2.18 Aquaculture Program. Introduction

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1 Introduction Te mandate of te Department of Fiseries and Aquaculture is to promote and support professional and sustainable fiseries and aquaculture industries wic produce ig quality and ig value products. Wit respect to aquaculture, te Department is responsible for supporting and monitoring industry development, issuing site licences and conducting site and facility inspections. Aquaculture means te cultivation of aquatic plants or animals. In Newfoundland and Labrador, aquaculture activity relates mainly to finfis and sellfis cultivation. Finfis includes suc species as Atlantic Salmon, Steelead Trout and Atlantic Cod. Sellfis includes suc species as Blue Mussels and Scallops. Responsibility for licensing and regulating te aquaculture industry witin te Province was assigned to te Government of Newfoundland and Labrador in February 1988 under te Canada/Newfoundland Memorandum of Understanding on Aquaculture Development. Te Aquaculture Act governs te aquaculture industry in te Province. Te purpose of te Act is to govern te conduct of aquaculture in te province and in particular, to promote, in consultation wit te private sector, te prudent and orderly development of an aquaculture industry. Te Aquaculture Regulations were introduced in Te Canada-Newfoundland Economic Renewal Agreement was signed in 1996 to increase opportunities for economic development in Newfoundland, primarily in te areas of tourism, aquaculture and advanced tecnology. Te cost sared agreement expired on 31 Marc 2002 and a total of $21 million was spent on aquaculture development in te Province, under te terms of te Agreement. Furtermore, te Canada- Newfoundland Compreensive Economic Development Agreement was signed in 1997 to improve opportunities for economic development in te province, and targeted strategic sectors offering te best opportunity for economic growt. An Aquaculture Sector Development Program was establised under te Agreement and te Program expired on 31 Marc A total of approximately $1 million was spent on aquaculture development in te Province under te terms of te Agreement. Witin te Department of Fiseries and Aquaculture, te Aquaculture Branc is responsible for te regulation and development of te aquaculture industry in te Province. Te Aquaculture Branc as tree divisions: Aquaculture Development; Aquaculture Policy and Programs; and Licensing and Enforcement. Te main Aquaculture branc office is located in Grand Falls-Windsor wit regional offices located in St. Jon's, St. Alban's and Corner Brook. A total of 21 positions are assigned directly to te Aquaculture Branc wit inspection support provided by fiseries Auditor General of Newfoundland and Labrador 293

2 inspection officers from te Fiseries Branc of te Department. Total expenditures for Aquaculture Development witin te Department for te year ended 31 Marc 2004 were $1.4 million ( $1.2 million). Steelead Trout Aquaculture Site Aquaculture licences are issued annually and expire on 31 December of te year in wic tey are issued. As at 31 December 2003 tere were 199 licences issued. Tere are tree classes of licences available: Commercial - for use by bona fide aquaculturists wo are arvesting and marketing aquaculture products and wo ave determined tat teir site is suitable for commercial development. Of te 199 licences at te 2003 year end, 106 related to te commercial class. Developmental - for use by prospective commercial aquaculturists in assessing site potential prior to entering a full scale commercial operation. Of te 199 licences at te 2003 year end, 73 related to te developmental class. Researc - for use by researc institutions of government or companies, for te non-commercial culture of any species. Of te 199 licences at te 2003 year end, 20 related to te researc class. During te past 5 years, tere as been no significant fluctuation in te quantity and type of licences issued. 294 Auditor General of Newfoundland and Labrador

3 Figure 1 Aquaculture Annual Production (tonnes) Year Ended 31 December In Marc 2000, a Newfoundland Aquaculture Strategic Plan was developed in response to needs identified by te Newfoundland Aquaculture Industry Association (NAIA), te Department of Fiseries and Aquaculture, te Federal Department of Fiseries and Oceans, and oter government departments and agencies involved in te Provincial aquaculture industry. Te plan establised production objectives for certain species of fis and provided numerous recommendations to address industry and species development concerns. A five year istory of aquaculture production in Newfoundland and Labrador is sown in Figure Salmonid 2,477 1,512 2,811 2,870 2,600 Mussels 1,700 1,051 1,452 1,700 1,300 Cod Total 4,282 2,718 4,470 4,797 3,930 Source: Department of Fiseries and Aquaculture Website Scope and Objectives We completed our review of te Aquaculture Program in November Our review covered te period 1 January 1999 to 31 Marc 2004 and included an analysis of aquaculture development, licensing and inspection activity. We reviewed te Newfoundland and Labrador Aquaculture Strategic Plan and weter te recommendations stated in te plan were actually carried out. We also reviewed a sample of aquaculture files and reviewed licensing documentation and inspection reports for compliance wit te Aquaculture Act and Regulations and establised policies and procedures. We also eld discussions wit Departmental officials. Auditor General of Newfoundland and Labrador 295

