1. The Chignik Salmon Cooperative
Gunnar Knapp
Professor of Economics
University of Alaska Anchorage
Fisheries Co-ops and Beyond: Realigning Fisheries Management
A Workshop on Fisheries Self Governance
June 24, 2003

2. Outline of Presentation
The Economic Crisis in Alaska Salmon Fisheries
The Chignik Salmon Fishery
Formation of the Chignik Salmon Cooperative
Effects of the Cooperative During its First Year
Lessons of the Chignik Salmon Cooperative

3. Outline of Presentation
The Economic Crisis in Alaska Salmon Fisheries
The Chignik Salmon Fishery
Formation of the Chignik Salmon Cooperative
Effects of the Cooperative During its First Year
The Cooperative in 2003 and Beyond
Lessons of the Chignik Salmon Cooperative

4. Mostly because of competition from farmed salmon, ex-vessel prices have fallen by more than half since 1990 for most Alaska salmon species.

5. Mostly because of lower prices, there has been a tremendous erosion in the value of Alaska salmon since the late 1980s—which has led to an economic crisis in the Alaska salmon industry.

6. The decline in value has led to discussion throughout the salmon industry about how to help the salmon industry regain profitability.
Most of the discussion has focused on other approaches to increasing value or reducing costs that do not involve fundamental changes to the fisheries
“marketing”
“improved quality”
“better transportation”
Part of the discussion has been about options for “restructuring” the management of salmon fisheries to:
Reduce costs
Increase value
The Chignik Salmon Cooperative represents the only significant experiment in restructuring the management of an Alaska salmon fishery since the limited entry system was established in the mid 1970s.

7. Outline of Presentation
The Economic Crisis in Alaska Salmon Fisheries
The Chignik Salmon Fishery
Formation of the Chignik Salmon Cooperative
Effects of the Cooperative During its First Year
The Cooperative in 2003 and Beyond
Lessons of the Chignik Salmon Cooperative

8. Overview of the Chignik Salmon Fishery
Sockeye accounts for most of the value of the fishery.
The entire sockeye run returns to one river which flows into Chignik Lagoon. Most of the fishing takes place “inside” in the lagoon, but part of the fleet has historically fished “outside.”
There are 102 Chignik seine permits. The majority are locally owned.
In recent years, almost all of the Chignik harvest has been delivered to two processing plants located in Chignik Bay (near Chignik Lagoon).

9. Alaska salmon fisheries are managed by limited entry
Alaska salmon fisheries are managed by limited entry. There are 27 different salmon fisheries which differ widely in value, number of permit holders, average earnings and average permit value.

10. The Chignik area, on the south side of the Alaska Peninsula

11. Village of Chignik Lagoon. There is no road connection to Chignik Bay
ADFG weir on the Chignik River, which counts all fish going up to the lake
Chignik Lagoon where most of the fishing occurs
Chignik Lake, the first of two large lakes which feed the river.
Chignik Bay, where the two processors are located
The Chignik Area

12. View of the entrance to Chignik Lagoon.

13. Seiners in Chignik Lagoon

14. Seiner in Chignik Lagoon

15. Seiner in Chignik Lagoon

16. Alaska Department of Fish and Game facility and the salmon-counting weir on the Chignik river.

17. Monitoring cameras at ADFG allow them to watch fish swim through the two openings in the weir in real time (or later by video) to obtain an exact count.

18. The village of Chignik Lagoon—overlooking Chignik Lagoon.

19. The village of Chignik Lake, up the river from Chignik Lagoon.

20. Chignik Bay

21. A view of Chignik Bay with the processing plants

22. Average earnings in the Chignik fishery vary widely from year to year and among fishermen. Top fishermen historically earned more than $200,000 per year.

23. Historically, the top 15 fishermen catch the same as the bottom 40 fishermen.

24. Outline of Presentation
The Economic Crisis in Alaska Salmon Fisheries
The Chignik Salmon Fishery
Formation of the Chignik Salmon Cooperative
Effects of the Cooperative During its First Year
The Cooperative in 2003 and Beyond
Lessons of the Chignik Salmon Cooperative

25. Fishermen in Chignik have discussed a co-op for many years.
Chignik is ideal for catching a lot of salmon with a few boats, because the entire sockeye run returns to Chignik Lagoon.
Historically, the fleet had experience with ad-hoc coops which fished during strikes.
Fishermen realized that substantial savings would be possible by fishing with fewer boats.
Co-op proposals were discussed among Chignik seiners for many years.
The idea of a co-op had substantial support among many permit holders.
But co-op proponents could never get 100% participation in a voluntary coop, largely because of the difficulty of allocating the profits in a way that would satisfy everyone.

