PACIFIC HALIBUT IVQ PRICE FORECAST Estimated Range of Future Values Based on a Brief Analysis of Existing Data

Transcription

1 PACIFIC HALIBUT IVQ PRICE FORECAST January, 2008 Prepared for: Pacific Halibut Market-Based Adjustment Mechanism Committee/ Ministry of Environment: Oceans and Marine Fisheries Division Prepared by: Stuart Nelson Nelson Bros Fisheries Ltd A Street Surrey, BC V4A 9H1

2 2 PACIFIC HALIBUT IVQ PRICE FORECAST Contents Executive Summary... 3 Limitations of this Forecast... 3 Results... 3 Methodology... 4 Historical Analysis... 5 Halibut IVQ Price Trends... 5 BC Halibut Fishery & Competitive Trends... 6 Historical Analysis Summary Prospective Analysis Key Variables Forecast Effect of New Demand Halibut IVQ Forecast Schedule of Costs For Recreational Sector IVQ Transfers A Word About the Demographics of Halibut IVQ Holders... 22

3 3 PACIFIC HALIBUT IVQ PRICE FORECAST Executive Summary Limitations of this Forecast This study was prepared in late-december under a contract between Nelson Bros Fisheries Ltd and the Oceans and Marine Fisheries Division of Ministry of Environment. The contract provided for five days of work to provide the Pacific Halibut Market-Based Adjustment Committee with some general guidance to assist in its deliberations. These five working days were allocated as follows: 2 days to pull together available information on halibut IVQ prices and factors potentially influencing them, and compile this information into tabular/graphic form. There was little opportunity for consultation with industry experts. 1 ½ days to analyse the data to perform statistical analysis and think about causes and effects, interrelationships, future dynamics, etc. 1 ½ days to write and present the report. The resulting study is presented by the contractor as a best-effort to estimate a reasonable range of future values, given a limited project scope, and mindful of the perils of long range forecast in the notoriously volatile commercial fishery. Results could have differed had there been further time for consultation and analysis. Results Mindful of the project limitations described above, the contactor guages that the price of halibut IVQ will rise over the next six years from 2007 levels, primarily due to the inflationary effects of new demand for IVQ from the recreational sector and the Pacific Integrated Commercial Fisheries Initiative (PICFI).

4 4 PACIFIC HALIBUT IVQ PRICE FORECAST Introduction The Pacific Halibut Market-Based Adjustment Mechanism Committee, in support of its work on commercial and Recreational shares in the BC halibut fishery, requires estimates of the future value of halibut individual vessel quota (IVQ). Stuart Nelson of Nelson Bros Fisheries Ltd has been retained to develop a forecast of halibut IVQ values over the next six years. This task is made challenging by the scarcity of high-quality historical data, the inherent uncertainty about future resource abundance, market prices, and macro-economic conditions, and the unknown effects of new players/programs that will purchase substantial quantities of halibut IVQ in the future (Recreational sector, PICFI). This report is structured in two parts: 1. Historical analysis of past halibut IVQ values and the factors that may influence valuation. 2. Prospective analysis forecast, along with supporting rationale, of IVQ prices and lease rates for the next six years. The IVQ price/lease forecast will be translated into a schedule estimating the cost to the Recreational sector of attaining target allocation levels over the next six years. The purpose of the forecast is to allow the Recreational sector to estimate, with reasoned rationale, required expenditures to acquire IVQ from the commercial sector over time. Methodology The time frame for producing this report is extremely short the study was substantially completed during the last two weeks of December, Given time and budget constraints, the analysis draws heavily on information collected by the contactor in previous assignments, along with data assembled during the brief duration of the study. The methodology used in this study is very much a synthesis of objective data manipulation (with limited use of statistical methods), and the experience and judgement of the contractor. The inability to rely more strongly on statistical analysis of data is due to: Relatively few data points much of the data needed for the current IVQ price forecast exercise is drawn from Valuation Reports (prepared for DFO) that have been completed since 1995 on a near-annual basis (no reports in 1996, 2001, and 2003). There are a maximum of 10 historical data points to support six-year projections. Un-reliable data certain of the data points, for example the critical ex-vessel price per pound paid for halibut, are of dubious quality; that is, different data sources yield widely varying results. In such cases, the contractor has used judgement to peg a deemed value. Incomplete data - for some data categories, fewer than 10 data points were available. Introduction of new variables with the Recreational sector potentially entering the IVQ market as a bulk purchaser/lessee, as well as the introduction of the Pacific Integrated Commercial Fisheries Initiative (PICFI), the dynamics of the halibut IVQ market may change appreciably.

