An Economic and Business Review of the ‘Unknown’ Impacts
and Future of the Industry and Communities in the State 

SITUATION
Along a 1,000 mile stretch of the Pacific Coast including all of California
and nearly all of the Oregon Coast, fishing towns and fishermen are dealing
with the total closure of this year’s coastal and river (pending) salmon season.

The reason for the closure is a sweeping decline in salmon runs along the
Pacific Coast from California to Washington but specifically in California which
has seen significant declines. Regulators are extremely troubled by the collapse
in the state's most productive stock -- the Sacramento River's fall run, which
historically accounted for 80 to 90 percent of the salmon caught off the state's
coast.

                                             

The Sacramento River and its tributaries saw the number of spawning fish
drop from more than 800,000 just six years ago to slightly more than 68,000
last year. Experts are predicting that a little more than 50,000 fish will be in
the river this autumn. The Sacramento fall spawning season was the last great
salmon run along the giant Central Valley river system, including the Sacramento,
American, Feather, Yuba and San Joaquin rivers and nobody knows exactly what
has caused the decline of the salmon.

The National Marine Fisheries Service has pointed to a sudden lack of
nutrient-rich deep ocean upwellings caused by ocean temperature changes
as a possible cause. Researchers say a natural fluctuation in ocean conditions
is driving salmon populations down, but other scientists and regulators say
the shift in ocean temperatures and currents does not sufficiently explain the
severe and unprecedented collapse. Some biologists say it is a combination
of factors, including agricultural pollution, water diversions from the delta and
damaged habitat.  The Pacific Fishery Management Council has drawn up a list
of about 50 potential explanations to be studied. Among the potential contributing
causes: water diversion from the Delta, pollution, sea lions and other predators
and problems with hatchery production.

So on April 11, the Pacific Fishery Management Council, a federal agency set up
to manage the Pacific Coast fishery voted to cancel this year's commercial and
recreational salmon fishing season extending 3 miles from the shoreline to 300 miles
off the coast of California and most of Oregon , and only an emergency ruling by U.S.
Commerce Secretary Carlos Gutierrez could change the requirement, and that, according
to fisheries experts, is unlikely. The Council's advisory recommendation will be forwarded
to the National Marine Fisheries Service for approval by May 1. The state Fish and Game
also took action to close all waters for fishing from the shoreline to the 3 mile mark.

The Council and the state approved their measures in the hopes that it would help reverse
the disappearance of salmon from Californian waters.

THE IMPACTS
But this is not the first time that the state’s fishing industry has been confronted by
such an impact, specifically for salmon. In 2006, commercial fishing operators in
the state were impacted by restrictions due to concerns related to Klamath River runs. 
A federal fisheries disaster was declared.  Apparently, this event would be a unique
and solely one time impact, so there was what could best be described as ‘heuristic’
or rule of thumb analysis by officials at that time to understand the economic impacts.
The commercial industry received $60 million in federal assistance. No one did a full
economic analysis. At best what was identified could have been written on the back
of a napkin. You would think that since then, officials would have been armed with
such information, specifically since a public policy decision of this magnitude
would dictate the need to know this information. And more importantly the need to
possess this information to be used in the formulation of and the subsequent
implementation of a successful public policy roadmap for the decision makers.

However, it is apparent that neither federal nor state officials have a good handle on
the total economic impacts from the salmon fishing industry on the Pacific Coast,
let alone California as it pertains to the closure and what it will mean to the state.

For example, the best information available about fishing in California comes from
an economic review of reports completed by the non-profit organization Caltrout. The
Review examines the reports completed by the U.S. Fish and Wildlife Service.  The
reports, The National Survey of Fishing, Hunting and Wildlife Associated Recreation
(conducted every five years by the U.S. Fish and Wildlife Service) showed that in 2006,
1.7 million people that fished in California spent over $2 billion and that over
three-fourths of these were freshwater anglers. The last economic input-output analysis
completed to fully understand the economic implications was completed in an earlier
study by US Fish and Wildlife Service in 2001. The study identified that recreational
fishing activity generates $2.4 billion in retail sales with an economic impact of $4.9 billion.
It also generates $1.3 billion in wages and salaries and supports 43,000 jobs in the state.

