Commercial Fisheries: Entry of Fishermen Limits Benefits of Buyback
Programs (Letter Report, 06/14/2000, GAO/RCED-00-120).

Pursuant to a congressional request, GAO reviewed the National Marine
Fisheries Service's (NMFS) fisheries buyback programs, focusing on: (1)
the extent to which the buyback programs have affected fishing capacity;
(2) potential ways the buyback programs can be made more effective; and
(3) NMFS' efforts to evaluate the effectiveness of buyback programs.

GAO noted that: (1) buyback programs in New England, the Bering Sea, and
Washington State initially removed from 10 to 24 percent of their
respective fishing capacities; (2) however, the experiences of these
three cases demonstrate that long-term effectiveness of buyback programs
depends upon whether fishermen return to the fishery; (3) the $24.4
million New England buyback removed 79 vessels that accounted for 19
percent of the groundfish catch in that fishery; (4) however, 62
additional vessels have become active since the buyback because no steps
were taken during the program to prevent previously inactive vessels
from engaging in fishing; (5) these vessels have begun to erode the
capacity reductions made by the buyback because they have replaced
fishing capacity by as much as two-thirds of that purchased through the
buyback; (6) experience also shows that, while buyback programs reduce
capacity in one fishery, the recipients of the buyback may simply shift
that capacity to another fishery not subject to the buyback; (7) for
example, according to GAO's survey of fishermen who participated in the
New England buyback, nine recipients who formerly fished for groundfish
are now primarily lobster fisherman--a fishery that is also classified
as overfished throughout much of its area; (8) the effectiveness of
buyback programs in reducing fishing capacity depends upon whether
fishermen return to the fishery and also whether remaining fisherman
have an incentive to invest in larger or better-equipped fishing
vessels; (9) in most fisheries, fisherman have an incentive to increase
their fishing capacity in order to catch fish before someone else does,
which is called the "race to fish"; (10) however, when buyback programs
are accompanied by other measures that reduce incentives for larger or
better-equipped fishing vessels, capacity reductions from a buyback need
not erode; (11) NMFS has made limited efforts to evaluate buyback
programs, assessing only the fishing capacity reductions in the New
England groundfish buyback because it was required to do so; and (12)
because evaluations can identify ways to improve future programs,
prudent management suggests that buyback programs should be evaluated.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-00-120
     TITLE:  Commercial Fisheries: Entry of Fishermen Limits Benefits
	     of Buyback Programs
      DATE:  06/14/2000
   SUBJECT:  Fishing industry
	     Fishes
	     Marine resources conservation
	     Performance measures
	     Program evaluation
	     Fishery legislation
	     Licenses
	     Environmental monitoring
IDENTIFIER:  NMFS New England Groundfish Buyback Program
	     NMFS Bering Sea Pollock Buyback Program
	     NMFS Washing State Salmon Buyback Program

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GAO/RCED-00-120

Appendix I: Results of the Telephone Survey of Participants
in the New England Groundfish Vessel and
Permit Buyback Program

20

Appendix II: Comments From the Department of Commerce

28

Table 1: Commercial Fishing Permits by Annual Catch in the New England
Groundfish Fishery, 1996 Through 1999 9

Table 2: Commercial Fishing Permits by Annual Catch in the Washington State
Salmon Fishery, 1994 Through 1998 12

Figure 1: Primary Occupations of New England Buyback Participants 10

NMFS National Marine Fisheries Service

Resources, Community, and
Economic Development Division

B-284384

June 14, 2000

The Honorable Don Young
Chairman
The Honorable George Miller
Ranking Minority Member
Committee on Resources
House of Representatives

The nation's coastal waters are home to many commercial fisheries that
provide a wide variety of fish for the domestic market.1 Coastal states
issue permits and develop and enforce regulations for fishing in waters that
are near their shores. In areas outside state jurisdiction, the National
Marine Fisheries Service (NMFS), within the Department of Commerce, is
responsible for issuing permits and developing and enforcing regulations for
harvesting fish. As you are aware, fish populations in many commercial
fisheries are declining, resulting in a growing imbalance between the number
of vessels in fishing fleets and the number of fish available for harvest.
In response to this growing imbalance, the federal government has provided
$140 million since 1995 to purchase fishing permits, fishing vessels, and
related gear from fishermen, thereby reducing the capacity of fishermen to
harvest fish. Generally, the government designed these purchases, called
buybacks, to achieve multiple goals, such as reducing the capacity to
harvest fish, providing economic assistance to fishermen, and improving the
conservation of fish. Because excessive fishing capacity has been a
continuing problem in many fisheries, several additional buybacks have been
proposed that, if implemented, would be in excess of $250 million.

This report evaluates the impact of recently completed buyback programs in
three diverse fisheries--New England groundfish, Bering Sea pollock, and
Washington State salmon. Buybacks in these fisheries account for about $130
million of the $140 million in federal funds authorized since 1995. As
agreed with your offices, we are assessing (1) the extent to which the
buyback programs have affected fishing capacity, (2) potential ways the
buyback programs can be made more effective, and (3) NMFS' efforts to
evaluate the effectiveness of buyback programs.

Buyback programs in New England, the Bering Sea, and Washington State
initially removed from 10 to 24 percent of their respective fishing
capacities. However, the experiences of these three cases demonstrate that
the long-term effectiveness of buyback programs depends upon whether
fishermen return to the fishery. For example, the $24.4 million New England
buyback removed 79 vessels that accounted for 19 percent of the groundfish
catch in that fishery. However, 62 additional vessels have become active
since the buyback because no steps were taken during the program to prevent
previously inactive vessels from engaging in fishing. These vessels have
begun to erode the capacity reductions made by the buyback because they have
replaced fishing capacity by as much as two-thirds of that purchased through
the buyback. Experience also shows that, while buyback programs reduce
capacity in one fishery, the recipients of the buyback may simply shift that
capacity to another fishery not subject to the buyback. For example,
according to our survey of fishermen who participated in the New England
buyback, nine recipients who formerly fished for groundfish are now
primarily lobster fishermen--a fishery that is also classified as overfished
throughout much of its area.