26. At the January 2002 meeting, a group of Chignik fishermen requested a separate allocation for a co-op from the Alaska Board of Fish.
ADFG would manage for two separate allocations:
An allocation to the co-op
An allocation to a “competitive” fishery.
Fishermen could choose:
Those who wish to join the coop could fish cooperatively
Those who didn’t wish to join the coop could continue to fish competitively (in separate openings)
The share of the fishery allocated to the coop would depend upon the number of permit holders who joined the coop.
Within the coop, profits would be shared on an equal basis among permit holders who joined the coop.

27. The separate allocation to a voluntary co-op is a key innovation represented by the Chignik cooperative.
In Chignik—as in many Alaska salmon fisheries—there is clear potential to greatly reduce costs and improve value by fishing differently—by using fewer boats and/or different kinds of gear
In theory, limited entry permit holders could contract privately to use fewer boats and share the benefits (but they could not use different gear without regulatory approval).
But in practice, private contracting is unlikely:
it only takes a few “hold-outs” continuing to fish to dilute the benefits of a private contract to cooperate
A permit buyer may not necessarily continue to cooperate
A separate allocation to a voluntary co-op provides a mechanism for moving forward with co-ops (or other forms of restructuring):
Voluntary participation
Benefits not diluted by hold-outs

28. There are two critical conditions for a separate allocation to a voluntary co-op to be feasible
Ability of managers to actually achieve allocations
Depends on conditions in the fishery
Ability to agree on the share of the fishery to be allocated to the voluntary co-op

29. The Chignik co-op proposal raised two basic allocation issues:
The basis for allocation between the co-op and the “independent” fishery:
“equal shares”: the percentage of permit holders who joined the co-op
“historical shares”: The historical catch shares of permit holders who joined the co-op
The basis for allocation of profits within the co-op
The basis for these allocations became the major issue in the debate over the Chignik co-op:
Among Chignik permit holders prior to submitting a proposal to the Board of Fish
At the Board of Fish meeting
Ever since the Board of Fish meeting
In the rest of the Alaska salmon industry (because of the potential for Chignik to set a precedent for allocations in other areas)

30. The politics of the Chignik salmon cooperative (simplified!)
Most (but not all) Chignik permit holders said they supported the concept of a co-op.
Many highliners said they would support a co-op only if one or both of the following conditions were met:
The allocation to the co-op was based on historical shares
The allocation within the co-op was based on historical shares
Permit holders who were not highliners (mathematically, a much larger percentage) said they would support a co-op only if the allocations were based on equal shares
The leaders of the proposal argued that practical politics required that both allocations be based on equal shares because:
Many more permit holders wanted equal shares
There were fewer potential legal and constitutional concerns associated with equal shares.

31. The proposal raised legal and constitutional issues.
Did the Board of Fisheries have the authority to allocate to a co-op?
If so, what was a permissible basis for the allocation?
After the Board approved the co-op, two Chignik permit holders sued to stop the allocation.
In October 2002, an Alaska superior court ruled that the Board did have authority to allocate to a co-op.
The case has been appealed to the Alaska Supreme Court.

32. The Chignik proposal was intensely debated before the Board of Fisheries in a meeting attended by a large share of Chignik permit holders.

33. The Board of Fisheries voted unanimously for a separate allocation to a co-op.
A co-op could be formed if more than half the permit holders signed up to join by a deadline of April 15.
The allocation to the coop would be 90% of the percentage of permit holders joining the coop.
Thus the average allocation per permit holder was lower for the coop than for the “competitive” fishery.
The more permit holders who joined the co-op, the greater the disparity between the two fleets in the share of the total catch per permit holder
The allocation formula was a last-day compromise devised by Board member Dan Coffey.

