William DuPaul and James Kirkley are faculty members at the Virginia Institute of Marine Science, College of William and Mary, and are members of the New England Fishery Management Council's Sea Scallop Plan Development Team. For additional copies or information, contact Sea Grant Marine Advisory Program at VIMS, Gloucester Point, Virginia 23062 - phone: 804-684-7170. [link to VIMS site]

Problem Overview

The U.S. northwest Atlantic sea scallop, Placopecten magellanicus, fishery is one of the most valuable, in terms of ex-vessel or dockside value, fisheries of the United States. Prior to extremely restrictive regulations imposed be-tween 1994 and 19981) the ex-vessel or landed value of sea scallops routinely ranked fifth among all individual species landed in the United States. The fishery is prosecuted from Maine through North Carolina with the larger fleets coming from New Bedford, Cape May, and Hampton Roads. The two major fishing areas are Georges Bank and the mid-Atlantic.

There are two primary gear types and two product forms for sea scallops. The major gear in terms of landings and activity is the dredge; small quantities, typically less than 15 percent of total landings, are harvested with a trawl and are highly dependent upon year-class strength. The major product form is scallop meats; small quantities of product in the shell, however, are regularly landed. Prior to 1994, 300 or more scallop dredge vessels regularly harvested sea scallops.
In Virginia, the sea scallop fishery has traditionally been the most important fishery in terms of ex-vessel revenues.

The blue crab fishery typically produces the second highest revenue. In 1994, the ex-vessel value of sea scallops landed in Virginia equaled $35.6 million. The fishery generated more than $94 million in total sales to the state economy Total full-time equivalent employ-ment from the fishery for the state equaled 1,908 individuals. That is, total sales of sea scallops among harvesters, processors., restau-rants, and retail markets generated employment opportunities, in terms of fiffl-time equivalent units, for 1,908 individuals. At the local or community level, the fishery has even more importance.

Since 1983 the U.S. northwest Atlantic sea scallop fishery has been subject to regula-tion. The initial regulations during the 1980s and early 1990s attempted to control the age at entry or age at first capture. Two basic regula-tions were used: (1) for product landed in meat weight form, the average number of meats per pound (MPP) or meat count was restricted to 30 MPP with a 10 percent tolerance; and (2) for product landed in the shell, a minimum shell height of 3.5 inches, with a ten percent tolerance, was imposed. In actuality, the shell-height restriction, plus the ten percent tolerance, was relative to 400 measured scallops (i.e.; if more than 40 out of 400 shell were found to be smaller than 3.5 inches, the vessel owner was found to be in violation of the regulation).

The age-at-entry regulations were found to be inadequate to regulate the fishery and pre-vent the resource from being over fished. A variety of practices by industry allowed smaller scallops than originally intended by the regula-tions to be regularly harvested and landed. In response, Amendment #4 was developed by the New England Fishery Management Council (NEFMC), the Council having primary man-agement control of the fishery, and imple-mented under the U.S. Secretary of Commerce in March 1994. Amendment #4 imposed regulations on the number of allowable days at sea per year, crew size, gear size and configura-tion, and reporting requirements. Of all the various regulations, however, the number of allowable days at sea has been the most trouble some for industry. The allowable days were established in accordance with a decreasing schedule based on target fishing mortality rates to meet the overfishing definition at that time based on a level of spawning stock age. For the 1998 fishing year (April 30, 1998 through March 15 1999), the industry is allowed 142 days per year, but that is to be reduced to 120 days in 1999. At 142 days, many of the vessel owners are either unable to cover their total costs or can only cover the costs by foregoing maintenance. Failure to maintain vessels poses potential safety problems for crew.

Not only are vessel operations highly regulated, but there are also several closed resource areas. Three areas on Georges Bank are closed to nearly all types of fishing. The closure of Georges Bank was done, however, to help restore the stocks of groundfish. The mid Atlantic areas are closed only to scallop fishing and only for the purpose of rebuilding the sea scallop resource.

The closure of Georges Bank, however, not only reduced the allowable areas which could be fished by scallop dredge vessels, it also forced the New England and mid-Atlantic fleets to increase or concentrate their fishing activities on the remaining open Georges Bank and mid-Atlantic resource areas. The increased concentration has likely gener-ated considerable economic waste and the harvesting of scallops below the optimum size. In a 1997 report by DuPaul and Kirkley it was shown that scallops allowed to grow for 17 months between ages 2.5 and 4, even with 20 percent natural mortality, would more than double their weight. Preventing the harvesting of small scallops, thus, offers substantial returns to industry.
The current story on Georges Bank is also troublesome. The closed areas have not been fished in over four years. Based on recent preliminary at-sea experiments on Georges Bank collaboratively done with industry, Na-tional Marine Fisheries Service (NMFS), Uni-versity of Massachusetts at Dartmouth, and the Virginia Institute of Marine Science, it is thought that the scallop resource is extremely high. Moreover, some areas may be experienc-ing unusually high natural mortality rates because of the large number of scallops com-peting for food and space.

