerce about 

management plans for fisheries in federal waters. The eight councils--

consisting of fishing industry participants, state and federal fishery 

managers, and other interested parties--and their areas of 

responsibility are New England covering waters off Maine, New 

Hampshire, Massachusetts, Rhode Island, and Connecticut; Mid-Atlantic 

covering waters off New York, New Jersey, Delaware, Maryland, Virginia, 

and North Carolina; South Atlantic covering waters off North Carolina, 

South Carolina, Georgia, and the east coast of Florida; Gulf of Mexico 

covering waters off Texas, Louisiana, Mississippi, Alabama, and the 

west coast of Florida; Caribbean covering waters off the U.S. Virgin 

Islands and the Commonwealth of Puerto Rico; Pacific covering waters 

off California, Oregon, and Washington; North Pacific covering waters 

off Alaska; and Western Pacific covering waters off Hawaii, American 

Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and 

uninhabited U.S. territories in the Western Pacific.



The Magnuson-Stevens Act also established national standards for 

fishery conservation and management. These standards deal with 

preventing overfishing, using scientific information, ensuring the 

equitable allocation of fishing privileges, preventing excessive 

accumulation of quota, using fishery resources efficiently, minimizing 

bycatch,[Footnote 2] minimizing administrative costs, promoting safety 

at sea, and considering the importance of fishery resources to fishing 

communities. The regional councils use these standards to guide their 

development of plans that are appropriate to the conservation and 

management of a fishery, including measures to prevent overfishing and 

rebuild overfished stocks and to protect, restore, and promote the 

long-term health and stability of the fishery. These measures may 

include, for example, requiring permits for fishery participants, 

designating fishing zones, establishing catch limits, prohibiting or 

limiting the use of fishing gear and fishing vessels, and establishing 

a limited access system.



Under the Magnuson-Stevens Act, three regional councils (North Pacific, 

South Atlantic, and Mid-Atlantic) have developed IFQ programs to manage 

the halibut and sablefish, wreckfish, and surfclam/ocean quahog 

fisheries, respectively. Each IFQ program is designed individually, 

because the characteristics of each fishery differ.



Pacific halibut (see fig. 1) and sablefish (see fig. 2) are bottom-

dwelling species found off the coast of Alaska, among other areas. 

Halibut weigh about 40 pounds, on average, and are found at depths of 

about 50 to 650 feet. Sablefish weigh less than 11 pounds, on average, 

and are found at depths of about 325 to 4,925 feet. The halibut and 

sablefish fishing fleets are primarily owner-operated vessels of 

various lengths that use hook-and-line gear to fish for halibut and 

hook-and-line and pot gear for sablefish. Some vessels catch both 

halibut and sablefish, and, given the location of both species, they 

are often caught as bycatch of the other. Halibut are primarily sold 

domestically as a fresh or frozen product, and sablefish are primarily 

sold to the Asian market as a frozen product. In 2001, the total 

halibut and sablefish catch was 45.2 million pounds and 21.7 million 

pounds, respectively.



Figure 1: Halibut Being Displayed:



[See PDF for image]



[End of figure]



Figure 2: Photograph of a Sablefish:



[See PDF for image]



[End of figure]



Wreckfish (see fig. 3) are found in the deep waters far off the South 

Atlantic coast, primarily from Florida to South Carolina. They were 

first discovered in the southern Atlantic in the early 1980s by a 

fisherman recovering lost gear. Wreckfish are fished using specialized 

gear by vessels over 50 feet in length that are used primarily in other 

fisheries. The fishing fleet is small, with only three vessels 

reporting wreckfish landings totaling about 168,000 pounds--or about 

8 percent of the total allowable catch--in 2000. Wreckfish are sold 

fresh or frozen as a market substitute for snapper and grouper.



Figure 3: Drawing of a Wreckfish:



[See PDF for image]



[End of figure]



Surfclams (see fig. 4) and ocean quahogs (see fig. 5) are mollusks 

found along the East Coast, primarily from Maine to Virginia, with 

commercial concentrations found off the Mid-Atlantic states. While 

ocean quahogs are found farther offshore than surfclams, the same 

vessels are largely used in each fishery. These vessels pump water down 

to the ocean floor to raise the mollusks and then catch them in a 

dredge that runs over the bottom. Surfclams and ocean quahogs are 

processed into strips, juice, soup, chowder, and sauce. They must be 

processed generally within 24 hours of harvest or they will spoil. In 

2000, the surfclam/ocean quahog fishery harvested 2.6 million bushels 

of surfclams and 3.2 million bushels of ocean quahogs.



Figure 4: Drawing of a Surfclam:



[See PDF for image]



[End of figure]



Figure 5: Drawing of an Ocean Quahog:



[See PDF for image]



[End of figure]



When designing the IFQ programs, each regional council set out specific 

objectives for improving conservation and management in their 

respective fisheries. These objectives differed for each program, as 

shown in table 1, depending on the desired biological, social, and 

economic outcomes for the fishery.



Table 1: Examples of IFQ Program Objectives:



Objective: Reduce overcapitalization; Halibut/ sablefish: X; 

Wreckfish: X; Surfclam/ 

ocean quahog: [A].



Objective: Maximize efficiencies; Halibut/ sablefish: [Empty]; 

Wreckfish: [Empty]; Surfclam/ 

ocean quahog: X.



Objective: Stabilize fishery; Halibut/ sablefish: X; Wreckfish: X; 

Surfclam/ 

ocean quahog: [Empty].



Objective: Conserve resource; Halibut/ sablefish: [A]; Wreckfish: X; 

Surfclam/ 

ocean quahog: X.



Objective: Improve safety; Halibut/ sablefish: X; Wreckfish: [Empty]; 

Surfclam/ 

ocean quahog: [A].



Objective: Simplify regulation; Halibut/ sablefish: [Empty]; 

Wreckfish: [Empty]; Surfclam/ 

ocean quahog: X.



Objective: Protect fishing participants; Halibut/ sablefish: X; 

Wreckfish: [Empty]; Surfclam/ 

ocean quahog: [Empty].



[A] While not specified as an official objective, this outcome is 

important to the program.



Source: NMFS and the National Research Council.



[End of table]



When designing the IFQ programs, each of the respective regional 

councils also set out who was eligible to receive quota under the 

initial allocation (see table 2). The regional councils based 

eligibility and amount of quota to be received on, among other things, 

ownership and catch history of the vessels that participated during a 

portion of a set of qualifying years. Some halibut, sablefish, 

surfclam, and ocean quahog processors owned fishing vessels with a 

catch history during the IFQ programs’ qualifying years, and therefore 

received quota under the initial allocation.



Table 2: Summary of Quota Allocation and Accumulation Rules, by IFQ 

Program:



Rule: Initial allocation based on historical catch; Halibut/ sablefish: 

X

; Wreckfish: X

; Surfclam/

ocean quahog: X

.



Rule: Initial allocation based on vessel size; Halibut/ sablefish: 

[Empty]; Wreckfish: [Empty]; Surfclam/

ocean quahog: X

.



Rule: Quota divided by geographic areas; Halibut/ sablefish: X

; Wreckfish: [Empty]; Surfclam/

ocean quahog: [Empty].



Rule: Specific caps on initial allocation; Halibut/ sablefish: [Empty]; 

Wreckfish: X

; Surfclam/

ocean quahog: [Empty].



Rule: Specific caps on quota accumulation; Halibut/ sablefish: X

; Wreckfish: [Empty]; Surfclam/

ocean quahog: [Empty].



Source: NMFS and the National Research Council.



[End of table]



Consolidation of Quota Holdings Occurred in All Three IFQ Programs:



Consolidation of quota holdings occurred in all three IFQ programs, 

with much of it occurring in the early years of each program. In 

addition, consolidation of surfclam and ocean quahog quota is greater 

than NMFS data indicate. The governing rules of each program may have 

affected the extent of consolidation and the information collected. 

However, without clear and accurate data on quota holders and fishery-

specific limits on quota holdings, it is difficult to determine whether 

any quota holdings in a particular fishery would be viewed as 

excessive, as prohibited by the Magnuson-Stevens Act.



Much of the Consolidation Occurred in Early Program Years:



According to our analysis of NMFS data, from 1995 through 2001, the 

number of halibut and sablefish quota holders decreased by about 27 and 

15 percent, respectively. Over 46 percent of the halibut consolidation 

and 35 percent of the sablefish consolidation occurred by the end of 

the second year of the program. From 1992 to 2002, the number of 

wreckfish quota holders decreased by 49 percent, with all of the 

consolidation occurring by the end of the program’s third 

year.[Footnote 3] Finally, from 1990 to 2002, the number of surfclam 

and ocean quahog quota holders decreased by about 17 and 34 percent, 

respectively. About 58 percent of the surfclam quota consolidation and 

36 percent of the ocean quahog quota consolidation occurred by the 

start of the second year of the program. (See app. II for additional 

data on changes in quota holdings.):



Consolidation of Surfclam and Ocean Quahog Quota Is Greater Than NMFS 

Data Indicate:



Surfclam and ocean quahog quota consolidation is greater than NMFS data 

indicate. According to NMFS officials and others knowledgeable about 

the fishery, the quota holder of record (i.e., the individual or entity 

under whose name the quota is listed) is often not the entity that 

controls the use of the quota. Some families hold quota under the names 

of more than one family member; some parent corporations hold quota 

under the names of one or more subsidiaries; some entities hold quota 

under the name of one or more incorporated vessels; and some financial 

institutions serve as transfer agents and hold quota on behalf of 

others or in lieu of collateral for loans.



