Last April, the Ecology Action Centre’s (EAC) Marine team hosted a two-day workshop to explore options for maintaining access to fisheries for communities and small-scale fishermen, bringing together representatives of fishing associations with social finance practitioners. Based on the results from this workshop, the EAC Marine team issued a major report entitled Social Impact Investing for Sustainable Fishing Communities which is available here.
The report compiled the case-studies presented in the workshop which demonstrate how social finance tools, tailored to specific fisheries’ needs, can be applied to address socio-economic and environmental challenges in owner-operated fisheries in Atlantic Canada. These case-studies provide tailor-made community solutions to support the long term sustainability of fisheries. The report also offers strategies to finance fleet managed initiatives and improve economic viability identified by innovators from other sectors and experts in the field of social finance and community investment.
Four major recommendations emerged from the workshop:
1. New and existing financial mechanisms for community investment, such as Nova Scotia’s Community Economic Development Investment Fund (CEDIF) should be used to support ownership and access to fisheries resources.
2. Community-based fishermen, farmers, foresters, investment experts and others should collaborate and share lessons about community resource management and the evolution of natural resource-based industries.
3. Fishing associations must be directly involved in financial planning.
4. Fishing groups must be actively engaged in market development and marketing to increase the value of community fisheries and to support fishery businesses.
The case-studies were presented by Fédération régionale acadienne des pêcheurs professionnels (FRAPP), Community Quotas and Eastern Shore Fishermen's Protective Association, the Maritime Fishermen’s Union, and the Snow Crab Quota Consolidation on Nova Scotia’s Eastern Shore. Other workshop participants discussed examples of social finance supporting business initiatives like the New Dawn Enterprises, Farmworks Investment Co-op, The Future of Fish, The Cape Cod Fisheries Trust, and the Pacific Coast Fishing Conservation Company and Ecotrust Canada.
Consistent with the next steps agreed upon in the workshop, the EAC Marine Social Finance program is now working to identify fishermen associations and fishing communities for capacity building on the use of social finance tools, investment funds, and/or license or quota banks to maintain ownership and access to fisheries. This outreach project may also include training on business planning and marketing and serve as a model for other fishing groups and communities throughout the region.
Summary of discussion panels and case-studies:
Fishing industry case-studies:
Fédération régionale acadienne des pêcheurs professionnels (FRAPP)
L'Association des crevettiers acadiens du Golfe (ACAG), a fleet of shrimp vessels over 65’ that each employs up to five crew members, was restructured into a jointly owned-cooperative that enabled the community to maintain quotas and to retain fishing and processing jobs. The Fédération régionale acadienne des pêcheurs professionnels (FRAPP) put together a financing package that included support from the provincial government, the local cooperative processor and fishermen. A jointly owned corporation was set up with the stipulation that processor (Lamèque Coop) were able to secure supplier agreements but not have any direct involvement in the corporation’s management. Five allocations were purchased by the corporation and an additional five fishermen left the fishery. Only one was sold outside of the community. As a result, the community retained four million lbs of quota, 20 direct fishing jobs and an additional 100 seasonal processing jobs. The major challenge identified in the financing stage was uncertainty caused by market dynamics, fuel costs and also federal policies. Financing institutions were reluctant to lend to an enterprise that was so exposed to regulatory changes and interference from Fisheries and Oceans Canada.
Community Quotas and Eastern Shore Fishermen's Protective Association
After the devastation suffered by Nova Scotia’s Eastern Shore communities’ fleets in the early 1990s, fishermen groups settled for ‘community quotas’ as a potential solution to the removal of quota from specific areas. The definition of ‘community’ and precise ownership structures proved very difficult to establish, but core companies were created with agreements about how to get into the fishery, who owns the resource, adjacency, fleet separation, and how the group operates by introducing shareholders’ agreement. They found that as governments and ideology and power structure changes, it was better to be structured as business so as to be governed by law instead of by policy. A business model with a shareholders agreement can help establish the laws by which a group operates outside of policy change fluctuations. One of the key lessons has been that community quotas work well once ownership is established enabling independent fisherman to continue fishing. Once it is recognized that a community will own the asset indefinitely, community members, fishermen and processors begin to invest in it.
