Following the Money (Part 2)

by | Jan 23, 2015 | Conversations

Marcus Hartley

Following the Money (Part 2)

A Conversation with Economist Marcus Hartley

Marcus Hartley

Marcus Hartley
President and Senior Economist
Northern Economics, Inc.

This is Part 2 of a Q&A with Marcus Hartley, President and Senior Economist at Northern Economics, Inc., who is leading the socioeconomic component of the Measuring the Effects of Catch Shares Project. Click here for Part 1 of the Q&A.

If money doesn’t tell the whole story, what else are you looking at and why?

Fisheries don’t operate in silos; they are conducted by fishermen who work on the sea. If a fisherman sees a substantial change in one fishery, there is a ripple effect on how they engage with other fisheries. Sometimes that is lost in reports of revenue or descriptions of programs. Sometimes the effort that it would take to document the entire impact of fisheries in these communities is more than would be feasible. We sometimes end up with anecdotal tales, newspaper articles, or other bits of information that may indicate a larger trend, but these are not the type of quantitative information we prefer to use to support conclusions. So, what we would like to do, as much as we can, is to take a look at the data and try to explore the trends by separating pre- and post-sector or IFQ program information.

You can explore some of the questions—you can look at vessel and permit holder counts in different communities, and sort by vessel class to look at size, for instance. You can also look at trends between smaller and larger communities or groups of communities. We’ve started looking at how things have played out differently in different areas. Exploring the trends and differences may lead us to additional questions to be asked in confidential interviews to supplement the data, and to test ideas and look for reasons for why things happened as they did.

When we talk about boats from Downeast Maine, for example, we would like to see the big picture of what they do: where they catch their fish and where they land their fish, and whether this is changing. We also want to know whether and how they fish in other fisheries. In looking at catch share programs, we want to explore not only how sector participation influences the species in the program itself, but how it influences the fisherman’s overall portfolio. Does it free them up to do things differently in other fisheries? Did we get a ripple effect of decision-making, and how does decision-making under catch shares differ from open access? Does it affect things you do with your time and vessel? We think all that and more is the level of detail you need to understand what is happening in the sector program in the Northeast and in the groundfish IFQ program on the West Coast.

We have also considered looking at the effect of catch shares and the “graying of the fleet.” We thought about how compensation for owners and crew has been affected over the years. These are big questions that stakeholders want answered, but they are difficult. People have different opinions, views are not consistent, and there is no common agreement on how things play out after catch shares are implemented. The information is not something you can distill from gross revenue and landings reports. We are still up in the air on how to get the data. It’s a challenge.

What do you mean by the “graying of the fleet,” and why is it of interest?

Some commentators have asked whether catch share programs are a way to get paid to no longer fish—a way out with compensation for the time and effort you’ve put in. Before catch share programs, if someone wanted to leave the fishery, he or she could sell a permit. And to get into the fishery, you had to buy a permit. Permits were not cheap, but they gave you the right to fish and the amount of fish you could harvest with a given permit was no less than the amount that a highliner could harvest. Typically permits were bought and sold at prices that implicitly assumed the owner would generate average or above revenues. However, based on the 80/20 rule of fisheries that says that 80 percent of the fish are harvested by 20 percent of the fishermen, it was very unlikely that a permit would actually generate the level of revenues for them to be a “reasonable” investment—a lot of people overpaid for their permits. Under catch shares, the average value of the permits with shares has probably declined significantly because most people’s share totals are lower than average (based on the 80/20 rule). That was the system. The permit was a general unit, with no specific rights. Today, in a catch share program, a permit enables its owner to buy shares, but since the shares can be sold with or without the permit itself, it may be perceived that the shares are worth more than the permit.

There is little doubt that catch share programs appear to provide a more elegant exit strategy for people who leave the fishery, but it takes a long time for the market to balance itself out. In reality, the people who have the shares won’t be able to get out of the fishery until and unless they become willing to sell shares at a price at which potential buyers can make money. It probably will be lower than what we can expect to see in the initial years of the program.

In the initial years, people who already have boats and shares don’t have to make a big investment to have a business—they can afford to pay a pretty good price for additional shares. They can fish those purchased shares at the end of the year after all their fixed costs are paid (that is, on the margin) and make money, even after paying back their investment. A new entrant, buying shares without the foundation of an existing business, is likely to face a price higher than what he or she is willing to pay in order to be able to make money. The gap between the price to begin with and what the price should be averaged out as total fishing investment remains to be seen. It is one of the reasons there are significant arguments to having limits on the amount of shares per individual.

