Draft Cost Benefit Analysis of the Proposed Possession and Export of Elvers Regulations
August 2024

Table of Contents

1. Background
   1. 1.1 Economic profile
2. Baseline management measures
3. Proposed Possession and Export of Elver Regulations
4. Analytical framework
5. Baseline and regulatory management scenarios
   1. 5.1 Baseline scenario
   2. 5.2 Regulatory management scenario
6. Incremental costs of the proposed regulations
   1. 6.1 Industry costs
   2. 6.2 Government costs
7. Summary
8. Uncertainty analysis

1. Background

Elvers are juvenile eels, defined in the Maritimes Provinces Fishery Regulations (MPFR) as being eels of the species Anguilla rostrata (commonly known as the American eel) less than 10 centimeters in length. The elver fishery is a highly lucrative industry. Over the past decade, the value of the elver fishery has increased exponentially and was valued at $38.5 million in 2022. It is now the most valuable fish sold in Canada, selling at over $5,000 per kg at its peak. The market for elvers is driven by the export market to Asian countries. Elvers are typically shipped live, by air, within a short amount of time of harvest and grown in aquaculture facilities in Asia for human consumption.

The elver fishery has experienced high levels of unlawful harvesting in recent years, resulting in fishery closures and widespread unauthorized sale and export. Several factors attract people to unlawfully fish elvers, most notably the high market value of elvers, even on the black market. Harvesting can be done at night, relatively easily with low-cost fishing gear and harvest is easy to conceal. The Department of Fisheries and Oceans (DFO) estimates that, in recent years, as much or more elver has been caught unlawfully during a harvest season than the amount of the legal catch.

1.1 Economic profile

This section presents the elvers economic profile based on available landing data. Landings recorded between 2019 to 2022 show that elvers were exclusively harvested in Nova Scotia and New Brunswick ,i.e., no landings were reported in other Atlantic provinces between 2019 and 2022. The majority of landings (90%) were recorded in Nova Scotia. The 3 year average of elver harvest from 2019-2022 (excluding 2020 due to pandemic-related impacts on fishing operations and market channels and early fishery closure) is estimated at 7,095 kg with the average value of $33.7 million (in current dollars). The highest volume was 7,557 kg in 2022, followed by 7,408 kg in 2019 with an associated value of $38.5 million and $38.7 million (in current dollars), respectively. The average of elvers per kg price in current dollars during this period is estimated to be $4,707, with a high price of $5,229 in 2019 and $5,098 in 2022. Elver landings and associated values between 2013 and 2022 are represented in Figure 1. The figure shows an upward trend, both in terms of landed quantities and values. There was an interruption in 2020 associated with the COVID-19 pandemic and an early closure to the season owing to widespread unlawful harvesting. After 2020, the trend picked up again.

Figure 1: Canada’s elver landings and value, 2013-2022

Figure 1 - Text version

Canada's Elver Landings and Value, 2013-2022

Year	Weight (kg)	Value (Canadian Million)
2013	5,412	$26
2014	4,284	$10
2015	3,576	$17
2016	5,202	$15
2017	5,197	$15
2018	7,267	$35
2019	7,408	$39
2020	2,943	$4
2021	6,321	$24
2022	7,557	$39

2. Baseline management measures

The commercial elver fishery in Nova Scotia and New Brunswick is authorized through licences issued under the MPFR or the Aboriginal Communal Fishing Licences Regulations (ACFLR). In 2023, commercial licences were issued to the 9 original licence holders of the fishery, 8 under the MPFR and 1 under the ACFLR, and 2 interim licences were issued under the ACFLR to the Kespukwitk District First Nations in Nova Scotia and the Wolastoqey Nations in New Brunswick. Licence holders can name individuals authorized to fish under the licence. In 2023, more than 900 individuals were authorized to legally harvest elver under these 11 licences.

Under the baseline scenario, there are no licences that manage the possession of elvers at the holding facilities or the export of elvers. At present, the operators of holding facilities where elvers are deposited immediately after catch may themselves arrange the export of their elvers to Asia, work with a commercial exporter, or decide to sell to intermediary buyers and exporters of elver. Most of the exports occur out of Nova Scotia, Quebec and Ontario airports to Asia.

3. Proposed Possession and Export of Elver Regulations

The detailed description of the proposed Possession and Export of Elvers Regulations is provided in the Regulatory Impact Analysis Statement published in Canada Gazette, Part I, which outlines:

• requirements for a licence to possess elver, subject to certain exceptions
• requirements for a licence to export elver
• requirements for the segregation of Canadian-caught and imported elvers at all times
• requirements to be set through conditions on the possession and export licences  respecting reporting and recordkeeping to enable the traceability of elvers in Canada, labelling of elvers tanks at holding facilities, as well as the sealing and labelling of containers of elver for export

In addition, amendments are also proposed to the MPFR, Ontario Fishery Regulations and the Fishery (General) Regulations to ensure that are no inconsistencies with the proposed regulations.