4 Our objective was to determine weter te Department was ensuring tat te aquaculture industry was developing in accordance wit objectives stated in te strategic plan, weter te Department was complying wit licensing and inspection requirements, and weter te deficiencies identified in our 1998 report were addressed. Conclusions Te Province is not doing a good job supporting te development of te aquaculture industry and tere as been no successful development of te industry since In 2003, a Report of te Federal Commissioner for Aquaculture Development indicated tat aquaculture benefits wen government guides te sustainable development of aquaculture. In Marc 2000, te Province, te Newfoundland Aquaculture Industry Association (NAIA), te Federal Government and oter agencies produced a Strategic Plan. Te Plan was developed to focus te industry to develop species wic provided te best opportunity for success. Te implementation of te Plan was left wit NAIA and te Province played only a supporting role. Terefore, te Province ad little involvement in ensuring te Plan was implemented on an overall basis. Te Plan provided recommendations to deal wit a number of significant issues tat needed to be addressed in order to strengten te industry. For example, it identified te issues of debt load, lack of capital, and te ig cost of production. However, te Provincial Government only carried out a review of debt load relating mainly to mussel farmers wo ad debts wit te Province. Little debt funding was provided to tese farmers. Te Department did not review te debt load of all aquaculture farmers to determine weter assistance would be required. Officials indicated tat te Department was apprised of a number of large salmonid aquaculture companies in te Province wic were in financial difficulty and owed approximately $15 million to a feed supplier. Two of tese companies were placed in receiversip in Furtermore, discussion wit Departmental officials indicated tat recommendations to deal wit te lack of capital and te ig cost of production were not fully addressed. Total production levels ave declined over te last five years. In 2003, production totalled 3,930 tonnes, an 8.2% decline from te 1999 total production level of 4,282 tonnes. During tis period, tree oter provinces (PEI, NB and BC) reported an increase in teir total tonnage from 86,255 to 120,879, an increase of 40%. Tere were a total of 43 companies olding 106 commercial aquaculture licences trougout te Province at 31 December We found tat 37 of te 43 companies olding 78 licences contributed less tan approximately 20% of total production. 296 Auditor General of Newfoundland and Labrador

5 Te Department is issuing new aquaculture licences witout always ensuring tey ave sufficient information to determine weter te applicant as te financial capability to carry out aquaculture operations. Aquaculture sites are operating witout valid licences because te Department is not ensuring aquaculture licences are renewed in a timely manner. As at October 2004, 64 aquaculture sites wit licences wic ad expired on 31 December 2003 were operating witout a valid aquaculture licence. Te Department is renewing aquaculture licences witout always ensuring compliance wit requirements of te Aquaculture Act and Regulations. We found licences were being renewed wen no inspections were carried out and wen it was not clear weter aquaculture sites were being properly utilized. Te Department is not performing regular inspections to determine weter aquaculture sites are complying wit te Aquaculture Act and Regulations. We found tat, on average over a five year period, 16 of te 20 sites examined were not subject to an annual inspection. Furtermore, for 12 of te 20 sites, tere was no evidence to indicate tat any annual inspection was performed at any time during te five year period. Te Department indicated tat resources were not available to carry out all te required inspections. Te Inspection Report being used by inspectors is not adequate to support te inspection activities for wic te inspector is responsible as te report does not address all of te key areas tat te inspector is responsible for assessing. Te aquaculture inspector does not sign te report attesting tat all te required procedures were carried out and weter tere was compliance wit te terms and conditions of te licence, te Aquaculture Act and Aquaculture Policy. Te Department is aware tat tere are four aquaculture sites wit improper sore fastened moorings wic are a potential public safety azard. Two of tese sites are still operating and two were ordered closed by te Department in Te two sites ordered closed in 2004 continued to operate witout a licence despite being ordered closed by te Department. At te time of our review, te Department adn't cecked te two sites wic ad been ordered closed to determine weter te moorings ad been removed. Te Department indicated tat tere is no autority under te Aquaculture Act for it to remove sore fastened moorings in cases of non-compliance. Te Department as indicated tat legislative canges are currently being drafted to address tis issue. Auditor General of Newfoundland and Labrador 297

6 Findings and Recommendations Compliance wit Legislation Section 4(2) of te Aquaculture Act states tat a person sall not carry on aquaculture witout first obtaining from te minister an aquaculture licence for eac site at wic e or se wises to carry on aquaculture. Our review indicated tat 199 aquaculture licences expired on 31 December 2003 and all aquaculture sites continued to operate for a period of time during 2004 witout a valid licence. As at 20 October 2004, 64 aquaculture sites were still operating witout a valid aquaculture licence. Section 4(6)(a) of te Aquaculture Act states tat te Minister sall not grant an aquaculture licence unless te proposed licensee owns, leases or oterwise as a rigt to occupy te parcel of land comprising te site at wic te proposed licensee intends to carry on aquaculture. Our review of ten new licences issued in te five year period ended 31 December 2003 indicated tat two licences were issued wen tere was no lease or rigt to occupy in place. Section 11.2(a) of te Aquaculture Act states te Minister may make regulations respecting optimal resource utilization and sustainable development. Our review indicated tat te Minister as not made any regulations in tis important area. Te 2003 Report of te Federal Commissioner for Aquaculture Development indicated tat aquaculture benefits wen government guides te sustainable development of aquaculture and tis as been proven in countries suc as Norway. Te Department indicated tat in most countries, it is te Federal Government tat as primary responsibility for supporting aquaculture, owever, tis as not appened in Canada and te Province as assumed te role for Newfoundland and Labrador. Aquaculture Licensing Information System Te Department records and maintains aquaculture licence, inspection, production and oter statistical data in an electronic information system. Our review indicated tat production data recorded in te information system does not agree wit te production data reported by te Department in its website. Production data reported in te Department's website is provided by fis processors wen product is sold. Production data recorded in te Department's information system is provided by aquaculture farmers wen product is arvested. Te Department indicated tat tey ave a number of concerns wit respect to te completeness and accuracy of production data provided by farmers and tey are currently working wit farmers to address tis problem. Te Department indicated tat it does not reconcile production data recorded in its database wit te production data reported on its website. 298 Auditor General of Newfoundland and Labrador