What is more alarming, however, is that the Sustainable Fishing Act (SFA) of 1996 will require even more restrictive conditions on the fishery. The SFA, except when not possible, requires that marine resources managed under the Magnuson-Stevens Fishery Conservation and Management Act be rebuilt within a seven or ten year horizon. The SFA also imposes a new target fishing mortality level to meet a new definition of overfishing based on a stock age which would maximize yield. However, this new definition requires considerably more restrictive management measures than that required by the 1994 definition. In order to rebuild the scallop resource, the Northeast Fisheries Science Center staff with NEFMC staff have estimated that only 35 to 70 days at sea could be allowed per vessel. These allowable days at sea imply the obvious for all vessel owners, except those with sufficient capital to stay in the fishery until more days are allowed - simply, bankruptcy of the vessel owners and related businesses.

The U.S. northwest Atlantic sea scallop fishery is, thus, in considerable trouble. The scheduled number of allowable days at sea for 1999 may cause severe financial hardship for the fleet. If fully implemented as presently required, the SFA will impose severe hardship. If the closed Georges Bank areas are not opened to some limited scallop fishing, the mid-Atlantic and other Georges Bank resource areas cannot support the entire fleet, and the resource will become even more jeopardized by the harvesting activities of the entire fleet.

A Potential Solution

Solving the sea scallop fishery problem will not be an easy task. First, it is relatively well known that the fleet does have substantial excess capacity. In other words, there are more vessels than necessary to harvest allowable levels, and each vessel is catching considerably less than it could without all the management restrictions. Second, the present regulatory regime severely limits vessel productivity and prevents them from operating efficiently. Third, the only way to realize the goals and objectives of the SEA is to drastically reduce fishing activity by the fleet.

It is the third problem which poses the greatest challenge to management and industry. In simple terms, realizing the goals and objec-tives of the SEA and Magnuson-Stevens Act requires a reduction in the total harvesting capacity. A reduction can be accomplished with natural market forces which will reduce the number of days until the necessary capacity is forced out of the fishery through bankruptcy. Alternatively, the fleet may be reduced through some type of buyback program in which vessels arc purchased, removed from the fishery, dis-carded or scrapped, or sold to individuals in other nations.

A buyback program, while necessary, will not, however, provide an interim solution. An interim solution is necessary to allow industry the opportunity to work with appropriate public agencies to develop a buyback program which is satisfactory to the NEFMC and NMFS.

The most feasible interim solution is to permit controlled access to the scallop resource in the closed areas of Georges Bank. This should be followed by a major amendment to the Sea Scallop Fishery Management Plan to allow the development of area management strategies. The -controlled access must be designed to ensure the continued rebuilding of the groundfish stocks, prevent over harvesting of sea scallops, and allow sufficient time during the 1999-2000 fishing year to develop a buyback program. Any type of access also must be fair and equitable regardless of the geographic proximity of ports to Georges Bank. Last, any opening of Georges Bank must satisfy the requirements of NMFS and the NEFMC.

During an interim period of controlled fishing on Georges Bank, it is requested that a working group of individuals from industry, government, and academia be formed and assigned the responsibility to develop a buyback program. The first order of business will be to determine the number of vessels which need to be removed from the fleet. This can only be determined, however, by working with the NEFMC and NMFS; this is because the num-ber to be reduced must be consistent with achieving the stated goals and objectives of management and the SEA.

The next major problem relative to a buyback program is the determination of how the program is to be financed. Should a buyback be paid for with 100% public financ-ing, 100% private financing, or some mix of public and private financing? If there is to be any public financing, what should be the basis for using public monies?

Presently, it is thought that the fleet should be reduced by 70 to 100 active full-time vessels. In a 1993 study, Kirkley and DuPaul determined that approxi-mately 90 vessels could operate at full capacity and harvest a maximum sustainable yield of 20 million pounds. Considering gear and other factors, a buyback in the scallop fishery could require up to $70 million. Regardless of whether or not the buyback requires $70 million or even somewhat less, the remaining vessels in the fishery would simply not be able to provide private financing for the buyback.

What basis is there for a publically - spon-sored buyback? First, the 'Americanization" of our fisheries in 1976 sent a signal to the bank-ing community that fishing was a good busi-ness, a business that would be supported and well - managed by the U.S. government. Sec-ond, Congress created various financial pro-grams to encourage entry or to expand capital in the fisheries.

In fact, a present working document by the U.S. Task Force on Federal Investment in Fisheries identifies 30 programs which have helped the American fishing industry. Given the nature of the various subsidy programs, it is clear that most of the programs were intended to expand America's fishing industry.

There remains another basis for considering public funding for a buyback; studies and government reports that society is not receiving the maximum possible benefits from the marine resources because of excess harvesting capacity and over fishing. Reducing the capacity should restore the benefits to society. Since society would receive benefits, there is a question of whether or not society would be willing to pay to receive such ben-efits. This is a question which cannot be easily answered, but one which needs to be consid-ered when determining how a buyback pro-gram should be financed.

A remaining important issue is the cost of a buyback versus the cost of allowing the economic structure to collapse. If there are widespread bankruptcies from the SFA or current regulations, the infrastructure which previously supported the industry will be lost. In addition., the Commonwealth of Virginia and the U.S. Treasury will lose tax revenues. After seven or ten years, attempts to reestablish the necessary infrastructure will be quite costly. Overall.) the cost to society from allowing widespread bankruptcy could exceed the cost of a publicly-financed buyback. This latter issue is one which needs to be seriously considered when determining the source of funds for a buyback program.

 December 1998

Virginia Sea Grant Marine Resource Advisory No. 71
VSG-98-10