4 Prices for QS Transfers
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.
Section 4.2 extends Section 4.1 and looks at QS transfer rates by vessel category as well as by area during 1995 and 1996
Section 4.3 presents estimates of average prices for permanent QS transfers broken out by management area, vessel class, and year.
Average prices for each management area, vessel class, and year combination cannot be presented because of a lack of data. Section 4.4 presents 1995 and 1996 QS prices estimates based upon statistical models. This technique permits very detailed breakouts of prices. In this section prices are shown by management area, vessel class, block status, size of block, year, and quarter within the year.
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 show active permanent QS transfer markets.
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 the QS transferred to the year-end QS) and the QS holder transfer rate (the ratio of QS transferors to the year-end QS holders).
QS transfer rates range from 6.8% in West Yakutat to 8.9% in the Southeast area over the two year period. Rates in Southeast and the Aleutians dropped somewhat from 1995 to 1996. The rates rose in the other areas.
The QS transfer rates are relatively low compared to transfer rates for Alaska limited entry permits. 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 between 7% and 13%.1
However, transfer rates between of State of Alaska limited entry permits and sablefish 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. Sablefish QS units may be leased and can be transferred in small amounts by persons who remain in the fishery.
In all areas the two-year QS holder transfer rates are higher than the two-year QS transfer rates. The QS holder transfer rates tended to decline moving from more easterly to more westerly management areas. The two-year QS holder transfer rate ranged from 20.6% in the Southeast area to 7.7% in the Bering Sea.
Table 4-1. Sablefish QS Transfer Rates by Area and Year
4.2 Transfer Rates by Area and Vessel Class
The annual QS and QS holder transfer rates for each area and vessel class are shown in Table 4-2.
QS transfer rates could vary widely among the vessel classes within an area. For example, over the two year period in the Western Gulf, the QS transfer rate was only 3.4% for "greater than 60 feet" catcher vessels but was 18.0% for "60 feet or less" catcher vessels.
QS transfer rates were highest in the "60 feet or less" catcher vessel category in all areas except Southeast over the two year period. QS transfer rates for this small catcher vessel class ranged from 8.8% in Southeast to 27.5% in the Aleutian Islands area.
QS holder transfer rates were highest for "60 feet or less" catcher vessel QS in the Southeast, West Yakutat, Central Gulf, and Western Gulf areas. QS holder transfer rates were highest for freezer vessel QS in the Bering Sea and Aleutian Islands areas.
Table 4-2. Sablefish QS Transfer Rates by Area, Vessel Class, and Year
4.3 Annual QS Sales Prices
The section covers QS transfers for which price information is available. Information on 1995 and 1996 priced transfers is used to provide estimates of average prices per unit of sablefish QS by area.
Table 4-3 shows estimated average annual prices per QS unit by area in 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 associated with QS in that year and management area.2 Mean and standard deviations 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 numbers of transfers used are both shown.
The tables show the average prices in dollars per QS unit ranging between $0.36 for the Bering Sea area in 1996 and $1.28 for Southeast in 1995. Average prices in dollars per pound of IFQ range between $4.57 for the Aleutians area in 1995 and $8.89 for the Aleutians in 1996. Prices expressed in dollars per QS unit are not comparable across areas since the standard IFQs per QS vary across areas. 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 price estimates by management area and vessel category. It is hard to compare prices between vessel categories based on the information in this table since many prices can't be reported because of confidentiality restrictions and other prices are associated with relatively large standard deviations.
Table 4-5 provides annual QS price information for transfers in which QS was sold without any of the current year IFQs. Since no IFQs were sold, prices are only provided 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. The available prices ranged from a low of $0.59 per QS unit in the Central Gulf area in 1995 to a high of $1.22 per QS unit in the Southeast area in 1995.
Table 4-6 provides a more detailed breakout of price estimates by management areas and vessel categories. As can be seen, with the small numbers of observations prices can't be reported for many of the cells.
There are several caveats associated with these statistics. For example, there is some ambiguity about the information provided on the NMFS transfer application forms. The form does not explicitly differentiate between sales transfers and other transfers. Sales transfers used in the tables in this section were selected because prices were supplied. Other sales transactions lacked price information and could not be used in the estimates.
Moreover, transfer applications from which pricing data were gathered differed between 1995 and 1996. For example, the 1995 form requested prices net of brokers' fees, while the 1996 form requested prices including fees.3
Current year IFQs are important in determining QS prices, but the ratio of IFQs to QS varies between holdings within a management area due to underages and overages from the preceding year. In addition, in any sale, none, part, or all of the IFQs might have been transferred with the QS. This makes it harder to calculate a meaningful average price for QS transfers within a management area. This difficulty has been handled herein by calculating QS prices for QS sold with "approximately" the area's base current year IFQs and for QS sold with no IFQs.
