4 QS Transfers and QS Prices
Permanent transferability of QS is an important feature of the IFQ program. This chapter looks at the extent of permanent transfers and the prices paid for QS in permanent transactions during the first two years of the program.
Section 4.1 examines the volumes and rates of permanent QS transfers by management area during 1995 and 1996.
4.1 Transfer Rates by Area
This section looks at the volume and rate of permanent QS transfers during 1995 and 1996. Transfers allow QS to move to persons who feel that they can use it more profitably and allow for consolidations of QS holdings and fishing operations. The tables in this section tend to show a relatively high permanent QS transfer rate.
Table 4-1 provides data on QS and QS holder transfer rates by management area. Data are provided for 1995, 1996 and for both years together. Each table contains information on the QS transfer rate (the ratio of QS transferred to the year-end QS) and the QS holder transfer rate (the ratio of QS transferors to the year-end QS holders).
The annual area QS transfer rates are shown in Table 4-1. QS transfer rates were higher in non-CDQ Areas 2C to 4A. The average transfer rates over both years in these areas ranged from 13.3% in Area 4A to 16.5% in Area 2C. QS transfer rates tended to be lower in CDQ Areas 4B through 4E. Two-year rates in these areas ranged from 0.0% in 4E to 9.1% in 4C.1
In Areas 2C and 3A the annual QS transfer rates dropped somewhat from 1995 to 1996. The rates rose in the other areas (except for Area 4E where there were no sales in either year).
The QS transfer rates in Areas 2C to 4A are relatively high compared to transfer rates for Alaska limited entry permits. Rates in Areas 4B and 4D were somewhat lower. Over the years 1975 to 1996, the ratio of the total number of limited entry permit transfers to the total number of transferable permit-years, interpreted here as the permit transfer rate, was 9%. Annual permit transfer rates during this period ranged from 7% to 13%.2
However, transfer rates of State of Alaska limited entry permits and halibut QS units are not strictly comparable. Limited entry permits provide an all or nothing access to the fishery, and leasing is prohibited, except in emergency cases. Halibut QS units may be leased and can be transferred in small amounts by persons who remain in the fishery.
The QS holder transfer rates are generally higher than the QS transfer rates. Average QS holder transfer rates in non-CDQ areas 2C through 4A ranged from 19.8% in Area 4A to 22.2% in Area 3B over the two year period. The QS holder transfer rates in these non-CDQ areas were higher than the QS holder transfer rates in CDQ areas. Average QS holder transfers rates in CDQ Areas 4B through 4E ranged from 0% in Area 4E to 8.7% in Area 4B over the two year period.
4.2 Transfer Rates by Area and Vessel Class
The annual transfer rates for each area and vessel class are in shown Table 4-2. Transfer rates often diverged widely between vessel categories within an area. Over the two year period, the average QS transfer rate for freezer vessels in Area 2C was only 7.5% while the rate for catcher vessels "35 feet or less" was 20.6%. Similarly, the QS transfer rate for catcher vessels "36 to 60 feet" in Area 4D was 4.4% while the QS transfer rate for freezer vessels was 20.1% over the two year period.
Table 4-1. Halibut QS Transfer Rates by Area and Year
Table 4-2. Halibut QS Transfer Rates by Area, Vessel Class, and Year
4.3 QS Sales Prices
The section covers QS transfers for which price information is available. Information on 1995 and 1996 transfers is used to provide estimates of average prices per unit of halibut QS.
Table 4-3 shows estimated average annual prices per QS unit by area for 1995 and 1996. The prices shown in this table were calculated from transfers in which the actual current year IFQ transferred with the QS was within 5% of the standard IFQ per unit of QS in that year and management area.3 Mean and standard deviations for the price per QS unit are provided in dollars per pound of IFQ and in dollars per QS unit. The pounds of IFQ and the amount of QS used for estimating the prices, and the number of transfers used in the estimates are also shown.
The tables show the prices in dollars per QS unit ranging from $0.44 for Area 3B QS in 1995 to $1.37 for Area 2C QS in 1996. QS prices translated into dollars per pound of IFQ are comparable across areas within the same year. In 1995, these prices ranged from $5.64 a pound in Area 4A to $7.58 a pound in Area 2C. In 1996 the prices were higher in all areas except Area 4B, and ranged from $5.03 per pound in Area 4B to $9.13 per pound in Area 2C. The standard deviations are often large enough to prevent confident statements about trends in prices between 1995 and 1996. This topic is deferred to Section 4.4 of this chapter.
Table 4-4 provides a more detailed breakout of QS price estimates by management area and vessel category. The variables shown are the same as in Table 4-3.
Freezer vessel average QS prices are only available for three areas in 1996. These prices, however, tended to be above 1996 average catcher vessel QS prices. Catcher vessel prices tended to be higher in the larger vessel size categories in most areas.