After aggregating quota controlled by the same individual or entities, 

we determined that consolidation of surfclam quota holders was about 

twice that indicated by NMFS data. As shown in figure 6, no more than 

59 and 42 individuals or entities controlled surfclam quota in 1990 and 

2002, respectively. One entity controlled quota held in 12 different 

names, accounting for 27 percent of the 2002 total surfclam quota 

allocated.



Figure 6: Fewer Surfclam Quota Holders Than NMFS Data Indicate:



[See PDF for image]



[End of figure]



Similarly, consolidation of ocean quahog quota holders was about twice 

that indicated by NMFS data. As shown in figure 7, no more than 48 and 

29 individuals or entities controlled ocean quahog quota in 1990 and 

2002, respectively. One entity controlled quota held in 2 different 

names, representing 22 percent of the 2002 total ocean quahog quota 

allocated. (See app. III for information on consolidation in the 

surfclam and ocean quahog processing sector.):



Figure 7: Fewer Ocean Quahog Quota Holders Than NMFS Data Indicate:



[See PDF for image]



[End of figure]



The consolidation of surfclam and ocean quahog quota may be even 

greater than our analysis indicates because we could not determine the 

individuals or entities for whom banks hold quota.[Footnote 4] 

According to NMFS data, banks hold about 21 percent of the 2002 

surfclam quota and 27 percent of the 2002 ocean quahog quota. However, 

we could not determine for whom the banks hold the quota and thus who 

controls the use of the quota. NMFS officials stated that, in theory, 

they had the ability to identify the individuals or entities for whom 

the banks hold quota. They explained, however, that such an analysis 

would be extremely difficult and labor-intensive because their record 

system is not designed for this purpose. As such, NMFS did not provide 

us with this information.



Program Rules May Affect the Extent of Consolidation and Information 

Collected:



Each program’s governing rules may have affected the extent of 

consolidation and the information NMFS collects and monitors on quota 

holders. To help meet the Magnuson-Stevens Act’s prohibition of any 

individual or entity acquiring an excessive share of the fishery, the 

regional fishery management councils may establish limits on the amount 

of quota any individual or entity can hold. In the Alaskan halibut and 

sablefish program, for example, the council set specific limits on 

individual holdings by, among others, species and area.[Footnote 5] 

Limits on individual halibut quota holdings, for example, range from 

0.5 percent to 1.5 percent, depending on the fishing area, and 

sablefish holdings are limited to 1 percent. NMFS collects the 

information needed to monitor and ensure adherence to these 

requirements. NMFS requires halibut and sablefish transfer applicants 

to identify whether they are individuals or business entities. Business 

entities must also report their ownership interests at least annually. 

NMFS uses this information to ensure that all potential transfers and 

all current quota holdings comply with program rules. NMFS conducts 

computer checks on each transfer request to ensure that the transfer 

will not result in any entity, whether individually or collectively, 

exceeding the limits for quota holdings.



In contrast, the regional fishery councils for the surfclam/ocean 

quahog and wreckfish programs did not set specific and measurable 

limits on the individual accumulation of quota. Instead, the councils 

let federal antitrust laws determine whether any quota holdings are 

excessive. However, NMFS officials explained that the Department of 

Justice would most likely base a decision for taking an antitrust 

action on whether or not an individual or entity could fix the price of 

fish, rather than the amount of quota an individual or entity held. 

Further, NMFS officials said that they have never referred such a case 

to the Department of Justice.



The National Research Council pointed out in its 1999 study that “[a] 

lack of accumulation limits may unduly strengthen the market power of 

some quota holders and adversely affect wages and working conditions of 

labor in the fishing industry...”[Footnote 6] Establishing limits, 

however, is not an easy task. Program objectives and the political, 

economic, and social characteristics of each fishery may influence each 

council’s definition of what limits should be placed on an individual’s 

or entity’s quota holdings. In addition, fishery participants have 

different opinions on what these limits should be.



Because the surfclam/ocean quahog and wreckfish programs have no 

specific limits on the amount of quota any one individual or entity can 

hold, NMFS does not routinely gather and assess information on the 

ownership interest of each quota holder. For example, NMFS requires 

transfer applicants in the surfclam/ocean quahog program to submit 

identifying information, including the name of the quota holder, the 

name of the related vessel, and the contact information for the quota 

holder. However, NMFS does not verify this information or require 

transfer applicants or quota holders to submit any information 

detailing ownership interest or eligibility. Further, NMFS does not 

conduct any assessment of the amount of quota held or controlled by an 

individual or entity, and NMFS records are not kept in a manner that 

would readily allow such an assessment. As such, it is difficult to 

determine how much quota any one individual or entity controls. 

Moreover, lacking specific limits on quota holdings, we could not 

determine if any individual’s or entity’s holdings in either the 

surfclam/ocean quahog or the wreckfish programs would be viewed as 

excessive for the fishery, as prohibited by the Magnuson-Stevens Act.



No Foreign-Owned Entities Currently Hold Quota:



We found no evidence that foreign entities currently hold or control 

quota in the three IFQ programs. Furthermore, industry participants and 

NMFS officials said that they did not know of any cases in which a 

foreign entity has been able to acquire quota in either the halibut and 

sablefish or the wreckfish IFQ programs. However, some foreign-owned 

entities have held or controlled quota in the surfclam/ocean quahog 

program, as the following examples show.



* A U.S. member firm of a foreign business that provides financial 

services held about 6 percent of the surfclam quota in 2002 while 

acting as a transfer agent in the sale of the quota. According to a 

representative of the firm, only the buyer and the seller controlled 

the quota and the fishing of the quota. When the sale was finalized in 

the spring of 2002, the quota was released to the buyer. The firm no 

longer holds quota in the fishery.



* A foreign-owned processing company once controlled about 7 percent of 

the surfclam and ocean quahog quota through its U.S. subsidiary. 

Foreign control of the quota ended when a group of fishery participants 

bought out the foreign interest in the processing company.



* On the eve of the implementation of the IFQ program, a foreign-owned 

processing company sold its fishing vessels with qualifying catch 

histories to a U.S. citizen eligible to hold quota. This individual 

then received the quota for these vessels--nearly one-fourth of the 

quota allocated under the initial allocation.[Footnote 7] However, 

control of the quota remained with the foreign-owned processing company 

until the processing company was sold to a U.S.-owned firm.



The implementing regulations of each IFQ program, in effect, generally 

preclude foreign entities from holding quota. The Alaskan halibut and 

sablefish program explicitly prohibits foreign citizens and businesses 

from holding quota and requires all quota transfer applicants to 

declare themselves to be U.S. citizens or U.S. entities. In contrast, 

the surfclam/ocean quahog and wreckfish programs allocate quota to 

qualified “persons,” defined as U.S. citizens, and tie eligibility for 

holding quota to the requirements for owning a U.S.-documented vessel 

engaged in the fisheries of the United States, that is, being a 

U.S. citizen or in the case of a corporate owner being 75 percent owned 

and controlled by U.S. citizens. However, these two programs do not 

require quota holders or transfer applicants to declare that they are 

U.S. citizens or U.S. entities. In addition, NMFS officials overseeing 

the wreckfish program told us that they consider the U.S. Coast Guard’s 

approval of fishing vessel permits to be sufficient for determining 

eligibility to hold quota, because only vessels owned by U.S. citizens 

and U.S. companies are eligible for documentation as a U.S. fishing 

vessel. This procedure may be sufficient when a transfer applicant owns 

a permitted fishing vessel and applies for quota under the name used to 

document the vessel. However, an applicant who does not own such a 

vessel will never go through the Coast Guard verification process, 

because after the initial allocation, quota can be transferred to, and 

held by, nonvessel owners. Without information on the nationality or 

ownership of the quota holder, the potential exists for the transfer of 

surfclam, ocean quahog, and wreckfish quota to foreign entities.



Economic Effects on Halibut and Sablefish Processors Varied and Are 

Difficult to Quantify:



Some processors were adversely affected by the implementation of the 

halibut and sablefish IFQ program while others benefited. However, 

quantifying the economic effects of the IFQ program on processors is 

difficult because much of the data needed to measure changes in 

profitability are proprietary. Furthermore, other factors besides the 

IFQ program may lead to changes in processors’ economic situation.



IFQ Program Resulted in Changes That Harmed Some Processors and 

Benefited Others:



The IFQ program changed the environment in which traditional 

shore-based processors operated by extending the halibut and sablefish 

fishing seasons in some areas from several days to 8 months. Before the 

IFQ program was implemented, fishermen had just a few days to fish the 

total allowable catch for the year. Consequently, fishermen provided 

processors with large amounts of fish in a very short period of time, 

and processors organized their operations to process under these 

conditions. With the implementation of the IFQ program, the “race for 

fish” was eliminated because fishermen had more flexibility in choosing 

when to fish, and, as a result, processors received halibut and 

sablefish in smaller quantities over a longer period of time. This 

extended fishing season enabled more halibut to be processed and sold 

as a fresh product. Consequently, the fresh halibut market, as shown in 

figure 8, increased from 15 percent of the total halibut market in 1994 

to 46 percent in 2001. Sablefish was not similarly affected, remaining 

primarily a frozen product that is shipped to and sold in the Asian 

market.