Different journalists in their efforts to acquire such information as it pertains to the current
closure have identified a variety of economic impacts. The California Fish and Game
Commission issued one estimate that places the loss of recreational ocean salmon fishing
would result in a $167 million loss to the state economy, equivalent to the loss of about
1,400 jobs. This analysis is based upon a normal season, of which ocean salmon anglers
contribute about $110,400,000 in direct revenues to the state’s business sector.  This
comes from the 2007 US Fish and Wildlife report. Adding the indirect and induced effects
of this initial revenue contribution and the total benefit to California’s economy is about
$167,000,000. This is equivalent to about $63,000,000 in total wage earnings to
Californians, or about 1,400 jobs in the state.

However, news articles have State Fish and Game estimating the impact from the closure
as large as a $255 million with a corresponding loss of 2,263 jobs.

It is clear that there is no consistency regarding the economic impacts of commercial
salmon fishing industry in the state.  And it is clear that if the number of vessels in the
state’s commercial fleet is 565 and if each vessel is valued at $150,000 the total economic
impact has been underestimated.  And in addition, few if any numbers are available on
corresponding tax revenues that will be lost through sales, gas and hotel/motel taxes
related to the secondary and tertiary impacts created by this closure.    Communities
such as Bodega Bay, Ft. Bragg and even San Francisco Bay communities should be
receiving federal assistance in the way of technical assistance in the form of grants from
the US Department of Commerce’s Economic Development Administration under the guise
of ‘Sudden and Severe’ economic conditions.

TASK
In response to the closure, Governor Arnold Schwarzenegger quickly declared a ‘State
of Emergency' in California as a result of the unprecedented closure of coastal salmon
fishing by the Pacific Fishery Management Council. The declaration directs the state’s
Department of Finance to make $2.7 million available to refund commercial salmon
fishing permits for the 2008 season and directs the state labor agency to make all
appropriate state grants available to help workers displaced by the closure. He also
directed the state Department of Fish and Game to recommend additional steps to
help the fishing industry and to protect fishery resources and to seek the maximum
possible financial and administrative assistance from the federal government.

In addition the Governor sent a letter to President Bush asking for his help in obtaining
federal disaster assistance.

The Governor also signed SB 562, a bill by Sen. Pat Wiggins, D-Santa Rosa, which
appropriates $5.3 million from Proposition 84 for coastal salmon and steelhead restoration
projects by the Department of Fish and Game. The money is expected to draw an additional
$20 million in federal matching funds for these projects.

ACTION-The Industry
In the news article, Fishermen Brace for Salmon Season Cancellation, April 10, 2008,
by Mike Taugher for the, Oakland Tribune presented the hardships for those in the
industry.

Randy Thornton, a charter boat owner and captain in Fort Bragg, is trying to replace
his lost recreational salmon business with tours that combine crabbing and abalone
diving – “abs and crabs,” he calls it. “I’ve goat a boat with no much to do,” Thornton
said."If they don't give me financial assistance, it will put me out of business, no question." 

                                 

"It's going to be a major hit to the town," said Jim Caito, co- owner of Caito Fisheries Inc.,
one of the state's largest fish processors.

Salmon make up 35 percent to 40 percent of his company's revenues, and Caito said
there is no other fishery that can be tapped to make up for the loss.

For consumers, Caito predicted higher prices for wild salmon, which will come mostly
from Alaska, and that wild salmon will become difficult to find this year. Last year, commercial
salmon boats brought 1.5 million pounds of salmon to California ports, and Fort Bragg was
second only to San Francisco in the amount of salmon hauled in to ports in California and
Oregon.

NEXT STEPS
Sit and wait, or try to find other opportunities.  While many of California’s commercial fishing
operator practice entrepreneurship by trying to diversify their catch or find other corresponding
uses for their vessels, many recognize the dire issues that lay before them . . . the ultimate
reality that if the restoration does not occur, the livelihood is over and a dramatic impact to the
Golden State’s coastal fishing communities.

Tim Johnson
www.CaliforniaBusinessMinute.com