Table 4-5 provides associated annual QS price information for transfers in which QS was sold without any of the current year IFQ. To avoid confusion, prices are provided only in dollars per QS unit. There are fewer of these types of observations than there are of transfers of QS with all or most IFQs. Prices are only available from four management areas.
The available prices ranged from a low of $0.47 per QS unit in Area 3B in 1995 to a high of $1.28 per QS in Area 2C in 1996. Prices appear to be higher in three areas in 1996 than in 1995, but the small number of observations and the large standard deviations associated with the price estimates make it hard to say confidently that there was a systematic rise in prices. Price changes through time will be estimated again in the next section.
Table 4-6 is similar to Table 4-5, differing by providing a more detailed breakout of price estimates. In Table 4-6 prices are shown by management area and vessel category. Because of the small numbers of observations, prices cannot be reported for many of the cells.
In all of these tables there are several caveats associated with the reported statistics. The information provided on the NMFS transfer application forms can be ambiguous. The form does not explicitly differentiate between sale transfers and other transfers. Sale transfer observations used in the tables in this section were selected because prices were supplied. Other sale transfer observations, for which no prices were supplied, could not be used to estimate these prices.
The transfer application forms from which pricing data were gathered also differed somewhat between 1995 and 1996. For example, the 1995 form requested prices net of brokers' fees, while the 1996 form requested prices including fees.4
The associated current year IFQ is important in determining QS prices, but the ratio of IFQ to QS can vary between holdings within a management area due to underages and overages from the preceding year. In addition, only a portion of the associated current year IFQ might have been transferred with the QS. This makes it harder to calculate a meaningful average price per QS unit within a management area. This difficulty has been dealt with herein by calculating QS prices for QS sold with "approximately" the associated current year IFQ and for QS sold with no current year IFQ.
Table 4-3. Annual Prices for Halibut QS and IFQ Transfers by Area and Year
Table 4-4. Annual Prices for Halibut QS and IFQ Transfers by Area, Vessel Class, and Year
Table 4-5. Annual Prices for Halibut QS-Only Transfers by Area and Year
Table 4-6. Annual Prices for Halibut QS-Only Transfers by Area, Vessel Class, and Year
4.4 Estimated QS prices
Annual average QS prices by management area, vessel category and year are reported in Table 4-4 of this chapter. However, the available data do not permit calculation and reporting of all the prices by these categories. In some categories there were no transfers and in others there were too few observations to report without breaking data confidentiality rules.
A more detailed analysis that examined prices by block status, size of block, and quarter, would have even more gaps since there would be fewer observations in each combination of categories.
To provide a more detailed evaluation of 1995 and 1996 prices, statistical models of QS prices were estimated for the 2C, 3A, 3B, and 4A management areas. There was not enough data on transfers to estimate the models for the other management areas (4B, 4C, 4D, and 4E). These models were used to estimate prices for QS by management area, vessel class, block status, size of block, and quarter for 1995 and 1996.
The estimated price table was made in the following steps:
QS price models were estimated
Separate models were used for each management area. Each model used the same set of explanatory variables, but each model had different parameter estimates. Each model predicted the price of QS in dollars per QS unit based upon the vessel class of the QS, the pounds of IFQ transferred with the QS units in that transaction, whether or not the QS units were blocked, the size of the block measured in QS units,5 the year in which the transaction took place, and the quarter of the year in which the transaction took place. The models explained from 41% of the variation of the price of QS units (in Area 4A) to 14% of the variation in the price of the QS units (in Area 3B).6
Explanatory variables were selected
Large blocks were defined to have 13,000 pounds of IFQs, medium blocks 6,000 pounds of IFQs and small blocks 1,000 pounds of IFQs. These size categories were chosen after an examination of the distribution of actual block size holdings at the end of 1996 and after a review of the size distribution of blocks transferred during 1995 and 1996. These block sizes, although constant in terms of pounds of IFQs, were associated with different units of QS in different areas and years since the QS to IFQ ratios varied between areas and between years within an area.
The "pounds of IFQ per QS unit" ratios were the standard ratios published by the RAM Division for each year. These are the ratios calculated by dividing the total TACs in the different management areas by the QS units available in those management areas on January 31 of the year.
The explanatory variables were used in models to calculate QS prices
Observations were created for each management area, vessel class, and "block-size" status. The variables in these observations were selected as described above and used in the equations that summarized the relationships between the QS prices and the other variables. This produced an average QS price, in dollars per QS unit, for each set of characteristics.
QS prices converted to dollars per pound of IFQ
These QS prices were then multiplied by the number of QS units per pound of IFQ to produce an estimate of prices in dollars per pound of IFQ. These IFQ prices are reported in Table 4-7. The "QS units per pound of IFQ" ratios used herein were based on the standard ratios for each management area.