The effectiveness of buyback programs in reducing fishing capacity depends
upon whether fishermen return to the fishery and also whether remaining
fishermen have an incentive to invest in larger or better-equipped fishing
vessels. In most fisheries, fishermen have an incentive to increase their
fishing capacity in order to catch fish before someone else does, which is
called the "race to fish." However, when buyback programs are accompanied by
other measures that reduce incentives for larger or better-equipped fishing
vessels, capacity reductions from a buyback need not erode. For example, the
American Fisheries Act authorized the purchase of 9 of the 30 vessels that
catch and process fish onboard in the Bering Sea and encouraged the owners
of the remaining 21 vessels to form a fishing cooperative that guaranteed
each of its members an allocation of fish, thereby ending the "race to
fish." Because of this guarantee, the need for increased fishing capacity
was eliminated. As a result, the Bering Sea cooperative voluntarily withdrew
4 of the remaining 21 vessels from that fishery.

NMFS has made limited efforts to evaluate buyback programs, assessing only
the fishing capacity reductions in the New England groundfish buyback
because it was required to do so. Because evaluations can identify ways to
improve future programs, prudent management suggests that buyback programs
should be evaluated. This report recommends that the Secretary of Commerce
require NMFS to take certain actions in designing future buyback programs
that would improve their effectiveness and to evaluate these programs. The
Department of Commerce generally agreed with the information presented in
the draft report and with its recommendations.

In 1998, commercial fishing vessels in U.S. marine waters landed 9.2 billion
pounds of commercial fish in domestic ports, with an estimated value of $3.1
billion. To manage the harvest of fish in these fisheries, NMFS works with
eight federally established regional councils consisting generally of
federal, state, and private-sector representatives to develop plans and
propose measures that attempt to balance the economic benefits of fishing
with the need to protect the environment.

The basic features, costs, and objectives of the three fisheries involved in
the buyback programs that we reviewed varied.2 The New England and the
Bering Sea buyback programs purchased fishing vessels and all federal
permits associated with them. The Washington State program purchased state
fishing permits but did not purchase vessels. Of the $130 million spent on
the buybacks in these fisheries, $90 million was spent to reduce fishing
capacity in the Bering Sea. About $40 million was spent in the New England
groundfish and Washington State salmon fisheries to reduce fishing capacity
while providing economic assistance and relief to fishermen adversely
affected by the closures of fishing areas or natural disasters that had
reduced fish stocks.

ï¿½ The New England groundfish fishery is the predominant fishery in the
northeastern United States in terms of the amount of fish caught and the
number of vessels. The fishery includes fishing grounds in the Gulf of
Maine, the Georges Bank off Cape Cod, and the waters of southern New
England. New England groundfish are a mixture of species, such as Atlantic
cod and haddock, that live on the ocean floor. A buyback program in this
fishery authorized under the Emergency Supplemental Appropriations Act of
1994 and the Interjurisdictional Fisheries Act took place in two phases
between June 1995 and May 1998. NMFS spent $24.4 million to remove 79
fishing vessels, the fishing permits that allowed these vessels to catch
groundfish, and all other federal fishing permits for other types of fish in
other fisheries.

ï¿½ The Bering Sea pollock fishery off Alaska is the largest U.S. fishery in
terms of the pounds of fish caught. In 1998, the American Fisheries Act
required NMFS to purchase 9 of 30 factory trawlers and their associated
fishing permits in the fishery.3 The total cost of the buyback was $90.2
million, with $15.2 million from federally appropriated funds and the
remaining $75 million from a federal loan to Alaskan pollock fishermen.

ï¿½ The Washington State salmon fishery is part of a larger regional salmon
industry that includes salmon originating in the waters of California,
Oregon, Washington, British Columbia, and Alaska. The fishery involves two
fleets of fishing vessels--one large fleet within the Puget Sound and a
smaller fleet, based on the number of permits issued, that fishes off the
state's coast and in the Columbia River, where fishing rights are shared
with Oregon and tribal fishermen. In 1995 and 1996, the state of Washington
spent about $9.3 million in federal funds authorized under the
Interjurisdictional Fisheries Act to purchase 436 state fishing permits for
its coastal and Columbia River fleet. Two years later in 1998, the state
spent an additional $3.5 million in federal funds authorized under the
Magnuson-Stevens Fishery Conservation and Management Act and $1.2 million in
state funds to purchase 391 state fishing permits from commercial fishermen
in both of its salmon fishing fleets. The state did not purchase vessels
with buyback funds but prevented some participants from fishing in the state
salmon fishery for 10 years.

While one goal of buyback programs was to reduce overall fishing capacity, a
Department of Commerce task force recently reported that this goal can be
measured in numerous ways.4 In this report, we present the following
measures used by NMFS to estimate fishing capacity: (1) the amount of fish
caught by commercial fishing vessels in a fishery, which measures active
fishing capacity; (2) the number of permits attached to commercial vessels
in a fishery that caught little or no fish, which measures seldom used or
unused fishing capacity; and (3) a weighted index of the length, the
tonnage, and the engine horsepower of commercial fishing vessels, which
measures potential fishing capacity. NMFS is also developing more
sophisticated statistical measures to estimate capacity for U.S. fisheries.