Table 4-3. Annual Prices for Sablefish QS and IFQ Transfers by Area and Year
Table 4-4. Annual Prices for Sablefish QS and IFQ Transfers by Area, Vessel Class, and Year
Table 4-5. Annual Prices for Sablefish QS-Only Transfers by Area and Year
Table 4-6. Annual Prices for Sablefish QS-Only Transfers by Area, Vessel Class, and Year
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.
An examination of prices by block status, size of block, and quarter, as well as by management area, vessel category and year, 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 Southeast, West Yakutat, Central Gulf, and Western Gulf management areas. There was not enough data on transfers to estimate the models for the other management areas (Aleutians and Bering Sea). 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:
1 Separate QS price models were estimated for each of four management areas.
2 Values for explanatory variables were selected.
3 The variables were used in the models to produce price estimates in "dollars per QS unit."
4 The "dollar per QS unit" prices were converted to "dollar per pound of IFQ" equivalents using the applicable QS to IFQ ratio in an area and year.
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 on 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 units4 , the year in which the transaction took place, and the quarter of the year in which the transaction took place. The models explained between 50% of the variation of the price of QS units (in the Western Gulf) and 18% of the variation in the price of the QS units (in the Central Gulf).5
Explanatory variables were selected
Large blocks were defined to have 13,000 pounds of IFQ, medium blocks, 6,000 pounds of IFQ and small blocks 1,000 pounds of IFQ. 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 IFQ, 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.
Explanatory variables were used in models to calculate QS prices
Observations were created for each management area, vessel class, block status, block- size, year, and quarter examined. 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 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 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, varied 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 tended to be highest in the Southeastern area and lowest in the Western Gulf area. West Yakutat and the Central Gulf had average prices intermediate between the other two areas. Price rankings could fluctuate depending on vessel class, however. For example, West Yakutat freezer QS prices tended to be higher than freezer QS prices in other areas.6
Variation in QS Prices by Vessel Class
Vessel classes could affect the price of QS. Freezer and catcher vessels produce different products. Catcher vessel size could affect operating characteristics, including ability to operate in different weather conditions, fixed costs, 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.
The price of QS for different vessel categories varied by management area:
In Southeast and the Central Gulf, the "60 foot or less" catcher vessel QS was higher in price than the "greater than 60 foot" catcher vessel QS, which was in turn higher in price than the freezer vessel QS.
In West Yakutat freezer vessel QS was the most highly valued, followed by "60 foot or less" catcher vessel QS and then "greater than 60 foot" catcher vessel QS.
The Western Gulf was the only area where the "greater than 60 foot" catcher vessel QS was higher in value than the "60 foot or less" catcher vessel QS. Freezer vessel QS tended to have the lowest price in the Western Gulf.7
Variation in QS Prices by Block Status
A feature which the NPFMC added to the sablefish 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.8 Under the program rules, blocked sablefish QS must be sold as a unit and catcher vessel blocked QS often could not be leased because of the 10% leasing restriction.9 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 sablefish 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.
In the Southeast area, the prices per QS unit of unblocked QS, expressed in dollars per pound of IFQ, were higher than the QS unit prices in all vessel classes and in all quarters no matter what the block size was. In the Central Gulf and the Western Gulf areas, average unblocked QS unit prices were similar to QS unit prices for large blocks of blocked QS. Unblocked QS units had higher prices, expressed in dollars per pound of IFQ, than the QS units in small and medium blocks in these areas. In the West Yakutat area, however, the model produced unexpected results: unblocked QS unit prices expressed in dollars per IFQ that were lower than the QS unit prices for all classes of blocks.
In each management area and vessel class combination, block QS unit prices tended to increase with the size of the block. For example, in the first quarter of 1995, small blocks of Southeast area freezer QS were $4.38 per pound of IFQ, while medium blocks were $5.13, and large blocks were $5.46.
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, sablefish prices could change, or information about the future area TACs could change.
In general, Table 4-7 shows higher estimated prices in 1996 than in 1995. It is more difficult to generalize about quarterly patterns. In the Southeast estimated area prices rose from one quarter to another through the eight quarters covered in the table. In other areas, the estimated prices sometimes rose or sometimes fell depending on the quarter. There were different quarterly patterns in each of these three other management areas
Table 4-7. Estimated Prices per Unit of Sablefish QS, Expressed in Dollars Per Pound of IFQ