Figure 8: Fresh Halibut as a Percentage of Total Halibut Production, 

1984 through 2001:



[See PDF for image]



[End of figure]



To take advantage of the fresh market and its potential for higher 

wholesale prices, processors need ready access to highways and air 

transportation. As such, processors with access to transportation 

systems may have been competitively advantaged while those who were in 

more remote locations may have been competitively disadvantaged because 

transportation costs were higher. For example, one processor estimated 

that the cost to transport fresh product from Kodiak Island, Alaska, to 

Seattle, Washington, was about 20 cents a pound higher than from Seward 

or Homer, Alaska, which has ready access to a major road system. (See 

app. IV for more information on Alaskan ports and major transportation 

networks.) Also, processors located near services, such as fuel, ice, 

stores, and entertainment, said that fishermen were more willing to 

deliver fish to them than if these services were not available.



The shift toward fresh product in the halibut market resulting from the 

IFQ program led to the emergence of the buyer-broker, a middleman who 

buys fish at a port and ships it fresh to market. Processors told us 

that the emergence of buyer-brokers, generally one-person operations 

with lower overhead costs, resulted in increased competition for fish 

and contributed to the increase in ex-vessel halibut prices (prices 

paid to fishermen for raw product). As shown in table 3, the percentage 

of halibut purchased by buyer-brokers increased from 3.7 in 1995 to 

17.4 in 1999.



Table 3: Halibut Buyers, by Category, 1995 and 1999:



Category: Buyer-broker; [Empty]; Percent of halibut purchased: 1995[A]: 

3.7; Percent of halibut purchased: [Empty]; Percent of halibut 

purchased: 1999[B]: 17.4.



Category: Shore-based processors; [Empty]; Percent of halibut 

purchased: 1995[A]: 84.9; Percent of halibut purchased: [Empty]; 

Percent of halibut purchased: 1999[B]: 73.8.



Category: Other; [Empty]; Percent of halibut purchased: 1995[A]: 11.4; 

Percent of halibut purchased: [Empty]; Percent of halibut purchased: 

1999[B]: 8.8.



Category: Total; [Empty]; Percent of halibut purchased: 1995[A]: 100.0; 

Percent of halibut purchased: [Empty]; Percent of halibut purchased: 

1999[B]: 100.0.



[A] 1995 was the earliest year for which NMFS data were available. :



[B] 1999 was the latest year we could analyze because, starting in 

2000, buyers could identify themselves in multiple categories.



Source: NMFS.



[End of table]



Along with an increase in buyer-broker halibut purchases, there was a 

decrease in the number of individual shore-based plants that processed 

halibut and sablefish. While some plants stopped processing halibut and 

sablefish, others decided it was beneficial to start. Between 1995 and 

2001, as shown in table 4, 68 plants stopped processing halibut and 56 

started, resulting in a net decrease of 12 plants. Similarly, 54 plants 

stopped processing sablefish and 40 started, resulting in a net decline 

of 14 plants.



Table 4: Changes in the Number of Plants Processing Halibut and 

Sablefish, 1995 through 2001:



Plant status: Processing in 1995[A]; Halibut: 84; Sablefish: 57.



Plant status: Stopped processing between 1995 and 2001; Halibut: (68); 

Sablefish: (54).



Plant status: Started processing between 1995 and 2001; Halibut: 56; 

Sablefish: 40.



Plant status: Processing in 2001; Halibut: 72; Sablefish: 43.



[A] 1995 was the earliest year for which NMFS data were available.



Source: GAO’s analysis of NMFS data.



[End of table]



Most of the shore-based plants that stopped or started processing were 

relatively small in comparison to other processors in that they 

purchased less than 100,000 pounds of halibut or sablefish annually. 

About 80 percent of the shore-based plants that stopped processing 

halibut and 75 percent of those that started purchased less than 

100,000 pounds of fish. Similarly, about 81 percent of the plants that 

stopped processing sablefish and 70 percent of those that started were 

also small plants.



The IFQ program, however, did not necessarily cause a plant to stop 

processing halibut or sablefish. According to industry and government 

officials, some plants stopped processing halibut or sablefish because 

the plant was sold to another processor, the plant closed for personal 

reasons, plant management made poor business decisions that were 

unrelated to the IFQ program, or the plant burned down. For example:



* One processor with a freezing operation bought halibut and sablefish, 

but it primarily bought and sold salmon off trollers. When the supply 

of farmed salmon increased, contributing to price decreases, the owners 

decided to sell the plant.



* One company that owned several plants consolidated its halibut 

production under fewer plants.



* One plant went out of business because its owner paid too much for 

fish--10 to 15 cents a pound more than others--and then resold it for 

less than he paid.



* One plant burned down and the processor now uses the site to offload 

fish from vessels and then transport it to another site for processing.



In addition to changes in the number of plants processing halibut and 

sablefish, companies experienced some change in their market 

share.[Footnote 8] Some processing companies lost market share, while 

others gained market share. Comparing market shares for 1995 and 2001, 

we found that of 28 companies that processed halibut in 1995, 15 

experienced a decrease in market share and 13 experienced an increase. 

Similarly, of the 17 companies that processed sablefish in 1995, 7 

experienced a decrease in market share while 10 experienced an 

increase.



State of Alaska Study Found Processors Hurt by IFQ Program, but Results 

Cannot Be Validated:



To determine the IFQ program’s effect on processors, Alaska’s 

Department of Fish and Game commissioned a study to examine how halibut 

and sablefish processors were affected economically.[Footnote 9] This 

was the only study we could find that attempted to quantify the 

economic effect the IFQ program had on halibut and sablefish 

processors. Using a sample of halibut and sablefish processors, the 

study assessed the change in processors’ gross operating margins 

(revenues minus variable costs of processing). The study used the 

periods 1992-1993 for pre-IFQ margins and 1999-2000 for post-IFQ 

margins. According to the study’s principal author, these years were 

chosen because they provided the longest possible length of time 

between the pre-and post-IFQ years for which data were available. The 

study estimated that halibut processors suffered a 56 percent, or 

$8.7 million, loss in gross operating margins because the IFQ program 

caused halibut prices to increase and processors’ market shares 

to change.[Footnote 10]



While we could not validate or replicate the study’s results because 

the proprietary data used in the study were confidential, we identified 

a number of problems with the study’s methodology and scope that brings 

into question the reliability of the study’s estimates. These problems 

include (1) the pre-and post-IFQ time periods do not provide an 

accurate measure of processors’ economic welfare, (2) the study’s 

results may not be representative of the industry as a whole, and (3) 

the document requesting economic information from processors may have 

biased participant responses. Further, the study’s authors acknowledged 

that examining the pre-and post-IFQ impacts on the processing sector 

does not necessarily imply that the IFQ program alone caused these 

effects.



The pre-and post-IFQ time periods used to assess changes in processors’ 

gross operating margins do not provide an accurate measure of changes 

in processors’ economic welfare over time. First, the study’s 

methodology makes the assumption that all costs, except labor and 

material inputs, remain fixed from 1992 through 2000. However, as 

pointed out in a critique of the study, assuming that all of these 

other costs remain the same would not be adequate for a period as short 

as a year, and is clearly unjustified for the 7 year period evaluated, 

because the longer the time period assessed, the more likely costs will 

change.[Footnote 11]



Even if the study’s assumption about costs were valid, the pre-and 

post-IFQ periods examined identify a greater negative change in gross 

operating margins than may be identified if different or longer periods 

were used. The changes in gross operating margins and the estimated 

economic effects are influenced by the fact that ex-vessel halibut 

prices dipped in the period 1992-1993 and were near their peak in 1999-

2000 (see fig. 9). Real ex-vessel halibut prices in 1999-2000 were 

44.5 percent higher than they were in 1992-1993. However, when 

different base years, such as 1991-1992, are compared with 1999-2000, 

the price increase is 22.7 percent.



Figure 9: Ex-Vessel Halibut Prices, 1984 through 2001:



[See PDF for image]



[End of figure]



The influence of the choice of base years and the corresponding ex-

vessel prices also can be demonstrated by looking at the difference 

between the price a processor pays for raw fish and the price a 

processor receives for the processed fish--the processor’s price 

margin. We calculated a simplified version of the price margin to 

demonstrate the sensitivity of the margin to the choice of the time 

period examined. As shown in table 5, comparing the study’s pre-and 

post-IFQ price margins of 47.3 percent and 24.1 percent, respectively, 

shows a 23.2 percentage point decrease in margins. However, comparing 

the price margins for 1991-1992 with 1999-2000 shows a 13.0 percentage 

point decrease and comparing 1993-1994 with 1998-1999 shows a 

1.1 percentage point increase.