Maritime Fishermen’s Union
The Maritime Fishermen’s Union (MFU) is the official representative of inshore fishers in accordance to the Inshore Fisheries Representation Act of New Brunswick representing over 1,300 owner-operator harvesters in New Brunswick and Nova Scotia. All MFU harvesters operate with vessels under 15 meters in length to sustainably harvest lobster, herring, scallop, mackerel, snow crab, and groundfish (cod, hake, flounder, plaice and turbot). MFU organization’s strength and capacity allow them to provide support and expertise towards community financing and management of productive resources. They presented a unique allocation system used to distribute a quota allocation for snow crab. The MFU has quota of crab but not enough to give each member a viable portion. Instead of selling the quota outright, MFU holds a lottery to allow each interested fisherman the opportunity to fish during a season, but disallows repeat participation until everyone has had the opportunity. Additional quota can be bid on for approximately $2.50/lb. The proceeds from this fee are used to provide extended health care for fishermen and their families.
Snow Crab Quota Consolidation on Nova Scotia’s Eastern Shore
Snow Crab Quota Consolidation along Nova Scotia’s Eastern Shore is a management approach which did not support community ownership and control of the resource. Recommended by Fisheries and Oceans Canada, the group established core companies of four or more individuals with quota allocated. However, unlike the case of Eastern Shore groundfish community quota management boards, the communities did not have protection from the self-interest of members of these private corporations. Some snow crab quota has been sold to corporate fisheries and no longer employs people in the Eastern Shore. Other quota allocations are being leased to fishermen who are active in the fishery. Without proper policy protections, fishing quota can easily become concentrated and privately owned with potentially destructive impacts on active fishermen and fishing communities. While this allows community-based fisheries to operate, it also means that Fisheries and Oceans Canada has created an asset that is privately owned, increases the cost of fishing and diverts wealth away from active fishermen and fishing communities. This shows that market-based solutions do not always result in the most economically efficient or beneficial solutions for communities. This experience demonstrated how important it is to determine ownership and to clearly structure terms and practices in documents such as shareholder agreements. Questions of ownership, as well as conditions, residency requirements, adjacency, fleet separation, etc. must all be answered in a shareholders agreement.
Maine Permit Bank Program (MPBP)
The Maine Permit Bank Program (MPBP) example was not included in the workshop. However this successful case demonstrates how permit banks help restore fishing employment opportunities to small boat fishermen in coastal communities. The MPBP was established first as a pilot permit banking program by the Maine Department of Marine Resources (DMR) and sponsored by the National Atmospheric and Oceanographic Administration’s (NOAA) with the purpose of leasing out fishing privileges.
The DMR received a total of $2,999,999 for the purchase of eleven Federal Northeast Multispecies Permits to assist small scale fishermen vessels as required by the Memorandum of Agreement (MOA) between the DMR and NOAA. These permits provided immediate and long term benefits to Maine’s groundfish industry by supplementing and maintaining continued access to groundfish stocks and fishing privileges associated with these permits. The fishing privileges were used to assist 18 vessels in Fishing Year (FY) 2012 who leased out a total of 728,114 lbs. of groundfish allocation of the available 1,011,731 lbs. A total of 617,964 lbs. of the lease out stock allocations was landed in Maine, leaving 393,768 lbs. unused, as it was either left in the respective Sectors (110,150 lbs.) or in the MPBP (283,618 lbs.) at the end of FY2012. In addition, 1,950 lbs. of scallop allocation associated with the MPBP’s Limited Access General Category Individual Fishing Quota (LA GC IFQ) permit was leased out to five Maine based vessels and this product was trucked back and sold in Maine. Total revenue generated during the reporting period was $36,364.52 ($34,414.52 from groundfish ACE and $1,950.00 from Scallop IFQ), while $9,979.03 was utilized to cover administrative costs for the program.
For more information on the MPBP check the Fishing Year Performance Report at http://www.maine.gov/dmr/rm/groundfish/bank/fy2012performancereport.pdf
Examples of Social Finance at work:
New Dawn Enterprises
New Dawn Enterprises is a Cape Breton-based Community Development Corporation established to develop and support a culture of self-reliance. As a Community Development Corporation, New Dawn does not have shareholders and is instead operated as a business dedicated to community building employing over 175 people. There are three primary divisions: real estate (commercial and residential), healthcare (guest home and more), training operation (welding school, community college division.
Using Nova Scotia’s CEDIF program, New Dawn has raised money from approximately 400 individual investors. Over the past ten years, it has also paid over $8 million in investment dividends in the community. The CEDIF allows communities to retain some of the wealth that would otherwise leave the area in the form of RRSP investments but New Dawn’s success is fairly a result of community involvement. The CEDIF provides excellent opportunities for community investments to support local economic development and even relatively small investments can make powerful contributions in rural areas.