4. Analytical framework

The socio-economic impacts related to the proposed regulations on the possession and export of elvers are framed around the concept of cost and benefit analysis, regional economic impacts, and the distribution of economic impacts. This approach is consistent with the one followed in other analyses undertaken by DFO and is aligned with Treasury Board of Canada Secretariat (TBS) requirements for a regulatory impact analysis. Incremental impacts are estimated by comparing a baseline scenario against the regulatory scenario. Reference hereafter to the proposed regulations encompasses both the proposed Possession and Export of Elvers Regulations and the expected requirements stemming from the licence conditions.

Due to data limitations and uncertainties, not all of the identified costs are quantified and monetized. These costs are therefore discussed qualitatively as appropriate. As the proposed regulations are aimed at putting in place a licensing regime to manage elver possession and export, no incremental benefits to stakeholders are anticipated. Therefore, the focus of the analysis would primarily be on estimating the incremental costs to stakeholders. The general cost-benefit analysis framework for the present analysis is based on the following:

• a timeframe of 10 years is used. Assuming the proposed regulations come into force in 2025, the 10-year analysis period would cover 2025 to 2034
• a “with and without” the proposed regulations approach, is adopted to estimate the incremental impacts
• all monetized impacts are expressed in 2023 dollars and discounted using a 7% discount rate
• incremental costs are estimated for industry, including possession licence holders, operators of holding facilities and exporters, as well as for government

5. Baseline and regulatory management scenarios

5.1 Baseline scenario

The baseline scenario includes existing regulations for commercial fishing, which govern the 11 commercial fishing licences, to allow elver harvesting. Following harvest, elvers are deposited in holding facilities, where facility operators arrange for their export by air or sell them to intermediary buyers or exporters in Canada. However, under the baseline scenario, there are no licences that manage the possession of elvers at the holding facilities and the export of elvers. Under the baseline scenario, unauthorized fishing, unauthorized possession, and mixing of domestic and foreign elvers in the same storage tanks at the holding facilities for purposes of export would continue.

5.2 Regulatory management scenario

Under the regulatory scenario, additional licences would be required for businesses and individuals to possess and export elvers. A commercial fishing licence holder would not require a possession licence to possess elvers that they harvested under their commercial fishing licence. However, they would need a possession licence to possess elvers harvested under other commercial fishing licences. The proposed regulations would also impose requirements to keep elvers harvested in Canada and imported elvers in separate tanks at the holding facilities and in separate containers during shipment. Therefore, these proposed requirements would impose incremental costs.

Although national in scope, the proposed regulations would primarily affect the provinces that are currently involved in the harvest of elvers (i.e., Nova Scotia and New Brunswick), while export-side impacts would affect Nova Scotia, Quebec, and Ontario, where most known exporters are located.

6. Incremental costs of the proposed regulations

Incremental costs of the proposed regulations would be borne by industry, specifically by possession and export licence holders, and by the federal government. Incremental costs to be borne by industry and government are discussed in the sections below.

6.1 Industry costs

Incremental costs of the proposed regulations would be borne primarily by possession licence holders, which includes holding facility operators, while a minor portion would be incurred by export licence holders.

Possession licence holders

Individuals needing to obtain a possession licence to possess elvers would incur administrative costs to complete the licence application. It is estimated that a total of 93 possession licences would be issued based on the following assumptions:

• the number of holding facilities, each of which would need a possession licence, is estimated to be 60
• exporters are estimated to be 35; however, approximately 80% or 28 exporters would need a possession licence, as not all exporters are likely to be in possession of elvers
• an additional 5 possession licences have been added to the above to account for uncertainty in these estimates

Further, the cost estimate of the proposed regulations on possession licence holders is based on the time needed to complete the licence application of half an hour at an average wage of $33.55/hour (Source: Statistics Canada).

The present value of the total incremental costs for possession licence holders is estimated to be approximately $11,700 for 93 possession licences over the 10-year analysis period, with an annualized value of approximately $1,700.

Holding facility operators

Some possession licence holders would likely also operate a holding facility, such as a permanent structure, with tanks to keep the elvers alive. All holding facilities would be operated under the authority of a possession licence. The incremental costs to holding facility operators, in addition to the possession licence-related costs, would comprise costs associated with: (a) upgrades to the holding facility necessary to keep Canadian-caught and imported elvers separate, (b) reporting costs, including transfer reports, daily inventory reports, and seasonal recordkeeping, and (c) labelling costs in order to correctly label tanks holding Canadian-caught and imported elvers within the holding facility.

The total number of holding facilities is estimated to be 60. This is comprised of 17 facilities in Nova Scotia and New Brunswick, 30 in Ontario, and an additional 13 holding facilities have been assumed to account for the possibility of additional holding facilities, as this is a relatively unknown business.

