Appendix G Individual Fishing Quota Case Studies

This appendix presents data and information on the currently implemented federal individual fishing quota (IFQ) and transferable trap certificate programs in the United States and on selected systems from other nations. Its intent is not to evaluate these systems with respect to their desirability or lack thereof but to present empirical data on their genesis, characteristics, and effects. Although the committee gathered information on several other systems that are in various stages of development, the focus here is on those systems that actually have been implemented and from which some documented results are available.

The appendix is organized in two sections: (1) the U.S. federal experience and (2) selected foreign experiences. The common characteristics of these fisheries and their IFQ systems and the lessons learned from their experiences can be found in Chapter 3. The U.S. federal experiences that form the core of the analysis are summarized according to eight topics that are described for each case:

  1. Prior regulatory conditions in the fishery;
  2. Prior biological and ecological conditions in the fishery;
  3. Prior economic and social conditions in the fishery;
  4. Problems and issues that led to the consideration of an IFQ program;
  5. Objectives of the IFQ program;
  6. IFQ program development process and the transition to IFQs;
  7. The IFQ program; and
  8. Outcomes of the IFQ program.


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--> Appendix G Individual Fishing Quota Case Studies This appendix presents data and information on the currently implemented federal individual fishing quota (IFQ) and transferable trap certificate programs in the United States and on selected systems from other nations. Its intent is not to evaluate these systems with respect to their desirability or lack thereof but to present empirical data on their genesis, characteristics, and effects. Although the committee gathered information on several other systems that are in various stages of development, the focus here is on those systems that actually have been implemented and from which some documented results are available. The appendix is organized in two sections: (1) the U.S. federal experience and (2) selected foreign experiences. The common characteristics of these fisheries and their IFQ systems and the lessons learned from their experiences can be found in Chapter 3. The U.S. federal experiences that form the core of the analysis are summarized according to eight topics that are described for each case: Prior regulatory conditions in the fishery; Prior biological and ecological conditions in the fishery; Prior economic and social conditions in the fishery; Problems and issues that led to the consideration of an IFQ program; Objectives of the IFQ program; IFQ program development process and the transition to IFQs; The IFQ program; and Outcomes of the IFQ program.

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--> The foreign experiences follow the same general format, although any comparison among the cases must be made carefully because of the different policy and management frameworks and political, social, and economic conditions under which these systems were developed. Summary of U.S. Experience Fishery managers in the United States have gained substantial experience with individual fishing quotas and related systems in the past eight years. In this section, three of the four existing IFQ programs (surf clam/ocean quahog, halibut, and sablefish), plus the spiny lobster transferable trap certificate program, are discussed in the order of their implementation. The wreckfish program is summarized in Chapter 3. Each section describes the conditions that existed in the fishery prior to IFQs, including the factors that most directly led to IFQs (if implemented), and characteristics and outcomes of the program. Surf Clam and Ocean Quahog (SCOQ) ITQ Case Study Surf clams (SC: Spisula solidissima) and ocean quahogs (OQ: Arctica islandica) are bivalve mollusks that occur along the U.S. East Coast, primarily from Maine to Virginia. Commercial concentrations of surf clams are found primarily off the Mid-Atlantic coast. In this region, they are found from the beach zone to a depth of about 60 m. Ocean quahogs have a similar distribution, overlapping considerably, but they are also found in deeper waters, from 8 to 256 m. These two closely related fisheries are largely (but not entirely) conducted by the same vessels, in the range of 40-110 gross register tons (GRT), which employ hydraulic clam dredges. Most of the catch is shucked and processed into a variety of clam products (minced clams, clam strips, juice, sauce, chowder). Apart from a small bait fishery, the recreational fishery is insignificant. Surf clam fishing began in the 1940s; ocean quahog fishing began in the 1970s. In addition, a small fishery for ocean quahogs found in shallow waters in the Gulf of Maine began in the 1980s; its market is for fresh in-shell product. The SCOQ fishery was the first to be managed under the Magnuson-Stevens Act in 1977; the first limited access fishery in the exclusive economic zone (EEZ), through the moratorium created in 1977; and the first IFQ fishery in the EEZ, in 1990. Like the New Zealand IFQ program, but even more so, it is designed according to the prescriptions of free-market liberalism: there are few constraints on ownership eligibility, transfer, and other features, as described below. Several features of the SCOQ fishery make it a relatively simple case for IFQ management. There is little competition for its product, although this is changing with the advent of clams from Iceland and elsewhere. The geographic range is relatively small; the number of vessels has never exceeded 140, and is now less

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--> than 50, and the number of vessel owners is much smaller; because of the tight linkages between harvesting and processing, the number of landing sites is also small. Moreover, the fishery is highly specialized: the vessels are not easily used for other purposes when outfitted with hydraulic clam dredges; to date bycatches have not been discussed as a problem. Finally, the commodity orientation of IFQs is appropriate because there have been no recreational or environmentalist claims for other values. Prior Regulatory Conditions in the Fishery In 1990, prior to IFQs, different regulations were applied to surf clams and ocean quahogs, to restrict the harvest of surf clams and encourage development of the ocean quahog fishery. 1. Quota setting and catch limits—Quota setting for both species became an annual process of the Mid-Atlantic Fishery Management Council (MAFMC), within a framework plan that establishes the optimum yield (OY) within a range of bushels. With the beginning of EEZ surf clam management in 1977, a total allowable catch (TAC) was estimated for the Mid-Atlantic surf clam fishery and divided into quarterly quotas. Fishing time limits per fishing vessel were set to help spread catch over time, so as to stabilize product input to processors. Conservative TACs were set. The policy was to set the TAC to allow a 10-year supply horizon, or at least 10 years of harvest on the present standing stock. There was a separate TAC for the smaller fishery in the New England region. At the same time, the state of New Jersey also began to regulate surf clam harvests within 3 nautical miles of its shores. A TAC for ocean quahogs was also set in 1977 but there were no time restrictions. The TAC was set high to spur development of this fishery and take pressure off the surf clam stock. The TAC was never met. Concern about the longevity and lack of recruitment of ocean quahogs, however, led to the adoption of a 30-year supply horizon. 2. Reporting requirements—In the Mid-Atlantic and New England regions, all SCOQ-harvesting vessels were required to report their catches in detailed logs. Processors also had to report how much product they accepted and from whom. This created a record of individual vessel performance. 3. Access restrictions—Access in the ocean quahog and New England surf clam fisheries was essentially unrestricted. The ability to restrict entry was allowed in the SCOQ fishery management plan (FMP) but was among the many provisions directed toward ocean quahogs that were never put in place (Brandt, 1994-1995). A permit and logbook reporting were all that was required. In the