Farmworks Investment Co-op
Farmworks Investment Co-op is a “blind pool” investment fund that raises capital through the CEDIF program to provide equity and subordinated debt financing for farms, farm-based secondary processing, and value-added food products to support food production and added-value in Nova Scotia. Established in 2011, the co-op currently offers loans to primary and secondary food producers in the province ranging up to $25,000. Loans in 2012 ranged $5,000 to $25,000 at an annual rate of 6% with a payback in two to five years. Interest rates are established annually by the Board. The first CEDIF offer closed at the end of February 2012 and raised $223,500 while the second in February 2013 raised $225,300. By the end of the fifth year it is anticipated that at least $6 million will be invested in farms and food-related enterprises across the Province.
Community involvement, advising and mentoring are major parts of the Farmworks Investment program. Prospective borrowers must undergo a rigorous screening and comprehensive evaluation process, but during the process they are provided with business planning assistance and meeting opportunities with the Farmworks Board of (Industry) Advisors. One feature of the mentoring provided by Farmworks is the ‘Gentle Dragons’ advisory process, which provides an opportunity for prospective borrowers to present their ideas in a public venue and receive productive feedback from a panel of advisors. Not only does this assist the borrowers in developing their business, it also helps showcase the variety of food businesses in the province to the public and introduces them to this investment opportunity. Mentoring and advisory services are critical aspects of the ensuring loan repayment and supporting borrowers’ long-term success.
The Future of Fish
The Future of Fish initiative has a unique focus on the ‘middle’ of the supply chain built after observing a host of sustainability interventions focused on fishery reform or retailers commitments. Fragmentation in processing and distribution steps in the value chain precludes most fishermen from obtaining higher value out of socially and environmentally responsible fishing practices. Fragmentation in supply chains combined with the constant negotiation to align supply and demand results in resistance to technology and an inability to increase value by ‘storifying’ fish. The Future of Fish works with supply chain entrepreneurs to bring together multiple players to build alternative supply chains. Over the past 2 years, the program has worked with 20 entrepreneurs in different positions in the seafood chain. Improving market opportunities through value chain building and innovative use of technology can double the income received from fish. Data collection and technology can allow for more effective business management, but requires trust in the supply chain as it reduces opportunities to aggressively negotiate zero-sum transactional deals.
The Cape Cod Fisheries Trust
The Cape Cod Fisheries Trust (CCFT) was formed in 2005 to support Cape Cod fishermen in the transition from competitive to ‘individual transferable quota’ fisheries in scallop and groundfish fleets. The Trust buys quota opportunistically and leases it to fishermen who would lack the capital to be able to purchase their own. The Trust is funded by a combination of grants, loans and program-related foundation investments. So far, the Trust has successfully raised nearly $3 million for the quota purchases and operates a Revolving Loan Fund that allows fishermen participants to reinvest in additional quota purchases. The Trust currently owns and leases approximately 160,000 pounds worth of scallop quota each season and leases it for approximately 50% of the cost on the competitive market.
A major strength of the Trust is its ability to operate with a much longer time horizon a more diversified portfolio which secures quota positions that individual fishermen would not have. Financing challenges can be overcome once a plan and structure are in place. The Trust has partnered with a development bank to offer business planning services to members, and has found that once initial barriers to entry are overcome, smaller vessels are able to compete with large ones because of their efficiencies from low vessel costs and fuel consumption.
The major challenge identified by Cape Cod Fisheries Trust managers is in the regular and ongoing decisions surrounding allocation and program participation. One of the lessons of the Trust is that with a clear business plan and identified participants, raising funds has been relatively straightforward. There is an evident need to be very clear upfront about how, under what guidelines and to what purpose the Trust will choose fishermen to receive quota leases. Even with clear guidelines, there is need for ongoing work needed in fishing communities to ensure that a quota bank continues to serve community needs and does not inadvertently end up raising prices or contributing to barriers to entry for new fishermen.
Pacific Coast Fishing Conservation Company and Ecotrust Canada
The Pacific Coast Fishing Conservation Company (PCFCC) is a license bank founded by a group of fishermen and Ecotrust Canada as a cooperative ownership structure that allows fishermen or communities to pool licences and quotas that are then leased back to members, at reduced or fair trade cost, improving the economic viability and securing access for members. The PCFCC was founded in 2006 with seven hook and line dogfish fishermen who collectively borrowed to purchase additional quota for their enterprises. The company established a fair trade policy that included real time trading with an agreed-upon lease rate formula and clearly defined shareholder responsibilities and consequences. The company also established a conservation covenant and code of conduct for fishing as well as an entrance and exit strategy to enable new entrants. By establishing these important agreements before the license bank was operational, the company has been able to avoid controversial disagreements and/or premature dissolution because of diverging priorities. It is critical to establish formal agreements that plan for different circumstances before launching this type of project.