5 5 PACIFIC HALIBUT IVQ PRICE FORECAST Also, groundfish integration is at an infant stage, and its impacts on the halibut IVQ market are not yet well understood. Missing data in assessing asset values in the halibut fishery, it would be extremely helpful to include market-related data, since market demand for BC-caught halibut must be the long-term driver of the fishery. Ex-vessel prices for BC halibut have risen generally, but little is known about the demand-curve for the product. While mindful of data limitations, the contractor has striven to produce a forecast that is based on a thorough analysis of available data, and provides a sound rationale and meaningful guidance to the Pacific Halibut Market-Based Adjustment Mechanism Committee. Historical Analysis Halibut IVQ Price Trends The target areas for this study are: the price per pound of halibut IVQ, and the annual lease rate per pound of halibut IVQ. Historical values for these outputs are shown below. The values shown subsequently are considered to be the going rate for each year; the going rate was ascertained after considering the low and high ends of the transaction range and pegging an average or weighted average figure. IVQ Price per Pound The following figure shows the trend in IVQ price per pound. There has been a clear and marked upward trend in values over the study period.

6 6 PACIFIC HALIBUT IVQ PRICE FORECAST Annual Lease Rate Lease rates have shown a similar upward trend as IVQ prices (graph on following page). The keys to this study are determining what factors have contributed to this escalation in value in the past, and assessing what factors will influence values in the future. Each of the subsequent factors/variables is viewed as a potential determinant of IVQ value. BC Halibut Fishery & Competitive Trends Factors potentially influencing IVQ valuation Several potential influencers of IVQ value are offered below. For each variable, a graph is provided showing trends, along with a correlation coefficient showing the statistical relationship between the variable and the IVQ price over the time series. Note that correlations do not indicate a cause-and-effect relationship between variables, but rather, suggest a relationship of some kind. How the multiple variables interact cannot be statistically isolated.

7 7 PACIFIC HALIBUT IVQ PRICE FORECAST BC Halibut Landings & Values BC Halibut Landings Correlation: minus 0.16 There is a virtually no relationship between the level of BC landings and halibut IVQ values. Price Correlation: 0.80 There is a significant relationship between exvessel price and the Correlation: 0.16 There is a very weak escalation in quota value. relationship between Landed landings Value and the escalation in quota Correlation: 0.91 value. The product of landings & price produces a very strong relationship. It would be expected the ex-vessel revenue generated by the halibut catch would strongly influence IVQ values, and this appears to be the case.

8 8 PACIFIC HALIBUT IVQ PRICE FORECAST BC Halibut Fleet Structure Indicators It is also logical that IVQ values are influenced by the supply-demand dynamics of the market for IVQ. # Active Vessels Correlation: minus 0.82 There is a strong inverse relationship between the number of vessels actively fishing and the escalation in quota value. Catch per Active Vessel Correlation: 0.69 There is a modest relationship between catch per vessel and quota value. Over time, fewer boats are fishing the quota, resulting in higher catches per active vessel. As individual operations get larger, it may be that these operations having assembled a critical mass of quota - can afford to pay more for incremental quota than may be justified by start-up operators. As IVQ is consolidated, this may place upward pressure on quota prices. BC Halibut Fleet Permanent IVQ Trades Another indicator of fleet consolidation is the amount of IVQ transferred amongst L licences permanently. Permanent transfers are generally indicative of IVQ sales volume in the market. Lbs of IVQ Permanently Transferred: Correlation: minus 0.76 There is a significant inverse relationship between the pounds of quota transferred permanently amongst L licences and IVQ value.

