Fishery Management: Market Impacts of the American Fisheries Act on the
Production of Pollock Fillets (Letter Report, 06/30/1999,
GAO/RCED-99-196).
As the supply of better-known groundfish has dwindled, the demand for
pollock, which is valued for fillets, fish paste, and other products,
has increased. Over the years, the pollock fishery off the coast of
Alaska has become overcrowded with too many ships chasing too few fish.
Last year, Congress eliminated some vessels from the fishery, changed
the way that the annual allowable pollock catch was distributed among
the various sectors of the fishing industry, and set up a structure for
the formation of fishing cooperatives. GAO was required to report on
whether the act harmed the market for pollock fillets, including any
reduction in their supply. This report provides information on the
production of pollock fillets and the actions that affected production
for the first and largest of the three 1999 pollock fishing seasons,
which ran from January through March 1999. It also includes a historical
perspective on the pollock fishery and discusses factors that could
affect future production.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-99-196
TITLE: Fishery Management: Market Impacts of the American
Fisheries Act on the Production of Pollock Fillets
DATE: 06/30/1999
SUBJECT: Fishing industry
Prices and pricing
Fishery legislation
Fishes
Marine policies
IDENTIFIER: Russia
Alaska
Bering Sea
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United States General Accounting Office GAO Report
to Congressional Committees and Requesters June 1999
FISHERY MANAGEMENT Market Impacts of the American Fisheries Act on
the Production of Pollock Fillets GAO/RCED-99-196 GAO
United States General Accounting Office Washington, D.C. 20548
Resources, Community, and Economic Development Division B-282737
June 30, 1999 Congressional Committees and Requesters The Alaska
pollock fishery is the world's largest, single-species groundfish1
fishery, and nowhere are more pollock caught than in the Bering
Sea off the coasts of Russia and Alaska. As the supply of better-
known groundfish has dwindled, the demand for pollock, which is a
valued source of fillets, surimi,2 and other products, has
increased. This increased demand has led to a virtual "race for
fish" in the U.S.-controlled portion of the fishery. Each fishing
season, vessels compete to catch as many fish as possible before
the overall catch limit is attained and the season is closed.
Vessels that catch the most fish before the catch limit is reached
make the most money. Over the years, as more and more vessels
joined this race, the pollock fishery became overcrowded with too
many vessels chasing a set amount of fish. To address this
situation, in 1998, the Congress passed the American Fisheries Act
(P.L. 105-277, Division C, Title II). The act eliminated certain
vessels from the fishery, changed the way the annual allowable
pollock catch was distributed among the various sectors of the
fishing industry, and set up a structure for the formation of
fishing cooperatives. During the debate on the act, concerns were
raised that the banning of certain vessels and the redistribution
of the annual allowable pollock catch would result in restaurants
and seafood companies being unable to obtain enough fillets to
supply their markets. As a result, section 213(e) of the act
required us to report by June 1, 2000, on whether the act had
negatively affected the market for pollock fillets, including any
reduction in their supply. We are responding to that requirement
with this interim report, which will be followed with a final
report by the required date. This interim report provides
information on the production of pollock fillets and the actions
that affected production for the first and largest of the three
1999 pollock fishing seasons, which ran from January through late
March 1999. It also includes a historical perspective on the
pollock fishery and discusses some factors that could affect
future production. Results in Brief For the January to late
March 1999 fishing season, the U.S. production of Bering Sea
pollock fillets increased 13 percent, from 33.9 million pounds 1A
general term that refers to fish that live on or near the
seafloor, including cod, haddock, pollock, and ocean perch.
