Preserving the Independence of the Inshore Fleet in Canada's Atlantic Fisheries

Public Consultations - Yarmouth, NS - January 15, 2004 Draft Summary

Overall Summary of the Session

Opinions fell into three categories

• Eliminate the owner-operator and fleet separation policies, treat the fishery like a business which will solve trust agreement problems. DFO should concentrate on conservation, science and fisheries management and leave business financing to others.
• Limited flexibility in the policies, including provisions for some groups to move further away from these policies than others; a belief that the will of one fleet should not be imposed on another. Trust agreements are fine as a source of financing and DFO should not interfere. Issuing licences to inshore corporations is fine as long as those corporations are owned by fishermen.
• Keep the two policies and move quickly to a regulation that would enshrine them in legislation. This group still wanted tax benefits provided by trust agreements.

Common Points

• General agreement that undue concentration of licences needs to be avoided.
• Financing for new entrants is a fundamental issue, whether the funding comes from banks, processors or others.
• Fishers need benefits of small business ownership; many issues were raised with respect to comparative tax treatment with other small businesses, particularly agriculture.
• Concern for intergenerational transfers. Some participants called for the creation of a working group with representatives from CCRA, DFO, provinces and industry on the issue of intergenerational transfers and issues related to owner-operator and fleet separation policies, primarily issues around taxes.
• Safety and vessel replacement rules were also issues at this meeting.

Summary of Formal Written Submissions

• Each sector of the fishery has its own problems, which will likely have a myriad of solutions, and ultimately Canada has to be competitive in the international market.
• The fundamental issue is borrowing money; since you can’t borrow against a licence or quota, finance arrangements must be flexible. Trust agreements are only one solution to the problem of financing, particularly for intergenerational transfers, and are in common usage in many industries.
• One potential solution is that licences become more like property – like in New Zealand - where quotas are attachable and financing can come from a bank or other lending institution. This ability to borrow money against the value of a licence helps to preserve the independence of fleet.
• If we translate the owner-operator policy into a gas station example, this would mean that the owner of the gas station must pump every litre of gas - he can’t go into the office and manage his business.
• The groundfish sector has the largest number of pre-79 companies – these are small, vertically integrated family businesses – what is wrong with this? These people live in the community. This is the fundamental issue – by living and working in the community, these people are sensitive to community issues and subject to pressures; absenteeism is the problem.
• The discussion document refers to avoiding undue concentration of licences; we have gone on a cycle where there were too many fishers, then too few – a balance has to be struck, with enforceable, reasonable approaches.
• The fishery is the last Canadian resource that is controlled by Canadians – and must be kept that way - not sold off to the highest international bidder.
• The fisheries sectors must be kept segregated as different problems will require different approaches and different solutions; this will allow each sector to work on its own problems.
   
• We need to focus on how the fishery should proceed in a more modern context; if you own piece of a big processing company, through mutual funds, you actually own a piece of the company and that isn’t bad.
• Our processors are considered some kind of “lowlife” if you listen to rhetoric but they are part and parcel of the industry; partners with fishermen who have made this area, this region, the most lucrative area in the country. Trust agreements have been what they have had to resort to, along with their fishermen colleagues, to compete in the international market. Clearwater has to be commended for how they approached and developed the fishery 15 years ago.
• If we look at the AFPR and its principles – it is too paternalistic. This discussion document on preserving the independence of the inshore fleet seeks to preserve this paternalism, which needs to stop. Fishermen aren’t dumb. Trust agreements are used in many ways, for many reasons. This policy initiative will give CCRA just what it wants – more taxes.
• If we pursue this policy, it will roll back the value of a lobster licence from $1M to $250k; there are many trust agreements in existence and they are important for the overall economic prosperity of the community.
• If we take protecting independent fishermen to its logical conclusion, we would end up with gas powered boats, open dories, no limited entry system, etc. and you would just fish until the last fish was caught. Introduction of the limited entry system created a value for the licence and once you create value, fishermen learn how to grow their businesses (some more than others).
• When the IQ system was introduced into the inshore mobile gear groundfish fleet, the fleet was in a state of chaos, with too many boats and too few fish; illegal fishing was the norm and stealing fish happened daily. With no sympathy in the public and no political will to buy out the dragger fishermen, they turned to the IQ system. This fleet is now one of the best managed fisheries on the coast. It was saved by trust agreements, which allowed market driven consolidation of both quota and effort.
• Does this have to happen in lobster? We have 963 licence holders, boats, captains and crews in District 34. At present there is no quota on lobster and under current regulations and policy it is required that each licence be operated and, by implication, means that there 963 boats, captains and crew participating in the fishery. So far the resource can sustain this but who owns boats is irrelevant. What is wrong with a processor holding a licence.
• If you don’t consider getting rid of fleet separation, you are basically interfering with your own principles in the policy review and the need to truly compete in the modern fishery.
• DFO needs to make a clear cut policy statement that will allow certain business relationships out in the open; make these relationships legitimate in policy, as they are in law; we should not yield to some of these notions that we are limiting the independence of inshore fleet and recognize that there are huge financial implications in keeping the fleet separation policy.
   