9 9 PACIFIC HALIBUT IVQ PRICE FORECAST The amount of quota being permanently traded was declining consistently until the introduction of the pilot groundfish integration program; since then it has risen, though the overall trend is down. How/why groundfish integration is influencing trading volume in the quota market is uncertain. A declining quantity of quota traded amongst licence holders that is, a constricting market for quota - is another possible contributor to escalating IVQ values. ATP Annual Halibut IVQ Purchases The Allocation Transfer Program has at times been active in purchasing halibut licences and quota from industry for transfer to First Nations communities. There is periodic concern that these government interventions into the private IVQ market are inflationary. ATP Purchases Correlation: 0.05 There is virtually no correlation between the activity of the ATP and the price of halibut IVQ. It would appear that the ATP, with annual expenditures on halibut quota ranging from nil to $3.3 million (average $1.4 million), is not affecting halibut IVQ valuations, either because prices paid are in line with market levels, or because purchase volumes are not excessive, or a combination of both factors. Canadian Dollar Strength With the vast majority of BC-caught halibut sold in the USA market, it would be expected that a strengthening Canadian currency would have a dampening effect on prices received for the BC catch.

10 10 PACIFIC HALIBUT IVQ PRICE FORECAST Currency Exchange Rate Correlation: 0.76 Counter-intuitively, a positive correlation was found between the price of IVQ and the CDA/US currency exchange rate. That IVQ values have risen along with the Canadian dollar is indicative of the strength of demand for BC halibut. Customers/consumers have been willing to higher prices in US dollar terms for the product. Whether this trend is sustainable is unknown. Alaskan Halibut Catch BC halibut competes in the marketplace with Alaskan product, with Alaska accounting for 85% of production volume on average. It is possible that Alaskan landings levels are a driver of BC prices and values. BC/Alaska Catch Volume Correlation: 0.37 There is a weak relationship between North American supply and BC IVQ values. In fact, there is a weak relationship between North American volumes (which have been stable) and BC IVQ values (rising). Again, this suggests that market demand factors are playing a major role.

11 11 PACIFIC HALIBUT IVQ PRICE FORECAST High-End IVQ Lease Rates Fishermen are sometimes thought of as optimistic businessmen, basing decisions on strong past results or buoyant expectations, rather than average or gloomy views. Accordingly, the relationship between the high-end of annual lease rates and IVQ values was tested, under the premise that IVQ values may be influenced by the optimistic view of lease returns that may be earned. High-end Lease Rate Correlation: 0.97 There is a virtually 1:1 relationship between the high end of lease rates and BC IVQ values. Indeed, the correlation between high-end lease rates and IVQ values was very strong (the strongest of any variable tested). Leaseholder-Fishermen Dynamics While it is highly likely that lease rates (particularly the high end of the range) influence IVQ values, there are many factors that determine lease rate levels. The primary factor is the negotiation dynamic between quota holders (with surplus quota to lease out) and active fishermen (who require/desire quota in excess of what they hold). Dynamics of the lease market is described as follows: Most of leasing (largest blocks of quota) volume occurs pre-season, as fishermen make operating plans. For one-time, pre-season transactions, there is considerable risk for both parties lessors don t want to be sold short, while lessees don t want to commit to too-high a price. Win-lose deals are highly possible. Active fishermen leasing quota have, in recent years, rebelled against high, fixed, pre-season rates. Arrangements between lessors and lessees involving a minimum value to the active fishermen (fish price less lease rate) have evolved, often involving a base lease rate plus 50/50 sharing of upside. As the season progresses, and fish price and other factors are better clarified, smaller blocks of quota may trade, often at higher fixed values (reflecting less uncertainty and risk). Groundfish integration has opened up new opportunities for halibut IVQ holders to lease quota to other fishing sectors.