2Surimi is a fish paste that is converted to imitation crab,
lobster, and other products. Page 1
GAO/RCED-99-196 American Fisheries Act B-282737 during the
comparable 1998-fishing season to 38.2 million pounds in 1999. The
increase is attributable to three main factors. First, demand for
the fillets increased as worldwide groundfish supplies and Russian
production of pollock fillets declined. Second, reflecting this
increased demand, pollock fillet prices increased by as much as 74
percent in the past year, providing an incentive to produce more
fillets. Finally, the formation of a fishing cooperative, provided
for in the act, guaranteed the cooperative's members a certain
amount of fish and effectively ended their race for fish. With the
end of the race for fish, cooperative members were able to shift
production from surimi, which is faster to produce, to the slower
but more profitable production of fillets. Although demand for
pollock fillets continues to be high, several other factors, such
as where pollock fishing will be allowed in the two remaining 1999
pollock fishing seasons, could affect future production and
prices. Despite a recent decline in pollock, the fishery is
considered to be healthy and in no immediate danger of being
overfished. Background The worldwide catch of Bering Sea
pollock was about 3 million metric tons3 in 1997 with over one-
third of it caught in American-controlled waters. Alaska pollock
remains the largest U.S. fishery by landed weight, about 1.1
million metric tons. Just two decades ago, however, the American
fishing industry's interest in pollock was slight. According to an
industry official, pollock was considered a low-valued fish, and
Americans preferred to fish for the higher-valued salmon, crab,
herring, and halibut. However, increased market demand for Alaska
pollock fillets as a substitute for declining supplies of
traditional groundfish species caused a number of American
fishermen to switch to pollock fishing. The growth of the American
Bering Sea pollock fishery was made possible by the Fishery
Conservation and Management Act of 1976,4 later amended and now
known as the Magnuson-Stevens Fishery Conservation and Management
Act. This act established a fishery conservation zone that
extended federal jurisdiction for fishery resources in coastal
waters beyond state boundaries to 200 miles from the U.S.
coastline and gave priority to domestic enterprises to fish within
this zone. The Secretary of Commerce has final authority to
administer the Bering Sea pollock fishery. The Secretary manages
the fishery through the National Marine Fisheries Service, an
agency within the Department of Commerce's National Oceanic and
Atmospheric Administration, and through the North Pacific 3A
metric ton equals 2,205 pounds. 416 U.S.C. 1801 et seq. Page 2
GAO/RCED-99-196 American Fisheries Act B-282737 Fishery Management
Council (Council).5 The Council acts as an advisory board and
recommends fishery management actions to the Secretary of
Commerce. Although at first content to catch and deliver pollock
to foreign processing ships, Americans soon started investing in
vessels capable of both catching and processing pollock at sea.
After these catcher/processor vessels proved that pollock could be
harvested profitably, companies (primarily Japanese) began
constructing processing plants on land. However, by 1990, the
catcher/processor vessels were catching an estimated 80 percent of
the total allowable annual catch, and controversy developed over
how the annual pollock catch should be distributed. To protect and
expand their investment in processing plants built onshore, these
companies and their U.S. trade association petitioned the Council
to divide the allowable annual catch of Bering Sea pollock between
the offshore segment of the industry and the "inshore" sector-
those catching pollock and processing it either in shore-based
plants or in processors near the shore. In 1991, the Council
approved such an allocation formula. From the annual total
allowable pollock catch, an amount was first set aside as a
contingency reserve,6 half of which was allocated to western
Alaskan native communities in what is termed a Community
Development Quota. These communities do not, for the most part,
actually catch or process pollock but instead sell their
allocation to the highest bidder in either the offshore or inshore
sector. After this initial deduction, the rest of the total
allowable catch was distributed as follows: * 65 percent to the
offshore sector. This sector consists of three types of vessels:
(1) catcher/processor vessels capable of both catching the pollock
and processing it into fillets, surimi, and other products; (2)
motherships that process pollock but do not catch it; and (3)
catcher vessels that catch pollock and deliver them to the
motherships and catcher/processors for processing. * 35 percent to
the inshore sector. The inshore sector consists of plants located
on or near the shore, along with catcher vessels that catch the
pollock and deliver it to the processing plants. Although this
allocation formula set limits on how much pollock each sector
could harvest, it did not limit how much pollock individual
vessels 5The Magnuson-Stevens Act established eight regional
councils and required them to prepare fishery management plans for
each fishery within their jurisdiction that they determined
required active federal management and to review and revise these
plans as necessary. 6This reserve was used to adjust for changed
stock conditions and operational problems in the fishery. Page 3
GAO/RCED-99-196 American Fisheries Act B-282737 within each sector
could catch. While the two sectors no longer had to race each
other for fish, within each sector the race for fish remained.
Each fishing season, vessels raced to catch as many pollock as
possible until the allocation was reached and the season closed.