Table 5: Price Margins in Selected Pre-and Post-IFQ Years:



Pre-IFQ: Years: 1991-1992 ; Pre-IFQ: Price margin[A]: 37.1; [Empty]; 

Post-IFQ: Years: 1998-1999 ; Post-IFQ: Price margin[A]: 31.4.



Pre-IFQ: Years: 1992-1993[B]; Pre-IFQ: Price margin[A]: 47.3; [Empty]; 

Post-IFQ: Years: 1999-2000[B]; Post-IFQ: Price margin[A]: 24.1.



Pre-IFQ: Years: 1993-1994 ; Pre-IFQ: Price margin[A]: 30.3; [Empty]; 

Post-IFQ: Years: 2000-2001 ; Post-IFQ: Price margin[A]: 23.3.



[A] Price margin is the percentage by which real wholesale price 

exceeds real ex-vessel price, excluding other variable costs. We did 

not incorporate recovery rates (the amount of raw product required to 

produce the finished product) or product mix in price margin 

calculations.



[B] Years used in the state of Alaska study.



Source: GAO’s analysis of Alaska Department of Fish and Game, 

Commercial Operators Annual Report data.



[End of table]



Moreover, the study’s results may not be representative of the industry 

as a whole. In total, 53 halibut processors and 46 sablefish 

processors, representing 88 percent of all halibut purchased and 

96 percent of all sablefish purchased in the study years, were asked to 

participate in the survey. Responses were used from processors 

representing only 52 percent of all halibut and 54 percent of all 

sablefish purchased in the pre-IFQ years and 61 percent of all halibut 

and 59 percent of all sablefish purchased in the post-IFQ years. The 

study does not provide the actual number of participants whose data 

were used. Without knowing the number of participants or the 

characteristics of the respondents whose data were used, we cannot 

determine whether the study’s estimates are representative of the 

industry as a whole.



Finally, the document requesting economic information from processors 

may have biased participant responses. In the preamble to the survey 

document, participants were told, among other things, that the purpose 

of the study was to test the theory that a harvester-only quota 

allocation transfers wealth from processors to harvesters and that the 

survey’s results would be used to assist in designing future IFQ or 

other fishery rationalization programs. Such statements leave little 

doubt as to how responses could benefit or harm processors with 

economic interests in other fisheries. According to standard economic 

research practice, these types of statements are to be avoided when 

designing a survey as they can influence the results.



Factors Other Than the Implementation of the IFQ Program Could Affect 

Processors Economically:



Factors other than the IFQ program’s implementation could contribute to 

changes in the economic well-being of processors, such as changes in 

the market of other species processed and changes in the total 

allowable catch. According to NMFS officials and industry experts, most 

processors handled other species of fish in addition to halibut and 

sablefish, and the relative proportion and value of these species will 

affect the economic condition of processors. According to our analysis 

of data from the Alaska Commercial Operators Annual Report, halibut and 

sablefish were relatively small portions of the fish processed by 

shore-based plants that processed halibut and/or sablefish. 

Specifically, from 1994 to 2001, halibut production ranged, on average, 

from 2.0 percent to 4.1 percent of all fish processed at a plant, while 

average sablefish production ranged from 1.4 percent to 2.3 percent. In 

terms of value, as shown in table 6, halibut was 4.4 percent of total 

plant product value in 1994 and 7.9 percent in 2001. Sablefish was 

4.7 percent of total plant product value in 1994 and 5.3 percent in 

2001. (These ranges are averages for all plants processing halibut and/

or sablefish and a particular plant may process a higher percentage of 

these fish.):



Table 6: Average Product Value Percentage, by Species, for Plants 

Processing Halibut and Sablefish, 1994 and 2001:



Species: Halibut; [Empty]; Percent of product value: 1994: 4.4; Percent 

of product value: [Empty]; Percent of product value: 2001: 7.9.



Species: Sablefish; [Empty]; Percent of product value: 1994: 4.7; 

Percent of product value: [Empty]; Percent of product value: 2001: 5.3.



Species: Cod; [Empty]; Percent of product value: 1994: 5.7; Percent of 

product value: [Empty]; Percent of product value: 2001: 9.5.



Species: Pollock; [Empty]; Percent of product value: 1994: 12.6; 

Percent of product value: [Empty]; Percent of product value: 2001: 

27.6.



Species: Salmon; [Empty]; Percent of product value: 1994: 46.7; Percent 

of product value: [Empty]; Percent of product value: 2001: 35.1.



Species: Other species[A]; [Empty]; Percent of product value: 1994: 

25.9; Percent of product value: [Empty]; Percent of product value: 

2001: 14.6.



Species: Total; [Empty]; Percent of product value: 1994: 100.0; Percent 

of product value: [Empty]; Percent of product value: 2001: 100.0.



[A] Other species include crab, flounder, greenling, herring, lingcod, 

octopus, perch, prowfish, rockfish, shrimp, skate, sole, and turbot.



Source: GAO’s analysis of Alaska Department of Fish and Game, 

Commercial Operators Annual Report data.



[End of table]



Another factor that affects processors economically is a change in the 

total allowable catch--limits on the amount of fish that can be caught 

annually. Such limits were used for halibut and sablefish long before 

the introduction of the IFQ program. Since the introduction of the 

IFQ program, the total allowable catch for halibut has increased by 

56.4 percent and the total allowable catch for sablefish has decreased 

by 36.2 percent. In its 1999 report, Sharing the Fish, the National 

Research Council said that changes in the total allowable catch may 

affect the supply of fish available to processors and therefore the 

price they pay.[Footnote 12]



Conclusions:



Individual fishing quotas are one of many tools available for 

conserving and managing fishery resources on a sustainable basis. 

Concerns have been raised about the possibility of quota holdings 

becoming concentrated among a few individuals or entities, which, among 

other things, might lead to control of fish prices and/or might 

adversely affect wages and working conditions in the fishing industry. 

Moreover, there is a need to ensure that program rules on foreign 

holdings and quota concentration levels are complied with. NMFS 

collects the necessary data on halibut and sablefish quota holders and 

periodically monitors it to provide these assurances. However, NMFS 

does not gather sufficient information or periodically analyze the data 

it does collect on surfclam/ocean quahog and wreckfish quota holders to 

determine (1) who actually controls the use of the quota and 

(2) whether the holder is a foreign individual or entity. Furthermore, 

while each fishery is different, the regional councils have not defined 

the amount of quota that constitutes an excessive share in the 

surfclam/ocean quahog and wreckfish IFQ programs. Different program 

objectives and the political, economic, and social characteristics of 

each fishery make it difficult to define excessive share. However, 

without the information on who controls quota and defined limits on 

quota accumulation, NMFS cannot determine whether eligibility 

requirements are being met or raise questions as to whether any quota 

holdings are excessive.



Recommendations for Executive Action:



We recommend that the Secretary of Commerce take the following actions 

to improve the management of IFQ programs:



* To ensure that quota holders meet eligibility requirements, such as 

being a U.S. citizen or entity, we recommend that the Secretary of 

Commerce direct the Director of NMFS to collect and analyze information 

on quota holders, including who actually holds and controls the use of 

the quota and for whom financial institutions hold quota.



* To help prevent an individual or entity from acquiring an excessive 

share of the quota in future IFQ programs, we recommend that the 

Secretary of Commerce require regional fishery management councils to 

define what constitutes an excessive share for the fishery.



* To assist the regional fishery management councils in defining 

excessive share for a particular fishery, we recommend that the 

Secretary of Commerce direct the Director of NMFS to provide guidance 

to the councils on the factors to consider when determining what 

constitutes an excessive share in future IFQ programs.



Agency Comments and Our Evaluation:



We provided a draft of this report to the Department of Commerce for 

review and comment. In the Secretary’s response, the Department’s 

National Oceanic and Atmospheric Administration provided written 

comments. NOAA’s comments and our detailed responses are presented in 

appendix V of this report. NOAA generally agreed with the accuracy and 

conclusions of our report. NOAA agreed in principle with our 

recommendation to collect and analyze information on quota holders, 

disagreed with our recommendation to set limits, and agreed with our 

recommendation to provide guidance for setting limits on quota holdings 

in future programs. NOAA also provided technical comments that we 

incorporated in the report as appropriate.



NOAA agreed in principle with our first recommendation, to collect and 

analyze information on quota holders. While NOAA stated that it would 

place greater emphasis on collecting this information in its IFQ 

programs, it noted that its ability to collect economic information 

might be constrained by provisions of the Magnuson-Stevens Act that 

protect certain economic and proprietary data. NOAA believed that 

existing IFQ programs provide adequate information on quota holders, 

citing, for example, the Alaskan halibut and sablefish program, but 

stated it would be difficult to collect information on who actually 

controlled the quota. However, our recommendation is aimed at requiring 

all IFQ programs to collect information similar to the information 

collected in the Alaskan halibut and sablefish program. We do not 

believe that information on the identity of quota holders and their 

ownership interests involves economic data protected by the Magnuson-

Stevens Act, and, in fact, the Alaskan program requires that such 

information be provided. We also believe that without a requirement to 

collect similar information in all IFQ programs, it will be difficult, 

if not impossible, to monitor for compliance with eligibility 

requirements. Such information is especially important where banks hold 

quota on behalf of others, such as in the surfclam/ocean quahog 

program.