12 12 PACIFIC HALIBUT IVQ PRICE FORECAST In general, halibut IVQ holders have, in recent years, demonstrated a regard for the economics of the active fishermen when making lease arrangements. Setting an appropriate price, rather than merely the highest price, is a consideration. When making lease arrangements late in the season, or to another fishing sector, however, gaining the highest price may be the primary consideration. The dynamics described above (as well as others, no doubt) clearly influence lease rates (and therefore IVQ values), but there is no data to describe them. Groundfish Integration Groundfish integration, though initially branded by some as bringing undue cost and complexity, is also bringing new opportunities to groundfish fleets. Fishermen, after only two seasons, are just starting to fully understand and exploit these opportunities. If the opportunities outweigh the incremental costs, then asset values should be enhanced. Without speculating on the outcomes of groundfish integration, it is probably fair to say that this variable is a major unknown in forecasting future halibut IVQ values. Halibut Demand (Market Factors) The demand for halibut has been very strong in recent years, translating into strong ex-vessel prices and generally rising landed values for the BC harvest, and contributing to rising asset values. Strong demand has insulated the BC halibut industry against a strengthening currency. While the BC halibut industry has benefited greatly from strong demand, the demand-side of the business is little-understood. It is known that halibut is a much-coveted item in the food service sector, and that consumers are paying hefty prices for the product. What is unknown is the future demand for halibut. Will consumers continue to pay current high prices for the product? Will they pay even more for the product, particularly if the supply is constrained? Or, will high halibut prices create consumer resistance, shrinking the market size and causing consumers to seek lower-cost alternatives? Lack of market intelligence of the demand side of the halibut business makes predictions of future asset values strongly influenced by end-demand for the product highly speculative. Historical Analysis Summary A host of variables have been examined as potentially influencing the value of halibut IVQ and IVQ lease rates. The variables that are deemed most directly linked to these values are: Landed value of BC halibut (the product of fish volume and ex-vessel price) this is the effective revenue pie to be shared amongst participants. The fluctuating size of the pie influences values. High end lease rates the maximum price that can be extracted for a quota lease (versus the going rate that active fishermen can afford to pay) may be closely linked to IVQ value. Active fleet size/fleet Structure as the active fleet size shrinks and quota consolidates in fewer hands, the amount of quota available annually for purchase/sale diminishes, crimping the supply of IVQ. This clearly has an inflationary impact on IVQ values.

13 13 PACIFIC HALIBUT IVQ PRICE FORECAST Prospective Analysis Developing a forecast of IVQ prices and lease rates requires: 1. Consideration of how the key variables identified in the historical analysis will play out in the future. 2. Assessment of how new demand for halibut IVQ the introduction of the Recreational sector and PICFI as entrants to the IVQ purchase/lease market will affect the IVQ market going forward. Key Variables Forecast Landed Value A landed value forecast requires both an estimate of landings and ex-vessel prices in the future. The tables below provide a best guess as well as low-end and high-end of range predictions for The landing forecast for 2008 is based on the IHPC recommended catch limit document (December 5, 2007). The assumption is that TACs will stabilize at slightly lower levels for subsequent years, then rebound slightly. BC Halibut Landings Forecast (2B) - million of lbs Forecast - Best Guess Forecast - Low End Forecast - High End Commercial - Best Guess Commercial - Low End Commercial - High End *commercial forecast is 88% of total (pre rec acquisitions) The ex-vessel fish price assumptions are solely based on the judgement of the contractor. The best guess is that, in spite of reduced volumes in the future, record-high fish prices seen in 2007 will not be sustainable, and that they will moderate slightly in the future. A low-end prediction would see prices falling further, while a high-end (optimistic) view would see prices firming as supply is reduced. BC Halibut Ex-Vessel Price Forecast Forecast - Best Forecast - Low Guess End Forecast - High End 2008 $ 5.00 $ 4.75 $ $ 4.85 $ 4.50 $ $ 4.75 $ 4.25 $ $ 4.75 $ 4.25 $ $ 4.50 $ 4.00 $ $ 4.25 $ 4.00 $ 5.00