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--> State of Maine a small-scale ocean quahog ("mahogany clam") fishery developed in the late 1980s. It was open access, although regulated by the state because of concerns about the toxin that causes paralytic shellfish poisoning (PSP). This state fishery overlapped with the federal fishery in the EEZ but was not considered part of the larger management regime until the advent of IFQs. The Mid-Atlantic surf clam fishery was the first EEZ fishery in the nation to be managed with limited access. The commercial fishery for surf clams began after World War II. It was an open-access, boom-and-bust fishery until 1977. The State-Federal Surf Clam Project depended on states to enact regulations, but most of the fishery took place beyond 3 nautical miles from shore. In 1978, a vessel moratorium was established, grandfathering all vessels in or being built for the surf clam fishery in 1977 and/or fishing in 1978 (184 vessels were included at first, but some were dropped because of inactivity, leaving 142 (MAFMC, 1990). Thereafter, access was contingent on owning one of the original boats or its replacement. There were no restrictions on sale or purchase of these vessels, and capitalized values of moratorium permits were very high (estimated at $50,000-$150,000) (MAFMC, 1990). The moratorium lasted until 1990. Prior Biological and Ecological Conditions in the Fishery The population ecology of surf clams and ocean quahogs is distinctive, leading to "mining" rather than "sustainable resource" management strategies (cf. Murawski and Idoine, 1989). Their biomass is dominated by a few large year classes. Year-to-year recruitment variability is very high. They have erratic sets and few year classes that make it to "recruitment" size. For surf clams, recruitment to harvestable size is achieved in 6 to 7 years; ocean quahog recruitment is more difficult to determine, the majority of individuals found in the Mid-Atlantic region being very old, far beyond 20 years. Adult clams grow very slowly and may live a long time, particularly ocean quahogs, one of which is believed to have lived for 225 years (Brownlow and Ropes, 1985). Accordingly, the major management decision has been how long the present standing stock should last. The major goal of the surf clam FMP was to restore depleted populations. Surf clams were subject to heavy fishing pressure from the late 1960s to the mid-1970s; localized stocks were depleted and the fishing fleet moved to new grounds. In 1976, a period of low dissolved oxygen in waters near the seafloor off the coast of New Jersey killed a large portion of the surf clam stock. This event prompted action, first from New Jersey and subsequently from the new MAFMC to try to prevent an unregulated industry from reducing the remaining clams to economic extinction. Ocean quahogs are found over a much broader range of the North Atlantic region and in deeper waters than surf clams. Their life-cycle characteristics are similar to those of surf clams (erratic sets, few successful year classes), but recruitment, growth, and maturity take longer. As one scientist said, "Ocean

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--> quahogs are like a 'living rock'” (Jeff Weinberg, meeting of the Surf Clam and Science and Statistical Committees, September 4, 1996). There was a high level of scientific uncertainty about the population dynamics of both species. However, harvesters knew where to find these clams because they are sedentary creatures. With hydraulic dredging gear, they are easy to harvest. For both clam species, there is no discernible relationship between the size of the spawning stock and the number of clams recruited, and harvesters rely substantially on a few large year classes to buffer interannual variability, leading to analogies to mining when talking about management strategies. This is why the TAC was set conservatively, using the figure of 10 years' sustainability or "supply years" for surf clams and 30 years for ocean quahogs in setting annual TACs. An important effect of the reliance on occasionally large year classes during the moratorium period (1978-1989) was the creation of excess harvesting capacity. As the 1976 year class in the New Jersey area and the 1977 year class in the Delmarva area grew large enough to harvest, this created a bonanza that was easy to harvest but, within the context of a TAC, fixed for the long term. The result was further restrictions on fishing time, so that by 1987, surf clam boats were allowed to fish for only eight hours every month (see Marvin, 1992), even though the annual quota had increased greatly. Prior Economic and Social Conditions in the Fishery From 1977 to 1989, the moratorium on new entries created a situation in which the harvesting sector of the industry retained virtually the same number of vessels (about 144 vessels with surf clam permits in the Mid-Atlantic region), although the participation of these vessels varied from year to year and with the prices of clams. Although the number of vessels in the surf clam fishery remained virtually unchanged during the moratorium period, liberal interpretations of the replacement policy on the part of the Northeast Region of the National Marine Fisheries Service (NMFS) allowed changes in total fleet capacity. The number of small vessels (class 1) decreased from 14 to 8 between 1980 and 1987, while the number of large vessels (class 3) increased from 59 to 75 in that period. The number of class 2 vessels decreased from 54 to 50 (MAFMC, 1990). This increase in capacity contributed to rising catch per unit effort (CPUE), as did the growth of the 1977 and 1978 year classes of surf clams and industry changes in harvesting gear. The MAFMC staff computed estimates of revenues versus costs for different classes of the fleet, and estimated that a loss of more than $3 million must have occurred during the moratorium, given the costs of catching clams (MAFMC, 1990). Detailed data on the processing sector are not available. Clams are processed for canned chowder, canned whole and minced clams, and breaded strips.