Reductions

Recent buyback programs in the New England groundfish, Bering Sea pollock,
and Washington State salmon fisheries removed commercial fishing vessels
and/or permits that accounted for 10 to 24 percent of the total catch.
However, the experiences of these three programs demonstrate that the
long-term effectiveness of buybacks depends upon whether fishermen return to
the fishery. For example, the New England groundfish fishery includes a
large number of fishermen who hold permits but have historically caught
little or no fish. No steps were taken during the buyback program to prevent
either these fishermen or buyback participants from entering the fishery
after the buyback. As a result, capacity reductions achieved through the
buyback have already begun to erode because previously inactive fishermen
have begun fishing there and buyback beneficiaries have returned. In
contrast, capacity removed through the Bering Sea pollock program has not
returned, in part, because the buyback legislation prevented the entry of
additional fishing vessels. With respect to the Washington State programs,
while no steps were incorporated to prevent additional fishing vessels from
entering the fishery after the buyback, significant declines in salmon
stocks have made this impractical and fishing capacity has declined. In some
cases, however, this capacity has been shifted to fisheries in other states.

The 79 boats sold in the New England buyback caught a combined total of
about 15 million pounds of groundfish in the 1996 fishing year. This total
represented about 19 percent of all groundfish caught in that fishery.
However, because of the number of unused fishing permits in the fishery, 62
previously inactive vessels have begun catching groundfish since 1996.
During the 1998 fishing year, newly active vessels caught about 1.5 million
pounds of groundfish, or about 10 percent of the active fishing capacity
that had been removed in the buyback. NMFS economists estimate that the 62
vessels collectively have over two-thirds of the potential fishing
capacity--as measured by vessel length, gross registered tonnage, and major
engine horsepower--of the 79 vessels purchased in the buyback.

The program's reduction in fishing capacity has also been offset by vessel
owners who participated in the buyback program and then purchased a vessel
with buyback funds and reentered the fishery. Our survey of vessel owners
that participated in the buyback indicated that nine of them purchased a
vessel with buyback funds and reentered the fishery.5 According to vessel
catch data from NMFS, eight of these vessels were catching groundfish as of
1998. These eight vessels had landed 0.8 million pounds of groundfish in
1996 under previous owners. In 1998, these eight vessels, under the
ownership of buyback participants, increased their catch of groundfish to
1.5 million pounds. In total, reductions in active fishing capacity have
eroded by about 15 percent--10 percent because of fishing from previously
inactive fishermen and an additional 5 percent because of the increase in
catch from buyback participants returning to the fishery.

At the same time that these fishermen have been adding capacity to the
fleet, the New England Fishery Management Council has been considering
additional measures to further restrict groundfishing. A committee of the
Council has reported that two of five key fish stocks, Georges Bank cod and
Gulf of Maine cod, continue to exhibit fishing mortality rates that are
higher than those needed to address stock rebuilding. The Council is
considering additional reductions in allowed days to fish for commercial
groundfishermen and continuing the closure of certain fishing grounds in the
Georges Bank and the Gulf of Maine.

Although no new fishing permits have been being issued, vessels have entered
the New England fishery because of the substantial pool of previously
issued, but unused, commercial fishing permits. The buyback program removed
only 79 of the 1,763 commercial groundfish permits that were available in
1996, or less than 5 percent of all the permits for that fishery. Table 1
shows that while total commercial fishing permits have declined since the
buyback, active fishing capacity can increase because of the large number of
seldom used and unused fishing permits. In 1999, there were 796 commercial
permits that landed zero up to 1,000 pounds of groundfish--these permits are
ten times the number of permits removed during the program.

 Groundfish catch                             1996   1997   1998   1999
 Permits with more than 1,000 pounds of catch 871    894    865    849
 Permits with 1 to 1,000 pounds of catch      201    180    155    166
 Permits with zero pounds of catcha           691    702    629    630
 Total commercial permits                     1,763  1,776  1,649  1,645

aFishermen do not have to catch fish to maintain their permit.

Source: NMFS.

Because the buyback program did not intend to restrict buyback recipients
from continuing to fish in the fishery, many participants never left.
Twenty-six of the 54 respondents to our survey of New England buyback
participants, or 48 percent, told us they are currently active in the
groundfish fishery. As shown in Figure 1, 41 percent of the buyback
participants we surveyed are primarily groundfish fishermen, either as a
boat owner, boat owner and captain, or crewmember on a groundfish boat. Only
six respondents told us they had retired, while 13 told us they are now
employed in a nonfishing occupation. See appendix I for information
concerning the survey's results.

Note: Total based on 54 responses. Percentages do not total 100 because of
rounding.

Source: GAO's survey of buyback participants.

Buyback programs can adversely affect other fisheries. Nine of the 54 New
England buyback respondents now consider their primary occupation to be a
lobster fisherman. However, any transfer of groundfish fishermen into the
Atlantic lobster fishery could aggravate existing problems in that fishery.
According to a 1999 NMFS report on the status of U.S. fisheries,6 lobster
fishing grounds in the Gulf of Maine and inshore areas from Cape Cod through
Long Island Sound are already substantially overfished.

The Interjurisdictional Fisheries Act, which authorized the second phase of
the New England buyback, does not require that buyback programs address the
problems that may arise from unused or seldom used fishing permits or the
return of buyback participants to the buyback fishery. In addition to this
act, buyback programs have been authorized under separate legislation, such
as the American Fisheries Act, and would be available under two provisions
of the Magnuson-Stevens Fishery Conservation and Management Act. NMFS has
proposed a rule to implement one of the provisions of this act that allows
for funding buyback programs intended primarily to reduce fishing capacity.
The rule would require that regional fishery management councils take steps
to restrict new entrants to a buyback fishery and to prevent the upgrade of
existing vessels that would increase their capacity to catch fish. As of May
2000, this rule has not been finalized. The other provision of the act would
allow the funding of buyback programs as part of disaster relief efforts.
According to NMFS officials, they do not plan to develop a rule that would
restrict participants of buybacks funded under this disaster relief
provision from returning to the buyback fishery or would restrict fishermen
in the fishery with unused or seldom used fishing permits.