• The owner-operator and fleet separation policies should be removed from the >45 foot fleet.
• The evolution of the scallop fishery in the Bay of Fundy has forced many operators in the scallop fleet to acquire other scallop licences in order to survive; until last year it was not possible to support a 65-foot vessel and its crew on a single scallop quota allocation. The current licensing policy does not allow a fisherman to hold more than one licence, so to survive they have had to buy, rent or lease additional quota allocation. This was often done through trust agreements.
• The owner-operator provision should be removed from those fleets that request it to allow licence holders to designate operators for their vessels (the reference was to the scallop fleet). The current licensing policy has forced a regime of trust agreements and it is in the interest of all parties that the actual owners of the licences be allowed to declare what they own. This policy has prevented processors from securing supply by purchasing licences but has allowed successful fishermen to purchase or open processing plants. The policy has penalized processors and forced them to survive into a legal maze of trust agreements and licence holdings.
• The fleet separation policy is a management tool from another era and should be scrapped all together. The policy, if not changed, will be the death knell of the independent fish plant and the employees they support. The one way street of allowing harvesters to hold processing licences, while not allowing processors to hold harvesting licences will eventually evolve into plants owning licences by default.
• The current policy not only limits a company from purchasing a licence, it also prevents a successful fisherman from expanding his fishing enterprise and obtaining another licence. Once again, he will be driven underground to enter into a trust agreement.
   
• Much of the value of our seafood is created by processing companies; competition is international, competing against large-scale aquaculture industries, abundant wild fisheries and often cheap labour; not to mention other protein supplies such as beef and pork. Most of our competition comes from countries where vertical integration is allowed.
• In many coastal communities, fish processing plants serve as the principal land-based employer. Many companies are owned and operated by fisherman or ex-fishermen; some companies have pre-1979 licences and some have trust agreements with licence holders.
• In the discussion document, a negative connotation is attached to words like ‘processor’ and ‘corporation’. The long term profitability and viability of the harvesting sector is ultimately dependent on the processing, product development and marketing efforts of processors and exporters. The discussion document seems to focus only on the roots and trunk of the tree and ignores the importance of the limbs and leaves.
• The document refers to harvesters as “resource users” and ignores the fact that thousands of people in Nova Scotia work in processing or packing plants. The owners of these plants have made substantial investments and the thousands of people who work in them are also “resource users”.
• We would like to see DFO policies that promote a viable, profitable processing sector where it makes sense for companies to install the latest processing equipment, to invest in developing new products and new markets. Don’t treat processors as the “enemy” or as second class citizens through discriminatory policies. We are in favour of competition at all levels of the industry. And, we want better access to our own Canadian raw material.
• The fleet separation and owner-operator policies are out dated, cannot be legally enforced, seem to make illegal what is common business practice in SW Nova today, do not make good business sense and should both be scrapped.
• We share the concerns expressed in the discussion document about undue concentration of licence ownership and the need for viable, profitable fishing enterprises but do not feel that our position on elimination of the owner-operator and fleet separation policies is inconsistent with these objectives because alternative policies may be available that are not so discriminatory and harmful to the processing sector.
• The owner-operator and fleet separation policies have not been effective in preventing vertical integration among harvesters, buyers and processors. While much is made in the discussion document of ‘trust agreements’, the document ignores two other loopholes if the objective of the policy is to keep the two sectors separate. Fishermen have every right to own a provincial buyer’s licence, to own and operate a packing or processing facility. Native fishermen and native communities have the right to harvest and to pack or process for export or sale.
• While we do not begrudge these rights to fishermen or native communities, we object when government policy singles out certain companies or individuals in the industry and denies them the right to grow their business and to seize market opportunities. The industry needs businesses that will reinvest their earnings when it makes good business sense.
• DFO can assist in preventing the undue concentration of licences through legislation that will facilitate the intergenerational transfer of licences by allowing fishermen the same capital gains exemptions that are permitted in the agriculture sector. DFO, with the provinces, can develop sources of capital and a better mechanism for young fishermen to purchase a licence. Fishermen do not have to sell their licences to processors and buyers and if governments provide sources of financing and a capital gains incentive to transfer a licence to a son or daughter, many fishermen will choose to sell to a family member or a crew member.
• We share DFO’s objective of professional fishermen who are well paid for the work they do. DFO should work with industry to establish a training fund for fishermen.
• In order to attract the next generation to the fishing and processing industries, we will have to provide competitive wages, benefits and working conditions. This will only be possible if we are successful with our products in the export marketplace.
   