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--> Ocean quahogs are partly substitutable for surf clams, but the latter are definitely preferred for technological and quality reasons (ocean quahogs are tougher and high in iodine). As early as 1980, concentrated market power was evident in the processing sector (Strand et al., 1981); this remained true throughout the decade. During this period the industry structure that had existed before the moratorium remained: a few large, vertically integrated firms dominated the industry in their dealings with numerous smaller processors and "independent" vessel owners (including a few who amassed large fleets during the moratorium). The year in which much of the politicking about ITQs occurred (1987) was also the year of the lowest recorded average prices for surf clams and ocean quahogs (see MAFMC, 1990). Crew employment declined during the moratorium period, as vessel owners adapted to time restrictions by using the same crew members on more than one vessel (McCay and Creed, 1987, 1990; McCay et al., 1989). Many of the clam vessels were unionized prior to 1979; after that time, when one of the processing firms was relocated and its boats were sold, mostly to their captains, unionization ended, and no associations arose to represent the interests of captains and crew in the fishery management process. However, vessel owners and processors were very active in this process, and several organizations appeared from time to time to help galvanize industry efforts to cooperate with the MAFMC in managing this fishery. There was a strong spirit of "co-management" from the outset (Turgeon, 1985). A job satisfaction study done in New Jersey (Gatewood and McCay, 1988) showed that in comparison with other types of commercial fishermen, crew members who worked on clam vessels received higher incomes and were less likely to see fishing as a challenge and adventure; there was a somewhat lower degree of commitment to and dependence on clam fishing than other types of fishing (i.e., dragging or longlining). This did not hold true for captains on clam vessels, most of whom had little experience in other occupations. Fishing ports and processor locations for clams are spread throughout the Mid-Atlantic region and into New England. Most of the processors are found at seaport communities, but a few large ones have facilities inland as well, where fruits and vegetables are processed. The labor force in clam processing tends to be much the same as in poultry, and fruit and vegetable processing; it is dominated by ethnic and racial minorities, and in places dependent on immigrants, in some cases bused from the inner cities. No research has been done on the relationships between changes in the clam fisheries and the fortunes of either the processing firms or their employees (but see Griffith, 1997), much less on how such changes affect the communities in which the firms are located or the employees live. Similarly, no research has focused on the community aspects of the harvesting sector of the clam fisheries. The fishing fleets move around quite a bit over time, following clams or clam buyers; hence many crew members are long-

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--> distance commuters (e.g., between New Bedford, Massachusetts, and Cape May, New Jersey). Crew members often come from the hinterlands of port communities; thus, the Atlantic City fleet has little directly to do with Atlantic City; the owners and crew members live primarily in old "baymen" towns like Absecon and Tuckerton, New Jersey. In ports such as Cape May and Wildwood, the New Jersey clam fleet is part of a much larger fishing fleet, all embedded in a seasonal tourist economy, where fishing is one of the very few year-round occupations. Occupational health and safety issues loomed large in this fishery; vessels frequently sank and men's lives were often lost each year in New Jersey and Delmarva waters by the late 1980s. A study of mortality rates in New Jersey showed that fishing was one of the most dangerous occupations in the state, and these rates resulted almost entirely from the surf clam and ocean quahog fisheries (P. Guarnaccia, personal communication, September 14, 1998). For example, five clam vessels capsized in New Jersey waters in 1989. A study of fishermen's perspective on marine safety showed that sea clamming was widely seen as one of the most dangerous fisheries, partly because of its technology and partly because of the regulatory system, which created pressures to harvest and bring in as much as possible in a very short period of time, often in bad weather (McCay, 1992). Disasters affect the larger community, and in the Cape May region the resident fishing community responds by hosting parties to raise funds for the families of fishermen lost at sea. The larger community has responded by raising funds for a memorial to the region's fishermen lost at sea. Problems and Issues That Led to Consideration of an Individual Transferable Quota (ITQ) Program The moratorium on new clam vessels (through the MAFMC) was widely considered a success in preventing overharvest of surf clams and fostering development of the ocean quahog fishery, but it was a cumbersome regulatory system that was costly to monitor and enforce. It was characterized by numerous regulatory changes (seven amendments to the FMP between 1978 and 1987). It was complicated by the fact that after 1980, the New England Fishery Management Council took responsibility for managing the smaller fishery in the New England area (Nantucket Shoals; for a short while also Georges Bank). Many provisions of the FMP and its implementation were seen by industry and NMFS alike as burdensome, inflexible, and in need of change. A prime example is the use of restricted fishing time to ensure relatively even distribution of the harvest over the year, to benefit the processors. Until 1987, the NMFS Northeast regional director specified the number and length of allowable trips per week or other period (up to two weeks). The vessel owner chose the day or days he or she wished to fish, notified the regional director, and then had to "use or lose" the days. In the winter, one could obtain a makeup day, but if this day also was missed, the opportunity was lost. When combined with the inability to

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--> consolidate allowable fishing time from one boat onto another, the system was obviously problematic. Moreover, the way this system was managed led to a large "ghost fleet" of mostly unused fishing capacity. Participation requirements were minimal, and owners of old and marginal vessels had incentives to retain their permits because such permits added to the value of the vessels. Cheating (by fishing in closed areas, fishing a longer time than allowed, and taking undersized clams) was alleged to have been rampant. Much of the impetus for major changes in the management system came from concern about such administrative and enforcement difficulties. Excess harvesting capacity was another major problem—indeed, in economic theory, the major problem. It was generated first in the open-access period, because the competition for dwindling stocks of clams provided an incentive for harvesters to use larger boats and more gear. Later, the moratorium and its grandfathering provisions allowed more boats than ever before into the restricted access fishery. Overcapitalization was intensified by (1) growth in size of the very abundant 1976 (New Jersey) and 1977 (Delmarva) year classes of surf clams, (2) technological changes such as more and larger dredges and hydraulic hoses, (3) the classic race to harvest the largest share of the TAC, and (4) increased skill and experience. These factors led to drastic increases in CPUE and equally drastic declines in allowable fishing time. Consequently, vessels were moored for much of the time unless their owners also participated in the ocean quahog fishery (which demands larger vessels with greater capacity) or the New Jersey or New York inshore fisheries (both of which are managed with limited access programs and have trip limits and other restrictions). Health and safety issues were also used to justify the development of ITQs. Another issue identified in attempts to garner support for ITQs was that of obtaining financing from banks and other institutions, which are notoriously reluctant to support fishing ventures. The argument was that obtaining capital would be much easier if one had secure rights to a share of the total allowable catch. Objectives of the ITQ Program The SCOQ FMP was "preadapted" for ITQs in the sense that its objectives, from 1981, included economic efficiency and deregulation. These objectives were appropriate for the federal administration of its time and were endorsed by the Office of Management and Budget. The strong emphasis on economic efficiency was due to the participation of a neoclassical economist in the management process. Features of the 1977 SCOQ FMP, as amended in 1987 included the following: ". . . [C]onserve and rebuild Atlantic surf clam and ocean quahog resources