34. When the April 15 deadline had passed, 77 fishermen had joined the Coop and 23 had not. Thus the allocations were as follows:
Co-op fishery .9 * 77/(77+23) = 69.3%
Competitive fishery 100% – 69.3% = 30.7%

35. The Co-op had a lot of work to do to get organized and ready for fishing in the very short time between the January 2002 Board of Fish meeting and the start of the salmon season in June
It formally organized as the “Chignik Seafood Processors Alliance” (CSPA)
It elected a Board of Directors
It negotiated for markets with the two Chignik salmon processors and other potential buyers
It hired boats to do the fishing and tendering from among the permit holders who had joined the co-op
It contracted with other larger boats for tendering
This was done
without any start-up capital
using mostly volunteer time of a small group of organizers
While the co-op was facing a legal challenge over the allocation by the Board of Fisheries

36. Leadership is a critical component in the politics of establishing a co-op and the business of running a co-op.

37. Outline of Presentation
The Economic Crisis in Alaska Salmon Fisheries
The Chignik Salmon Fishery
Formation of the Chignik Salmon Cooperative
Effects of the Cooperative During its First Year
The Cooperative in 2003 and Beyond
Lessons of the Chignik Salmon Cooperative

38. Assessing the effects of the Co-op is not easy.
To know the effects of the Co-op, we would have to know what would have happened without a Co-op (which we don’t).
The Co-op affected the Chignik salmon fishery in many different ways
It will take more than one season to see the full effects of the Coop
The first year of the Coop was a learning experience for everyone involved. Future years will not necessarily be the same.
2002 was a low-run year. Effects of the Co-op might be different in other years
The longer-term effects of the Coop may be much more far-reaching, such as effects on:
permit prices
where permit holders live
communities
Processors
After more than two decades, we are still learning about the effects of limited entry

39. The estimated 2002 ex-vessel value of $4
The estimated 2002 ex-vessel value of $4.6 million was the lowest since 1975, due to a combination of a low run and low prices.

40. If the management of the fishery had remained the same in 2002 as in earlier years, the season would have been a financial disaster for many Chignik permit holders.
Many would not have fished.
It would have been difficult to find crew.
There might have been a strike.
Of those who did fish, many would have lost money.

41. ADFG was able to manage the fishery to achieve the allocation targets and escapement goals
ADF&G managed the fishery with a series of consecutive openings
first an opening for the competitive fishery
then an opening for the Coop fishery to bring catch shares to the approximate target level
Because the Coop could control its catches, ADFG was able to “fine-tune” catches and escapement when the Coop was fishing—allowing for more even escapement.

42. The Coop resulted in significantly fewer boats fishing the 2002 Chignik Fishery—on the order of 40%-56% The table shows the percentage reduction in the number of boats fishing, given different assumptions about how many boats would have fished in a traditional fishery.

43. The significant reduction in the number of boats and gear being fished resulted in significant savings of costs that are proportional to the number of boats fishing, such as insurance and maintenance. These savings may have been on the order of 40%-56%.

44. The Coop resulted in an even greater percentage reduction in “boat seasons” fished—since both the competitive fleet and the coop fleet fished for only part of the season. The reduction could be on the order of 74%-77%.

45. The combination of fewer boats fishing fewer days resulted in very large savings of those costs which are proportional to the number of boat days fished, such as fuel and food. For the fishery as a whole, the reduction in costs of fuel and food could be on the order of 74-77%. Note that the savings did not occur solely because the Co-op fished fewer boats. By fishing far fewer days, the independent fleet also reduced its costs.

46. Savings on maintenance and repair, insurance, fuel and food alone could have been on the order of 24% of the total catch value.

47. Because far fewer crew were employed, there were also significant savings in crew costs.
From the point of view of the cost of catching the fish, this was also a savings.
From the point of view of crew who might have been employed, this was not a benefit.

48. An explicit goal of the co-op was to improve the quality by handling fish more carefully, delivering fish sooner after harvesting, and delivering some fish live. Fish were brailed directly from the seine net into tender vessels, without being brought on board the fishing vessel.

49. The quality of fish delivered by the co-op was very high.
But the co-op can’t necessarily take all the credit for high quality during the 2002 season
The low harvest volume and relatively even run-timing would have contributed to higher quality even without a co-op.

50. A small share of the co-op fish were delivered live—a major innovation for an Alaska salmon fishery. This photograph fish being pumped live from a Coop tender into a net pen adjacent to a processing vessel, which processed them into high-quality fillets.

51. Live sockeye salmon in a co-op tender vessel.

52. The co-op made money, and most co-op members made money.
All 77 co-op members were paid a $22,000 “membership share”
Boats which fished a full season for the co-op were paid $47,000, as well as their fuel and insurance costs.
Catcher boats had to cover payments to crew, food, and boat maintenance and repairs.
Not all co-op members necessarily did better than they would have without a co-op. How they were affected depends on:
How much fish they would have caught in a traditional fishery
For co-op catcher boats, the effects also depend on how the co-op payment compared to their actual costs.