Vessels that caught the most fish made the most money. As more
vessels joined this race, the pollock fishery became more and more
crowded. The Council's allocation formula also did not end the
controversy over how the annual allowable catch should be divided
between the offshore and inshore sectors. The formula had
initially been approved by the Secretary of Commerce as an interim
measure until a more comprehensive program for the fishery could
be developed. In 1994, because the new management program had not
been completed, the Council decided to extend the interim
allocation formula into 1998. However, in 1997, a coalition
representing the inshore sector petitioned the Council to double
the inshore allocation to 70 percent. To address issues such as
the allocation between the offshore and inshore sectors,
overcrowding, foreign investment, and the race for fish, the
Congress enacted the American Fisheries Act in 1998. The act
changed the American Bering Sea pollock fishery in many ways.
First, it eliminated nine, predominantly foreign-owned,
catcher/processor vessels from the offshore sector. Second, it
increased the allocation for the Community Development Quota
program and then divided the remainder equally between the inshore
and offshore sectors.7 The offshore sector's 50 percent was
further split with the catcher/processors and their catcher
vessels receiving 40 percent and the catcher vessels supplying the
motherships the remaining 10 percent. The American Fisheries Act
also provided the framework for the formation of fishing
cooperatives. These cooperatives were designed to eliminate the
race for fish by assigning a specific amount of fish to each
member of the cooperative. Members could then catch their fish
allocation at their own pace. Catcher/processors formed a
cooperative before the start of the 1999 season. The act does not
allow the motherships or the inshore sector to operate as
cooperatives until January 1, 2000. 7An additional amount was
subtracted from the total allowable catch to allow for the
incidental taking of pollock by vessels harvesting other
groundfish species. This is called a bycatch allowance. Page 4
GAO/RCED-99-196 American Fisheries Act B-282737 U.S. Fillet
Production U.S. production of pollock fillets
for the first fishing season in 1999 Rose by 13 Percent
increased 13 percent over 1998 despite a number of factors that
could have resulted in a significant decline. This increase
occurred in both the inshore Despite Factors
and offshore sectors (see table 1). Indicating a Potential Decline
Table 1: Total Fillet Production by Sector, 1998 and 1999 First
Season Pounds in millions Percent 1998 first season
1999 first season increase in Percent of
Percent of pounds, Sector Pounds
total Pounds total 1998-99 Offshore
catcher/ processors 24.0 71
26.5 69 10 Offshore motherships
0 0 Inshore producers
9.9 29 11.7 31
18 Total 33.9 100
38.2 100 13 Note: Production figures
include the Community Development Quota, the majority of which was
purchased by the offshore sector. Source: National Marine
Fisheries Service. This 13 percent increase occurred despite
several factors that signaled the potential for a substantial drop
in fillet production. Some factors were part of the American
Fisheries Act itself, while others were not. Specifically: * The
act reduced, from 65 percent to 50 percent, the allocation of
pollock to the offshore sector, which historically accounted for
most of the fillets produced, and increased the allocation to the
inshore processors, a sector that had historically produced
relatively few fillets. Furthermore, industry officials stated
that the nine catcher/processors the act banned from the fishery
had been the main producers of fillets for the offshore sector. *
One inshore fillet processor sustained major fire damage and was
unable to produce fillets during the first season in 1999. Many of
the remaining inshore processors had historically concentrated on
surimi. Page 5
GAO/RCED-99-196 American Fisheries Act B-282737 * To protect
declining pollock stocks and the Steller sea lion,8 which eat
pollock, the Council reduced the total allowable pollock catch by
almost 11 percent between 1998 and 1999. Furthermore, it reduced
the percentage of the harvest that could be taken during the first
season. Taken together with an increase in the Community
Development Quota, the subtraction of the bycatch allowance, and
the change in the allocation formula, the total allowable catch
available to the catcher/processors of the offshore sector during
the first season dropped by almost 50 percent between 1998 and
1999. These same factors resulted in about a 4-percent increase in
the amount of pollock allocated to the inshore sector. Even with
an almost 50 percent decrease in the catcher/processor's total
allowable catch, the vessels managed to increase their total
fillet production by 10 percent between the first seasons in 1998
and 1999. Catcher/processors also managed to maintain their
overall share of total fillets, producing 71 percent of all
fillets in the first season of 1998 and 69 percent of the fillets
in the first season of 1999. During this same period, the inshore
sector managed an 18-percent increase in the production of pollock
fillets, although there was very little increase in allowable
catch. Price Increase and Pollock fillet production for the
first 1999 season increased, despite the Fishing Cooperative
negative factors discussed above, for three main reasons. First,
concerns over falling Russian pollock fillet production and the
declining worldwide Spurred Production supply of groundfish
increased the demand for American pollock fillets. Increase
Second, average prices for pollock fillets increased by as much as
74 percent. Third, because the American Fisheries Act allowed the
catcher/processors of the offshore sector to form a cooperative
and end their race for fish, this sector was able to respond to
increased demand and rising fillet prices by increasing fillet
production while decreasing surimi production. According to some
industry officials, pollock fillet prices increased this year
principally because of the severe decline in the amount available
from Russia. Russia has historically produced a large portion of
the total pollock fillets available, but its production has
dropped drastically recently, with over-fishing cited as the
reason for the decline. Although we could not obtain actual
figures, we were told that the Russian catch might be down by as
much as 50 percent. 8The Steller sea lion is protected by the
Endangered Species Act of 1973, as amended, 16 U.S.C. 1531 et seq.