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--> by stabilizing annual harvest rates throughout the management unit in a way that minimizes short-term economic dislocations"; "Simplify. . .the regulatory requirement of clam and quahog management to minimize the government and private cost of administering and complying"; ". . . [P]rovide the opportunity for the industry to operate efficiently, consistent with the conservation of clam and quahog resources, which will bring harvesting capacity in balance with processing and biological capacity and allow industry participants to achieve economic efficiency including efficient utilization of capital resources by the industry"; and "A management regime and regulatory framework which is flexible and adaptive to unanticipated short-term events or circumstances and consistent with overall plan objectives and long-term industry planning and investment needs" (MAFMC, 1988, p. 1; 1996, p. 3). ITQ Program Development Process and the Transition to ITQs The 1977 moratorium was intended to be a stopgap, emergency measure to "be replaced by something else in a relatively short time. It lasted 12 years. However, among the alternatives being considered from the beginning was some system that would allocate quota to individual vessels: ". . . introduction of a per vessel allocation and some restriction on entry of new vessels (this might be a stock certificate program or an annual allocation per vessel)" (MAFMC Scientific and Statistical Committee, 1980; cited in Strand et al., 1981, p. 116). This theme appeared and reappeared throughout debates in the 1980s about how to reform management of the surf clam fishery (the ocean quahog fishery was not seen as problematic). As overcapitalization became more evident and, to some extent, costly for the participants, pressure mounted to change the system. It was intensified by frequent admonitions from NMFS to replace the moratorium with a more rational system. By the mid-1980s, the major issue was whether and how to allow "consolidation" of fishing time among the vessels of the fleet. This incremental approach to the problem was advocated by the larger fleet owners but resisted by owner-operators and small fleet owners, concerned about the competitive advantage of the larger owners. It was also resisted by some of the big firms, concerned about rising competition from consolidation of rights to fish from the so-called ghost fleet (Marvin, 1992). Entrepreneurs accumulated the marginal, non-fishing, and sometimes sunk vessels with the hopes that they might be able consolidate their permits. Around the same time the theme of "vessel allocation" reappeared: the notion of giving part of the quota to each vessel to minimize the costly and dangerous race for the quarterly quotas and the incentive to overload boats during the few hours they were allowed to fish. Vessel allocation was stymied by conflicts over how to make the allocations, given large differences in interest and power in the industry. An abiding concern among industry participants was that

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--> either consolidation or vessel allocation might further the monopsony (or oligopsony)1 power of vertically integrated processors, which could lead to price collusion, forcing smaller processors and independent harvesters out of business (see Strand et al., 1981; McCay and Creed, 1990). By 1988, the council, led by a Plan Development Team and the advice of the council's Surf Clam and Ocean Quahog Committee, was prepared to proceed beyond individual vessel allocations to ITQs, which were separable from the vessels and fully marketable. However, as of July 1988, there were still provisions in the draft FMP amendments reflecting concerns about the effects of rapid consolidation on the industry, including a "phase-in period" of three years, during which permits and allocations could be combined at no more than the rate of two for one, for each of the three years (MAFMC, 1988). However, these provisions completely disappeared in the amendment that was finally adopted by the council in October 1989 and approved by the National Oceanic and Atmospheric Administration (NOAA) in March 1990 (MAFMC, 1990). The ITQ Program2 Management Units. The management unit included all surf clams and ocean quahogs in the Atlantic EEZ. This fit original Magnuson-Stevens Act policy and reversed the situation that had emerged after 1980, when management was divided between the Mid-Atlantic Fishery Management Council, concerned about overharvesting, and the New England Fishery Management Council, attempting to foster development. It also came to pose a major problem, because it included ocean quahogs being fished in federal waters by a small-scale fishery in Maine, for which there had been no logbooks and hence no historical records to use for allocation. Initial Allocation. The initial allocation of quota share was divided among owners of all permitted vessels that harvested surf clams or ocean quahogs between January 1, 1979, and December 31, 1988. Replacement vessels were credited with the catch of vessels they replaced. These were all commercial fishing vessels, mostly working the waters of the Mid-Atlantic region. Different formulas were used for allocations of surf clams in the Mid-Atlantic region versus ocean quahogs in both regions and surf clams in New England. For Mid-Atlantic surf clams, allocation was based on a vessel's average historical catch between 1979 and 1988. The last four years were counted twice, and the worst two years were excluded. The resulting figures were summed and divided 1   A market situation in which each of a few buyers exerts a disproportionate influence on the market. (Merriam-Webster, Inc, 1998. The WWWebster Dictionary [Online] [Available: http://www.m-w.com/cgi-bin/dictionary] September 1, 1998). 2   This program was first approved by the MAFMC in July 1988 and by NOAA in March 1990; it was implemented in October 1990 (MAFMC, 1990).