7 Aquaculture Development 1. Newfoundland and Labrador Aquaculture Strategic Plan In Marc 2000, te strategic plan stated tat te Provincial aquaculture industry sould be in a more advanced stage of development and tat a success story was needed. Four species were identified as offering te best opportunity for success and terefore sould receive te most investment and R&D support. Te four strategic species identified were Atlantic Salmon, Steelead Trout, Blue Mussels and Atlantic Cod. In November 2002, te strategic plan was reviewed by NAIA, Government and oter industry stakeolders and tere were no significant amendments to te original plan developed in Our review of te strategic plan indicated tat numerous recommendations were made to address industry wide and species development concerns. We ad difficulty determining wo was responsible for carrying out all te recommendations. Initial discussions wit Department officials indicated tat, unless specified oterwise, NAIA was primarily responsible for implementing te recommendations stated in te strategic plan. Subsequent to tese discussions, te Department provided a copy of an agreement among te Federal and Provincial governments and NAIA to support te implementation of te plan by NAIA. Te Department also provided a copy of a report from NAIA igligting activities it performed in relation to implementation of te strategic plan. However, our review indicated tere was no clear connect between activities performed by NAIA and recommendations stated in te strategic plan. Wit respect to industry wide recommendations, we found tat many of te recommendations were general in nature and performance indicators were not always establised. Also, timeframes for implementing recommendations were not clearly defined. As a result, we found it difficult to determine weter all te recommendations were being carried out and weter goals were acieved. Our review of te industry wide recommendations indicated te following: It is recommended tat commercial public sector investment be targeted toward te commercial development of (te four strategic) species. Auditor General of Newfoundland and Labrador 299

8 Te Department indicated tat public resources in te area of researc and development, extension services and investment ave almost exclusively been directed to te four strategic species. However, te aquaculture industry as not developed te success story identified as being urgently needed in te strategic plan. Figure 1 clearly indicates tat tere as been no consistent or successful development of any of te strategic species since It is recommended tat a compreensive cost reduction working group be establised to implement (cost reduction) guidelines. Te Department indicated tat a compreensive cost reduction working group was not establised and no documented cost reduction guidelines were provided. Te Department indicated tat tis task was te primary responsibility of NAIA; owever, we are concerned tat te Department was not involved given te importance of tis recommendation. Te strategic plan states tat industry wide cost reduction measures are necessary to ensure farmers are able to acieve profitability and witstand fluctuations in pricing and supply. Furtermore, te strategic plan recognized tat additional capital investment needed for industry growt will not likely appen until profitability is firmly establised in te Province. Te Department indicated it funded NAIA and also provided some assistance to companies in teir cost reduction efforts. It is recommended tat Government review te industry debt situation and evaluate te options. Te strategic plan indicated tat many farmers in te Province ave accumulated significant levels of debt making tem ineligible for furter financial assistance. Te Department advised NAIA in December 2002 tat te Province was unwilling to write off outstanding loans to aquaculture farmers, but tat farmers interested in discussions wit respect to restructuring debt sould contact te Department of Innovation, Trade and Rural Development (ITRD). Te Department reviewed te industry debt situation in conjunction wit ITRD; owever, te review was limited to mainly mussel farmers wo were in debt to te Province. ITRD officials indicated tat at te time of our review, some of tese farmers were no longer operating. It was also indicated tat farmers owed more debt to te Federal Government tan te Provincial Government. Te Department was unaware weter a similar debt review was carried out by te Federal Government. 300 Auditor General of Newfoundland and Labrador

9 Officials of ITRD indicated tat te debt review was completed in 2004 and tat assistance was offered to farmers indebted to te Province in te form of settlements, write-offs and repayment restructuring. However, we found tat little debt funding was provided to tese farmers. At te time of our review, te Department indicated tat a number of large salmonid aquaculture companies were in financial difficulty because tey were approximately $15 million in debt to a feed supplier. In addition, we found tat two of tese companies were placed in receiversip in Government offered assistance to all salmonid aquaculture companies in November 2004 wen it announced te Aquaculture Working Capital Loan Guarantee Initiative. To date, te Department indicated tat tere as been one application in connection wit te loan guarantee program; owever, tis application was refused because te company did not meet te eligibility criteria. It is recommended tat a targeted investment prospecting program be put in place to matc investors wit willing industry players. Te strategic plan indicated tat industry growt is stymied by a lack of private investment. In 2003, te Department indicated tat it carried out an investment prospecting initiative wic was mainly focused on te salmonid industry. Our review indicated tat te Department did not establis any investment prospecting targets for te salmonid industry as were clearly outlined in te strategic plan. Te Department indicated tat tree investors from outside te Province are currently establising temselves in te provincial salmonid industry and tat tere are plans for increased investment from tese companies in te next few years. At te time of our review, te Department ad not carried out any investment prospecting initiatives wic focused on te mussel and cod industries. As a result, te Department as been unable to attract any investment for te mussel and cod industries. Te Department was unaware as to te extent of any investment prospecting tat may ave been carried out by NAIA. Auditor General of Newfoundland and Labrador 301