NOAA disagreed with our second recommendation, to set limits on the 

amount of quota an individual or entity may hold in future IFQ 

programs. NOAA acknowledged that avoiding excessive shares was a 

serious mandate and that fishery management councils should analyze the 

projected impacts of various levels of ownership on market performance, 

distributional issues, and equity considerations. NOAA stated, however, 

that councils should have flexibility to deal with preventing excessive 

shares according to the circumstances of each IFQ program and that 

limits on quota holdings might be warranted and necessary in certain 

cases, but not in all IFQ programs. NOAA cited the wreckfish program--

a program where there has been little activity--as an example where 

limits should not be required. We agree with NOAA’s position that 

circumstances vary from fishery to fishery and that councils need to 

analyze the various issues when determining how to prevent excessive 

shares. We continue to believe, however, that fishery management 

councils need to define what constitutes excessive share for future IFQ 

programs. The Magnuson-Stevens Act clearly mandates that new IFQ 

programs prevent any person from acquiring an excessive share of quota. 

Without a specific and measurable definition, it would be difficult for 

councils and NMFS to know whether any quota holding could be viewed as 

excessive. A similar conclusion was reached by the National Research 

Council, which recommended the creation of fishery-specific limits on 

the accumulation of quota share by individuals or firms in each new IFQ 

program. We have revised our recommendation to reflect the full range 

of economic, social, and political considerations that need to be taken 

into account and the need for guidance to assist councils in 

determining excessive share.



Finally, NOAA agreed with our third recommendation, to provide guidance 

to fishery management councils on factors to consider when setting 

limits on quota holdings in future IFQ programs. NOAA agreed that 

limits should be based on factors that are appropriate to the fishery. 

These factors include market effects, distributional issues, and equity 

considerations. We have revised this recommendation, however, from 

“providing guidance for setting limits” to “providing guidance for 

defining what constitutes an excessive share” to take into account 

NOAA’s comments and make it consistent with our second recommendation.



We conducted our review from April 2002 through October 2002 in 

accordance with generally accepted government auditing standards.



As agreed with your offices, unless you publicly announce the contents 

of this report earlier, we plan no further distribution until 30 days 

from the report date. At that time, we will send copies of this report 

to the Secretary of Commerce and the Director of the National Marine 

Fisheries Service. We will also provide copies to others upon request. 

In addition, the report will be available at no charge on the GAO Web 

site at http://www.gao.gov.



If you or your staff have any questions about this report, please call 

me at (202) 512-3841 or Keith Oleson at (415) 904-2218. Key 

contributors to this report are listed in appendix VI.



Barry T. Hill

Director, Natural Resources 

  and Environment:



Signed by Barry T. Hill:



[End of section]



Appendix I: Scope and Methodology:



To assist in deliberations on individual fishing quota (IFQ) programs, 

we reviewed the Alaskan halibut and sablefish, wreckfish, and surfclam/

ocean quahog programs to determine (1) the extent of consolidation of 

quota holdings, (2) the extent of foreign holdings of quota, and (3) 

the economic effect of IFQ programs on seafood processors.



For all three objectives, we interviewed agency officials at the 

Department of Commerce’s National Marine Fishery Service’s (NMFS) 

headquarters office and the Northeast, Southeast, and Alaska regional 

offices; representatives of the Mid-Atlantic, South Atlantic, and North 

Pacific Fishery Management Councils; officials from the Alaska 

Department of Fish and Game; and fishery participants, researchers, and 

other industry experts. We visited Easton, Maryland; Cape May and 

Atlantic City, New Jersey; and Sitka, Petersburg, Juneau, Homer, 

Seward, and Kodiak, Alaska, where we interviewed quota holders, 

processors, and industry representatives and viewed processing plants. 

We selected these sites in accordance with suggestions from program 

managers and industry representatives to obtain IFQ program and 

geographic coverage.



In addition, to determine the extent of consolidation of quota 

holdings, for each IFQ program, we reviewed pertinent laws, rules, and 

regulations; the fishery management plan; processes and procedures; and 

relevant program documents that NMFS used to track quota holdings. We 

analyzed NMFS data on quota allocations and transfers, searched public 

corporate ownership and U.S. Coast Guard vessel documentation records, 

and interviewed NMFS officials, industry experts, and fishery 

participants to identify who controlled the use of the quota. As agreed 

with the requesters, we did not review the Maine mahogany quahogs as 

part of the surfclam/ocean quahog IFQ program because of the fishery’s 

small size and unique characteristics.



To determine the extent of foreign holdings of quota, we reviewed 

federal laws, regulations, and IFQ program rules pertaining to foreign 

individuals holding quota in U.S. fisheries. We also reviewed the 

U.S. Coast Guard’s requirements for documenting U.S. fishing vessels. 

We searched public records on corporate ownership for foreign interest 

in, and affiliation with, entities holding quota.



To determine the economic effect of IFQ programs on seafood processors, 

we limited our assessment to the economic effects on Alaskan halibut 

and sablefish processors because few of these processors were eligible 

to hold quota under the IFQ program. In contrast, processors in the 

surfclam/ocean quahog and wreckfish programs were eligible to hold 

quota. We analyzed (1) NMFS data on registered buyers, landings by 

port, and total allowable catch; (2) Alaska Department of Fish and 

Game, Commercial Operators Annual Report data on fish production, ex-

vessel prices, and processing at shore-based plants; and (3) public 

records on ownership of seafood processing companies. We interviewed 

fishery participants, including NMFS and regional management council 

officials, seafood processors, quota holders, researchers, and other 

experts on IFQ programs, to identify changes in the processing sector 

after the IFQ program’s implementation. We searched the economic 

literature on the Alaskan halibut and sablefish IFQ program and 

reviewed the only study that quantified the economic effect of the IFQ 

program on processors, interviewed the study’s principal author, and 

obtained the views of other economists who had reviewed the study. We 

could not verify the study’s results because the data used in the study 

were proprietary.



[End of section]



Appendix II National Marine Fisheries Service Data on Quota Holdings:



NMFS data on quota holdings show that consolidation occurred in 

all three IFQ programs--Alaskan halibut and sablefish (see table 7), 

wreckfish (see table 8), and surfclam/ocean quahog (see table 9)--with 

much of the consolidation occurring in early program years.



Table 7: Alaskan Halibut and Sablefish Quota Holders, 1995 through 

2001:



Item: Number of halibut quota holders; Year: 1995: 4,828; Year: 1996: 

4,227; Year: 1997: 3,913; Year: 1998: 3,795; Year: 1999: 3,677; Year: 

2000: 3,610; Year: 2001: 3,532.



Item: Cumulative percent change; Year: 1995: [Empty]; Year: 1996: 

(12.4); Year: 1997: (19.0); Year: 1998: (21.4); Year: 1999: (23.8); 

Year: 2000: (25.2); Year: 2001: (26.8).



Item: Number of sablefish quota holders; Year: 1995: 1,051; Year: 1996: 

994; Year: 1997: 940; Year: 1998: 919; Year: 1999: 902; Year: 2000: 

890; Year: 2001: 889.



Item: Cumulative percent change; Year: 1995: [Empty]; Year: 1996: 

(5.4); Year: 1997: (10.6); Year: 1998: (12.6); Year: 1999: (14.2); 

Year: 2000: (15.3); Year: 2001: (15.4).



Note: For 1995, NMFS reported the number of holders who received quota 

during the initial allocation. Thereafter, NMFS reported the number of 

holders as of December 31 of each year.



Source: GAO’s analysis of NMFS data.



[End of table]



Table 8: Wreckfish Quota Holders, 1992 to 2002:



Item: Number of wreckfish quota holders; Year: 1992: 49; Year: 1993: 

35; Year: 1994: 26; Year: 1995: 25; Year: 1996: 25; Year: 1997: 25; 

Year: 1998: 25; Year: 1999: 25; Year: 2000: 25; Year: 2001: 25; Year: 

2002: 25.



Item: Cumulative percent change; Year: 1992: [Empty]; Year: 1993: 

(28.6); Year: 1994: (46.9); Year: 1995: (49.0); Year: 1996: (49.0); 

Year: 1997: (49.0); Year: 1998: (49.0); Year: 1999: (49.0); Year: 2000: 

(49.0); Year: 2001: (49.0); Year: 2002: (49.0).



Source: GAO’s analysis of NMFS data.



[End of table]



Table 9: Surfclam and Ocean Quahog Quota Holders, 1990 to 2002:



Item: Number of surfclam quota holders; Year: 1990: 111; Year: 1991: 

100; Year: 1992: 100; Year: 1993: 102; Year: 1994: 99; Year: 1995: 104; 

Year: 1996: 103; Year: 1997: 103; Year: 1998: 102; Year: 1999: 98; 

Year: 2000: 98; Year: 2001: 94; Year: 2002: 92.



Item: Cumulative percent change; Year: 1990: [Empty]; Year: 1991: 

(9.9); Year: 1992: (9.9); Year: 1993: (8.1); Year: 1994: (10.8); Year: 

1995: (6.3); Year: 1996: (7.2); Year: 1997: (7.2); Year: 1998: (8.1); 

Year: 1999: (11.7); Year: 2000: (11.7); Year: 2001: (15.3); Year: 2002: 

(17.1).



