Jan 30, 2012 (Seafood.com News) Richard Gaines, the sometimes mercurial writer covering fisheries for the Gloucester Times, stirred up a hornets nest over the weekend with his story on a letter from Pat Kavanagh, owner of K&K fisheries in New Bedford, whose efforts to buy another permit were undercut by Vito Giacalone, the organizer behind the Northeast Seafood Coalition and the Gloucester Permit bank.
One way to read the story is as a straight out scare story about a nefarious cartel taking over the New England Fishing industry.
Gaines and the Gloucester Times obviously see it that way .. saying that connecting the dots between Vito Giacalone, the 12 sectors in the Northeast Seafood Coalition, Richie Canastra, owner of the primary New England auctions, and Carlos Rafael, the largest boat owner in New Bedford is grounds enough to cry foul.
But the facts are much more ambiguous.
The Northeast Seafood Coalition sectors have operating rules that have all been approved by NMFS. Part of these operating rules include a provision extending right of first refusal for permit sales from the individual sector to all the other sectors under the Northeast Seafood Coalitions' umbrella.
Former NMFS regional director Pat Kurkul said in a letter to the council in response to Kavanagh's complaint that the fact that the Northeast Seafood coalition sectors represent by far the largest group of quota holders means that their right of first refusal for permit sales could 'affect the liquidity' of such sales in New England.
The actual transaction was one where Kavanagh attempted to buy two vessels and their multi-species permits from Northeast sector 8. The members of that sector had passed on the sale, and Kavanagh said he was going to be accepted as a member of that sector once the deal was done. In that fashion, the sector members would continue to have the ability to manage the overall quota, albeit with different owners.
However, Giacalone, representing himself, a member of Northeast Sector 2, stepped in with a right of first refusal and purchased the vessels and permits. This occurred on April 21st. Two weeks later, Giacalone sold the two vessels to Carlos Rafael in New Bedford, but retained the permits himself. Without a vessel attached to the permits, the quota was now available for leasing. It is not clear whom the permit allocations were leased to in 2011.
Giacalone, who asked that Richard Gaines not publish the article, says that in 12 years, these are the first permits he has bought.
He also says that Rafael, as the primary permit holder in Sector 9, is barred from buying permits from other sectors in the Northeast Seafood Coalition using the right of first refusal, and that this represents a voluntary restraint on accumulation. Both the Northeast Seafood Coalition and Rafael are vehemently opposed to accumulation caps, as is currently being discussed in the council.
We have no position on whether the permit purchase is a good political or business decision for Giacalone. In the fishing business, vicious rumors are commonplace, and there is likely to be grumbling on the dock over almost any transaction.
Furthermore, the reason the Gloucester Times picked up this story was because they felt it damaged the catch share permit system, and therefore was worth promoting in an editorial.
We think they are asking the wrong questions. The real question should be what actions will maximize the value of the New England fresh fish industry.
Uniquely in America, the New England region puts a major groundfish fishery at the doorstep of one of the biggest fresh fish markets in the world – the East coast of the U.S. This comparative advantage should result in a price premium for fresh New England fish.
The current distribution system – through auctions – has been accepted by the fishermen as a suitable mechanism to get the highest price, despite the fact that the auctions have traditionally been dominated by major users such as Legal Seafoods and North Coast. On some days in the past Legal would buy the majority of all seafood on offer at the small Boston auction.
These buyers naturally respond to each other, their own inventory needs, and their view of demand.
Without catch shares, and no clear knowledge in advance as to what will be caught, the auctions were likely the best means to establish fish prices through the highest bidder, despite the bidder's knowledge of each others' strategies.
But catch shares change the equation – they take the daily sales from being a short term daily market to potentially being a longer term contract relationship.
For example, if a sector or group of boats sold their fish in advance to a marketer who would invest in creating value – whether a Legal Seafoods or Whole Foods or Northcoast, or any other company, they could conceivably receive a different price than from an auction system.
The auction combines the costs of sorting, packing, selling and shipping into a single fee paid by buyers and sellers. Fishermen might like the chance to explore alternatives that would have a single buyer absorb these costs in return for a higher payment back to the boats, leveraging their control over catches.
The perception that sector rules, access to fishing permits, and decision making is linked to participation in the existing auction or sales system may be limiting economic opportunities.
Catch shares create value by making the fish themselves more valuable in that they can go to higher value uses once the race for fish, and the consequent gluts and poor handling, can be addressed by individual vessels. This is what makes permit acquisition economically attractive, and provides the liquidity for some vessel owners to sell their business and retire.
The real question before New England is how to maximize the value of the catch, and how to attract investment in processing, packaging and marketing that will realize this value.
These questions may involve trading permit shares and the auction system.
But the cry of 'cartel' is not going to bring about a positive change so much as working to improve the present system, including research into whether or not market barriers to higher values exist.
Republished with permission from SeafoodNews.com