10 It is recommended tat continued public funding support be provided to te Newfoundland Aquaculture Industry Association. Te strategic plan recognized tat NAIA plays a key role in te development of te aquaculture industry and tat te industry was not in a strong financial position to properly support NAIA. Te Department indicated it ceased providing core funding to NAIA on 31 Marc 2002 wen te aquaculture component of te Economic Renewal Agreement expired. Te Department indicated tat NAIA as since been receiving core funding from te Atlantic Canada Opportunities Agency. Te Province does not provide core funding to NAIA and is not a member of te Association. Given te prominent role tat NAIA is playing in te development of aquaculture in tis Province, we are concerned tat te Department is not working closely enoug wit te Association in its activities, including te implementation of recommendations in te strategic plan. 2. Aquaculture Production Aquaculture production in Newfoundland and Labrador in te past five years as been concentrated on te species identified in te strategic plan as providing an opportunity for success. We reviewed aquaculture production for eac species in connection wit specific recommendations and projections contained in te strategic plan. In addition we compared te Province's production wit te rest of Canada. We found te following: (a) Salmonid Production Salmonid aquaculture in Newfoundland and Labrador includes Atlantic Salmon and Steelead Trout. As of 31 December 2003 tere were a total of 36 commercial salmonid licences issued in te Province. All 36 commercial licences were eld by a total of 7 companies, wit one company olding 50% of all licences. In 2003, tis company accounted for approximately 43% of te total salmonid production. Figure 2 sows tat salmonid aquaculture in Canada occurs in four provinces wit over 97% of production coming from New Brunswick and Britis Columbia. Since 1999, salmonid production in tese two Provinces as increased 45% from 71,700 tonnes in 1999 to 103,600 tonnes in Salmonid production in Newfoundland and Labrador as increased just 5% in te same period. 302 Auditor General of Newfoundland and Labrador

11 Figure 2 Aquaculture Annual Salmonid Production (tonnes) Year Ended 31 December Newfoundland & Labrador 2,477 1,512 2,811 2,870 2,600 Nova Scotia 4,715 8,106 5,600 2,385 - New Brunswick 22,000 29,100 33,900 38,900 33,100 Britis Columbia 49,700 49,000 67,700 89,900 70,500 Total (Canada) 78,892 87, , , ,200 Source: Statistics Canada Te Department indicated tat a lack of financing and investment was te main reason for te slow growt in te salmonid industry in te past 5 years. In addition, te Department indicated tat te sale of te Province's largest salmonid production facility in 2000 affected production because te new owner of tis facility refocused production from Steelead Trout to Atlantic Salmon. Te strategic plan stated tat wile conditions in te Province are suitable to growing bot Atlantic Salmon and Steelead Trout, a decision ad to be made as to wic species to grow. Oterwise, long-term market development initiatives would be difficult. Te plan recommended tat industry proceed wit a strategy of growing bot steelead and salmon...tat te greatest focus be placed on steelead production because environmental conditions are better suited for steelead and Newfoundland could develop a marketing advantage.... Our review indicated tat since 1999 te production of Steelead Trout as fallen from 2,078 tonnes to 1,150 tonnes in 2003, wile te production of Atlantic Salmon as increased from 399 tonnes to 1,450 tonnes in te same period. Tis is contrary to te recommendation made in te Strategic Plan. Auditor General of Newfoundland and Labrador 303

12 As noted above, tis cange was largely te result of a business decision by te new owner of te largest production facility in te Province to cange te focus from Steelead Trout to Atlantic Salmon. We note tat Steelead Trout continues to be te focus of oter commercial aquaculture companies in te Province, as per te recommendation in te strategic plan. Te strategic plan indicated tat salmonid production in tis Province would not likely exceed 3,000 tonnes annually until infrastructure and capital investment increased. Te plan also stated tat a profitable industry was necessary before tis increased investment would occur. A compreensive cost reduction working group was not establised to implement cost reduction guidelines tat would elp wit profitability, as recommended in te strategic plan. Te strategic plan indicated tat Government sould review te salmonid industry debt situation and evaluate options. We found tat te debt review carried out by te Province was limited to farmers wo were in debt to te Province and did not include most salmonid farmers. At te time of our review, officials of ITRD indicated tat a number of large salmonid aquaculture companies were in financial difficulty and owed approximately $15 million to a feed supplier. (b) Mussel Production As of 31 December 2003 tere were a total of 52 commercial mussel licences issued in te Province. Te 52 commercial licences were eld by a total of 26 companies; wit no one company olding more tan 10% of all licences. In 2003, 3 companies accounted for approximately 60% of te total mussel production. Figure 3 sows tat mussel aquaculture in Canada occurs in five provinces wit over 80% of production coming from Prince Edward Island. Since 1999, mussel production in Prince Edward Island as increased 21% from 13,890 tonnes in 1999 to 16,826 tonnes in Mussel production in Newfoundland and Labrador as decreased 24% in te same period. 304 Auditor General of Newfoundland and Labrador