• At a very young age, I was taught an old English proverb – “Time and Tide Wait for no Man” - missing an appointment for a 4:30 am irish mossing tide or being 30 minutes late for lobster fishing simply meant your day was lost and the income with it. But more is at stake if we turn from our responsibility of preserving the independence of the inshore fleet – and time and tide will not wait for us.
• In the mid 1990s, through the Commercial Fisheries Licensing Policy, DFO set out to provide for the orderly harvest of the resources; it was also the intent of the owner-operator and fleet separation policies to protect the independence of the inshore fleet from control by other interests such as processing companies.
• During the same period, it was apparent to all, including processing companies, that control over the ownership of licences would ensure a constant supply of fish; the processing companies capitalized on this and thus trust agreements were born.
• Independent fishers, on the advice of their accountants, formed companies for tax reasons. Most fishermen in South West Nova today refer to such companies as those who are taking over our fishery!
• A ‘fisherman company’ is usually made up of family members, the president of which is the captain of the vessel, a core licence holder and owner-operator as spelled out in many of his licences.
• A ‘processing company’ structure is very different. These companies usually have a board of directors, do not hold core licences, and will enter into trust agreements with captains to take their enterprise fishing. Usually the wages and shares to the fisherman are lower, as are prices at dockside. The responsibility for the sale of the catch is taken away from the trust agreement captain.
• Another example of a processing company is that of a consortium – a group of people or companies who get together to finance a project too large for any one of them to finance alone. The president and board of directors are usually not fishermen. The power in this instance to control many aspects of the inshore fishery is very clear and a cause for concern.
• I am not here to condemn or lessen the legitimacy or value of processing companies – they are a viable entity, and have achieved their success through hard work. However, in an area such as rural Nova Scotia, the needs and future of communities must be considered of paramount importance; should our situation with the processing companies be left unchallenged, our coastal communities will continue the present downslide until it is too late – the existence of these communities is at stake.
• We have to ask ourselves why would an individual who, as a rule, has a vast knowledge of the sea, years of fishing history, having mastered over many crew members and so much more, get involved with trust agreements and not pursue his operation as an independent fisherman. The answer has one main focus: lack of financial support to purchase a licence. The main difference between the board of directors of processing companies and the individual who signs the trust agreement is the lack of financial lending support to purchase an enterprise with a fishing licence attached. Fisheries policy has failed to address this problem.
• To create a balanced playing field, fishers need tax help. Something as simple as having CCRA tax protection for intergenerational licence and enterprise transfers would be a place to start. This, combined with a major restructuring of the Nova Scotia Fisheries/Aquaculture Loan Board would be a first step. Given the aging population of licence holders, something should be done right away. Banks and other lending institutions also want this issue addressed.
• If trust agreements continue to grow, they will have a number of negative effects on our communities and economic well being. There are pressures on trust agreement captains that do not exist for an independent fisherman, including respect for the Atlantic Ocean and the winter weather some sail in. The pressure of answering to a board of directors will always be greater than to answer to family.
• The outward flow of fishing licences from local communities by trust agreements has a negative effect on coastal communities. The opportunity for young fishermen to purchase and own a family enterprise is almost non-existent.
• The need for a review of the policy is necessary and should consider some flexibility in the owner-operator provision to deal with such matters as: intergenerational transfers; combining licences by pooling quota and sharing licences (with a maximum of 2 lobster licences); by designation of an operator in cases of sickness, personal family matters, etc.; in cases of death, serious illness or major injury to licence holders, guidelines and discretionary power to make decisions should be at the local or regional level; the decision-making process in general needs to be reviewed, and the process of appointments to DFO advisory boards must follow election terms of reference; the membership at large should be tasked to protect social objectives and the economic well-being of coastal communities.
• The problem with every community outside of major areas is the aging and declining population; these communities were the “backbone of the economy”. Success of this economy depends on independent, family owned enterprises and, if they are not protected, communities will become no more than a place to rent a fisherman.
• We must move quickly to preserve what generations have worked so hard to build – family, community and a sense of pride and purpose, and watch as the ebb tide of our present situation changes to an overflow of renewal in our communities. Perhaps the time has come for Nova Scotia to have jurisdiction over our fishery through a Constitutional amendment.
   