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--> by the total catch of all harvesters for the period. Eighty percent of a vessel's allocation came from this ratio. A second ratio was computed on the basis of vessel capacity (length x width x depth), called a "cost factor," and this accounted for 20% of the vessel's initial allocation. For ocean quahogs and New England surf clams, allocation was determined from the average historical catch for the years actually fished between 1979 and 1988, excluding the lowest-catch year. The average New England surf clam catch was then included in the total surf clam catch to calculate individual vessel ratios in the newly defined larger region, which incorporated both the Mid-Atlantic and New England stocks. Nature of the ITQ. The ITQ has two components: (1) the "quota share," expressed in percentages of the TAC, which can be transferred permanently, and (2) the "allocation permit," which are in the form of tags to be attached to the large steel cages used to hold the clams after they are harvested. They can be transferred only within a calendar year. Annual individual quotas are calculated by multiplying the individual quota share by the TAC or allowable harvest in bushels. Bushel allocations are then divided by 32 to yield the number of cages allotted, for which cage tags are issued. Cage tags may be sold to other individuals but are valid for only one calendar year. Accumulation and Transfer of Quota Shares. The minimum holding of SCOQ ITQs is five cages (160 bushels); there is no maximum holding and no limit to accumulation, except as might be determined by application of U.S. antitrust law. Anyone qualified to own a fishing vessel under U.S. law is entitled to purchase ITQs, except entities with majority foreign ownership. There are no limits on transfer of quota share. Cage tags are transferred only within a given year and cannot be transferred between October 15 and December 31 of each year. All transfers must be approved by the NMFS northeast regional director. Monitoring and Enforcement. Monitoring the harvest of clams under the ITQ program is facilitated by the cage-tagging requirement and by mandatory reporting to NMFS by vessel owners and dealers of clams landed and purchased. Allocation permit numbers must be reported on both vessel logbook reports and dealer-processor reports. Dealers and processors must have annual permits. The cage tags are monitored closely. However, no reporting is required from truckers and other carriers. Enforcement relies heavily on shoreside surveillance, the cage tag system, and cross-checking logbooks between vessels and processors. During seasons when state fisheries are open, at-sea and air surveillance is also required to reduce the possibility that vessels with state permits or cage tags may stray into federal waters. Allocation permits and dealer/processor permits may be suspended, revoked, or modified for violations of the FMP.

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--> Maori, giving them almost 40% of the New Zealand commercial fishery, with the potential to acquire a larger proportion of the resource with the funds provided by the settlement. The settlement made the Maori the single largest participant in the industry. The settlement also protected the livelihoods of existing quota shareholders by bringing security to the commercial fishing industry. The settlement prevented the Maori from advancing further commercial fisheries claims through the courts and ensured that the management of fisheries was not compromised by the Maori acting contrary to sustainable management practices. The purchase of Sealord Products had little effect on other quota holders since it was simply a transfer of ownership of a fishing company and had little impact on the distribution of quota shares within the industry. 3. Change to proportional ITQs—When the QMS was introduced in 1986, ITQs were denominated as a fixed tonnage. TACs were to be increased or decreased by the government entering the marketplace and either selling or buying quota. When the QMS was being developed, it was proposed to create a "revolving fund" for such transactions. Resource rentals and revenues from the sale of quota would have gone into the fund, which would be used to buy back quota as necessary. However, the fund was never created. In the late 1980s, the government was faced with substantial costs to reduce the TACs for, primarily, two orange roughy Fishstocks. The government announced its intention to change the QMS from a program based on fixed-tonnage ITQs to one in which ITQs were denominated as a proportion of the TAC. ITQs would be increased or decreased in proportion to the changes in the TAC. The government and the fishing industry entered into negotiations over the change from fixed to proportional ITQs. The outcome of the negotiations was an agreement widely known as the "Accord." The main results of the Accord are as follows:  ITQs were changed from a fixed to a proportional basis on October 1, 1990.  Resource rentals for all species in the QMS were frozen for five years from October 1, 1989, except for increases in line with movements in the Consumer Price Index.  During the period from October 1, 1989, to September 30, 1994, compensations for TAC reductions were paid out of the resource rental pool. The compensation period for hoki could be extended beyond this period if TAC reductions exceeded certain limits.  The price of compensation was to be agreed between the government and the fishing industry, and failing agreement, was to be arbitrated.  A TAC reduction of 4,000 metric tons for orange roughy on the Chatham Rise was agreed to, and other TAC reductions were to be discussed with industry.  A body with 50:50 government-industry representation was created to

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--> advise the Minister of Fisheries on TAC changes. This body has developed into the TAC Advisory Council.  Quota shareholders who suffered administrative cuts without compensation would receive first preference when TACs are increased.  Resource rentals were paid on quota shares held until the end of the compensation period.  The bycatch trade-off system continued, subject to annual review.  TAC reductions would be accomplished by the Crown first canceling quota owned by it, subject to its various obligations. The terms of the Accord provided the basis for the move to proportional ITQs. Since October 1, 1990, there have been substantial changes in some TACs, for example, those for orange roughy, snapper, and rock lobster discussed earlier. The terms of the Accord related to compensation for TAC reductions and payment of resource rentals expired on September 30, 1994. Resource rentals ceased on that date and were replaced by the introduction of cost recovery on October 1, 1994. From October 1, 1994, all of the avoidable costs of managing, researching, and enforcing commercial fisheries are to be paid by the fishing industry. For the 1994-1995 fishing year, about $NZ37 million was recovered from the fishing industry from the total government expenditure of about $NZ46 million in these three areas. 4. Strategies for adjusting TACs in situations with limited information—For many Fishstocks there is limited information available on stock size and population dynamics that can be used to estimate yields to provide a basis for varying TACs. Resource constraints make it unlikely that substantially more information will become available in the near future. For some of these Fishstocks there have been substantial increases in catch in recent years, and the existing TACs either are constraining the catch or are being overcaught. The fishing industry has suggested that these increased catches have not occurred through an increase in effort but are the result of increases in stock abundance. The fishing industry has proposed increases in TACs for some Fishstocks, using a process that has become known as "adaptive management." The process is not strictly a form of adaptive management as defined by Hilborn and Walters (1992), where an experimental approach is taken in which TACs are set at various levels from total closure to deliberate overexploitation in an effort to obtain better estimates of stock size, productivity, and sustainable yields. The New Zealand approach has been to increase the TACs for certain Fishstocks where anecdotal information suggests that increased catch levels are likely to be sustainable and then to monitor the effects. The Ministry of Fisheries has recognized that there could be considerable benefits from increasing some of the TACs, as proposed by the fishing industry. These potential benefits include the following:

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-->  Economic benefits to the industry through increased catches;  Development of precedents for cooperative management of fisheries with the industry, especially insofar as industry is willing to assist with increased data collection and analysis; and  Changing catch levels in a controlled fashion, which may provide better information that can be used as a basis for future management decisions.  The following criteria and guidelines under which adaptive management changes could be considered were agreed:  Catch level increases could be considered for Fishstocks for which abundance appears to have increased, for example, in situations of stable or increasing landings or increasing CPUE where effort has not increased.  Contingency plans agreed upon by the Ministry of Fisheries and the fishing industry should be finalized before TACs are changed.  Contingency plans should specify the data that will be collected and the responses to the results of the data collection and subsequent analysis. For example, they should specify what level of change in an indicator variable would indicate that stock size is increasing or decreasing.  There should be an agreed period over which the TAC changes will take place. There is general agreement that five years is a useful period over which to assess the effects of such changes. However, the effects of TAC changes are assessed each year during the annual stock assessment and TAC-setting process.  There should be agreement on the nature and extent of cooperative data gathering and research projects and how resources are to be provided for these projects.  The choice of which Fishstocks to include in the scheme should be based largely on what effective monitoring programs can be established. Inclusion of a large number of Fishstocks is seen as too ambitious, and the scheme should be developed incrementally. The adaptive management scheme was first implemented for the 1991-1992 fishing year. During the first four years of operation of the scheme, the fishing industry requested TAC increases for 39 Fishstocks (there have been no requests for TAC decreases under the scheme). Increases have been granted for 19 Fishstocks. The effects of these increases are being monitored in a number of ways. The Ministry of Fisheries operates a mandatory catch and effort logbook system for all fisheries, and data are being collected and analyzed from this system. In addition, data are being collected for some of the adaptive management Fishstocks during the course of Ministry of Fisheries research programs (e.g., trawl surveys) for these and other species. The fishing industry has introduced a voluntary logbook program for some of the adaptive management Fishstocks to collect

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--> more detailed and specific catch and effort and biological information. The fishing industry is also providing resource-specific research projects for some of the Fishstocks and has employed two scientific staff members to work cooperatively with Ministry of Fisheries staff specifically on the adaptive management Fishstocks. During the 1997 stock assessment and management consultative meetings, criteria were developed by the Ministry of Fisheries, in conjunction with stakeholders, to determine the suitability of the TAC increases that had been granted under the adaptive management program. Criteria included the determination of whether or not the TAC increases were sustainable, based on the available information, and whether effective monitoring programs had been put in place by the industry. The criteria were applied to each of the adaptive management Fishstocks using a decision tree approach. As a result of this evaluation, the TACs for nine Fishstocks were reduced to or toward their lower pre-adaptive management program levels. Outcomes of the ITQ Program Biological and Ecological Outcomes for the Fishery. Following are the major biological and ecological outcomes of New Zealand's ITQ program. Improved Biological Status of the Resource. Before the QMS was introduced in 1986, there had been only limited directed stock assessment research in New Zealand. Most fisheries research had been directed at gathering basic biological information on a few commercially important species. Moreover, because of the lack of a mandate to carry out stock assessment research, abundance estimates were not available for most species. For many species in the QMS, data on age, growth, mortality, fecundity, abundance, and other important factors are still not available. The QMS was introduced in 1986 because of the perception that many, if not most, of the inshore fish stocks were suffering from high levels of biologic and economic overfishing. TACs for the overexploited inshore species were set at levels from 25% to 75% of the pre-QMS catch levels, depending on the biological status and management objectives for each Fishstock. On the other hand, the offshore, deepwater species were relatively newly exploited, and most were likely to still be in the "fishing-down" phase. New Zealand legislation has constrained the ability to vary TACs. The criterion that TACs are set and altered to allow the stock to move toward a level of biomass B that will support the maximum sustainable yield (BMSY) has been interpreted very strictly. Estimates of maximum constant yield and current annual yield have been used as reference points when varying TACs and have not necessarily translated directly into TACs (see Annala, 1993, for definitions). TACs cannot be changed unless it can be demonstrated by the stock assessment

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--> process that the stock is moving toward a size that will support the MSY, even when other data suggest that the TAC is at an inappropriate level. How has the QMS performed with regard to improving the biological status of Fishstocks? Sissenwine and Mace (1992) concluded that there was little evidence of improvement in the condition of fisheries resources since 1986, but because stock assessment information was limited, it was difficult to know. They stated, "The general conclusion is that TACs are not closely tied to the best available assessments of the fisheries resources, nor are catches strongly controlled by the TACs. Some valuable stocks have probably declined in abundance. To date, the track record of ITQ management with respect to conservation is not good." The current situation based on the 1997 stock assessments (Annala and Sullivan, 1997) is much more positive than the picture painted by Sissenwine and Mace. Of the 179 Fishstocks in the QMS as of October 1, 1997, 30 were created for administrative purposes around an offshore island group that is only lightly fished for a few species. Of the remaining 149 Fishstocks, only 11 (7.4%) were estimated to be below BMSY. Sixteen (10.7%) Fishstocks were estimated to be above and 27 (18.1%) at or near BMSY. The status of the remaining 95 (63.8%) Fishstocks relative to BMSY was not known. Unfortunately, most of the inshore Fishstocks that experienced large reductions in catch levels in 1986 are included in the latter category, and it has not been possible to monitor the rate of stock rebuilding, if any. However, a series of inshore trawl surveys initiated in the late 1980s and early 1990s will provide future estimates of abundance for some of these species so that sustainable yields can be estimated and the rate of rebuilding determined. Most of the major Fishstocks that are below BMSY are now being rebuilt. The TAC for the largest orange roughy fishery on the Chatham Rise has been reduced from about 38,000 metric tons for the 1988-1989 fishing year to 7,200 metric tons for 1997-1998. The TAC for the Challenger orange roughy fishery was reduced from 12,000 metric tons in 1988-1989 to 1,900 metric tons in 1990-1991 and has remained at this level since. The TAC for the largest snapper fishery in QMA 1 was reduced from 6,000 metric tons in 1991-1992 to 4,900 metric tons in 19921993 and 4,500 metric tons for 1997-1998. In addition, a management plan is being developed to rebuild the stock to BMSY. The combined TAC for the eight North and South Island rock lobster Fishstocks was reduced from 3,275 metric tons in 1990-1991 to 2,383 metric tons in 1993-1994. A 10-year management plan has been developed to address various biological issues to improve the probability of rebuilding stocks. The need for some large TAC reductions, especially in the orange roughy fisheries, prompted the change from fixed tonnage ITQs to ITQs as a proportion of the TAC in 1990. The change to proportional ITQs has removed the financial burden from the government to buy back quota and has made the reduction of TACs easier. Open and Transparent Stock Assessment and TAC-Setting Process. One of the strengths of the New Zealand QMS is the completely open and transparent