13 Figure 3 Aquaculture Annual Mussel Production (tonnes) Year Ended 31 December Newfoundland & Labrador 1,700 1,051 1,452 1,700 1,300 Nova Scotia 945 1,252 1,619 1,073 1,439 New Brunswick Prince Edward Island 13,890 17,895 17,506 16,785 16,826 Quebec Total (Canada) 17,397 21,287 21,666 20,540 20,510 Source: Statistics Canada Te Department indicated tat te main reason for te decrease in mussel production in tis Province was because of ineffective marketing. Mussel processors focused production and marketing efforts on value added mussels rater tan fres mussels. Te Department indicated tat it provided support for te marketing of value added mussels but also wanted processors to continue marketing fres mussels, wic did not appen. Wile te market for fres mussels remained strong, te market for value added mussels did not develop as expected. As a result, processors would not purcase mussels from farmers tat tey couldn't sell. Te strategic plan projected mussel production would increase by approximately 1,000 tonnes per year to 5,000 tonnes by However, mussel production in 2003 was 1,300 tonnes, just 26% of te 5,000 tonne target. Te Department indicated tat in most years, mussel farmers grew quantities of mussels in line wit projections in te strategic plan, but could not arvest tem wen processors would not buy tem. Te strategic plan indicated tat te Province as a good marine environment for culturing mussels and as potential for expansion tat is muc greater tan any of Atlantic Canada. Te plan noted tat te mussel industry is driven by volumes and tat economies Auditor General of Newfoundland and Labrador 305

14 of scale would be required for te mussel industry to succeed. Te plan recommended tat Policy development strategy focus upon maximizing te utilization of existing tenures, currently estimated at less tan 30%. Te Department's Site Utilization Policy supports tis recommendation wen it states tat Were site development or expansion does not occur witin two years of te date te licence is issued and/or development does not occur in accordance wit te approved business/development plan te licence may not be renewed. We found tat te Department is supporting unproductive mussel farms contrary to te Department's site development and utilization policy, and contrary to te recommendations made in te strategic plan. Our review indicated tat tere were 67 mussel licenses (52 commercial and 15 developmental) issued as of 31 December We found tat: 9 of te 52, or 17% of commercial mussel licences issued in te Province were eld by tree companies tat contributed approximately 60% towards total production during A total of 23 companies old te remaining 43 licences and contributed approximately 40% towards total production. We are concerned tat te required volumes and economies of scale identified in te strategic plan as being necessary for success in te mussel industry, is not being acieved. 9 of te 15 developmental licences were new licences issued contrary to statements in te strategic plan tat te industry sould focus more on maximizing te utilization of existing licensed sites rater tan licensing new entrants. We found te remaining 6 development licences ave been operating more tan 5 years contrary to te Department's own site development policy tat requires developmental licences, in normal circumstances, to turn commercial witin 5 years or be made inactive. Te strategic plan indicated tat te mussel industry was undercapitalized and recommended tat a targeted investment prospecting program be carried out. Te Department indicated tat its investment prospecting program as not yet placed a focus on te mussel industry and no investment capital as been raised. Te Department also did not know te extent of any investment prospecting initiatives carried out by NAIA. 306 Auditor General of Newfoundland and Labrador

15 Te strategic plan also indicated tat mussel farmers ad accumulated debts making tem ineligible for additional financing from banks and government programs and recommended tat Government review te mussel industry debt situation and evaluate options. We found tat te debt review carried out by Province was limited to farmers wo were in debt to te Province. In tese cases, ITRD indicated tat it offered assistance in te form of settlements, write-offs and repayment restructuring. Our review indicated tat little debt funding was provided. At te time of our review, officials at ITRD indicated tat te vast majority of mussel farms in te Province are not profitable. (c) Atlantic Cod Declining wild fisery stocks ave increased interest in cod aquaculture worldwide. Cod aquaculture in Newfoundland and Labrador occurs in two forms: seasonal grow-out of captured wild cod wic is dependent on wild fisery quota and full cycle cod culture wic is not dependent on wild fisery quota. Atlantic Cod aquaculture is currently in te development stages in te Province. As of 31 December 2003 tere were a total of 59 Atlantic Cod licences issued in te Province (7 commercial, 49 developmental and 3 researc). In 2003, cod production totalled 30 tonnes, mainly from seasonal grow-out. Production in 2003 decreased significantly from prior years due to a moratorium imposed by te Federal Government on te arvesting of Atlantic Cod on te nortern and western coasts of te Province. In 2000, te strategic plan indicated tat a commercial cod atcery is necessary to advance te commercialization of cod aquaculture in Newfoundland and Labrador. Department officials indicated tat te industry as made significant progress towards te construction of a cod atcery in Bay Roberts; owever, it is still not completed. Aquaculture Licensing and Inspections 1. Licensing (a) New Licences In applying for an aquaculture licence, tere are certain requirements tat must be met before a licence may be issued. Tese requirements are included in te Department's Aquaculture Policy and Procedures Manual and are summarized in te Auditor General of Newfoundland and Labrador 307