These transactions are interesting because they tell us not only where the money goes, past the first transaction, but also what type of owner is getting it. Is it a long-term participant? New entrants? New fishermen? Are they able to earn? We want to follow that trail with data we will be obtaining on the West Coast Shorebased IFQ program. With data that we have requested from NOAA, we should be able to track income information based on whether the boat has been in the fishery since the 1980s, the 1990s, or one that came in during the catch history qualifying period. This is just one more way to follow the money.

NOAA’s Office of Science and Technology has published regional summaries on the performance of the catch share programs in the Pacific and New England. What is your socioeconomic team doing that differs from those reports?

In large part, we are using a lot of NMFS data. What I see us adding to the picture is taking data that have been collected, supplementing a bit with original information, then exploring it in a way that can tell us something about the performance of the catch share program to date that has not been obvious from the information that has been published so far or portrayed fishery-wide. Some of that has to do with drilling down to a community level where possible, looking at how things played out differentially in different communities, smaller regions or areas, or groups of communities.

Another part of that is looking at how things have worked out in terms of consolidation of the fleet. Have there been patterns between communities that are different now than they were before? We are looking at overall performance, whether and how changes have emerged in the patterns. Some of this will come from surveys and data collection we are doing independent of government studies. We’ll start that work in 2015.

We are using a different baseline than the performance reviews, a longer one, and our questions relate more to whether things played out as predicted in the development of the two programs.

What was the most interesting thing you learned from looking at the longer baseline and exploring the fishery data from different angles?

On the East Coast, one of the surprises was the level of participation in other fisheries by the vessels that are now in the catch share program. Something that the reports provide, but don’t talk about a lot, is that groundfish fishermen are making as much or more money in non-groundfish landings as in groundfish landings. For example, in 2009, sector vessels had revenues of $144 million for non-groundfish species, and $89 million in groundfish. That is a significant number. Before the sector program started, they were earning about the same or more on groundfish. There are a lot of people focusing on the groundfish fishery and forgetting that these folks are involved in multispecies fisheries, not just fishing for groundfish. These are highly diversified boats. That was a surprise. We certainly don’t see that level of diversification in the groundfish fishery in Alaska, for example, or on the West Coast. That dichotomy was a big surprise.

We have a picture in our heads of people going out, fishing day in and day out, and mainly landing groundfish. But the data, particularly in the Northeast, indicate that there is a lot more activity in non-groundfish than we assumed. Groundfish may have become a sidelight at this point? We don’t know. If we had good historical data, we could look into how it changed over time. The focus in previously published reports was not on all revenue, only groundfish revenue. We don’t even know if the significance of non-groundfish represents a change. And if it is a change, did it happen recently? Or has there been a more gradual switch over a longer time? It’s a big mystery. We don’t know the answer, and I don’t think we’re going to get it from NMFS standard reports. It would require looking at boats from a holistic perspective, rather than by species. That won’t change until analysts drive it by asking the questions. It’s a big story, but we can’t address it with the data that have been made available to us, nor can we say if it’s a new story or an old familiar one.

Throughout your career you have analyzed socioeconomic information from catch share programs all over the country. Over the past decade, collection and analysis of this kind of information has become a higher priority in fishery management. Even so, what is the question you’ve found hardest to answer?

Any question can be hard to answer unless there is a demand by the managers to answer it. Analysts will be curious and will ask questions, but unless there is a management purpose to the question, we won’t have a priority on getting the answer.

In an example from one region, the management council wanted us to tell the story about the ports, where the money was going, and what communities were affected by the operations of the fleet in the region. Although it was an obvious question to ask, it was not fully answerable because the data that reported when and where the fleet of catcher-processors offload their catch were considered an “enforcement issue,” not a management issue. Managers did have full access to catch and production reports that were verified by observers, but the offload data that links vessels directly to communities were not entered into the management databases to which analysts had access.

Until the right questions are asked persistently and forcefully, many of the analyses that would really dig into these programs are not getting done. For example, where do crew members live? We don’t even have a system that identifies crew members on fishing vessels. We have better information on migrant laborers in agriculture than on fishing vessel crews. Even in cases where crew members must have a license, the data are so poorly collected that we have no way to relate the license with active or inactive crew, whether it was ever used, in what fishery, what time period. In every other industry including agricultural workers, employment data are collected for every worker. But because fishermen are considered “independent contractors,” nothing is reported.

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