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--> stock assessment and TAC-setting process. The process is open to all users of the resource and all groups with interests in the fisheries, including the Maori, the commercial industry, recreational fishermen, and environmental-conservation groups. User groups can be represented by consultants, and they have been employed particularly by the commercial industry. All stock assessment data collected by the Ministry of Fisheries are made available (at cost) to all participants in the process. The usual caveats regarding commercial sensitivity apply to the release of catch and effort data collected from the industry. The data are provided only in an aggregated form so that individual fishermen and/or companies cannot be identified. The foundation of the stock assessment process lies in the Fishery Assessment Working Groups. The working groups analyze the available fishery and research data and prepare draft reports giving the details of the stock assessments and status of the stocks according to agreed terms of reference for all 179 Fishstocks in the QMS. Fishstocks for which the stock assessments indicate a substantial change in the yield estimates or status of the stocks are referred to the Fishery Assessment Plenary. The plenary session is open to all participants in the process and reviews the data and analyses produced by the working groups. The stock assessment results from the plenary are used as a basis for preparation by the Ministry of Fisheries of an initial position paper providing advice to the Minister of Fisheries as to which Fishstocks may be considered for changes to TACs and other management measures for the following fishing year. Other information (e.g., socioeconomic, environmental) is included in the discussions at this stage. This advice paper is also made available to the users and forms the basis for discussion at a series of consultative meetings between the Ministry of Fisheries and these groups. After the consultative meetings between the Ministry of Fisheries and the user groups, the Minister of Fisheries holds a series of meetings with users to obtain their views on any proposed management changes. The final authority to decide on TAC changes lies with the Minister of Fisheries. Economic and Social Outcomes for the Fishery. The following major economic and social outcomes of New Zealand's ITQ program have also been identified. Secure Access to the Resource. The allocation of quota shares in perpetuity has guaranteed security of access to the resource. When rock lobsters were introduced into the QMS in 1990, court action taken by Maori was settled when the government agreed to rock lobster ITQ being issued for a 25-year term. The settlement of Maori fishing rights issues with the passage of the Treaty of Waitangi (Fisheries Claims) Settlement Act in 1992 resulted in the lifting of the injunction. A Market-Oriented Industry Structured by Market Forces. Dewees (1989)

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--> found that the fishing industry responded rapidly to the guarantee of access to the resource conferred by ITQs. Many fishermen in the Auckland region had switched from maximizing quantity to maximizing quality, which he attributed largely to the easing of the “race for fish." By May 1987, 40% of the quota shareholders were changing to methods that allowed the onboard handling of individual snapper to supply the lucrative ike jime market in Japan. A more recent development has been the export of live fish (ike dai) to Japan. Other market developments have been attributed at least partly to the security conferred by ITQs. The export of live rock lobsters has increased from 1,947 metric tons in 1990 to 2,722 metric tons in 1993. Fishermen are also spreading their fishing effort and catching more of their rock lobster quota during months with traditionally low catch rates when the price is higher. New Zealand's largest fishery is the trawl fishery for hoki. The fishery has been carried out primarily on the west coast of the South Island during the July to September spawning period. Most fish were caught by vessels that headed and gutted the fish or with onboard surimi plants. Catch rates of up to 200 metric tons per tow were not uncommon. In recent years, New Zealand companies have invested in vessels with onboard filleting lines designed specially for hoki. These vessels fish for hoki year-round away from the spawning ground and typically target smaller quantities of fish, usually in the range of 4 to 5 metric tons per tow to improve product quality. The catch of hoki caught away from the spawning ground outside the spawning season increased from 30,000 metric tons in 1990-1991 to 69,000 metric tons in 1992-1993. Reduced Overcapitalization. Some commentators have stated that the QMS has resulted in a reduction in overcapitalization (e.g., Clark, 1993). However, there are few actual data or analyses to support this assertion. One indirect measure that could be used to evaluate the reduction in overcapitalization involves changes in quota holdings. Between 1987 and 1989, the 10 largest ITQ shareholders increased their share of the total quota from 67% to 82% (Anon., 1987; Bevin et al., 1989). However, this share had fallen back to 68% by March 1994 (Parker, 1994), so the concentration of quota may not be a good measure of the reduction in overcapitalization. The New Zealand fishing industry has experienced strong export revenue growth since the QMS was introduced. The total primary value of the catch (which is estimated as landed catch multiplied by an estimated exvessel price) corrected for inflation increased from $NZ427 million in 1986 to $NZ456 million (1986 dollars) in 1993, while total seafood export receipts increased from $NZ657 million to $NZ896 million (1986 dollars) over the same period. In an ITQ program, the expected rates of return are capitalized into the quota value when it is traded. The strong revenue growth has led both directly and indirectly to large increases in the value of quota for some species. For example, the average sale price of pa (abalone) (Haliotis iris) quota increased from about $NZ50,000 per metric ton in 1991 to about $NZ190,000 (1991 dollars) per metric ton in 1994.