16 Aquaculture Guide distributed to potential applicants by te Department. General requirements include: te availability of tecnical competence, an analysis of financial capability (wic includes a business plan, cas flow projections, production and marketing information) and site location documentation. In addition, all applications for a new licence are subject to review and approval from various agencies and departments (referral agencies) of government to ensure suc tings as environmental protection, navigation safety and public ealt are maintained. Te Aquaculture Policy Manual states In addition to te aquaculture application, applicants must prepare a business, researc or developmental plan. Suc plans are necessary in order for te Department to determine weter te applicant as te tecnical and financial capability to develop and sustain aquaculture operations. Te Policy Manual also states tat existing operators need not submit a full business plan wen te addition of new sites will not materially affect financial operations and te species cultured does not cange. In tese instances, te Department will accept projected statements of cas flows for te first twelve monts of te operation and financial statements for te last two (2) years. Ten aquaculture applications in connection wit new licences issued during te five year period ending 31 December 2003 were selected for review. Our review of te licence applications indicated te following: In 7 of te 10 applications te required information was provided wic te Department found to be satisfactory. One of te 7 applications was for a company tat was applying for numerous aquaculture site licences in connection wit te business plan submitted. Our review indicated tat te Department ad difficulty connecting te business plan wit te application and ad to request additional information from te company. Te Department indicated tat te company subsequently provided te requested information wic was found to be satisfactory. However, te Department was unable to locate tis additional information at te time of our review and, terefore, could not demonstrate weter te company ad te financial capability to carry out 308 Auditor General of Newfoundland and Labrador

17 additional aquaculture operations. Tis company was subsequently placed in receiversip. In 1 of te 10 applications, te Department indicated it ad waived its requirement for a business plan and granted a commercial scallop licence as a obby farm. As a result, we were unable to determine weter te applicant demonstrated tecnical and financial ability to carry out additional aquaculture operations. We note tat te granting of tis type of aquaculture licence is not consistent wit te primary objective stated in te Aquaculture Strategic Plan because scallops are not considered a species wit an opportunity for success. Aquaculture licences granted to operations suc as tis one place a strain on licence and inspection resources witin te Department's Aquaculture Branc. In 1 of te 10 applications, te application was from a new company tat ad purcased te aquaculture operations of an existing company. Te Department indicated tis was a cange in ownersip and tat a business plan was not required from te new applicant. However, we are concerned tat te Department did not ensure te new applicant ad te tecnical and financial capability to conduct aquaculture operations in a situation were it would appear important to do so. In addition, te Department as no policy tat indicates a business plan is not required wen tere is a cange in ownersip. Tis company was subsequently placed in receiversip. In 1 of 10 applications, te Department determined tat projected cas flows and financial statements were required. We found tat tis information was not provided by te applicant. As a result, we were unable to determine weter te applicant clearly demonstrated te financial ability to carry out additional aquaculture operations. (b) Renewal Licences Aquaculture licences expire on 31 December eac year. In order to continue operating an aquaculture facility, licensees are required to: complete a renewal application, pay a renewal fee, provide annual production statistics, comply wit te terms and conditions of te expiring licence, and comply wit te Aquaculture Act and Regulations. Auditor General of Newfoundland and Labrador 309

18 Te Aquaculture Policy Manual outlines procedures te Department must follow to ensure licensees meet te requirements noted above prior to licence expiry on 31 December eac year. Tese procedures include mailing a licence renewal application package to te licensee by 1 October eac year. Tis is necessary to ensure tat te licensee as adequate time to prepare and submit all te required documents associated wit te licence renewal, and to give te Department sufficient time to carry out site compliance and site development review procedures in connection wit te information. Our review indicated tat all 199 aquaculture licences expired on 31 December 2003 and all aquaculture sites continued to operate for a period of time during 2004 witout a valid licence. Tere were 17 licences wic were not renewed for te 2004 calendar year because te aquaculture facility was voluntarily closed by te licensee. Te remaining 182 licences were not renewed for te 2004 calendar year by 31 December, as required. Our review of te 182 expired licences indicated te following: Te Department mailed te licence renewal package to te licensee on 23 November 2003, not on 1 October 2003 as was required. As a result, only 27 of te 182 licensees submitted all te information necessary for teir licence renewal by 31 December Most of te remaining 155 licensees provided te required information in January and February All 182 aquaculture sites were operating witout a valid licence up to 24 February 2004 wen te first licence renewal was completed by te Department. As of 20 October 2004, te Department completed 118 of 182 licence renewals wit te majority of te 118 renewals occurring during te period May 2004 to July Te remaining 64 expired licences ave not been renewed by te Department and continue to operate witout a valid licence. Te Department indicated tat, wit te exception of a few cases, tey ave received all te required information from te 64 licensees. Following te receipt of licence renewal information, te Department carries out procedures to determine weter aquaculture facilities associated wit expired licence are in compliance wit te Aquaculture Act and Regulations. Te Department also carries out procedures to determine weter aquaculture sites are being adequately utilized and developed. 310 Auditor General of Newfoundland and Labrador