In contrast to the New England buyback, the Bering Sea buyback legislation
removed 9 of 30 factory trawlers that had been actively involved in the
fishery and restricted entrants. No other factory trawlers will be issued
fishing permits unless the vessels are replacing existing factory trawlers.
The restriction on new entrants, in part, ensured that the capacity removed
through the buyback will not return. The nine purchased vessels caught about
113,000 metric tons of pollock, or about 10 percent of the fleet's active
fishing capacity for the 1998 fishing season. As required by the 1998
American Fisheries Act, eight of the purchased vessels were scrapped while
the ninth vessel was prohibited from ever fishing in U.S. commercial fishing
waters. The act also limited the use of the remaining factory trawlers in
other fisheries.

Returning to Washington State

In 1995 and 1996, the Washington State salmon permit buyback program
targeted the state's coastal and Columbia River fleet and purchased state
permits from fishermen whose vessels accounted for about 24 percent of that
fleet's catch. A 1998 buyback targeted both of the state's
fleets--coastal/Columbia River and Puget Sound--and resulted in the purchase
of state permits from fishermen whose vessels' catch accounted for about 14
percent of the combined catch of the two fleets.7

Reductions in the number of salmon permits from the 1995/1996 and 1998
buyback programs have not eroded during the 1997 and 1998 fishing seasons.8
Table 2 shows the departure of fishermen from the state's salmon industry.
From 1994 through 1998, about 950 fishermen have not renewed their coastal
or Puget Sound salmon permits. About 770 fishermen did not renew their
permits because they were involved in one of the buybacks; about 180
voluntarily decided to leave the industry. As a result, the total number of
commercial salmon fishing permits has dropped from 2,476 in 1994 to about
1,530 in 1998.

 Salmon catch                             1994   1995   1996   1997  1998
 Permits with more than 1,000 pounds of
 catch                                    966    766    531    701   501
 Permits with between 1 to 1,000 pounds of
 catch                                    1,025  331    294    535   137
 Permits with zero pounds of catcha       485    999    1,100  665   892
 Total commercial permits                 2,476  2,096  1,925  1,901 1,530

aFishermen do not have to catch fish to maintain their permit.

Source: Washington State Department of Fish and Wildlife.

This exodus from the industry was caused, in part, by a 40-percent decline
in salmon caught from 1994 through 1998 and a weakening international demand
for salmon, which decreased the value of the fish caught. However, because
the number of unused permits remains high, a reversal of these conditions
would encourage these fishermen to use their permits. This scenario would
reverse the reductions in capacity that the state has made through its
buybacks.

Fishermen who participated in the two Washington buybacks were not
restricted from fishing for salmon or other types of fish in waters managed
by other states. As a result, Washington fishermen who participated in the
buybacks have continued to fish elsewhere. Our review of 1998 catch data
from Oregon and Alaska showed that 229 of the buyback participants continued
to catch fish in these states--49 buyback participants caught salmon in
Oregon and 180 caught salmon in Alaska. In Oregon, from 1994 through 1998,
participants increased their catch of salmon by more than 70 percent. In
Alaska, although Washington State buyback participants decreased their
salmon catch from 1994 through 1998, they more than tripled their catch of
other fish.

A January 2000 Washington State survey of commercial fishermen with salmon
permits indicated that almost one-third of the 693 fishermen who responded
also owned permits issued by Alaska, Oregon, or California. These fishermen
could continue to fish in these other states' fisheries if Washington State
bought back one of its permits.

Buyback programs could be more effective if they addressed the problems of
new fishermen entering the buyback fishery and existing fishermen expanding
their capacity to fish. In our view, these programs also need to address the
movement of buyback participants to other fisheries and fishermen's
incentives to catch as many fish as quickly as possible, called the "race to
fish." This "race to fish" leads fishermen to invest in more fishing
capacity, such as adding fishing gear, increasing their time at sea and
number of crew, and replacing older vessels with bigger and more productive
ones in order to catch as many fish as quickly as possible in an attempt to
maximize their individual incomes. Economists conclude that left unchecked,
this "race to fish" will lead to overall higher costs and lower profits,
economic hardship for fishermen, and harm to fish populations and habitat.

Therefore, buyback programs could be enhanced if they were undertaken in
conjunction with additional measures to address the "race to fish," such as
establishing fishing cooperatives where fishermen have incentives to catch
their individual fish allocations at their own pace at lowest cost. In only
one of the fisheries in which a buyback program took place, the Bering Sea
pollock fishery, was this "race to fish" issue addressed by legislation that
facilitated creation of a fishing cooperative.

Buyback programs could be made more effective if they included measures,
such as forming a fishing cooperative in which fishermen have incentives to
catch fish at their own pace. For example, the Bering Sea pollock fishery
has addressed the "race to fish" that had previously existed among factory
trawlers. The buyback program's legislation removed nine trawlers and
facilitated creation of a fishing cooperative by the owners of the remaining
21 factory trawlers. This cooperative was designed to eliminate the race to
fish by assigning a specific amount of fish, or allocation, to the
cooperative, which divides the allocation among its members. Because of this
allocation, members of the cooperative had no incentive to expand fishing
capacity to catch the available fish before someone else did, as they would
in another fishery. Members were able to catch their individual fish
allocations at their own pace, at lower capital and operating costs, while
increasing product quality. These changes resulted in higher profits and
longer fishing seasons for the remaining factory trawlers.