14 14 PACIFIC HALIBUT IVQ PRICE FORECAST Combining the results of the preceding tables allows a forecast of landed values for the next six years: best guess, low-end, and high end. In all scenarios, landed values drop significantly in 2008, then stabilize a lower level. A reduction in landed value, in isolation of other variables, suggests a softening of IVQ prices and lease rates. Fleet Size, Amount of Permanently Traded IVQ Halibut fishermen have been rationalizing their operations in recent years, resulting in fewer active vessels and increasing catches per vessel. A marked drop in the TAC will, in the absence of further rationalization, cause per-vessel catches to drop substantially. It is expected that in 2008 and beyond further rationalization will occur, as the most efficient (or financially fit) operators seek more IVQ to return closer to recent per-vessel catch levels. The following graph and table provide a conservative estimate of looming fleet reduction related to sharply lower TACs.

15 15 PACIFIC HALIBUT IVQ PRICE FORECAST Avg Catch per Active Vessel # Active Vessels , , , , , , , , , , , , , , , , With fewer pounds of IVQ to spread throughout the fleet, it is likely that the amount of quota traded permanently amongst the fleet will we reduced in the future. Lbs IVQ Perm. Transfer , , , , , , , , , , , ,000 Fewer vessels (all vying to recapture past production levels) and less IVQ on the market will no doubt place upward pressure on IVQ prices. Without the introduction of new demand for IVQ from the Recreational sector and PICFI, it is gauged that IVQ prices would face downward pressure because of lower expected landed value (smaller revenue pie) and upward pressure due to a heightened demand within the fleet for a constricted amount of quota. This could suggest that IVQ prices and lease rates could remain reasonably consistent with 2007 levels ($33-35/lb).

16 16 PACIFIC HALIBUT IVQ PRICE FORECAST Effect of New Demand New, external, demand for halibut IVQ will clearly have an inflationary impact on prices. To assess the extent of this impact, it is first necessary to analyze the scope of expected Recreational and PICFI purchases relative to the existing groundfish-sector market. The following table shows a schedule of Recreational sector IVQ acquisitions using the timetable provided to the contractor. Note that acquisitions can be through either purchase or annual lease arrangements. The range in values represents the uncertainty in BC halibut TAC levels. Rec Sector IVQ Acquisitions Forecast - thousands of lbs Acquisition % Rec Acq Lbs (Best Guess) Rec Acq Lbs (Low End) Rec Acq Lbs (High End) % 217, , , % 68,200 63,800 74, % 68,200 63,800 74, % 68,200 63,800 74, % 74,800 70,400 79, % 81,400 74,800 88,000 The next table provides a range of halibut IVQ purchases by PICFI, given assumptions about the percentage of the program budget that will be allocated to halibut, and varying potential IVQ prices. It is judged that a significant portion of program expenditures will be directed to halibut, as this is a very attractive fishery to many First Nations. PICFI Halibut Purchases Forecast ($ and lbs) Total Budget (millions) % Budget to Halibut Quota PICFI Halibut IVQ Purchases (millions) Lbs Lbs $35 Lbs $ $ 30 20% $ , , , $ 30 20% $ , , , $ 30 20% $ , , , $ 30 20% $ , , , $ 30 20% $ , , , $ - 20% $ The two above tables are combined to generate a best-guess forecast of annual new demand (in pounds) for halibut IVQ. This value is then compared to the (previously shown) estimate of the amount of IVQ that would be permanently transferred amongst the commercial fleet.