19 Te Department's site utilization policy states tat were aquaculture site development or expansion does not occur witin (2) years of te date te licence is issued and/or development does not occur in accordance wit te approved business/development plan te licensing committee may recommend to te minister tat te licence not be renewed. We reviewed 30 licence renewals in connection wit six aquaculture sites over te five year period Our objective was to determine weter tere was sufficient information in te files to support te compliance and utilization/development reviews required eac year by te Department. Our review indicated te following: (i) Compliance wit te Act and Regulations For 28 of te 30 licence renewals, tere was insufficient evidence on file to ensure te licensee was in compliance wit te Act and Regulations before te licence was renewed. For only 2 of te 30 licence renewals did te Department indicate tat te licensee was in compliance wit te Act and Regulations. (ii) Site utilization and development For 6 of te 30 licence renewals, tere was no evidence in te file indicating tat a review ad been carried out to determine weter te licensee was utilizing/developing te site in accordance wit te Department's site utilization policy. For 24 of te 30 licence renewals, te Department recommended licence renewal because te site was eiter being adequately utilized, or, tere were satisfactory reasons to support less tan adequate utilization. However, tere was no documentation on file to support te Department s conclusion regarding site utilization, e.g. an assessment of te licensee's performance against objectives stated in te business, development or researc plan, as would be required to properly assess compliance wit te Department's site utilization policy. Auditor General of Newfoundland and Labrador 311

20 Since 1999, te Department as reviewed 1,007 licence renewal applications and in only 10 instances as it refused to renew a licence because te licensee ad failed to adequately utilize or develop te aquaculture site. Our review indicated te following: Te Aquaculture policy manual states tat Researc and Development licences are normally renewable for a maximum of 5 years. After 5 years, it is generally expected tat te licensee would ave completed all necessary researc and development work associated wit te site and/or species and apply for te next classification of licence. Our review indicated tat 4 of te 20, or 20% of researc licences and 18 of te 73, or 25% of developmental licences as of 31 December 2003, ad been renewed for a period longer tan 5 years. Tere were a total of 43 companies olding 106 licences trougout te Province at 31 December 2003, wit 37 companies olding 78 licences contributing approximately only 19% of total production. Inadequately utilized and developed aquaculture sites place a strain on Departmental resources. We are concerned tat te Department is not properly monitoring te utilization and development of licensed aquaculture sites and applying its site utilization policy as required. 2. Inspections Aquaculture inspections are sceduled and carried out by inspectors in te Fiseries branc of te Department wo also carry out inspection duties in connection wit te wild fisery. Fiseries branc inspectors perform aquaculture inspections in accordance wit te Department's Aquaculture Policy and Procedures Manual and te recently approved Aquaculture Inspection Program Procedures Manual. Tese manuals are designed to ensure aquaculture facilities comply wit Department policies and procedures and te Aquaculture Act. Aquaculture inspections in connection wit fis containment are carried out by te Department's Salmonid Aquaculturist in accordance wit a Federal/Provincial risk management approac to minimizing te escapement of fis. Te Federal/Provincial Code of Containment targets areas of cage culture tat ave te greatest potential for escapement of fis. Te Code of Containment requires regular inspections of all net, cage and surface mooring components, as well as periodic audits of cage systems and net testing procedures/results. 312 Auditor General of Newfoundland and Labrador

21 Fis ealt is te responsibility of te Department s Aquaculture Veterinary Specialist wo carries out sceduled site visits to conduct disease surveillance. In connection wit finfis, te Veterinary Specialist also carries out disease risk analysis and monitors bio-security measures undertaken to control risks tat are identified. Aquaculture inspectors assist te Veterinary Specialist by performing basic procedures tat determine fis ealt. Specialized inspection activity carried out by te Department's Salmonid Aquaculturist and Aquaculture Veterinarian in te areas of fis containment and fis ealt are not part of tis review. (a) Inspection Strategy and Activity Te Aquaculture Policy and Procedures Manual requires tat te Licensing and Inspections Division of te Aquaculture Branc prepare an annual inspection strategy document outlining plans for inspecting aquaculture sites during te coming year, and identify items and/or areas of special concern. Our review of inspection strategy documents for te five year period 1999 to 2003 indicated tat te Department's primary inspection strategy is to ensure compliance wit te Aquaculture Act and Department policies and procedures. In order to determine compliance, te Department requires tat all existing aquaculture sites be inspected at least once annually. Follow-up inspections are required to ensure identified deficiencies are corrected witin required timeframes. Commencing in 2003 te Department began listing aquaculture sites not inspected in te previous year as a special concern and indicated tat approximately 60% of all aquaculture sites received no inspection in We found tat te inspection strategy documents were weak because tere was no inspection scedule in place to ensure tat all aquaculture sites were inspected annually in a manner tat was representative of year round operations. In addition, te inspection strategy documents did not include a plan to address inspections as tey relate to fis containment and fis ealt wic are te primary responsibility of te Salmonid Aquaculturist and Aquaculture Veterinary Specialist, respectively. We reviewed te files of 20 aquaculture sites for te 5 year period 1 January 1999 to 31 December 2003 to determine weter te files contained an aquaculture site inspection report indicating tat an inspection ad been carried out at least once eac year as required. Tis represents approximately 10% of all aquaculture sites licensed eac year. We found tat for eac of te five years Auditor General of Newfoundland and Labrador 313