We found that since members of the pollock cooperative knew at the beginning
of the 1999 fishing season how much fish each could harvest, they caught the
fish with fewer vessels with the intent to minimize costs and increase
profits. Cooperative members decided not to use four factory trawlers
previously used in the fishery when they were competing for the most catch.
Even without these four vessels and the nine removed through the buyback,
the cooperative members caught their 1999 allocation of pollock. This shows
that the fishery had excess fishing capacity even after the buyback and the
cooperative reduced this excess capacity.

The Department of Commerce also reported that buyback programs could be made
more effective if they were linked with other measures that address the
"race to fish," such as fish allocations made directly to individual
fishermen. In its 1999 Investment Task Force Report, the Department
concluded that a buyback program could be used as a precursor to these
measures. For instance, NMFS officials told us the buyback program in the
Bering Sea pollock fishery made the transition to a fishery cooperative
easier because the buyback reduced the number of vessels that participated
in the fishery.

Limited

NMFS has made limited efforts to evaluate whether buyback programs have
achieved their intended benefits. As required by the Interjurisdictional
Fisheries Act, NMFS has evaluated the effects of the New England buyback
program on fishing capacity. Aside from this congressionally mandated
effort, NMFS has not evaluated how other buyback programs have affected
fishing capacity. The Magnuson-Stevens Fishery Conservation and Management
Act requires that NMFS manage federal fisheries in a way that protects the
environment and maximizes the benefits of fishing to the nation, while
minimizing the costs and the duplications of regulatory programs.
Considering the goals of this act, prudent management suggests that buyback
programs should be evaluated to identify lessons learned that might help
design future programs.

NMFS has completed a series of four annual reports on the New England
groundfish buyback program that are the most detailed of any evaluation of
such programs completed by the agency.9 A 1996 amendment to the
Interjurisdictional Fisheries Act mandated that NMFS report annually to the
Congress on the impact of the groundfish buyback on fishing capacity and
estimate the conservation benefits attributable to that program. The reports
provide estimates and updates to several analytical measures of the capacity
of vessels removed by the buyback. In its evaluation of conservation
benefits, the reports said that because many regulatory changes were
occurring in the fishery at the same time as that buyback program, it was
difficult to distinguish changes in fish stocks due to the buyback program
and other management measures.

Because the Congress required NMFS to evaluate the New England buyback,
NMFS' Northeast Fisheries Science Center developed fishing capacity measures
from existing data that estimated changes in fishing capacity. However,
other NMFS offices that have similar data have not developed measures to
evaluate buyback programs. For example, NMFS has information on the size,
the horsepower, and other characteristics of fishing vessels. NMFS also
collects information on the type and the amount of fish caught by these
vessels and is developing more sophisticated statistical measures for all
fisheries that would measure changes in fishing capacity. NMFS officials
believe that such statistical measures could be used to estimate changes in
capacity if they were applied to a fishery before and after a buyback.

NMFS has also broadly examined whether various federal programs, including
buybacks for New England groundfish, Washington State salmon, and Bering Sea
pollock, have influenced the industry's investment decisions in fisheries.
The 1999 report by the Department's Investment Task Force, which was also
congressionally mandated, included general information on (1) the events
preceding each federally funded buyback program; (2) the direct effects of
each program on the number of permits and/or vessels bought; and (3) the
concerns and the observations on the programs discussed in the economic
literature, such as concerns with unused capacity and the indirect effects
of fishing capacity moving from one fishery to another. The report does not
discuss each program's impact on improving the conservation of fish stocks.

Other than reviewing progress reports from the state that detail how it
spent buyback funds, NMFS did not evaluate the Washington State salmon
buyback programs because NMFS officials considered them to be ad hoc
disaster relief efforts, rather than part of a national effort to reduce
fishing capacity. They believe that the primary objective of disaster relief
programs is to provide economic relief to fishermen. Therefore, they believe
that it is inappropriate to evaluate how well such programs have reduced
fishing capacity.

Evaluations of buyback programs can identify lessons learned that might help
in the design of future programs. For example, NMFS' evaluations of the New
England buyback have highlighted that substantial fishing capacity remains
unused in that fishery even after the buyback program. These evaluations
point to the need to control the rate at which unused capacity returns to
the fishery so efforts to conserve fish stocks are not jeopardized. Such
evaluations can also provide lessons learned in the design of future buyback
programs in other fisheries that have substantial unused capacity or unused
fishing permits.

The problems of past buyback programs should be addressed as part of the
design of any future programs. In particular, experience has shown that
initial reductions in fishing capacity achieved by buyback programs can be
quickly eroded if buyback participants, or if previously inactive fishermen,
return to the buyback fishery. To make future programs more effective, NMFS
needs to design these programs to restrict buyback participants from
entering a fishery that has excess fishing capacity and to restrict the use
of unused fishing permits. In addition, NMFS needs to identify mechanisms as
part of this program's design to minimize "race to fish" incentives that can
further erode reductions in fishing capacity. In designing future programs,
NMFS should also establish performance measures that relate to program and
legislative goals.

NMFS' evaluations of the New England buyback program demonstrate that such
evaluations can identify lessons that can improve the design of future
programs.

As future buyback programs are authorized, it would seem reasonable that
there be a good understanding of how well the programs work. Evaluating the
programs' results against performance measures would improve the
effectiveness of future buyback programs.

Before new buyback programs are used to reduce fishing capacity, they should
be made more effective. To do this, we recommend that the Secretary of
Commerce direct NMFS to

ï¿½ Design future buyback programs to (1) restrict buyback participants from
entering a fishery that has excess fishing capacity; (2) restrict the use of
unused fishing permits in a buyback fishery with excess fishing capacity;
(3) identify mechanisms to minimize the incentives to increase fishing
capacity in a buyback fishery; and (4) develop performance measures that
relate to program goals and broader legislative goals, such as the need to
better manage fishing capacity and conserve fish stocks.

ï¿½ Evaluate the results of future buyback programs against the performance
measures.