Page 6 GAO/RCED-
99-196 American Fisheries Act B-282737 Many industry officials we
talked to agreed that the severe decline in Russian production,
coupled with an overall decline in worldwide groundfish stocks,
increased the demand for American Bering Sea pollock and spurred
an increase in prices for pollock fillets. From the first season
in 1998 to the first season in 1999, average pollock fillet prices
increased 41 to 74 percent, depending on the type of fillet.
Although most types of pollock fillets are similarly priced, deep-
skin fillets are priced higher and are preferred by many Americans
because the fat layer has been removed. Table 2 compares the
average prices paid between 1998 and 1999 for deep-skin fillets
and the other fillet types. Table 2: Average Price Per Pound of
Pollock, 1998 and 1999 First Seasons
Percent of Product 1998 first season 1999
first season increase Deep-skin fillets
$1.28 $1.81 41 Other fillets
$.91 $1.58 74 Source: Fisheries
Market News Report. The American Fisheries Act allowed the
catcher/processors to respond to the increased market demand and
prices in a way that would have been difficult to do previously.
The race for fish induced processors to emphasize surimi
production because it is the fastest way to process large
quantities of fish caught at one time. Because the act provided
the framework for the formation of a cooperative by the
catcher/processors of the offshore sector, this segment of the
industry was able to end its race for fish and produce products
with higher value. In addition, because the cooperative guaranteed
each member a certain amount of fish, members could invest in
machinery capable of producing the higher-valued fillets and could
slow down by fishing only when their fillet-processing machines
needed additional fish. We spoke to representatives for six of the
nine members of the offshore catcher/processor cooperative, and
they were universal in their praise of how well the cooperative
has worked and how it has improved overall operations. They stated
that the elimination of the fish race had other benefits as well.
For example, they stated that their yield rates were up as much as
25 percent because, with the race for fish over, they could now
afford the time to make less valuable products like oil and
fishmeal and store them until they could be brought to shore.
Previously, any part of the fish not used for fillets or surimi
was often tossed overboard. Companies could not afford to waste
storage space on low-valued products when the Page 7
GAO/RCED-99-196 American Fisheries Act B-282737 same space could
be used to store fillets and surimi. They also could not afford
the time to travel to a port and unload low-valued products; they
had to stay in the race. We were also told that the cooperative
has led to savings in fuel consumption, increased safety because
vessels no longer have to fish during extreme weather conditions,
and more time to search for the size of fish most conducive to the
products processors want to produce. Various Factors Could Pollock
fillet production increased during the first season in 1999
because Affect Future Seasons the factors discussed above acted
together to encourage that result. If these conditions change in
the future, the results may differ. For example, if the Russians
increase fillet production and fillet prices fall, American
processors might return to emphasizing surimi production. This
could result in American restaurants and seafood companies having
to find new sources of supply. In the near term, however, industry
officials do not expect much change. Officials representing both
the inshore and offshore sectors expect the outlook for pollock
fillet production to remain strong if declines continue in the
worldwide supply of Russian pollock and other groundfish, such as
cod, hake, and whiting. If the demand and price for pollock
fillets remain high, several processors in both sectors said that
they plan to invest in additional fillet production equipment and
produce more fillets in the two remaining 1999 seasons, which
start in August and September. Another factor that could affect
supply is the closure of areas deemed critical for the survival of
the protected Steller sea lion. Some industry officials expressed
concern that even with additional equipment, fillet production in
the two remaining 1999 pollock seasons could be limited by the
long distances fishermen may have to travel to avoid fishing in
closed areas. Pollock caught in these more remote areas may be too
small to be used for fillets or may need to be processed into