Item: Number of ocean quahog quota holders; Year: 1990: 82; Year: 1991: 

72; Year: 1992: 73; Year: 1993: 70; Year: 1994: 59; Year: 1995: 63; 

Year: 1996: 61; Year: 1997: 58; Year: 1998: 60; Year: 1999: 58; Year: 

2000: 57; Year: 2001: 55; Year: 2002: 54.



Item: Cumulative percent change; Year: 1990: [Empty]; Year: 1991: 

(12.2); Year: 1992: (11.0); Year: 1993: (14.6); Year: 1994: (28.0); 

Year: 1995: (23.2); Year: 1996: (25.6); Year: 1997: (29.3); Year: 1998: 

(26.8); Year: 1999: (29.3); Year: 2000: (30.5); Year: 2001: (32.9); 

Year: 2002: (34.1).



Note: Quota allocations held under the same name were aggregated to 

obtain a unique count of quota holders.



Source: GAO’s analysis of NMFS data.



[End of section]



Appendix III: Surfclam/Ocean Quahog Processing Sector:



Major holders of surfclam and ocean quahog quota include seafood 

processors that are vertically integrated--owning both processing 

plants and fishing vessels. Processing companies that owned fishing 

vessels were eligible to receive quota under the initial quota 

allocation and some have held quota from the beginning of the IFQ 

program. The IFQ program also allows processing companies to purchase 

and transfer surfclam/ocean quahog quota. According to NMFS data, 

three-fourths of the companies that processed surfclams and all of the 

companies that processed ocean quahogs in 2000 were quota holders. In 

addition, our analysis of NMFS quota allocation data for 2000 showed 

that seafood processors held about one-third of the total surfclam 

quota and almost one-half of the total ocean quahog quota.



Further, NMFS data indicate that fewer processors processed surfclams 

and ocean quahogs since the IFQ program was implemented and that 

several small-and mid-sized processors left the fishery. The number of 

surfclam processors decreased by more than 40 percent and the number of 

ocean quahog processors decreased by more than two-thirds from 1990 to 

2000 (see table 10), with the same key companies processing both 

surfclams and ocean quahogs.[Footnote 13] The top 4 processors handled 

about 74 percent of the surfclam catch in 1990 and 86 percent in 2000.



Table 10: Surfclam and Ocean Quahog Processors, 1990 and 2000:



Processor type: Surfclams; [Empty]; Number of processors: 1990: 15; 

Number of processors: [Empty]; Number of processors: 2000: 8.



Processor type: Ocean quahogs; [Empty]; Number of processors: 1990: 14; 

Number of processors: [Empty]; Number of processors: 2000: 4.



Source: GAO’s analysis of NMFS data.



[End of table]



[End of section]



Appendix IV: Alaskan Ports and Major Transportation Networks:



Ready access to highways and air transportation makes it easier for 

processors and buyer-brokers to take advantage of the fresh fish market 

and its potential for higher wholesale prices because they can get 

their products to market more quickly and at a lower cost than 

processors or other buyers in more remote locations. Figure 10 shows 

the location of major Alaskan halibut and sablefish ports in relation 

to major transportation networks leading to the lower 48 states and 

international destinations.



Figure 10: Map of Alaskan Ports and Major Transportation Networks:



[See PDF for image]



[End of figure]



The Alaskan port with the greatest amount of halibut landed changed 

between 1995 and 2001, as shown in table 11. NMFS and industry 

officials attribute much of the change in port rankings to the increase 

in the fresh halibut market and the need for ready access to 

transportation networks. While ports may have access to air and ferry 

service to the lower 48 states, the number of flights and ferries may 

be limited and subject to weather delays or cancellations.



Table 11: Largest Alaskan Halibut Ports, 1995 and 2001:



Port: Kodiak[B]; 1995[A] ranking: 1; Percent of 1995

landings: 23.0; 2001 ranking: 2; Percent of 2001

landings: 15.3.



Port: Homer; 1995[A] ranking: 2; Percent of 1995

landings: 9.7; 2001 ranking: 1; Percent of 2001

landings: 24.0.



Port: Sitka[B]; 1995[A] ranking: 3; Percent of 1995

landings: 8.8; 2001 ranking: 5; Percent of 2001

landings: 4.6.



Port: Unalaska/Dutch Harbor[B]; 1995[A] ranking: 4; Percent of 1995

landings: 8.6; 2001 ranking: 3; Percent of 2001

landings: 11.1.



Port: Seward; 1995[A] ranking: 5; Percent of 1995

landings: 8.5; 2001 ranking: 4; Percent of 2001

landings: 11.0.



Port: Petersburg[B]; 1995[A] ranking: 6; Percent of 1995

landings: 7.2; 2001 ranking: 7; Percent of 2001

landings: 4.0.



Port: Hoonah[B]; 1995[A] ranking: 7; Percent of 1995

landings: 2.8; 2001 ranking: 9; Percent of 2001

landings: 2.5.



Port: Cordova[B]; 1995[A] ranking: 8; Percent of 1995

landings: 2.8; 2001 ranking: 10; Percent of 2001

landings: 2.5.



Port: Pelican[B]; 1995[A] ranking: 9; Percent of 1995

landings: 2.7; 2001 ranking: 19; Percent of 2001

landings: 0.4.



Port: Yakutat[B]; 1995[A] ranking: 10; Percent of 1995

landings: 1.9; 2001 ranking: 12; Percent of 2001

landings: 1.9.



Note: Juneau ranked number 13 with 1.4 percent of the landings in 1995 

and number 6 with 4.2 percent in 2001. Adak had no reported landings in 

1995 and ranked number 8 with 3.8 percent of the landings in 2001.



[A] 1995 was the earliest year for which NMFS data were available.



[B] Ports with limited access to major transportation networks.



Source: GAO’s analysis of NMFS data.



[End of table]



While sablefish remained primarily a frozen product, sablefish ports 

experienced a similar change in rankings (see table 12), because, 

according to processors, many fishermen sell their catch of both 

halibut and sablefish to the processor who pays the most for the 

halibut.



Table 12: Largest Alaskan Sablefish Ports, 1995 and 2001:



Port: Seward; 1995[A] ranking: 1; Percent of 1995

landings: 22.5; 2001 ranking: 1; Percent of 2001

landings: 19.7.



Port: Sitka[B]; 1995[A] ranking: 2; Percent of 1995

landings: 14.6; 2001 ranking: 3; Percent of 2001

landings: 12.6.



Port: Unalaska/Dutch Harbor[B]; 1995[A] ranking: 3; Percent of 1995

landings: 14.3; 2001 ranking: 2; Percent of 2001

landings: 15.0.



Port: Kodiak[B]; 1995[A] ranking: 4; Percent of 1995

landings: 11.4; 2001 ranking: 4; Percent of 2001

landings: 9.9.



Port: Yakutat[B]; 1995[A] ranking: 5; Percent of 1995

landings: 5.8; 2001 ranking: 10; Percent of 2001

landings: 3.6.



Port: Pelican[B]; 1995[A] ranking: 6; Percent of 1995

landings: 5.2; 2001 ranking: 15; Percent of 2001

landings: 1.0.



Port: Petersburg[B]; 1995[A] ranking: 7; Percent of 1995

landings: 4.2; 2001 ranking: 9; Percent of 2001

landings: 4.0.



Port: Cordova[B]; 1995[A] ranking: 8; Percent of 1995

landings: 3.7; 2001 ranking: 6; Percent of 2001

landings: 5.1.



Port: Homer; 1995[A] ranking: 9; Percent of 1995

landings: 3.1; 2001 ranking: 5; Percent of 2001

landings: 7.0.



Port: Hoonah[B]; 1995[A] ranking: 10; Percent of 1995

landings: 2.0; 2001 ranking: 8; Percent of 2001

landings: 4.3.



Note: Juneau ranked number 20 with 0.4 percent of the landings in 1995 

and number 7 with 5.0 percent in 2001.



[A] 1995 was the earliest year for which NMFS data were available.



[B] Ports with limited access to major transportation networks.



Source: GAO’s analysis of NMFS data.



[End of table]



[End of section]



Appendix V: Comments from the Department of Commerce:



THE SECRETARY OF COMMERCE:



Washington, D.C. 20230:



Nov 21 2002:



Mr. Barry T. Hill:



Director, Natural Resources and Environment:



United States General Accounting Office Washington, D.C. 20548:



Dear Mr. Hill:



Thank you for the opportunity to review and comment on the General 

Accounting Office’s draft report entitled, “Individual Fishing Quotas: 

Better Information Could Improve Program Management.” Enclosed is a 

copy of the Department of Commerce’s comments on the draft report.



These comments were prepared in accordance with the Office of 

Management and Budget Circular A-50.