53. The effects of the co-op on the 23 permit holders who did not join the co-op is unclear.
According to an analysis by the Commercial Fisheries Entry Commission, the 30.7% share of the total catch allocated to the independent fleet slightly exceeded the combined “historical share” of permit holders in the independent fleet.
How individual independent permit holders were affected depended on:
What their share of the total catch would have been in a traditional fishery
How effective they were at catching fish compared to other independent fishermen
The extent to which their costs were affected by the shorter fishing season

54. Whether or not an independent permit holder caught his historic share of the total harvest in 2002 does not mean that things will turn out that way in the future.
An individual’s share of the independent harvest will depend on which other permit holders fish in the independent fishery.
The greater the extent to which other independent permit holders are above-average fishermen, the lower an individual independent permit holder’s share will be.
This means that whether or not to join the Co-op is not an easy decision from a financial point of view—because it depends on which other permit holders do or do not join the Co-op.

55. To learn about effects of the co-op, the University of Alaska Anchorage Institute of Social and Economic Research (ISER) conducted a survey of Chignik permit holders in the fall of 2002
89 of 100 permit holders responded (89% response rate)
20 of 23 independent permit holders (87%)
21 of 22 co-op members who fished (93%)
48 of 55 co-op members who didn’t fish (87%)

56. Question 5: Overall, how did having a Co-op this year affect you financially, compared to how you would have done if there had not been a Co-op? [check only one] __ I am worse off financially than I would have been if there had not been a Co-op this year. __ I am better off financially than I would have been if there had not been a Co-op this year. __I’m not sure if I’m worse off or better off financially than I would have been if there hadn’t been a Co-op this year.

57. One effect of the Co-op was to transfer part of catch value to permit holders who would not have fished in a traditional fishery but who joined the Co-op (the “latent permit problem”). The transfer to permit holders who would not have fished may have been on the order of 4%-11% of the value of the fishery—depending on what we assume about the number of permit holders who wouldn’t have fished a traditional fishery. This is significantly less than the order of magnitude of the cost savings resulting from the Co-op.

58. The Chignik Co-op had significant effects on the two shore-based processing plants in Chignik.
The Co-op had control of almost 70% of the sockeye salmon harvested in Chignik.
Historically the two shore-based plants in Chignik had purchased similar shares of the total catch.
For reasons which the parties describe differently, the Co-op sold almost all of its fish to one of the shore-based plants and no fish to the other plant. The plant that bought no fish clearly ended up worse off than it would have in a traditional fishery.
If the run had come in differently—if one plant hadn’t been able to handle the entire run—things might have happened differently. The experience in 2002 wouldn’t necessarily happen in all years.

59. The Co-op had significant effects on people who had traditionally tendered in the Chignik fishery
A number of individuals who had tendered for many years did not tender in 2002.
One reason was the fact that the the processing plant which did not buy from the Co-op had much less need for tenders than in previous years.
Another reason was that the Co-op chose to tender its own fish—and hired a number of permit holders to tender (who would likely have been fishing rather than tendering if there had been a traditional fishery.)

60. Tender vessel owned by a Chignik Lagoon resident who lost his tendering contract with Norquest Seafoods but was not hired by the Co-op. He and the Co-op have different versions of why he was not hired.

61. Question 4: What best describes how you felt about the Board of Fisheries’ January 2002 decision to allocate part of the Chignik harvest to a co-op? __ I opposed it __I opposed it, although I had mixed feelings __ I supported it __I supported it, although I had mixed feelings

62. Question 6: Overall, how would you describe your feelings about the Co-op and the change in the management of the Chignik salmon fishery in 2002? (check only one) __ Very positive __Somewhat positive __ Mixed __ Somewhat negative __ Very negative

63. Selected “positive” survey comments about effects of the Co-op
Without question, we, as fishermen, had a better financial season because of the co-op. Of course, there are improvements to be made, as with all first-year operations.
Co-op was a success. Management allowed steady harvest of fish for better quality, faster processing, better prices.
I have only positive feelings for the changes in management and harvesting brought on by the co-op. I did miss fishing this past summer, but I realize that it was better for me and my community and family to sacrifice fishing to try to enact positive change in our fishery.
I enjoyed fishing for the co-op more because the stress level was less, and I was able to focus my attention more on handling the fish in a quality-conscious manner.