Impacts on holding facility operators related to costs for upgrading these facilities are based on:

• purchase of 1 additional tank for holding facilities that need to segregate domestic and foreign elvers (it is assumed that 20% or 12 holding facilities would need upgrading)
• the cost of a holding tank is assumed to be $1,000 per tank
• the upgrade costs are one-time costs and would be incurred by the holding facilities in year 1

Holding facilities operators would incur costs associated with reporting and recordkeeping activities. Reporting costs are based on the assumption that daily reporting would take one hour, and daily reports would be produced by each holding facility for all 120 days of the fishing season. On top of that, foreign elver that are imported into Canada outside of the Canadian fishing season are assumed to cumulatively require an additional 300 reporting days per year across all holding facilities. Activities related to recordkeeping would take about 10 hours per season. The average wage rate of $33.55/hour (Source: Stats Canada) is used for estimating the reporting and recordkeeping costs.

Holding facility operators would also incur costs to label tanks within the facility. Labelling costs for holding tanks associated with the segregation of elvers is assumed to be a one-time cost of $100 per holding facility. The only information requirement for the label would be for it to be marked with “foreign elvers.” As such, once purchased, the label could be used multiple times.

Based on the above, Table 1 presents the detailed incremental costs that would be incurred by holding facility operators.

In addition, holding facilities may incur negligible maintenance costs for the additional tanks. This would comprise testing and monitoring water parameters, periodic water changes, and tank cleaning. These activities would be carried out on all tanks, not just the newly installed ones, therefore the costs to the facility operators are anticipated to be marginal.

The present value of the total incremental costs for holding facilities is estimated to be approximately $2.1 million for the 60 facilities over the 10-year analysis period with an annualized value estimated to be approximately $0.3 million.

Export licence holders

Elver exporters would incur costs related to the:

• completion of the export licence application
• purchase of extra containers for the export of foreign elvers
• reporting costs related to exporting activities

The key assumption for the analysis of the impacts of the proposed regulations on export licence holders is that the estimated number of exporters is 35. This includes 29 existing exporters, 3 potential new exporters and 3 of the 11 commercial harvesters.

The incremental costs to export licence holders is based on the time needed to complete the licence application, which is assumed to be half an hour at an average wage of $33.55/hour (Source: Statistics Canada).

The incremental cost of containers needed to segregate foreign elvers is based on the assumptions that:

• the cost of a container is $15 per container
• the total number of containers required to segregate foreign elvers would be 25% or 71 of the current 282 shipments per year containing foreign elvers

Reporting costs for exporters are tied to exports and are based on the assumption that:

• reporting would take approximately 2 hours per shipment at an average wage of $33.55/hour (Source: Statistics Canada)
• there would be an estimated 282 shipments per year

Table 2 presents the detailed incremental costs that would be incurred by export licence holders.

The present value of total incremental cost to 35 export licence holders is estimated to be $0.1 million over the 10-year period, with an annualized value of approximately $22,000.

6.2 Government costs

The Department of Fisheries and Oceans would incur incremental costs to administer the proposed regulations and to conduct compliance and enforcement activities, and Canada Border Services Agency (CBSA) would also incur negligible incremental costs to assist DFO in these activities, as needed. As described in Table 3, the present value of the total incremental cost to government is estimated to be $25.8 million over the 10-year analysis period, with an annualized value of $3.7 million.

7. Summary

In summary, the proposed regulations would impose total incremental costs of approximately $28 million. The federal government would incur an incremental cost of $25.8 million (or 92% of the total cost) over 10 years with an annualized value of $3.7 million. The industry would incur an incremental cost of $2.2 million (or 8% of the total cost) over 10 years with an annualized value of $0.3 million.
The bulk of the industry costs would be borne by the holding facility operators, accounting for approximately 92.5% of the cost to industry. Moreover, as 50% of the estimated 60 holding facilities are located in Ontario, holding facility operators located in this province would incur half of the total costs (i.e., approximately $1 million), while the operators of 17 holding facilities in Nova Scotia and in New Brunswick would bear 28% of the total cost to holding facilities operators, or approximately $0.6 million. Finally, as it is assumed that there may be an additional 13 unknown holding facilities, approximately 22% of the cost to facilities operators would be borne by these operators.  However, due to the uncertainty regarding their location, it is not possible to estimate the regional distribution of the costs.

Tables 4 summarizes the incremental costs of the proposed Regulation.

8. Uncertainty analysis

Due to the uncertainty around the number of estimated possession licence holders and the number of holding facilities requiring an upgrade, an analysis was undertaken to assess the impact of changes to these 2 groups. To account for this uncertainty, we extended the analyses to:

• increase in the number of possession licence holders from 93 to 139 (that is 46 more possession licence holders), comprising 59 buyers in Nova Scotia and New Brunswick, 41 buyers in Ontario, 35 exporters, and 4 commercial fishing licence holders
• increase in the number of holding facilities that may need upgrades from 12 to 24, to account for uncertainty

As a result of the changes to possession licence and holding facility upgrades, the total incremental cost to industry would increase by a minimal amount of $18,000, an increase of less than 1 percent. The main contributor to the increase in total costs to businesses is due to the increase in the number of holding facilities needing upgrades, which accounts for 67% of the increase in costs. Table 5 provides a detailed breakdown of the uncertainty analysis.