Sincerely, 



Donald L. Evans: 



Signed by Donald L. Evans: 



Enclosure:



NOAA Fisheries Comments on the Draft GAO Report on IFQs:



“Individual Fishing Quotas: Better Information Could Improve Program 

Management” (November 2002) GAO-03-159:



Recommended Changes for Factual Information:



* In the draft letter to Senator John Kerry, GAO uses domestic 

commercial catch data from 1990 to 2000, stating that catch declined by 

7 percent (page 1). Data for 2001 (Fisheries of the United States, 

2001) shows an increase in harvests from 2000 (4.114 million tons) to 

2001 (4.305 metric tons), or an increase of 4.6 percent.Thus, from 1990 

to 2001, domestic harvests fluctuated from year to year, and the 2001 

catch level is about the same as the 1990 catch level. The point is 

that the decade of the 1990s did not witness any steady decline.



* Page 19, last paragraph, line 2: The text indicates that the halibut 

and sablefish fisheries were only a few days long prior to IFQs. While 

this is true for the halibut fishery, the sablefish fishery lasted 

longer. In 1994, sablefish fishing was allowed for twelve days in most 

of the Gulf of Alaska; it lasted from January 1 to August 8 in the 

Bering Sea and all year in the Aleutian Islands area.



* Page 20, first paragraph, line 8: The sentence which reads, “For 

example, one processor estimated that the costs to transport fish 

product from Kodiak - located on an island with limited air service - 

to Seattle were about 20 cents a pound higher than from Seward or Homer 

- that had ready access to a major road system and a major airport.” 

This is not correct, since the Kodiak airport is at least on a par with 

the airport in Homer and has a greater capacity than the airport in 

Seward. The cost differential may be due to the fact that Homer and 

Seward are on a road system. The word “costs” should be “cost” and the 

verb changed from “were” to “was.”:



* Page 36, Figure 10: The map shows airports at Anchorage and Juneau. 

However, there are also airports at Petersburg, Hookah, Sitka, Yakutat, 

Cordova, Seward, Homer, Kodiak, Unalaska/Dutch Harbor, and Adak. Not 

all of these are major airports but the airports at Petersburg, Sitka, 

Yakutat, Cordova, Kodiak, Unalaska/Dutch Harbor, and Adak can all 

accommodate regularly scheduled jet aircraft.



General Comments:



NOAA Fisheries found the draft GAO report on IFQs to be a well 

researched and clearly drafted study that addresses some of the more 

sensitive issues associated with IFQ programs. We were particularly 

impressed by the careful research on trends in the number of quota 

holders in the three IFQ programs, and we acknowledge that GAO has, 

through multiple interviews with IFQ participants, uncovered 

information on consolidation that is not revealed by NOAA Fisheries 

data, especially with respect to the surf clam/ocean quahog IFQ. 

However, NOAA also notes that the GAO report’s treatment of 

developments in the wreckfish IFQ would have benefitted from 

consulting:



John R. Gauvin, John M. Ward, and Edward A. Burgess, “Description and 

Evaluation of the Wreckfish (Polyprion Americanus) Fishery Under 

Individual Transferable Quotas,” Marine Resource Economics, (1994) 

9(2), pp. 99-118.



NOAA found that the tables on trends in the number of quota holders in 

the three IFQ programs on page 34 of Appendix III were particularly 

useful.



The section of the GAO report dealing with foreign ownership was also 

well done, and it shows, in our judgment, that there is little or no 

basis for thinking that foreign ownership is an actual or potential 

problem in U.S. IFQ programs.



Finally, the discussion of the economic effects of IFQs on processors 

was limited, as the GAO report recognizes, because there is only one 

report that addresses economic effects on processors in the halibut/

sablefish IFQ. There are many still unanswered questions about that 

study, which was commissioned by the State of Alaska. We concur with 

and appreciate the analysis on pages 23-29 of that study: “Efficiency 

and Equity Choices in Fishery Rationalization Policy Design: An 

Examination of the North Pacific Halibut and Sablefish IFQ Policy 

Impacts on Processors.”:



In conclusion, NOAA accepts the basic conclusion of the report, i.e., 

that more and better information on quota holdings, foreign ownership, 

and economic impacts on processors would improve IFQ programs.



_Specific Comments:



* An important question is “control” over use of quotas in IFQ 
programs. 

The GAO report suggests in several places that an entity other than a 

fishing company (e.g. a bank or holding company) that holds quota 

automatically controls its use. NOAA questions that this is always the 

case. A bank may hold quota as collateral without controlling its use. 

Our understanding is that a bank will normally hold quota shares as 

collateral to ensure that the fishermen pays his debt to the bank. The 

bank cannot utilize, lease, or sell quota shares unless the agreement 

between parties so specifies, and the federal regulations so authorize.



* Page 6, footnote 2: This footnote is technically correct, but the 

authors may want to note that the term “bycatch” has an unusual 

definition in the Magnuson-Stevens Act. The term “bycatch” means fish 

that are harvested in a fishery, but that are not sold or kept for 

personal use, and includes economic discards and regulatory discards. 

Such term does not include fish released alive under a recreational 

catch and release fishery management program. Therefore, in the 

Magnuson-Stevens Act, “bycatch” means discards.



* Page 12, Table 1: The table is only meant to provide information on 

selected IFQ program objectives. GAO should be aware that ten program 

objectives were identified by the halibut/sablefish program, including 

(1) allocation conflicts, (2) gear conflicts, (3) deadloss from lost 

gear, (4) bycatch loss, (5) discard mortality, (6) excess harvesting 

capacity, (7) product wholesomeness, (8) safety, (9) economic 

stability, and (10) rural community and small-boat fleet.



* Page 13, first three paragraphs: The first sentence in the first 

paragraph is repeated verbatim in the first sentence of the second 

paragraph. The second sentence in the first paragraph is repeated 

almost verbatim as the first sentence of the third paragraph.



* Page 16, first complete paragraph, lines 9-11: (A) The limits on 
quota 

share use and block holdings, and the limits on the amounts of quota 

share that may be fished from a vessel in a year, are in Code of 

Federal Regulations (CFR) 679.42(e) , (f), (g), and (h). The limits are 

specified as limits on quota share “use” rather than as limits on quota 

share “holdings” (as described in the report). Limits are imposed on 

“use” rather than on “holdings” to avoid an implication that quota 

share is more than a privilege. (B) The limits cited in the text are an 

example of the types of limits that can be imposed; however, GAO should 

be aware that there are additional limits imposed by the halibut/

sablefish program. Regulations at CFR §679.42(h) impose limits on the 

amount of quota share that may be fished from a single vessel during a 

year. No vessel may be used to harvest more than one-half of 1 percent 

of the combined halibut catch limits in all areas, or more than 1 

percent of the catch limit in area 2C (Southeast Alaska). No vessel may 

be used to harvest more than 1 percent of the sablefish fixed gear 

Total Allowable Catch (TAC) from the Gulf of Alaska and Bering Sea/

Aleutian Islands areas, and no vessel may be used to harvest more than 

1 percent of the fixed gear TAC east of 140 degrees W (the eastern Gulf 

of Alaska). Moreover, some quota share is aggregated into indivisible 

blocks. Regulations at CFR §679.42(g) impose limits on the numbers of 

these blocks that may be held.



* Page 21, Tables 3 and 4: The tables make comparisons between the 
years 

1995 and 1999. The year 1995 was the first year in which the IFQ 

program was operational. If the purpose is to compare the fishery and 

the buying and processing sector before and after IFQs were introduced, 

it may be appropriate to change the first year to 1994.



* Page 22, last paragraph: The year 1995 was used as the first year of 

comparison in this paragraph. The year 1994 may be more appropriate for 

the reasons explained in the previous comment.



* Page 37, Table 11: This table compares Alaska halibut port rankings 

between 1995 and 2001. The year 1995 was the first year of the IFQ 

program. To contrast the situation before the program and after, it 

might be more appropriate to use the year 1994 as the base.



NOAA Response to GAO Recommendations:



The GAO states, “We recommend that the Assistant Administrator for 

Fisheries should take the following actions to improve the management 

of IFQ program:”:



Recommendation 1: “To ensure that quota holders meet eligibility 

requirements, such as being a U.S. citizen or entity, we recommend that 

the Secretary of Commerce direct the Director of NMFS to collect and 

analyze information on quota holders, including who actually holds and 

controls the use of the quota and for whom financial institutions hold 

quota.”:



NOAA Response: NOAA Fisheries agrees in principle with this 

recommendation, but notes that our ability to collect some of this 

information may be constrained by Magnuson-Stevens Act provisions that 

protect: (1) processors’ “economic data” (section 303(b)(7)) and (2) 

“proprietary or confidential commercial or financial information 

regarding fishing operations or fish processing operations” (section 

402(a). Unfortunately, voluntary economic data collection has not been 

effective in some regions. This makes it difficult or impossible to 

effectively monitor the impact of some IFQ programs on fishing 

operations and processors. NOAA Fisheries notes that the halibut and 

sablefish IFQ program already effectively complies with this 

recommendation and that the Alaska crab rationalization plan that the 

North Pacific Council recommended in June 2002 to Congress includes 

provisions that would allow mandatory collection of economic data.