Summary of Major Breakout Themes:
Succession planning challenges addressed through social finance:
While owner-operator policies in Atlantic Canada help protect individual license transfers, in practice many fishermen have had trouble leaving and accessing the fishery. There are a limited number of people able to acquire licenses because of capital barriers to entry and a lack of confidence in long-term enterprise viability.
Fishermen rely on sale of license to finance their retirement. In some identified areas (Newfoundland) there are no new entrants able to pay what retiring fishermen believe they need for retirement. This has led in some cases to increased corporatization and decreased employment in the fishery.
There is a need to establish a better understanding of license costs as related to enterprise viability. Government managed buybacks were identified as an important driver of license price inflation, with Employment Insurance programs also potentially playing a role.
Fishery regulations hinder creative and simple solutions to problems.
There is always a tension between people who have been in the fishery for years who want to exit at a high price and young people who want to get in at a low price.
Community License Banks
Community license banks were identified as a potential solution to address problems of outmigration of fishing enterprises from geographic communities, with Grand Manan emerging as the most distinct area of interest for this type of solution in the short-term.
A community bond or CEDIF-funded licence bank could be established to purchase the 5 or 6 lobster licenses that are in danger currently as people are nearing retirement. Almost $1.5 million would need to be raised to secure licenses that are in immediate threat.
Value Chain Improvement
Social Finance could help owner-operator fisheries that are seeking to market and sell their fish for higher prices and would also assist with long-term business planning.
There is a lack of traceability in the supply chain from harvesting to point of sale.
There is little trust in the supply chain between fishermen, brokers, processors and consumers.
Regional branding of seafood products according to species, quality and taste can help increase the price for fishermen.
Fishermen should consider recruiting buyers who want small boat local fish. These new distributors can use small-scale fisheries attributes to sell fish and make their brand.
For more information on this subject click here to download the report, Social Impact Investing for Sustainable Fishing Communities. EAC May 2013
Social finance addresses social or environmental challenges while generating financial return through grants, debts, loan guarantees, deposits and equity investments as direct investment into Community Development Corporations, Community Loan Funds, Local Investment Clubs, Alternative Financial Intermediaries, Local Exchanges, and Sustainable Tax Credits. Social finance requires a whole system of interconnected actors committed to long term investments. For more information on Social Finance visit the website of MaRS Centre for Impact Investing at http://impactinvesting.marsdd.com/strategic-initiatives/socialfinance-ca/
Existing social finance means in Nova Scotia: A Community Economic Development Investment Fund (CEDIF) is a pool of capital, formed through the sale of shares within a community, created to operate or invest in local business to finance economic development. For more information on Nova Scotia’s CEDIF program visit the website http://novascotia.ca/econ/cedif/
A license bank is a cooperative ownership structure that allows fishermen or communities to pool licenses and quotas to achieve greater benefits than they would at the individual level. It works by holding licenses and/or quota that is then leased back to members, at reduced or fair trade cost, improving the economic viability and securing access for members. http://ecotrust.ca/clayoquot/a-start-guide-fisheries-licence-banks
The Maine Department of Marine Resources (DMR) received a total of $2,999,999 to fund the establishment of the Maine Permit Bank Program (MPBP). DMR utilized the majority of the funds ($2,938,098.02) to purchase a total of eleven Federal Northeast Multispecies Permits with the purpose to assist small scale fishermen (≤ 45’ vessels) as required by the Memorandum of Agreement (MOA) between the DMR and the National Atmospheric and Oceanographic Administration’s (NOAA) National Marine Fisheries Service (NMFS). These permits will provide immediate and long term benefits to Maine’s groundfish industry by supplementing and maintaining continued access to groundfish stocks and fishing privileges associated with these permits. http://www.maine.gov/dmr/rm/groundfish/bank/fy2012performancereport.pdf
The fishing privileges associated with the MPBP permits were used to assist 18 vessels in Fishing Year (FY) 2012 who leased out a total of 728,114 lbs. of groundfish allocation of the available 1,011,731 lbs. A total of 617,964 lbs. of the lease out stock allocations was landed in Maine, leaving 393,768 lbs. unused, as it was either left in the respective Sectors (110,150 lbs.) or in the MPBP (283,618 lbs.) at the end of FY2012. In addition, 1,950 lbs. of scallop allocation associated with the MPBP’s Limited Access General Category Individual Fishing Quota (LA GC IFQ) permit was leased out to five Maine based vessels and this product was trucked back and sold in Maine. Total revenue generated during the reporting period was $36,364.52 ($34,414.52 from groundfish ACE and $1,950.00 from Scallop IFQ), while $9,979.03 was utilized to cover administrative costs for the program.