We provided the Department of Commerce with a draft of this report for
review and comment. The Department generally agreed with the information
presented in the draft report and with its recommendations. The Department
stated that the New England groundfish and Washington State salmon buybacks
were a combination of disaster assistance and capacity reduction. While the
Department stated it attempted to make both efforts achieve as much of both
objectives as possible, it said it could have achieved its disaster
assistance objective without also achieving its capacity reduction
objective. We believe that unless disaster relief programs address long-term
capacity issues in a fishery, fishermen will continue to expand their
capacity to fish and will race against each other for a declining number of
fish. The Department also stated that disaster assistance was not the
purpose of the Bering Sea pollock buyback, and that the Magnuson-Stevens Act
is the only legislative authority with the specific objective of achieving
capacity reduction. We agree. However, we believe that, regardless of
legislative authority, when funds are spent to reduce fishing capacity they
should be spent in a way to achieve the most long-term benefits. The
Department's complete comments and our detailed responses are in appendix
II.

To determine how buyback programs have affected fishing capacity, we
interviewed officials from NMFS' headquarters who are responsible for
defining and measuring fishing capacity. We also met with NMFS officials in
its Northeast and Alaska Science Centers and with state officials from the
Washington State Department of Fish and Wildlife who were involved in the
buyback programs. These officials provided us with several definitions of
fishing capacity and statistics they had developed on the buyback programs.
We also collected additional information from them on the amount of fish
caught, the permits issued, and the vessels involved in their fisheries
before and after the programs were implemented. From this information, we
identified changes in fishing activities in the buyback and other fisheries
and the factors that contributed to these trends. We conducted telephone
interviews with 54 of the 73 participants in the New England buyback and
contacted the company involved in the Bering Sea buyback to discuss the
buybacks' impact on them. We submitted the names of Washington State buyback
participants to state officials in Oregon and Alaska to determine how many
of the participants in Washington's buyback continued fishing elsewhere.

To determine the factors that could make buyback programs more effective, we
reviewed previous evaluations of buyback programs and met with officials
from NMFS, the Department of Commerce's Inspector General, and the
Congressional Research Service. We also met with state regulators and
nongovernmental organizations, such as the H. John Heinz III Center for
Science, Economics, and the Environment. We met with these officials in
their offices in the Washington, D.C., area; Woods Hole, Massachusetts; and
Seattle and Olympia, Washington.

To determine the efforts NMFS has undertaken to evaluate the effectiveness
of buyback programs, such as how these programs affected the fishermen's
profitability and fish stocks in the buyback fisheries, we reviewed previous
evaluations of buyback programs conducted by the NMFS Northeast Science
Center. We also discussed these reports and the data NMFS collects on
fishing capacity, fishermen's profitability, and the conservation of fish
with agency officials in the Washington, D.C., area; Woods Hole,
Massachusetts; and Seattle, Washington.

We conducted our review from October 1999 through May 2000 in accordance
with generally accepted government auditing standards.

As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until seven days
after the date of this letter. At that time, we will send copies of this
report to appropriate House and Senate Committees and Subcommittees; the
Honorable William M. Daley, Secretary of Commerce; Dr. James Bake, Director,
the National Oceanic and Atmospheric Administration; Penelope Dalton,
Director, NMFS; and other interested parties. We will also make copies
available to others upon request. If you have any questions about this
report, please contact me at (206) 287-4800. Major contributors to the
report were Peg Reese, Robert Lilly, Timothy Minelli, Lynn Musser, Charles
Bausell, and Dan Williams.

James K. Meissner
Associate Director, Energy,
Resources and Science Issues

Results of the Telephone Survey of Participants in the New England
Groundfish Vessel and Permit Buyback Program

We conducted a structured telephone interview with 54 of the 73 individuals
NMFS identified as participants in the buyback program for New England
groundfish.10 We obtained a list of buyback participants from NMFS and
checked this list with information obtained from the New England Fishery
Management Council and local fishermen in the New England area. We made
telephone calls to buyback participants from January 2000 through March
2000. We completed interviews with 54 participants, or 74 percent of all
participants. These 54 participants accounted for 60 vessels purchased, or
76 percent of all vessels purchased, in the buyback. The structured
telephone interview is reproduced at the end of this appendix.

Principal survey results are discussed below.

Vessels

Participants cited a number of reasons for participating in the buyback
program. The most common response, cited by 40 of the participants we
reached, or 74 percent, was increasingly restrictive fishery regulations,
such as reductions in the time allowed to fish and closures of fishing
grounds. Thirteen participants, or 24 percent, said that the buyback program
allowed them to sell an old vessel or to sell the vessel at a price not
available on the open market. Ten participants, or 19 percent, said that
rising insurance and maintenance costs prompted them to sell. Only two
participants told us they sold their vessel because they decided to retire
from commercial fishing.

Thirty-one of the 54 participants we reached, or 57 percent, told us they
currently own a fishing vessel. Twenty-seven of the 54 participants, or 50
percent, said they currently hold a groundfish permit. All but 1 of the 27
participants currently holding a groundfish permit told us they are
currently landing groundfish. However, only four participants said they were
fishing more with this permit than before the buyback. Another 4
participants said they were fishing about the same, while 17 said they were
fishing less. One participant currently landing groundfish did not answer
this question.

Of the 27 participants without a current groundfish permit, 7 told us they
plan or would like to reenter the groundfish fishery; 17 said they do not
plan to reenter that fishery; and 4 had no response.

Sixteen participants we reached, or 30 percent, told us they have purchased
at least one fishing vessel since the buyback. Two fishermen said they have
purchased two vessels each since the buyback. Of the 18 vessels purchased,
we were told that 12 were bought with buyback funds and 6 were bought with
other funds. We were told that 10 of the vessels purchased since the buyback
were smaller in size than the vessels sold in the buyback, 4 were larger,
and 4 were about the same size.

