The collapse of the fishing giant Blue Harvest reveals the weakness of fishing quota policies

The collapse of the fishing giant Blue Harvest reveals the weakness of fishing quota policies

In October 2023, wrecking crews finished destroying the last of ten fishing boats formerly owned by the notorious New England fishing magnate nicknamed “The Codfather.” Carlos Rafael, who started out as a fish gutter in New Bedford, Massachusetts, worked hard — and sometimes cheated — his way up the ladder, eventually dominating New England’s bottom fisheries (which include cod, hake, flounder and fish other white). Before a court ruling in 2017 sent him to prison for nearly four years and forced him to sell his fleet. The sale, completed during his prison term, will net him another $100 million. It was a profitable end to a fishing empire built on seafood fraud, tax evasion and consolidation.

So when private equity-backed Blue Harvest Fisheries announced in 2020 that it would buy most of Rafael’s fleet and put the boats back in operation, some welcomed it as good news for the Port of New Bedford, the center of Cape Cod’s fishing industry. But others worried that Blue Harvest’s majority shareholder was Dutch-owned Brigal Partners – and that most of the money would eventually pass through a Swiss holding company into the hands of a family of European billionaires, with only a small portion going. To the local fishing community. Now, just three years after taking control and becoming the dominant player in New England’s groundfish fisheries, Blue Harvest has suspended operations and filed for Chapter 7 bankruptcy, leaving many fishermen out of work once again.

In filing for Chapter 7, Blue Harvest could leave up to $100 million in outstanding debt — much of it to local vendors that performed maintenance and upgrades on its fleet. An investigation by the New Bedford Light found that bankruptcy was likely a way for Bregal to avoid paying those debts and maximize the money he could extract.

Unpaid creditors also include the fishermen themselves, who never received fair compensation even when Blue Harvest was still solvent. From the beginning, Blue Harvest’s CEO was clear that the company’s goal was vertical integration, something the company did very well. The company handed over as much money as possible to Brigal and other backers with minimal loss: the fishermen were expected to bear most of the operating costs as independent contractors, with Blue Harvest billing them for fuel, maintenance, equipment and even permits. For the crew members, this meant earning at least 7 cents per pound of fish.

The rise and fall of Blue Harvest is the result of a fisheries management structure called catch quotas, which initially attracted support in the 1990s from economists and conservation groups as a way to avoid overfishing and other problems in high-value, high-demand fisheries such as groundfish. Alaskan king crab or red snapper. Other strategies to avoid overfishing – for example, limiting the fishing season to a short window – have led to unintended consequences, such as a dangerous annual “run for fish” that has sometimes led to the death of fishermen, fishing gear falling into the sea and endangered species being lost. Loose nets. All in an attempt to catch as much as possible. But if the total allowable catch (as determined by the National Oceanic and Atmospheric Administration’s Fisheries Management Council) could be divided into salable “fishing quotas,” also known as individual transferable quotas, economists reasoned, fishermen would treat their quota as an investment. : Taking a personal stake in the health of fish stocks while avoiding some of the desperate frenzy that other management strategies seemed to encourage.

Unfortunately, these stocks have become more like investments than fisheries managers had hoped, more valuable as assets that can be bought and sold than as a way to encourage responsible fishing. Because the shares were tradable, anyone could swoop in and buy them – a problem exacerbated by the absence (or overly lax) caps on stock ownership in most fisheries where NOAA implemented catch quota programs. Because the initial quotas (as apportioned by the National Oceanic and Atmospheric Administration) were allocated based on historical fish catches, larger operations began with more catches, leaving small-scale fishermen with fewer quotas and driving many out entirely.

As the market around stocks developed, many small fishermen found that they could not make a profit with too few stocks, but it was also impossible to buy more – leading them to sell their stocks to wealthy fishermen or fishing companies. Some may continue to fish, rent stocks, or sign on as low-wage contractors for companies like Blue Harvest, but many have sold their boats and left fishing entirely.

It became clear that stockholders could shift most of the costs of fishing to fishermen who did not have stock, purchasing fishing stock and then charging those who did not have the capital to participate in the system themselves to gain access. Catch stocks have emerged as a profitable, low-risk investment with a high capital buffer — an ideal target for private equity firms like Pregal.

So what went wrong? When they entered the market in 2015, Blue Harvest’s goal was to control the scallop industry: It bought shares equivalent to 5% of the catch, the maximum allowed, and lobbied regulators to let them lease additional shares from other shareholders. This led to strong opposition from fishermen, who saw the effects of continued consolidation in other fisheries – especially New England groundfish, where a more generous share cap (15.5%) and unrestricted leasing meant that companies like Blue Harvest could dominate more fish. market .

When Blue Harvest’s bid to allow leasing of scallop shares was rejected in 2022, limiting the potential for further growth in the scallop market, the company began divesting, selling its 15 scallop boats. In early 2023, Blue Harvest suspended operations at its seafood processing plant in New Bedford, laying off more than 60 employees, to go all-in with fishing — a lucrative market, and the reason it bought Rafael’s fleet three years ago.

These changes herald bigger problems: Industry experts say the company has become too stretched to operate, with huge executive pay and too big an investment in new boats, which it hoped would make operations more efficient and profitable in the long term. These new boats have also cast doubt on the purported environmental benefits of fishing quotas, as larger vessels have contributed to overfishing of haddock and other species. In response, fishery managers cut catch limits, hurting everyone else who depends on the fishery as well.

The collapse of Blue Harvest demonstrates that although it is now easier for non-fishers to take over fisheries, they are not always well equipped to manage fishing gear. Naturally, private equity firms are more interested in good returns than stable companies. The Blue Harvest story is a classic example of “asset stripping,” where private equity is able to profit when a company dies by moving its assets beyond legal reach.

In light of the hundreds of lost jobs and millions in unpaid debt that Blue Harvest has left behind, advocates for independent and non-corporate fishermen, including the North American Marine Alliance, have called for a halt to the new fishing quota programs. Combined with tougher regulations on existing programs — such as imposing leasing restrictions and strict ownership limits, which would prevent individual companies from gaining too much control in the first place — banning the model from spreading further could help limit future consolidation. In fishing communities across the United States. .

Such changes cannot reverse the damage already done: As with farms, once a fishing business is lost, today’s financial barriers make it almost impossible to restart it, especially when catch quotas are required to catch fish. This means that for many New Bedford families, fishing has become a family heirloom, rather than a livelihood. But by demonstrating that catch quotas — at least as they have been implemented so far — are a failure for fishermen, Blue Harvest’s collapse may still be an actionable lesson for policymakers as they consider how best to conserve both resources and communities.

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