• When I started my business, it was strictly a fish processing company; over the years, this family business has expanded to include 4 other small companies, all run by family members. While we are primarily a seafood harvesting group, catching groundfish, lobster, red crab, snow crab and a few scallops, we also build and repair groundfish nets; have our own private wharf and provide berthing facilities for approximately 21 vessels.
• When I began the business In 1980, I purchased all groundfish from independent fishermen; this worked well; fish were plentiful and a good supply could be purchased. In the mid-80’s this changed – fishermen started building processing plants and at about the same time, there were quota reductions and stricter DFO management regulations. This led to a less plentiful supply of groundfish and a change in attitude of fishermen. Some fishermen began to auction off their catch although most of them were only interested in increasing the price of their catch and selling to their regular buyer.
• An auction system would work if it were run by a third party and the results made public but if it is run by harvesters, it won’t work for processors. This fall is a good example of this in the lobster business. Many buyers have ended up sending lobsters to processors at a loss, because of quality issues. More and more buyers are going bankrupt each year; part of the problem is bad management but a part is lack of raw material at a fair market price.
• Over the last 20 years, many processing facilities have either gone bankrupt, voluntarily closed, or in some instances, converted to live lobsters, the main reason being a lack of competitively priced raw product.
• On the question of the fleet separation policy – we cannot have a policy in Canada that so clearly discriminates against one side – harvesters are allowed to own processing licences but a processor cannot hold a harvesting licence. This is clearly discrimination and should be challenged in the courts.
• The owner-operator policy also discriminates against non-core fishermen. Seafood is a Canadian resource, not a core fisherman’s resource; you don’t have to be “core logger” to harvest trees on Crown land.
• Fishermen can compete with anybody at sea and on land and do not need special rights to protect their interest; Ottawa and the media seem to have the opinion that fishermen are poor, uneducated and can’t compete in a free market place. If there was one good thing that Hurricane Juan did, it tore down most of the decrepit fish shanties which the media so like to feature on stories.
• And there is the myth about fishermen being badly paid in company boats - my captains and crew make a very good wage, one that is far better than you can make in a call centre. The only limiting factors are the abilities of the captain and crew and the amount of quota DFO will provide.
• My company pays its fair share of taxes and we support local businesses and community organizations. We are no less Canadian than fishermen and therefore should have the same right to harvest fish. We agree than an over-concentration of licences in some ports is not good thing.
• The owner-operator and fleet separation policies must be removed at least from Scotia-Fundy, if not Atlantic Canada. For tax reasons, corporations must be allowed to hold harvesting licences.
   
• Our elected and hired servants who are supposed to protect all aspects of the fishery in Atlantic Canada have failed miserably in the past. Yet, I hope for positive change to protect the lobster fishery in the near future. The future survival and sustainability of our coastal communities depends heavily on the social and economic benefits that arise from the fishery.
• If the lobster fishery is allowed to be further eroded through trust agreements and beneficial use agreements, resulting in a concentration of licences in the control of a few companies, our coastal communities will be devastated.
• In LFA 34 the lobster fishery represents the single most important outside revenue source for our economy. The economic and social sustainability of our communities depend on preserving the independence of the inshore fleet in Atlantic Canada.
• DFO should take immediate action to implement a regulatory solution to eliminate the problem of trust agreements that lead to a concentration of inshore lobster licences. DFO should take regulatory measures that require the owner to be the operator of the vessel to which the lobster licence has been assigned and require that the licence holder remain the only entity to hold the legal title as well as the beneficial interest in the licence; the licence holder must be the owner-operator of the enterprise.
• The integrity of the owner-operator policy must be maintained; flexibility should be limited to special situations (death, illness, injury) where the beneficial use continues to be with the licence holder or his/her estate. Flexibility must not undermine the principles of the owner-operator and fleet separation policies.
• DFO must adopt a more open and transparent decision-making process by involving fish harvester organizations in every level of the process.
• Licences should be issued to owner-operator fishing companies in recognition that each core licence holder operates as a small business; these companies should have the same fiscal rights as other small businesses, i.e. farming.
• Preservation of the independence and viability of the inshore fleet is crucial to maintain the principle of owner-operator individual/company; multi-species licences should be encouraged but limited to, for example, one lobster licence per owner-operator company. The beneficial use of the licence must be bound to the licence holder. Every limited entry licence lost to the corporate sector erodes the independence of the inshore fleet.
• In addition to implementing regulatory measures to enforce the owner-operator and fleet separation policies through condition of licence, DFO should develop approaches to support the application of the fleet separation policy.
• The federal and provincial governments should provide access to financing as alternatives to borrowing from processing companies for crew, for new entrants and to facilitate intergenerational transfer of licences.
• Revenue Canada must recognize fishing enterprises as small businesses and provide fiscal benefits that other small businesses have.
• Fishermen’s committees should be allowed to collect fees from members. Fish harvesters would then have the means to develop better communication processes, science research programs, and to advance professionalization.
• Revenue Canada and DFO must cooperate, through the sharing of information, to tie beneficial use to the owner-operator licence. To preserve the inshore fishing fleets by recognizing and enforcing existing policies does not have to cause undue hardship for those who knowingly ignored the policies
• Investments have been made by corporations with the knowledge that they were undermining existing fisheries policies to gain control of the inshore lobster fishing industry by using trust agreements and they should not be rewarded; these corporations did not lose out on their financial investment.
   