surimi because they cannot be transported to inshore processors
fast enough to be made into fillets. Still another factor that
could affect production is the formation of an inshore
cooperative. We talked to five of the seven inshore processors,
and four were in favor of a cooperative similar to the offshore
one if it would eliminate the race for fish. As with the offshore
cooperative, such an agreement could potentially provide the
inshore sector the opportunity to switch to producing more
fillets. Page 8 GAO/RCED-99-
196 American Fisheries Act B-282737 Agency Comments We provided
the Department of Commerce with a draft of this report for review
and comment. While the Department did not indicate whether it
agreed with the overall message of our report, it did provide
technical comments that we incorporated as appropriate. Scope and
To obtain background data and make preliminary observations, we
Methodology reviewed volume data on the production of
pollock products, which we obtained from the National Marine
Fisheries Service. We obtained and reviewed price data from
industry market reports, the processors, and their customers. We
did not perform reliability tests on either the volume or price
data. We also reviewed the act itself; its legislative history;
and various industry publications, market reports, and Federal
Register notices concerning the act. We also attended meetings of
the North Pacific Fishery Management Council to hear initial
reactions to the act's implementation and discussions of
regulations for the remaining 1999 seasons. To learn about the
history of the pollock fishery, the development of the American
Fisheries Act, and the experiences during the initial fishing
season, we interviewed representatives for six of the nine members
of the offshore catcher/processor cooperative and five of the
seven inshore processors. We also talked to companies identified
by both the offshore and inshore sectors as their major customers.
The processors and seafood companies we contacted are listed in
appendix I. Finally, we talked to officials from the National
Marine Fisheries Service and associations representing the fishing
industry. We conducted our review from December 1998 through June
1999 in accordance with generally accepted government auditing
standards. A copy of this report is being sent to the Honorable
William M. Daley, Secretary of Commerce; Dr. James Bake, Director,
the National Oceanic and Atmospheric Administration; Penny Dalton,
Director, the National Marine Fisheries Service; Richard Lauber,
the Chairman of the North Pacific Fishery Management Council; and
other interested parties. We will also make copies available to
others upon request. Page 9
GAO/RCED-99-196 American Fisheries Act B-282737 If you have any
questions about this report, please contact me or Jill Berman at
(206) 287-4800. Other key contributors to this report were Jerry
Aiken and Bill Wolter. James K. Meissner Associate Director,
Energy, Resources and Science Issues Page 10
GAO/RCED-99-196 American Fisheries Act B-282737 List of Committees
and Requesters The Honorable Judd Gregg Chairman The Honorable
Ernest F. Hollings Ranking Minority Member Subcommittee on
Commerce, Justice, State, the Judiciary, and Related Agencies
Committee on Appropriations United States Senate The Honorable
Harold Rogers Chairman The Honorable Jos Serrano Ranking Minority
Member Subcommittee on Commerce, Justice, State, the Judiciary and
Related Agencies Committee on Appropriations House of
Representatives The Honorable Slade Gorton United States Senate
The Honorable Mitch McConnell United States Senate The Honorable
Frank Murkowski United States Senate The Honorable Ted Stevens
United States Senate The Honorable Patty Murray United States
Senate Page 11 GAO/RCED-99-196
American Fisheries Act Appendix I Companies and Associations
Contacted Catcher/Processors American Seafoods Company Tyson
Seafoods Group Arctic Storm, Inc. Glacier Fish Company F/T
Highland Light F/T Starbound Motherships Supreme Alaska
Seafoods Golden Alaska Seafoods, Inc. Inshore Processors Unisea
Seafood Corporation Tyson Seafood Group Peter Pan Seafoods, Inc.
Trident Seafoods Corporation Westward Seafoods, Inc. Seafood
Companies Icicle Seafoods, Inc. Gorton's Inc. L. D. Foods Fish
Products International Cold Water Seafoods Corporation Long John
Silvers Burger King Page 12 GAO/RCED-
99-196 American Fisheries Act Appendix I Companies and
Associations Contacted Industry Associations At-Sea Processors
Association Pacific Seafood Processors Association (141268)
Page 13 GAO/RCED-99-196 American
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