Twenty-two of 54 participants we reached, or 41 percent, indicated they
still fish in the groundfish fishery either as a boat owner, boat owner and
captain, or crewmember. Nine of the participants, or 17 percent, indicated
they are still fishing, but fishing for lobster. Six participants indicated
they are retired, while three indicated they were unemployed. Thirteen
participants, or 24 percent, indicated they were employed in occupations
other than commercial fisherman.

Twenty-four of the participants we reached, or 44 percent, told us they used
buyback money to pay taxes, either in the form of capital gains, income, or
sales taxes, on the sale of their vessel. Twenty-three participants, or 43
percent, indicated they paid mortgages or debts on the vessels sold in the
buyback. Twelve participants, or 22 percent, told us they bought another
commercial fishing vessel with buyback funds. Of the 12 vessels bought with
buyback funds, 9 vessels are being used primarily for groundfishing, while 3
are being used primarily for lobster fishing. Seven participants, or 13
percent, told us they bought gear to upgrade a previously owned commercial
fishing vessel.

Comments From the Department of Commerce

1. We agree that the New England groundfish and Washington State salmon
buybacks were a combination of disaster assistance and capacity reduction.
However, we disagree that capacity reduction objectives need be compromised
in order to provide disaster relief. In the long term, the best use of
disaster relief funds would be to address the factors that contribute to the
disaster. We believe that unless disaster relief programs address long-term
capacity issues in a fishery, such as inactive permits, disasters may
continue to occur because fishermen can easily expand their capacity to
fish. Capacity reductions achieved through buyback programs, regardless of
funding sources, should not be allowed to erode. Such erosion can lead to
the conditions that led to the need for disaster relief in the first place.
The Department of Commerce stated that activation of previously inactive
groundfish permits could erase buyback benefits. This shows that unless
these programs are carefully designed, capacity reductions achieved through
a disaster relief program may not be long lasting. Commerce also stated that
disaster assistance was not the purpose of the Bering Sea pollock buyback
and that the Magnuson-Stevens Act is the only legislative authority with the
specific objective of achieving capacity reduction. We agree. However, we
believe that, regardless of legislative authority, when funds are spent to
reduce fishing capacity they should be spent in a way to achieve the most
long-term benefits.

2. We agree that the New England buyback addressed active fishing capacity.
However, we believe that inactive fishing capacity should also have been
addressed at the time of the New England buyback, because, as Commerce
states, the activation of latent groundfish permits could erase the
buyback's benefits. As we noted in the draft report, 62 previously inactive
vessels have begun catching groundfish since 1996 and these newly active
vessels caught about 1.5 million pounds of groundfish during the 1998
fishing year, or about 10 percent of the active fishing capacity that had
been removed in the buyback. We also noted that these 62 vessels
collectively have about two-thirds of the potential fishing capacity as the
79 vessels purchased in the buyback. This increase in active fishing
capacity, along with the active fishing capacity added from buyback
participants' returning to the fishery, is significant because the New
England Fishery Management Council is currently considering additional
measures to further restrict groundfishing, such as reductions in allowed
days to fish for commercial groundfishermen. The potential fishing capacity
of these 62 newly active vessels is also significant because they are likely
to increase their active fishing capacity as groundfish stocks recover.
Commerce agrees this is a problem and notes that they have been unsuccessful
in motivating the New England Fishery Management Council to address
previously inactive groundfish permits. We agree with Commerce that the
Council needs to address this problem before groundfish stocks rebuild.
However, because NMFS, an agency within the Department of Commerce, is
responsible for oversight of the Council's activities and for approving its
plans to manage the groundfish fishery, we believe that NMFS can take more
concrete steps in working with the Council to address the problems of
previously inactive permits.

3. Commerce states that no additional fishing capacity was created when
buyback participants purchased existing lobster or groundfish fishing boats.
We disagree and believe that Commerce uses a very narrow definition of
fishing capacity when making its point. While Commerce defines fishing
capacity as the number of boats in a fishery, this report measures fishing
capacity in terms of the number of fish a boat is catching (active fishing
capacity), and the capability of the boat to catch fish (potential fishing
capacity). For example, we show that buyback participants who purchased
existing groundfish vessels are catching more groundfish than the previous
owners. In practical terms, the active groundfish fishing capacity of these
vessels has increased. In addition, the potential fishing capacity of the
recently purchased groundfish and lobster boats increased when buyback
participants, for example, used funds to add gear to the vessel. Several
buyback survey participants said that they used buyback funds to upgrade
either a boat they previously owned or purchased with buyback funds.

4. We agree that Washington State designed its buyback programs to meet its
fishery management objectives. We believe that Commerce can adopt this
practice of designing disaster relief programs within the context of overall
plans for managing fisheries and, therefore, reduce fishing capacity.

5. We agree that a portion of the costs of the three buyback programs we
reviewed comes from private and state funding. Of the $140 million that the
federal government has provided since 1995 for all buyback programs, $75
million, or about 54 percent, is a federal loan to the owners of factory
trawlers fishing in the Bering Sea. The loan is repayable over 30 years.
Until the loan is repaid, federal taxpayers assume the risk of nonrepayment
of any federal loans. Regardless of the financing method used, NMFS is the
federal agency implementing the buyback and is responsible for ensuring that
the program effectively achieves its buyback objectives.