NOAA believes that existing programs provide adequate information on 

the holders of quotas in IFQ programs. In the halibut and sablefish IFQ 

program NOAA Fisheries issues quota shares initially and approves all 

transfers of quota shares and IFQs. Therefore, NOAA Fisheries already 

“knows” who holds all such quota shares and IFQs. With respect to 

controlling the use of quota and determining for whom financial 

institutions hold quota, we are dealing with a more difficult issue. In 

the halibutlsablefish IFQ program, there is voluntary reporting of 

asserted security interests against quota shares. NOAA has made public 

periodic analyses of the demographics of quota share ownership, 

including disclosed financial interests. However, if analysis of other 

types of “control” is intended, the nature of such “control” must be 

specified before NOAA Fisheries can design an appropriate data 

collection system to capture such information.



NOAA Fisheries will place greater emphasis on these questions in its 

IFQ information collection programs, bearing in mind that specific 

efforts may be constrained by sections 303(b)(7) and 402(a) of the 

Magnuson-Stevens Act, and by future actions of Congress.



Recommendation 2: “To help prevent an individual or entity from 

acquiring an excessive share of the quota in future IFQ programs, we 

recommend that the Secretary of Commerce require regional fishery 

management councils to set limits on the amount of quota an individual 

or entity may hold.”:



NOAA Response: NOAA does not agree that limits, or caps, on the amount 

of quota that an individual or single entity may hold should be 

required in all IFQ programs, but we do believe that councils should 

study this issue and seriously analyze the projected impacts of various 

levels of ownership on market performance, distributional issues and 

equity considerations.



The Magnuson-Stevens Act requires that:



(1) “no particular individual, corporation, or other entity acquires an 

excessive share” of any catch quota (national standard 4 in section 

301(a)), and:



(2) a new IFQ program “prevents any person from acquiring an excessive 

share of the individual fishing quotas issued” (section 303(d)(5)(C)).



To meet these mandates, NOAA agrees that caps on the individual 

ownership of quota shares may be warranted and necessary in certain 

cases, such as the halibut/sablefish IFQ program, but not in all such 

programs. The halibut/sablefish IFQ program (1) includes specific 

limits on the amounts that an individual or individual entity may use, 

(2) requires that some quota be aggregated in indivisible blocks, and 

(3) imposes limits on the number of blocks that may be held by an 

individual or individual entity. Finally, the program imposes limits on 

the percentage of TAC that may be fished from a single vessel during a 

year.



On the other hand, some IFQ programs do not include such limits. The 

wreckhsh IFQ has provisions for monitoring ownership shares but does 

not mandate caps. The wreckhsh program has fewer than 10 quota holders, 

of which only two vessels actually participated during the most recent 

season. Thus, individual ownership caps do not serve any meaningful 

purpose in this program.



NOAA Fisheries agrees that avoiding excessive shares is a serious 

mandate, and recommends that councils who want to develop a new IFQ 

program should conduct an informed analysis of the implications of 

ownership concentration on (1) markets (prices), (2) distribution of 

shares among industry sectors, and (3) e uit , in particular the future 

participation of small-scale fishermen. These issues will be discussed 

in greater detail in the technical guidance that is the subject of the 

next GAO recommendation.



NOAA believes in dealing with the “excessive quota shares” issue 

flexibly, depending on the circumstances of each IFQ program, within 

the constraints of sections 301(a) and 303(d)(5)(C) of the Magnuson-

Stevens Act. The economic conditions of different federally managed 

fisheries vary widely, and, therefore, limits on individual quota 

holdings should be tailored to the specific fisheries based on 

recommendations of the relevant Regional Fishery Management Council. As 

a very general rule, IFQ programs in fisheries in which (a) there is a 

substantial number of participants and (b) the council has a strong 

desire to maintain as much as possible the participation of small-scale 

fishermen may require caps on individual shares.



Recommendation 3: “To assist the regional fishery management councils 

in setting limits on the amount of quota an individual or entity may 

hold, we recommend that the Secretary of Commerce direct the Director 

of NMFS to provide guidance to the councils on the factors to consider 

when setting limits in future IFQ programs.”:



NOAA Response: NOAA agrees with this recommendation. Guidance on the 

“factors” that the councils should take into account when setting 

limits or caps on individual ownership of quota in IFQ programs could 

be included in guidance that NOAA will provide to the councils on a 

broad range of IFQ issues. As previously noted, while NOAA does not 

believe that such caps should be required in each IFQ program, we do 

agree that, if a council chooses to develop such caps, the limits 

should be based on factors that are appropriate to the fishery. The 

factors that councils should take into account when deciding on 

ownership caps may be placed in three categories: (1) market effects, 

(2) distributional issues, and (3) equity considerations. NOAA will 

conduct research to provide specific guidance on these factors, and the 

final product will be technical guidance on fishery management plans 

that include IFQs.



[End of figure]



GAO Comments:



The following are GAO’s comments on NOAA’s written comments provided by 

the Secretary of Commerce’s letter dated November 21, 2002.



1.	 We revised the text to reflect that the domestic commercial fish 

catch remained relatively the same as in 2001 as it was in 1990.



2.	 We revised the text to reflect that the IFQ program extended the 

halibut and sablefish fishing seasons in some areas.



3.	 We changed the text to make it clear that the cost differential was 

due to the fact that Homer and Seward had access to a road system.



4.	 We revised the legend for figure 10 to show that the airports are 

international airports.



5.	 NOAA commented that the report’s treatment of wreckfish would have 

benefited from consulting a 1994 wreckfish article. We reviewed the 

article and determined that generally only the article’s discussion of 

consolidation and control of quota holdings was pertinent to our 

objectives. The article explained that the wreckfish program did not 

set limits on quota holdings, in part, because it would be difficult to 

determine who actually controlled the use of the quota. We believe that 

our report had already adequately addressed this issue. By not defining 

limits, the information needed to determine who controls the use of 

quota is not collected and monitored. For this reason, we did not 

revise our report.



6.	 Our point was that banks hold quota for someone else who controls 

its use. As such, consolidation may be greater than NMFS data indicate. 

Nonetheless, we revised the text to make it clearer that financial 

institutions held, but did not control the use of quota in IFQ 

programs.



7.	 Although our definition was technically correct, we revised footnote 

2 by providing the definition of bycatch under the Magnuson-Stevens 

Act.



8.	 We revised the title of table 1 to make it clear that the table 

listed examples of objectives for the IFQ programs we reviewed.



9.	 We revised the text to remove some of the redundancy.



10.	 We added a footnote to explain that the rules of the Alaskan 

halibut and sablefish program specify limits on quota holdings as quota 

share use caps.



11.	 We added a note to tables 3, 4, and 11 to indicate that 1995 was 

the earliest year for which NMFS data were available.



[End of section]



Appendix VI GAO Contact and Staff Acknowledgments:



GAO Contact:



Keith W. Oleson, (415) 904-2218:



Acknowledgments:



In addition to the name above, Charles W. Bausell, Jr., Susan J. 

Malone, Mark R. Metcalfe, Rebecca A. Sandulli, and Tama R. Weinberg 

made key contributions to this report.



(360198):



FOOTNOTES



[1] P.L. 94-265, as amended (16 U.S.C. 1801 et seq.).



[2] Under the Magnuson-Stevens Act, “bycatch” means fish that are 

harvested in a fishery, but which are not sold or kept for personal 

use. Bycatch includes fish discarded for regulatory or 

economic reasons.



[3] According to NMFS officials, there had been very little activity in 

the wreckfish program since 1995. A National Research Council study of 

IFQs attributed this lack of activity to low market prices of wreckfish 

compared to other species for which the same vessels can fish.



[4] To facilitate financial transactions such as the purchase of quota, 

a bank or other financial institution may serve as a transfer agent. In 

this situation, an individual sells or permanently transfers the quota 

to the financial institution, which, under separate agreement, 

transfers the quota to the “rightful” owner when the loan is fully paid 

or in installments as loan payments are made. In addition, these 

agreements establish to whom the bank leases the use of the quota 

each year.



[5] Program rules specify these limits as quota share use caps.



[6] National Research Council, Sharing the Fish: Toward a National 

Policy on Individual Fishing Quotas (Washington, D.C.: National Academy 

Press, 1999), 209.



[7] In the initial allocation, quota shares could only be distributed 

to owners of fishing vessels that landed surfclams or ocean quahogs 

during certain years. Once the initial allocation was made, quota 

shares could be transferred to entities whether they owned a fishing 

vessel or not.



[8] The market share of a company is the amount of fish purchased by 

that processing company as a percentage of total fish purchased by all 

processing companies. Processing companies, in this context, are those 

companies that own one or more of the individual shore-based plants 

that are processing halibut or sablefish. 



[9] Matulich, Scott C., and Michael Clark, Efficiency and Equity 

Choices in Fishery Rationalization Policy Design: An Examination of the 

North Pacific Halibut and Sablefish IFQ Policy Impacts on Processors, 

Washington State University, January 2002.



[10] The study also estimated that gross operating margins for 

sablefish processors decreased by 75 percent, on average. However, we 

did not review the sablefish estimates because the methodology and 

adjustments used in the study were not clear to NMFS economists or us.



[11] Halvorsen, Robert, Comments on the Matulich and Clark Report, 

“Efficiency and Equity Choices in Fishery Rationalization Policy 

Design,” University of Washington, April 2002.



[12] Sharing the Fish, 403.



[13] NMFS was only able to provide processor data through the year 

2000.



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