• DFO must take immediate steps to enact a regulatory solution to the problem of trust agreements by incorporating the owner-operator and fleet separation policies into the Fishery General Regulations. The regulation should include provisions specifically stating that the holder of legal interest of the licence and the related beneficial interest of the licence are one.
• It should be possible for licences to be issued to corporations in the inshore sector if the person to whom the licence is transferred is a core fisher, owns at least 51% of the company and the licence is operated by said individual.
• An appropriate enforcement tool would be to not re-issue a licence the year following the infraction. DFO should not reward flagrant disregard for fisheries policies; this would erode any confidence in future of DFO policies.
   
• Prior to the use of trust agreements in the fishery, the only operating structure that a self-employed fisherman could use was a sole proprietorship. Fishermen did not have access to many of the common business planning and estate planning tools provided for in the Income Tax Act. The most common income tax planning strategy for an individual taxpayer who is considering an investment in a business, is to incorporate, which provides access to lower income tax rates. By using a trust agreement, a fisherman can incorporate his fishing enterprise and avail himself of this strategy
• Trust agreements have also been used to transfer the beneficial interest in a fishing licence to a corporation This provides the owner of the fishing enterprise with access to the capital gains deduction on the disposition of the corporation that owns the fishing operation. Access to this $500K capital gains exemption is a cornerstone of succession planning in the owner-managed business environment.
• Other highly regulated industry sectors, for example, the medical community, has been able to develop appropriate and enforceable frameworks that provide the necessary regulatory controls, yet facilitate access to the same business and estate planning tools that the majority of Canadian taxpayers have access to.
   
• We have seen the undermining of one fleet after another because of the weak application of the owner-operator and fleet separation policies. The only way to effectively preserve the independence of the inshore fleet is to create regulations that intertwine legal title and beneficial use.
• A strengthened owner-operator policy should also be reflected in licensing policy. This policy should prohibit trust agreements, except in cases where such an agreement does not undermine the independence of the inshore fleet, i.e. when an inshore fisherman wholly owns a corporation.
• Key elements of the policy should be to limit licences to one per licence holder, when the licences are for the same species. This would not apply to licences for different species, thus supporting multi-species fisheries.
• Existing trust agreements could be dealt with in a number of ways that would be fair, for example there could be a 3 to 5 year sunset clause on these agreements.
• Provisions for flexibility and local exception could be worked out as long as they do not undermine the independence of the inshore fleet. There is need for flexibility to deal with the issue of intergenerational transfers and the temporary designation of qualified operators who have a long time attachment to the industry. However, this flexibility does not extend to allow enterprise heads to pool their quota share; such a provision would be detrimental both to conservation and economic viability.
• The best way to determine the specific application of the regulations, including local flexibility, would be at the local level, through the recognition of community-based management boards.
   