The standard "QS units per pound of IFQ" ratios were used as explanatory variables in the price equations to calculate the QS prices, and in the conversion of the QS prices into IFQ prices as just described. Because of this, the estimated prices in Table 4-7 have to be interpreted as estimated prices for QS transfers in which, (a) all associated current year IFQ was transferred with the QS, and (b) there were no overages or underages associated with the transferred QS.
A discussion of the results
There was a lot of variation among the price estimates depending on the attributes of the QS (area, vessel category, block status, block size, and date of the transfer). This variation is clearest when the prices are expressed in dollars per pound of IFQ since a pound of IFQ is comparable across areas. Thus, the following discussion is in terms of prices expressed in dollars per pound of IFQ. These prices are shown in Table 4-7.
Variation in QS Prices by Management Area
The average price of a QS unit, expressed in terms of dollars per pound of IFQ, could vary by management area. Management areas may differ in conditions affecting catch per unit of effort, other operating conditions, operating costs and the costs of transporting product to markets.
Average QS prices appeared to differ by area in different ways, depending on the type of QS.
Freezer QS tended to bring the highest prices in Area 3B and the lowest in Area 4A. Prices in Area 3A tended to be higher than prices in 2C.
Large and medium catcher QS tended to show the same patterns in prices; prices tended to be highest in Area 2C, next highest in 3A, next highest in 3B and lowest in Area 4A.
Small catcher vessel QS prices tended to be highest in Area 2C, next highest in Area 3A, next highest in Area 4A and lowest in Area 3B.
Variation in QS Prices by Vessel Class
Vessel classes could affect the price of QS. Freezer and catcher vessels produce different products. Catcher vessels of different sizes could produce in different volumes for different markets. Catcher vessel size could also affect operating characteristics, including ability to operate in different weather conditions, fixed costs, and variable material costs, and vessel, skipper, and other crew shares. This large number of considerations could affect QS from different vessel classes in different ways making it difficult to predict how vessel class should affect QS prices.
There were no consistent patterns in vessel class QS prices across management areas:
In Area 2C, small and large catcher QS prices were almost identical and were larger than medium catcher and freezer QS prices. Freezer QS prices were the lowest of all.
Conversely, in Area 3A freezer QS prices were the highest, followed by large catcher, small catcher, and medium catcher QS prices.
Freezer QS prices were also highest in Area 3B, followed by large catcher, medium catcher, and small catcher prices.
In Area 4A small catcher QS prices were highest, followed by large catcher, freezer, and then medium catcher QS prices.
Variation in QS Prices by Block Status
A feature which the NPFMC added to the halibut IFQ program was the "blocking" of all initial allocations of QS that translated into less than 20,000 pounds of a hypothetical IFQ for an area.7 Under the program rules, blocked halibut QS must be sold as a unit and catcher vessel blocked QS often could not be leased because of the 10% leasing restriction.8 In addition, a person is only allowed to hold two blocks of QS in an area. If a person holds any unblocked QS in the area, then the person is only allowed to hold one block of QS.
The purpose of the blocking provision was to make a portion of the QS relatively unattractive to persons who wanted to put together more full-time halibut operations. Proponents hoped the block provisions would ensure there would always be QS available to a part-time fleet of small operators. The proponents felt this would help maintain some of the diversity of the fleet that existed under open access and thereby make the IFQ program less disruptive to isolated Alaska fishing communities. Proponents also predicted that the blocked QS would sell for a lower price per QS unit and hence would be more affordable for a fleet of small part-time operators, as well as new entrants to the fishery.
Based upon the price model, blocked QS often appears to have sold for lower prices per QS unit than similar unblocked QS. In Areas 3A and 3B the average price per QS unit for unblocked QS units, which can include some small parcels, was higher than the prices for small, medium, and large blocks of QS units. In Areas 2C and 4A, the average price per unblocked QS unit was higher than the average prices per QS unit for small or medium blocks. However, the average price per QS unit in large blocks in these areas was higher than the average price per unblocked QS unit.
Larger blocks with more QS can provide more operational flexibility and potential economies of scale to fishing operations. It has generally been expected that larger blocks would have a higher average price per QS unit.
Among blocked QS, larger blocks in all areas had higher average prices per unit of QS than smaller blocks.
Variation in QS Prices Across Time
Have the prices of QS units risen or fallen as time passed? Any number of events could cause QS prices to rise or fall from 1995 to 1996 and some of these events could change prices in different areas in different ways. For example, halibut prices could change or information about the future area TACs could change.
Prices appear to increase from year to year and from one quarter to another within each year. Estimated average prices from the models drop between the fourth quarter of 1995 and the first quarter of 1996. This is not the case in Area 2C where average prices increase from one quarter to another through both years. As there are relatively few QS transfers in the first and fourth quarters, these results should be viewed with caution.
Table 4-7. Model Estimated Prices Per Unit of Halibut QS, Expressed in Dollars Per Pound of IFQ