April 15, 1996
Richard H. Schaefer
Director
Office of Fisheries
Conservation and Management
U.S. Department of Commerce
National Oceanic and Atmospheric Administration
National Marine Fisheries Service
Silver Spring, Maryland 20910
Dear Mr. Schaefer:
The Office of Advocacy of the U.S. Small Business Administration (SBA) was established by Congress under Pub. L. No. 94-305 to advocate the views of small business before federal agencies and Congress. Advocacy is also required by §612 of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) to monitor agency compliance with the RFA. On April 3, 1996, you forwarded a copy of Amendment 9 to the Fishery Management Plan for the Crustacean Fishery of the Western Pacific Region. A Regulatory Impact Review was submitted in lieu of a regulatory flexibility analysis. In its analysis, the Western Pacific Regional Fishery Management Council's (WPRFMC) states that Amendment 9 will not have a significant economic impact on a substantial number of fishermen. After reviewing the proposal, Advocacy concludes the proposal will have a significant effect on small business.
WPRFMC's Constant Harvest Rate Proposal
WPRFMC's proposal would create a Constant Harvest Rate management policy to establish a harvest guideline for the (NWHI) lobster fishery that is proportional to the estimated exploitable population size.(1) The proposal would revise the current policy by establishing an annual number of lobsters to be taken each year that is proportional to the stock abundance of lobster. Under the current policy, Constant Escapement, the fisheries must comply with a quota procedure that allows a surplus production to be harvested if the population is above the optimal level. In the past, the current policy has proven to be ineffective in preventing overfishing, overly sensitive to uncertainty, and, at times, harmful to small business(2).
For its Regulatory Flexibility analysis, the WPRFMC reviewed three alternative scenarios. The alternatives were Constant Escapement (the current policy), Constant Catch, and Constant Harvest Rate (the proposed policy). After reviewing the three alternatives, the WPRFMC concluded that the Constant Harvest rate was preferable to the other two alternatives. In its analysis, the WPRFMC surmised that although the lobster fishery industry is limited to 15 small businesses(3), the proposal would not have a significant economic impact on a substantial number of fishermen. The rationale for its conclusion is that under the proposal, the fisheries would have notice of the guidelines three to four months in advance. As such, the fishermen could determine whether or not to enter the fishery that year. It also submits that the proposal is beneficial to the fishermen because there will be fewer years that the fisheries are closed.(4)
While Advocacy agrees that the proposal is better than the current system, Advocacy submits that the WPRFMC' s rationale for determining that the proposal would not have a substantial impact on small business is fallacious. The proposal will affect the manner in which the fisheries operate in terms of maintaining a competitive market, planning for short term operations, and exploring long term growth opportunities.
Maintaining a Competitive Market
The WPRFMC submits that the proposal will not affect small businesses because the businesses will have an opportunity to decide whether to participate in the lobster fishery three months before the season begins. Advocacy disagrees with that assertion.
Advocacy submits that the variability of the constant harvest proposal may force some of the fishermen out of business and ultimately interfere with the current competitive market structure. An industry with only 15 small competitors could be sensitive to the type of change that is being proposed. In a year with a low harvest guideline, a substantial number of businesses may decide not to participate. Similarly, given the variable nature of the proposal, a substantial number of fishermen may decide to exit the market permanently.
If a substantial number of the fishing businesses decide not to operate in a given year or to exit the market permanently, the competitive market structure may be disrupted. The few businesses that remain may be able to garner an inflated price for their harvest due to the lack of competition. Similarly, it is possible for a few of the companies to merge, creating a larger entity which could be harmful to the small businesses in the balance of the industry. It is also possible for a large business to decide to enter the market if it sees the small harvesters exiting the market. This, in turn, may have a "domino" effect on other small businesses, such as restaurants and fish markets, that may be forced to purchase the lobsters at the rates set by the few competitors left in the market.
Short Term & Long Term Planning
Advocacy further submits that the proposal may affect small businesses by interfering with their ability to make short term and long term plans. Since the businesses will have to make the decision of whether or not to operate on an annual basis, the businesses may be apprehensive about making administartive decisions; expanding their fleets; upgrading and/ or expanding equipment; repairing vessels and equipment; maintaining or expanding a labor force; or selecting a product price that is beneficial to the economy.
Moreover, the variable nature of the proposal will discourage long term business expansion. If a fishing business is unable to determine whether it will participate in the fishing season until three months before the season begins, the business will not be able to anticipate a particular annual income or estimate a future earnings potential. As such, a business may be apprehensive about exploring long term investment opportunities. It may also be difficult for the business to obtain capital for long term projects that may require payment over a number of years.
Constant Catch
Furthermore, the Constant Harvest Rate proposal is not the most viable alternative for small businesses. As part of its review, the WPRFMC performed a Net Present Value (NPV) analysis of the three alternatives to determine the economic impact on the fishermen. Of the three alternatives, the Constant Catch Alternative produced the highest NPV, indicating that it would be the most economically feasiable solution to the current problem.(5) As stated in the report, the Constant Catch approach is robust to uncertainty, has low overall catch variability, and allows high catch rates.(6) As such, the Constant Catch alternative would also address the WPRFMC' s objective of assuring long term productivity of stock and preventing overfishing.(7)
Because of the potential negative impact that the Constant Harvest Rate alternative may have on small business, Advocacy urges WPRFMC to reconsider its decision to implement the Constant Harvest Rate proposal. Instead, Advocacy suggests that WPRFMC execute the Constant Catch alternative. As stated previously, the Constant Catch Alternative would address WPRFMC's objective of assuring long term productivity of stock and be economically beneficial to the small business entities in the area.
If you would like to discuss this matter or if this office can be of any further assistance, please contact our Department of Interior advocate, Jennifer A. Smith. She may be reached either by mail at the above address or by telephone at (202) 205- 6943.
Thank you for soliciting the comments of the Office of Advocacy prior to publication of the proposal.
Sincerely,
Jere W. Glover
Chief Counsel for Advocacy
Jennifer A. Smith
Assistant Advocate
END NOTES
1. Western Pacific Regional Fishery Management WPRFMC, Amendment 9: Fishery Management Plan for the Crustacean Fisheries of the Western Pacific WPRFMC, November 1995, p. 12.
2. Id. The fisheries are closed from January through June. In 1994, the lobster fishery opened on July 1 with a quota of 200,000 lobsters. In the first month, the fisheries harvested 65,000 lobsters. Because of a low catch-per-unit effort, the quota was revised to 20,000 lobsters. At that point, emergency rules were used to close the fisheries and minimize further fishing. The final harvest, at the time of closure was 130,000 lobsters. In 1995, the initial quota was set at 38,000 lobsters. Because of the low numbers, NMFS decided to close the commercial fishery. Id., at 7.
3. Id., at Appendix 8.18.
4. Id., at p. 35.
5. Id., at Appendix 8.24.
6. Id.,at 12.
7. Under the Constant Catch alternative, the harvest guideline is set at a fixed level for a number of years. The intent of the approach is to stabilize the fishery and the markets. Id., at 19.