• When we say preserving the independence of the inshore fleets we could just as well say preserving the future of viable and sustainable coastal communities, since the inshore fleets are the very lifeblood of most of Nova Scotia’s coastal communities.
• This is not just a question about how to structure a particular industry – this is not the same as talking about the future of the owner operator in the trucking industry. These issues have serious implications for communities, businesses and families in rural Nova Scotia; it is the future of thousands of independent family owned small businesses in Nova Scotia.
• This is a complex issue, and there is only one way to address them – give the owner-operator policy the force of regulation under the Fisheries Act. This is the lynchpin of any genuine strategy that seeks to preserve the independence of the inshore fleet. This regulation should specify that if the licence transfer occurs in the context of financing transactions between fishers and corporate interests, control over the beneficial interest of the licence remains with the licence holder.
• DFO should also make and implement licensing policies that prohibit the use of trust agreements designed to undermine the owner-operator and fleet separation policies.
• The Federal Government should adopt policies that support the intergenerational transfer of licences, including tax regulation similar to those applied to family farms and other small businesses with respect to capital gains tax exemptions, and improve the means for inshore fishermen to obtain capital through lending institutions and provincial loan boards.
• DFO should also recognize community-based management by inshore fishermen’s organizations as legitimate ways to determine the flexibility needed in implementing the policy. Flexibility in the application of the policy should only be allowed if it does not undermine the independence of the inshore fleet.
• In light of the complexity and diversity of many of these issues, DFO should work more closely with inshore organizations. A working group or commission should be established made up of owner-operators, core licence holders, as well as key governmental stakeholders such as CCRA, the provinces and DFO. A more in-depth consultation would provide credibility to the process.
   
• We are not here to undermine anyone; we are here to protect our right to survive. What was done was necessary to stay in business and was done to fit our fishing practice and to protect our access.
• On reading the document, it was not clear who we should preserve the inshore fishery from, and for who. We are not preserving it for young fishermen because they cannot borrow enough money, and it is not for fishplant owners.
• The Federal Government, through its buying of quota, has driven prices beyond the reach of young, ambitious men and has disrupted community jobs. Who we preserve the fishery from seems to target the entrepreneurs.
• The document talks at great length about trust agreements – what is wrong with an agreement that an old fisherman has with his hired hand who is next in line to have the rig when he retires? And how will young fishers ever be able to operate a boat if they do not seek financial help from someone. Trust agreements should be allowed to exist because they are an important part of the small business in our communities.
• When DFO created core fishers, this meant professional fishermen, the ability to hold more than one licence and thus have year round employment in more than one fishery. To achieve this goal, it was sometimes necessary to have dual purpose boats and now DFO is restricting the inshore fleet by the use of the most restrictive licence. It is impossible to build a boat that suits both fisheries when you have regulations for one fishery that don’t suit another. For example, a 45 foot lobster boat with a five foot out of water extension would not suit the second fishery; that 5 foot extension contravenes CSI regulations.
• DFO should not try to control conservation by vessel restriction; the length barrier has nothing to do with conservation, particularly there are no restrictions on the width of the boat or the horsepower. Our fishermen are being placed at risk.
• DFO should conduct a safety review with CSI about overloaded boats in water, versus out of water extensions.
• Lending institutions should be established to provide funding for harvesting licences.
• Trust agreements should be left to the courts.
• DFO should stop buying inshore licences and allocations.
• Whatever new rules are put in place, they should accept what has already taken place and should not target certain individuals.
• Flexibility is the key for the future of our new generation of fishers; conservation, safety and compromise is the best replacement rule.
   
• In 1979 when Roméo LeBlanc, then Minister of Fisheries and Oceans, decided to separate the processing sector from the harvesting sector, he should have made the fishermen decide what they wanted – processing or harvesting – by allowing fishermen to become processors, he has gone against the fleet separation policy.
• In 1989, DFO established an owner-operator policy which meant that the licence holder has to personally fish the licence. In the groundfish fleet, there were about 4,000 licences, about 1600 of which were allowed to designate an operator. If you have a policy where more than one third of licence holders do not have to follow the policy, it is questionable if it is a policy.
• Since implementation of the ITQ system in the Scotia Fundy mobile gear (<65 foot) fleet, fishermen and processors have been making legal agreements with people to acquire licences in trust agreements with the licence holder not being the beneficial owner of the licence.
• There are many different sectors in the Atlantic fisheries, with different ideas and desires. Some, such as the lobster fishermen, are mostly independent fishermen, while in the groundfish sector in Scotia Fundy, they are mostly attached to a processing operation – either processors acquired harvesting licences, or fishermen got together and bought a plant.
• After the fleet separation policy was implemented, there was a major change in the processing sector. Because fishermen now had access to the resource and started their own processing plants, the plants that they previously supplied were forced to change to other species. The plants that are currently operating are plants that had access to fish from their own vessels or the owners are fishermen holding groundfish licences and quota.
• The owner-operator and fleet separation policies were never implemented in a real way for the groundfish fleet. The changes that have taken place since introduction of the policies are irreversible.
• DFO should remove these two policies from the ITQ sector of the groundfish fishery in the Scotia Fundy region. Removal of these policies from this one fishery would not have a negative impact on other fleets.
   