6. Commerce generally agrees with this recommendation and offered three
possible issues related to this recommendation that should be considered.
Regarding Commerce's first issue, we believe buyback participants' buying
existing vessels and/or permits from other owners can create additional
fishing capacity. Regarding Commerce's second issue, we agree that there are
conditions in which owners of buyback vessels returning as captains and
crews would not create additional fishing capacity. Commerce believes it has
no authority to prevent buyback participants from becoming vessel owners in
another fishery or effectively returning to the buyback fishery as a captain
or crewmember. Buyback authorities do not specifically address these
circumstances. Regardless of whether Commerce has the authority to restrict
buyback participants from entering another fishery, we believe that Commerce
could work with regional fishery management councils to better manage
fisheries that have excess fishing capacity so new entrants cannot cause
additional capacity problems. As for Commerce's third issue, we agree that
buyback programs financed through federal loans are likely to buy permits in
just the buyback fishery, rather than the vessel and all of its permits. We
believe that Commerce's suggestion of financing buybacks through a
combination of federally appropriated funds and loans to the fishing
industry is a viable alternative for addressing this problem.

7. Although Commerce agrees with our recommendation, it states that it may
be inconsistent with buyback components of disaster assistance. We disagree.
We believe that, in the case of fishing disasters, unless disaster relief
programs address long-term solutions to fishing capacity issues, the
response to one disaster may itself be creating the foundation for the next
disaster. Therefore, we believe that, except in the most extreme cases of
financial distress in which some form of immediate relief is needed,
sufficient time exists to develop disaster relief programs for the fishing
industry that restrict the use of unused fishing permits in a fishery after
a buyback.

8. Although Commerce agrees with our recommendation, it states that section
312(b)(1)(B)(i) of the Magnuson-Stevens Act provides a mechanism for
preventing the replacement of fishing capacity from buybacks funded under
sections 312(b)-(e) of the Act. This mechanism would not apply to buybacks
funded under other authorities. Also, this mechanism does not require
Commerce to identify alternatives that address the incentives to increase
fishing capacity in a buyback fishery. Concerning alternatives that Commerce
discusses in its comments, we agree that Commerce cannot compel fishermen to
form a cooperative for harvesting fish. However, in the Bering Sea pollock
industry, the American Fisheries Act facilitated creation of a cooperative
by addressing such issues as the allocation of fish to different sectors of
the industry. We believe that, when designing a buyback program, Commerce
should identify ways to reduce the incentives to race to fish in the buyback
fishery.

9. Although Commerce agrees with our recommendation, it states that its
interim final rule implementing section 312(b)-(e) of the Magnuson-Stevens
Act provides for information needed to develop performance measures for
evaluating buyback programs. However, our recommendation applies to all
buyback programs regardless of legislative authority. This would include
section 312(b)-(e) of the Magnuson-Stevens Act; as well as the disaster
relief section of the Magnuson-Stevens Act; other legislation that allows
for disaster relief funding; or separate legislation, such as the American
Fisheries Act.

10. Although Commerce agrees with our recommendation, it states that it
could evaluate buyback programs implemented under section 312(b)-(e) of the
Magnuson-Stevens Act in its Stock Assessment and Fishery Evaluation reports.
However, we believe that all buyback programs should be evaluated regardless
of the legislative authority for funding them. As previously discussed, this
would include instances where buyback programs are funded under the disaster
relief section of the Magnuson-Stevens Act, other legislation that allows
for disaster relief funding, or separate legislation, such as the American
Fisheries Act.

(141402)

Table 1: Commercial Fishing Permits by Annual Catch in the New England
Groundfish Fishery, 1996 Through 1999 9

Table 2: Commercial Fishing Permits by Annual Catch in the Washington State
Salmon Fishery, 1994 Through 1998 12

Figure 1: Primary Occupations of New England Buyback Participants 10

  

1. A fishery is one or more stock (defined as one species or several species
in a geographical area) of fish managed as a group.

2. See Commercial Fisheries: Information on Federally Funded Buyback
Programs (GAO/RCED-00-8R , Oct. 20, 1999) for additional information on the
costs, the source of funds, and the results of the 10 programs funded by the
federal government since 1976.

3. A factory trawler catches fish by dragging a large net through the water
and then processes the fish onboard.

4. Federal Fisheries Investment Task Force: Report to Congress (Department
of Commerce, July 1999). The Congress mandated this report, which we refer
to as the Investment Task Force Report, to examine how various federal
programs, including buyback programs, have generally influenced the
industry's investments in fishing capacity.

5. We surveyed all 73 fishermen NMFS identified as participants in the New
England groundfish buyback program. We completed structured telephone
interviews with 54 fishermen, or 74 percent of all participants. See app. I
for results of the survey.

6. Our Living Oceans: Report on the Status of U.S. Living Marine Resources,
1999 (U.S. Department of Commerce, NOAA Tech. Memo. NMFS-F/SPO-41).

7. If considered as separate fleets, the 1998 buyback removed permits from
fishermen associated with vessels that accounted for about 28 percent of the
coastal/Columbia River fleet's 1998 catch and about 13 percent of the Puget
Sound's 1998 catch.

8. Fishing statistics for the 1999 salmon fishing seasons are not available
to determine the number of permits and the amount of catch in each fleet.
However, the licensing manager for Washington State believes that fishermen
are continuing to leave the salmon industry.

9. During 1996, the Department of Commerce's Office of Inspector General
evaluated NMFS' pilot program for the New England groundfish buyback and the
1995/1996 Washington State salmon buybacks. The Inspector General concluded
that the buybacks were not the most effective way to achieve the programs'
objectives. See Expanded Vessel Buyout Program Is Not Needed (Audit Report
No. ENT-8657-7-0001, Jan. 1997) and Northwest Emergency Assistance Plan
Needs Focus (Audit Report No. STL-8518-7-0001, Mar. 1997).

10. While 79 vessels were purchased in the buyback program, six participants
sold two vessels each, resulting in a total of 73 participants. In some
instances, the vessel sold was owned by more than one individual. In these
cases, we tried to contact the owner that NMFS listed as the primary
applicant for the buyback program.
*** End of document. ***