17 17 PACIFIC HALIBUT IVQ PRICE FORECAST Rec/PICFI Forecast Halibut IVQ Acquisitions Best Guess Rec Best Guess PICFI Best Guess Total Est Perm IVQ Transfers (Comm) "New Demand" % of Existing Market , , , ,000 92% , , , ,000 62% , , , ,000 62% , , , ,000 62% , , , ,000 64% ,400-81, ,000 20% The sum of Recreational and PICFI acquisitions is very substantial relative to the existing market-size for IVQ. New demand will add significantly to the demand for quota placing upward pressure on price. Halibut IVQ Forecast In arriving at a forecast, there are three distinct dynamics at play: 1. Shrinking Landed Value = Cost Cutting within the commercial sector, a shrinking landed value (revenue pie) necessitates keeping IVQ prices and costs in line to preserve viability. Leases are a major cost item, so downward pressure on lease rates will work to erode IVQ values. 2. Fleet Rationalization = Higher Incremental IVQ Values a smaller TAC, meaning lower pervessel commercial catches, will cause many well-financed operators to seek additional quota to bolster revenues. With a low existing cost base, these operators can afford to pay relatively high costs for incremental pounds of IVQ. Although the margins on the incremental volumes may not be attractive, the bottom line will nevertheless be improved. Adding to this effect is demand for IVQ from other commercial groundfish sectors. 3. New Outside Demand = Inflationary Pressure - the effects of new external demand (Recreational sector and PICFI) for IVQ on an already constrained market will fuel higher IVQ prices; the simple forces of increased demand for quota given a shrinking supply. Commercial IVQ holders leasing to the Recreational sector may seek the highest possible price, not a price that is linked to financial returns. The forecast is effectively based on a judgement of the relative weights and effects of the abovedescribed dynamics. Three forecasts of IVQ prices a best guess, a low-end, and a high-end are provided based on the following scenarios: The best-guess forecast assumes that 1. and 2. above effectively cancel each other out, while 3. causes an escalation in IVQ values. The low-end forecast assumes that 1. above cancels out 2. and 3., resulting in a flat trend in IVQ values. The high-end forecast assumes that 2. above over-rides 1., while 3. contributes to a significant increase in IVQ values.

18 18 PACIFIC HALIBUT IVQ PRICE FORECAST The contractor attempted to apply a statistical forecasting methodology (scatter diagrams, regression) but this proved entirely unsuccessful results were simply not credible. Best Guess Forecast New Demand for IVQ Causes Inflation of IVQ Values The contractor deems it most-likely that, in spite of dropping TACs and revenues, IVQ values will rise over the next six years, largely because of new demand for IVQ from the Recreational sector and PICFI. This new demand for IVQ is quite large relative to the amount of quota that would otherwise trade within the existing commercial market. In order to unearth willing sellers from a largely content pool of IVQ holders, purchasers will need to offer enticing prices. Recreational acquisitions will likely have a more inflationary impact on IVQ values, since quantities acquired will become inaccessible to the commercial fleet, thereby further constricting IVQ supply. PICFI purchases, by contrast, will remain accessible to the commercial fleet through leases, trades, etc. Unfortunately, the market for IVQ may be set at levels that make little sense for operators within the commercial fleet. The lease rate shown below is the high end of the lease market, reflecting the likelihood that, for leases to the Recreational sector, IVQ holders will be looking to extract the highest possible price. IVQ Value Lease Rate 1995 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3.49 Low End Forecast Operating Economics Offset Inflationary Impacts This is the contractor s hoped-for scenario, in which the economics of the commercial halibut fishery continue to be the prime determinant of IVQ values, and the inflationary forces from outside sources are largely resisted. The contractor believes it highly unlikely that IVQ prices will actually drop in the next few years, in spite of a reduced revenue pie (even though this probably should happen).

19 19 PACIFIC HALIBUT IVQ PRICE FORECAST In this scenario, the lease rate used is the expected going-rate (not the high or low). IVQ Value Lease Rate 1995 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3.15 High End Forecast Dual Inflationary Forces Over-ride Operating Economics In this scenario, the dynamics of the IVQ market (thin supply, strong demand), not the economics of the fishery, predominate, causing substantial inflation of IVQ prices that is exacerbated by new demand from outside parties. $50.00 $40.00 $30.00 $20.00 $10.00 $ IVQ and Lease Rate Forecast High End Scenario IVQ Value Lease Rate $5.00 $4.00 $3.00 $2.00 $1.00 $- IVQ Value Lease Rate 1995 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3.49