22 examined an average of 16 of 20 sites were not inspected at all during te year. Furtermore, for 12 of te 20 aquaculture sites, tere was no evidence to indicate tat any inspection was carried out in five years. Te Department indicated tat tere was no inspection carried out in 125 of te 199, or 63% of te aquaculture sites in Te Department as not acieved its aquaculture site inspection objectives for te five year period 1 January 1999 to 31 December Furtermore, wen inspections are carried out, tey are not carried out in a manner tat is representative of year round aquaculture operations. Discussions wit Department officials indicated tat aquaculture inspections are generally carried out during a four mont period in late summer and early fall since inspectors ave oter inspection priorities in connection wit te wild fisery. In addition, aquaculture inspections are considered impractical during te winter monts due to many sites being frozen over. Department officials also indicated tat it is not possible to inspect all aquaculture sites during te year because tere are insufficient inspectors to carry out all te necessary inspections during a four mont period. Department officials indicated tat, since our last review in 1998, fis ealt and containment controls ave improved. However, we found tat te general inspection program as deteriorated considerably since 1998, e.g. te Department does not ensure sites are properly located and marked and tat sore fastened moorings are not being used. (b) Inspection Report Te inspection report is not adequate to support te inspection activities for wic te inspector is responsible as te report does not address all of te key areas tat te inspector is responsible for assessing. As a result, we were unable to determine weter certain key responsibilities assigned to inspectors were being carried out. Tese responsibilities are clearly stated in Section 6(3) of te Aquaculture Act wic states tat te aquaculture inspector sall ave regard to following wen carrying out inspections: 314 Auditor General of Newfoundland and Labrador

23 te presence of disease or parasites and te likeliood of eiter disease or parasites developing; Department policy requires inspectors to assist te Aquaculture Veterinary Specialist by performing general procedures during inspections tat would detect fis ealt issues at an aquaculture site. Tese procedures include examining fis beaviour, water quality and marine traffic. Our review of inspection reports during te five year period 1999 to 2003 indicated tat te inspection report was amended in 2003, removing all references to fis ealt. Prior to tis, we found tat inspectors were not always completing te fis ealt section of te inspection report. As a result, we were not able to determine te results of any fis ealt inspection procedures wic were being carried out. weter te activities being carried on are autorized by and are in accordance wit an aquaculture licence and weter tere is compliance wit te terms, conditions and provisions of te aquaculture licence, te Aquaculture Act and Regulations. We found tat te inspection report does not indicate weter important terms and conditions of te licence are being adered to. We also found tat te inspection report does not indicate weter tere is compliance wit te Aquaculture Act and Regulations. Wen te inspector signs te inspection report, tere is no indication as to wat e or se is attesting to. A conclusion sould be made by te inspector on weter or not te aquaculture site is in compliance wit te terms, conditions and provisions of te aquaculture licence and te Aquaculture Act and Regulations. Tere as been no improvement in tis area since our last review. (c) Sore Fastened Moorings In 1998 te Department implemented a policy tat disallowed te use of sore fastened moorings except in special cases. Sore fastened moorings are recognized as a safety azard to boats and motor veicles. Te Department defines a sore fastened mooring to exist wen an aquaculture facility uses mooring lines tat are attaced to te sore or ancored to te seabed at a dept of less tan two (2) vertical metres below te low water mark. Auditor General of Newfoundland and Labrador 315

24 Sore Fastened Mooring In Marc 1999 a fatal snowmobile accident occurred at an aquaculture site in Green Bay because a snowmobile struck a sore fastened mooring line. Te operators of te aquaculture site were found guilty of conducting aquaculture witout a licence. Following te fatality, te Department commenced inspecting aquaculture sites to ensure compliance wit te sore fastened mooring policy. In February 2000 anoter fatal snowmobile accident occurred at an aquaculture site in Notre Dame Bay. Te Department indicated it was aware te site was operating wit sore fastened moorings tat were not in compliance wit Department policy; owever, attempts to ensure compliance were unsuccessful. Following tis fatality, funding assistance was provided to elp operators remove or modify sore fastened moorings tat did not comply wit Department policy. Te Department indicated tat tere are currently two aquaculture sites operating wit sore fastened moorings and tat since 1998 tese two sites ave repeatedly been identified as not complying wit te sore fastened mooring policy. We note tat te Department continues to renew te aquaculture licences in tese circumstances. 316 Auditor General of Newfoundland and Labrador