• A regulation should be enacted to put the owner-operator policy into legislation. Many things, including the owner-operator policy, have made LFA 34 what it is today; licence holders had a stake in the future of their fishery, and fished accordingly.
• The fleet separation works for the inshore fleets, but not for the offshore.
• Trust agreements are contrary to DFO policy, yet DFO turns a blind eye to what has been going on, and continues to go on; it would be very difficult, if not impossible to deal with all the trust agreements out there.
• A system must be developed to allow new entrants into the fishery; if an above-board system of financing existed, half the trust agreements would disappear overnight and the rest would follow shortly thereafter.
• Fishermen should have the same small business tax advantages that exist for other small businesses; Quebec has exempted fishers from their portion of capital gains tax – why can the Federal Government not do something to help?
• If DFO was going to enforce the owner-operator policy, why didn’t it do so from the beginning?
• When DFO talks of flexibility, all I hear is horror stories. And DFO has not said how it will define a fleet – we do not want to end up with the fleet broken up into many little pieces to get the answer they want.
• The only way to solve the problem with trust agreements is to understand why people enter into them – to access funding. If you give young people a way to buy into the fishery, trust agreements will disappear.
• We should move ahead on what we can agree on. DFO should consider what weight will be given to submissions from organized associations versus someone who represents a few. Given that the vast majority of licence holders will support retention and strengthening of both the owner-operator and fleet separation policies, If this is going to be Atlantic wide policy, we had better put our heads together and figure it out.

Following presentations by registered speakers, a round table discussion of the issues raised in the discussion document was held. The following is a summary of that session.

Open Discussion – Trust Agreements

• It is important to understand the differences between fleets; DFO does not act well as the steward of the resource; fishermen are stewards of the lobster resource. If people running boats have long term commitment, and investment in fishery, they tend to operate in a more responsible manner. For example, the operators of Aboriginal licences purchased for bands have no financial commitment or long term interest in the fishery
• The assertion that you cannot have a viable industry without processor control needs to be challenged.
• There are areas of common ground including recognition of a need to change the capital gains exemption to equate with the agricultural industry – this would provide a big incentive to stop under the table trust agreements but we need DFO support to make this happen as soon as possible.
• There are a number of trust agreements out there, and there is a recognition that they were entered into for a number of purposes; however, where the purpose of the agreement is to circumvent or undermine the policy, these agreements should be cancelled or the policy changed.
• It might be possible to accept some of these agreements if there were provisions to make them legitimate, and for the benefit of the community, rather than to control the industry. The agreements could also provide a way to finance entry into the fishery; one provision of the agreement could be that new entrants would have to make a commitment to be a career captain in the fishery; the agreement should also make re-payment of the loan a condition.
• DFO should recognize that many of the comments they will hear during the course of these consultations are self-serving and perhaps the answer lies somewhere in the middle. But debate of this kind does bring the issues out into the open, does not reward something that was contrary to policy and should not stop licence holders from being licence holders.
• The lines seem to be fairly clearly drawn and it is clear that a trust agreement must be more clearly defined and its purpose articulated (i.e. is it for the purpose of settling an estate).
• We need a way to define and identify what licences can be held in particular fisheries, and by whom.
• It will be important to keep gear sectors separate in order to come to agreement – if there are too many players involved, we won’t be successful in reaching consensus.
• With respect to income tax, capital gains equality with other small businesses is essential to move forward.
• A few key changes could be made: capital gains tax exemption should be introduced, sector recognition by species or licence should be initiated; and intergenerational transfers should be dealt with. For some groups, it might be to their advantage to retain trust agreements.
• The main reason we are in this mess is because DFO didn’t enforce its policies; in the case of the herring fishery this has been going on for years; people have been entering into agreements to buy vessels.
• Trying to reverse existing agreements or the policy today is impossible; the only way to tackle it would be on a fleet by fleet basis, where the majority want change.
• DFO should use caution if it adds more transparency to the licensing issue; there are not many people who would want DFO going through their private business affairs. DFO should not be involved in private business transactions – it’s not their mandate.
• How would DFO impose limits on the concentration of licences? The clock cannot be turned back. Realistically there should be some limits, but there should also be a recognition that processors in the inshore are competing against others, particularly in the offshore and they have a right to survive.
• No one will argue against economic viability. But what else can be done to enhance viability? At the present time, viability is good but a classic capacity issue is lobster; 22 years ago DFO had to buy lobster licences back and when the downturn comes (and it will) …
• The basic issue is financing how to get into the fishery; DFO has deemed it necessary not to give banks or any other lending institution effective rights so they can mortgage licences or boats. If a financial institution lends money, it should have the right to direct that the licence be sold to another party to pay off that debt; this is just good business sense.
• Trust agreements are good. They can provide fishermen with access to funding and an opportunity to enter the fishery. Why should a processor and a fisherman not be able to enter into a straightforward financial agreement, one that, when the loan is re-paid, the fisherman regains his financial independence?
• The present regime of trust agreements is achieving the objective of allowing fishermen to sell their licences and giving young fishermen the opportunity to become involved in business. Trust agreements can help young entrants reach their potential; there are hundreds of young men entering the fishery – perhaps they should be surveyed on their views.
• It is evident that the resource is being stretched. Twenty years ago, we fished from small gas boats, with outboard motors; now we are using bigger boats that can stay at sea for longer periods – we are stretching the resource, and like an elastic band it will get tight.