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--> Greater Industry Freedom, Flexibility, and Responsibility. The easing of the race for fish that has resulted from the ITQ program has undoubtedly given fishermen the freedom and flexibility to structure their operations to maximize the value of their catch rather than the volume. Some examples given in the section above describe changes to operations that have resulted in maximization of the value of the landed catch. There has also been increased industry responsibility and cooperation since the start of the QMS. Some examples follow:  Quota shareholders in three of the rock lobster Fishstocks are funding two full-time scientific staff members to carry out research in their areas that will contribute to stock assessment.  Quota shareholders in one of the paua Fishstocks have asked for and taken a voluntary 10% reduction in TAC because of their concern about the state of the Fishstock.  Quota shareholders in the Chatham Rise orange roughy fishery have spent in excess of $NZ1 million on exploratory fishing ventures, bathymetric surveys, and trawl surveys to estimate relative abundance, which will directly impact the assessment for this fishery.  Scallop (Pecten novaezelandiae) quota shareholders have formed a company to fully fund an enhancement program for New Zealand's largest scallop fishery. Included in the arrangement is the provision that they will also enhance recreational-only fishing areas.  In 1989-1990, high levels of bycatch of hake (Merluccius australis ), ling (Genypterus blacodes), and silver warehou (Seriolella punctata ) in the west coast hoki fishery resulted in the TACs for these three species being exceeded. Quota shareholders developed a voluntary code of practice and the catches of these three species have been reduced. Improved Industry Efficiency, Competitiveness, and Profitability. It is a widely held perception that the efficiency, competitiveness, and profitability of the industry have increased (e.g.. Clark, 1993). Once again, there are few actual data or analyses to support these claims. An index of the seafood industry's competitiveness has been calculated for 1988-1993 (Parker, 1994). The index was computed as the difference between the seafood industry's costs of production (input index) and the revenue received for output (output index). This competitiveness index increased by about 20% from 1988 to 1993. Since 1986, an Annual Enterprise Survey of the seafood industry has been carried out by the New Zealand Department of Statistics. The survey provides a financial picture of industry performance over the fishing year. It details costs, assets, and revenue for the catching and processing sectors, which are combined to avoid double counting.

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--> Because it is a survey, the entire industry is not covered, different companies are sampled each year, and it is difficult to compare results between years. However, survey results since the first year of the QMS do not support the perception that industry profitability has increased. For the six years from 1986-1987 to 19911992 the returns on assets (after interest, rentals, and tax) for the major quota holders in the survey were 11.1%, 3.0%, 10.2%, 10.8%, 6.6%, and 11.5%, respectively. Economic and Social Outcomes for Fishery-Dependent Communities. New Zealand has few communities that are largely dependent on fishing. The economic and social outcomes of the ITQ program for these communities have not been analyzed. Administrative Outcomes. Major economic and social outcomes of New Zealand's ITQ program have been identified. Sissenwine and Mace (1992) concluded that the QMS had not reduced government intervention. Indeed, the advent of the QMS saw the introduction of new record-keeping and reporting requirements, such as the quota monitoring and reporting system (described in Clark et al., 1988) and the bycatch trades system (Annala et al., 1991). In addition, most input controls, for example, minimum size restrictions, closed seasons and areas, have remained in place. Although the government paid for the management systems, there were no incentives for individuals in the industry to minimize the system costs. Instead, it was apparently to the industry's advantage to seek an elaborate management system to make it more convenient. The government was generally sympathetic to the requests for convenience, but it either underestimated the costs of elaborating the systems or was reluctant to pay to construct proper systems. The result was poorly constructed complex systems that led to significant dissatisfaction with aspects of the QMS for many years. The lessons from this included: Simple systems that work well and are relatively inexpensive have much to commend them compared to complicated systems. Having the industry pay for the management systems and having a large role in their design and operation will help balance aspirations for complexity and controlling costs. Current Perceived Issues. In 1996, a new Fisheries Act was passed by the New Zealand Parliament. The act concluded the review of fisheries legislation that had been ongoing since 1991. It provided a complete rewrite of the Fisheries Act, building on the strengths of the QMS; refined some aspects of the QMS; and added other fisheries management features. The act has the following principal components that address many of the current issues with regard to the ITQ program.

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--> Environmental Principles. The act provides the following general environmental principles:  Stocks must be maintained at or above defined levels. TACs must be set at a level that will maintain stocks at or above a level or move them toward the level that will produce the maximum sustainable yield.  The effects of fishing on associated and dependent species must be taken into account.  The biological diversity of the aquatic environment must be conserved. Consultation. The act formalizes the processes for consultation with sector-user groups. This replaces the current informal advisory group structure. The creation of a National Fishery Advisory Council, with representation from all sector-user groups, has been authorized. Conflict Resolution. The act formalizes the resolution of conflicts concerning access to resources. The process first encourages various sector-user groups to resolve their differences. If the parties are unable to negotiate a solution, the Minister may appoint a commissioner to hold an inquiry and report back to the Minister. All such disputes will be resolved by the Minister. Addition of New Species into the Quota Management System. The government intends to move all commercially harvested species into the QMS over the next three years. Twenty percent of all new quota will be allocated to Maori. For most species, quota will be allocated on the basis of catch history. There will be an appeals process for quota allocations, but the process will be stricter than previously. The process will not result in any increases to TACs, and there will be a time limit for lodging appeals. Simplification of the Quota Management System. At present, the central rule in the QMS is that fishermen must hold quota before going fishing. The manner in which this rule is administered has resulted in the overfishing provisions described above and drives much of the complexity of the QMS. The new Fisheries Act separates the property right (ITQ) from the catching right by introducing a system of annual catch entitlements (ACEs). For most species, fishermen will no longer be required to hold ITQ before going fishing but will be required to hold an ACE. At the beginning of each fishing year, every person who holds quota will be allocated an ACE based on the amount of quota held. ACEs are superficially similar to an annual lease of quota and are tradable rights like ITQs. When the catch exceeds the ACE, a deemed value is payable. The separation of catching rights from ITQs is expected to assist investment in fisheries by increasing the security of ITQs. The existing 10% overrun of ITQ provision will be abolished. Consultation is occurring with stakeholders to determine which mechanisms will be retained to assist with managing bycatch issues in multispecies fisheries. Institutional Reform. Another issue is reform of the delivery of fisheries

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--> management services. Recent reforms include the provision of services by agencies outside the Ministry of Fisheries (including fisheries research), the transfer of fisheries stock assessment research into a Crown Research Institute, and the establishment of a stand-alone Ministry of Fisheries. The role of the Ministry of Fisheries is being reduced to one of policy advice; determining the standards and specifications for and purchasing, monitoring, and auditing the contestable services; liaison and facilitating conflict and dispute resolution; and enforcement, compliance, and prosecutions. Contestable services will potentially include all the other functions currently performed by Ministry of Fisheries, including administration of quota and permit registries, catch and effort data management, satellite vessel monitoring, and the observer program. Consultation is occurring on the direct contracting of some of these services by the industry.