20 20 PACIFIC HALIBUT IVQ PRICE FORECAST Forecast Range The following graph and accompanying table shows the forecast range of IVQ values, depending on the scenario chosen. Best GuessLow End High End 2008 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Schedule of Costs For Recreational Sector IVQ Transfers Given the range of IVQ prices and lease rates, and the desired additions of IVQ by the recreational sector, the following calculations are provided. Each table shows the both the purchase cost and the lease cost. In practice, a mixture of purchases and leases may be pursued. Best Guess Cost Forecast Acquisition % Best Guess Lbs Best Guess IVQ Price Purchase Cost Best Guess Lease Rate Lease Cost % 217,800 $ ,276,400 $ 4.00 $ 871, % 68,200 $ ,796,200 $ 3.98 $ 271, % 68,200 $ ,796,200 $ 3.90 $ 265, % 68,200 $ ,796,200 $ 3.90 $ 265, % 74,800 $ ,066,800 $ 3.69 $ 276, % 81,400 $ ,256,000 $ 3.49 $ 283,679 Total 8% 578, ,987, $ 2,233,400

21 21 PACIFIC HALIBUT IVQ PRICE FORECAST Low End Cost Forecast Acquisition % Low End Lbs Low End IVQ Price Purchase Cost Low end Lease Rate Lease Cost % 212,784 $ ,447,440 $ 3.15 $ 670, % 63,800 $ ,233,000 $ 3.15 $ 200, % 63,800 $ ,233,000 $ 3.15 $ 200, % 63,800 $ ,233,000 $ 3.15 $ 200, % 70,400 $ ,464,000 $ 3.15 $ 221, % 74,800 $ ,618,000 $ 3.15 $ 235,620 Total 8% 549, ,228, $ 1,730,560 High End Cost Forecast Acquisition % High End Lbs High End IVQ Price Purchase Cost High End Lease Rate Lease Cost % 237,600 $ ,454,400 $ 4.00 $ 950, % 74,800 $ ,440,800 $ 3.98 $ 297, % 74,800 $ ,440,800 $ 3.90 $ 291, % 74,800 $ ,440,800 $ 3.90 $ 291, % 79,200 $ ,643,200 $ 3.69 $ 292, % 88,000 $ ,872,000 $ 3.49 $ 306,680 Total 8% 629, ,292, $ 2,429,500 Summary Cost Forecast (Range) Acquisition % Best Guess Purchase Cost Low End Purchase Cost High End Purchase Cost Best Guess Lease Cost Low End Lease Cost High End Lease Cost % 8,276,400 7,447,440 10,454,400 $ 871,200 $ 670,270 $ 950, % 2,796,200 2,233,000 3,440,800 $ 271,231 $ 200,970 $ 297, % 2,796,200 2,233,000 3,440,800 $ 265,639 $ 200,970 $ 291, % 2,796,200 2,233,000 3,440,800 $ 265,639 $ 200,970 $ 291, % 3,066,800 2,464,000 3,643,200 $ 276,012 $ 221,760 $ 292, % 3,256,000 2,618,000 3,872,000 $ 283,679 $ 235,620 $ 306,680 8% 22,987,800 19,228,440 28,292,000 2,233,400 1,730,560 2,429,500

22 22 PACIFIC HALIBUT IVQ PRICE FORECAST A Word About the Demographics of Halibut IVQ Holders It is widely held that the commercial halibut fleet is aging, and that many IVQ holders are nearing retirement age. However, successful career halibut fishermen face a dilemma their enterprise is valued beyond the reach of most potential entrants, limiting the pool of potential purchasers. If this dynamic holds, then intrusions into the commercial halibut IVQ market by the Recreational sector and PICFI may be timely, indeed, providing an otherwise absent exit strategy for IVQ holders. If there is pent-up demand for exit from the fishery by aging halibut IVQ holders, then the inflationary impacts of new demand for IVQ, as foreseen in this analysis, may be overstated, and the Low End forecasts of IVQ value could be more appropriate.