Open Discussion – Owner-operator and Fleet Separation Policies

• Advisory committees should be making the rules, after due deliberation and consideration, because that way they will select what works for them; the problem is the wild card political input that does not consider advice received from the advisory committees.
• In terms of the owner-operator policy, it should be retained for the less than 45’ fixed gear fleet and for the lobster fishery.
• There is clearly a common theme, and a consensus on the need for financing; there has to be some security for banks and other lending institutions. DFO must recognize that it needs a mechanism to ensure that the debt of the initial transaction is protected. We also have to recognize that we are here to protect the future of the fishery and to promote this theme.
• A working group of DFO, CCRA, industry and others would be a practical start to solving the financial problems.
• One of the main reasons we have to consolidate is because of the cost of scientific work that is being downloaded by DFO. We have consolidated quota and licences in order to pay for these costs.
• The issue of trust agreements has been widely discussed in LFA 34, but not voted on; representations have been made to the Minister of DFO, we are here because of what started with the Provincial Minister’s conference where there was request for financing for new entrants; the lender needs assurance that he will be able to recoup his money through the sale of a licence in case of default by the borrower.
• If you were to ask fishermen what is the most important issue, they would say access to a lending agency to help them buy an enterprise; because of the nature of the licence, and the Minister’s absolute discretion, lending institutions will not recognize the licence as collateral. Many others are lined up to pay the debt, but they want the licence in case of default.
• The owner-operator policy was never really implemented in this area; there is no way that it can be reversed now.
• Within LFA 34, the question that arises on owner-operator is does the person under a trust agreement actually own the licence, or is it only on paper? We should not always be picking on processors but control of the licence is maintained by the lender, and could be considered the property of person financing it. That is the area that causes concern, not the financing.
• The problem raised often by fishermen is the amalgamation or grouping of many licences by one group of individuals or corporation or processor and the amassing of multiple licences. The concern is that if the company was sold, outside interests would come in, take over the fishing operations and move away. History shows that such a move would be to the detriment of the community, besides which, no young person could ever purchase a corporation that holds 15-20 licences.
• While it appears that we are beating up on the processors, this is not the case, we are just looking for financing opportunities that do not involve control of the licences.
• It is clear that, in this area, the policies have not kept up with the evolution of the fishery.
• Once you accumulate enough of a share of the resource, or enough licences, you become independent; the reverse is also true, once you get lots of debt, you are under control of someone else, and therefore not independent. Under a trust agreement you become dependent on someone else. We are licence holders and have right of free will to make a choice
• Anything that concentrates ownership puts your will under someone else’s; we don’t want to do that – we want to be in the community, in our boats with our own, with our own independent lifestyle.
• You have an established rule that requires 963 licences and that the person to whom the licence is issued has to be onboard the boat, with a crew, and has to operate the boat. The question is, what is an independent fisherman – is it one who owes $1 million to the bank or the same amount to a fish processor?
• Under an IQ system, fishermen can be independent, and until an IQ system is introduced, it will not be possible to rationalize the fleet.
• Under a trust agreement, a fisherman is not his own person anymore but subject to direction from the owner of the licence; if you are not under a trust agreement, you retain your independence.
• There are different kinds of trust agreements; some are good, and can be useful under certain circumstances; the question is how to stop those agreements that are abusing the policies.
• Trust agreements create more fishing effort because of bonuses being offered for landings; this has a negative effect on conservation and on safety as boats are going out in all weather to try and earn the bonuses. Under an owner-operator captain, issues of safety are the captain’s responsibility.
• In this day and age when an enterprise can cost $1 million, the debt cannot be retired by an independent owner-operator; the only way to pay off such a debt is to integrate – the economics just don’t work otherwise.
• We have to get away from fisheries management policies that are not designed for today’s business environment.
• DFO should be very careful if it tries to make Atlantic-wide policies; fleets should have the right to be treated differently if this contributes to their economic viability.