64. Selected “mixed” survey comments about effects of the co-op:
This was the first summer since I was 5 years old on my dad's boat (I'm now 54 years old) that I haven't fished salmon. It was hard to beach my $1 million operation, but I'm convinced I did better financially. Thus, mixed emotions about missing the season.
Nobody is used to this yet. If my dad were alive, he probably wouldn't have liked it because they fished competitively all their life. No one likes change unless it benefits them. But I think this year was good. I was surprised it was so good, and if they correct a few mistakes, it could be even better.

65. Selected “negative” survey comments about effects of the Co-op
The structure of the co-op discriminated against people who do well above average, therefore making it financially not viable for people who made above average to join. There were NOT proportional benefits.
I spent my whole life in Chignik and have fished since I was old enough. Now I am not going to be able to make a living any more if this allocation stays in. The Board of Fish has taken that away. I see many others who also have fished here and made a good living since childhood being ruined and not able to provide for their families because of this decision the Board has made.
My family and I would have been a lot happier if meddling by people who bought permits at an unreasonable price. I didn't see any of these people here when I chose to live here in 1972, and now they choose my way of living and lifestyle.
The social impacts are horrible. This was not researched well enough before implemented.

66. Outline of Presentation
The Economic Crisis in Alaska Salmon Fisheries
The Chignik Salmon Fishery
Formation of the Chignik Salmon Cooperative
Effects of the Cooperative During its First Year
The Cooperative in 2003 and Beyond
Lessons of the Chignik Salmon Cooperative

67. The 2003 Chignik Salmon Cooperative
At its December 2002 meeting, the Board of Fisheries did not make significant change to the rules for the cooperative
The composition of Board had changed, and several co-op supporters were no longer on the Board
There was a concerted effort by the independent fleet to reduce the allocation to the co-op
The vote over changes to the allocation was close
In 2003, 77 permit holders again joined the co-op.
Three permit holders left the co-op, three others joined the co-op

69. Future challenges to the Chignik Salmon Co-op
Ability to catch large daily volumes in a concentrated big run
Internal allocation of costs and profits
Additional costs of moving to professional staffing
External political threats
Legal challenge (Alaska supreme court review)
Commercial fishermen opposed to co-ops
Other Alaskans opposed to co-ops
Potential for permit holders to leave co-op
if market and run conditions get “too good”
dissatisfied co-op members
Effects of permit transfers
Potential for transfers to non-fishermen

70. Outline of Presentation
The Economic Crisis in Alaska Salmon Fisheries
The Chignik Salmon Fishery
Formation of the Chignik Salmon Cooperative
Effects of the Cooperative During its First Year
The Cooperative in 2003 and Beyond
Lessons of the Chignik Salmon Cooperative

71. Lessons of the Chignik Salmon Cooperative . . .
Allocation of a share of the total catch to a voluntary co-op is a practical way of overcoming the significant obstacles to formation of a co-op:
Near impossibility of achieving 100% private voluntary contracting for a co-op
Political difficulty of requiring 100% participation in a co-op
But it is not a perfect or ideal solution:
It is not possible for managers to achieve allocations in all fisheries
Even where allocation is possible, management costs increase
Dividing permit holders into two groups may leave both groups feeling they have been treated unfairly
There are significant social costs that result from dividing permit holders
The co-op has deeply divided the Chignik communities

72. Lessons of the Chignik Salmon Cooperative . . .
A co-op can generate significant economic benefits in an Alaska salmon fishery
Reduction in costs
Increase in quality

73. Lessons of the Chignik Salmon Cooperative . . .
An allocation to a voluntary co-op affects different fishermen in different ways.
Even if the overall fishery becomes more profitable, some fishermen may end up worse off.
Those fishermen who have done best in the past are those who were best at fishing under the current system. They may not be the best at fishing after restructuring.

74. Lessons of the Chignik Salmon Cooperative . . .
Co-ops change relationships between fishermen and processors and tenders.
Allocations such as the Chignik Coop give fishermen significant market power.

75. Lessons of the Chignik Salmon Cooperative . . .
Any significant change to fisheries management is difficult
Debate over restructuring may become personal and may strain relationships among individuals and within communities.
Anything bad that happens is likely to be blamed on the restructuring—even if the same or worse things might have happened without restructuring.
Many people do not accept or understand the need for restructuring.

76. Lessons of the Chignik Salmon Cooperative: Key Conditions for Success for Alaska Salmon Cooperatives
“Simple” fishery with conditions such that managers can achieve allocations
Potential for significant economic gain from fleet reduction
Relatively small number of permit holders
Leadership with political and organizational skills
External support in political effort to achieve change