House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Sixth Report

size=+1>4Creating a competitive and profitable UK fleet

Decommissioning 13% of the whitefish fleet

Fisheries departments should ensure a basis for both long-run profitability and stock recovery by considering funding the removal of a minimum of 13% of the whitefish fleet (beyond the 2003 decommissioning scheme) as part of an overall package of management reforms. This could require between £40 million and £50 million in additional public spending.

24. The SU report notes that some whitefish stocks are currently in a poor condition. Populations of cod, in particular, are said to be at a "historical low".[24] In recent years, attempts have been made to reduce the biological pressure on whitefish stocks by cutting the Total Allowable Catch (TAC) quotas set annually by the Fisheries Council in Brussels. Low catch quotas have increased the pressure on fishermen reliant on those stocks, and many have struggled to remain profitable. Poor profitability in turn has led to an increasing level of 'non-compliance' amongst fishermen, as some resort to over-fishing, misreporting landings and discarding smaller fish at the expense of larger ones, in order to make sufficient profits. This, of course, exacerbates the poor stock situation and provides inaccurate data on which to base future stock assessments. The SU report pointed out that poor profitability also prevents effective modernisation of the UK whitefish fleet and places it at a competitive disadvantage with foreign fleets.[25]

25. In order to improve the profitability of the whitefish sector, there have been attempts in recent years to 'right-size' the number of boats in line with capacity—that is, to reduce the whitefish fleet to a size small enough to prosecute profitably once stocks have recovered. As a result, there have been two major decommissioning rounds in the UK since 2001, which have had a dramatic effect on the size of the UK whitefish fleet, particularly in Scotland where the majority of the fleet is based. It is estimated that these decommissioning rounds have resulted in a 50% reduction in the Scottish whitefish fleet since 2002.[26] The SU report, however, stated that the UK whitefish fleet is still above the long-run maximum size necessary to ensure adequate profitability.[27]

26. Using descriptive analysis and numerical modelling, the Strategy Unit constructed a set of different possible 'future scenarios' to predict how the fishing sector could develop over the next 10-15 years.[28] It calculated that, even under the most optimistic future scenario (that is, stocks recover strongly and prices remain constant), the minimum reduction necessary to deal with over-capacity in the whitefish sector was a further 13% cut in the fleet. It warned that this figure could rise to 42%, if prices continue to fall.[29]

27. The report acknowledged that such cuts will inevitably produce severe employment losses and that certain communities will lose "some or all of their fishing activity".[30] Nevertheless, it warned that, if government action is not taken soon and the fleet not reduced in line with capacity, it could result in a long-lasting stock collapse, a leakage of whitefish quota abroad and/or a fall in fish prices as the fleet fails to modernise—all of which could result in a minimum reduction in discounted revenues of between £350 million and £600 million, as well as employment losses of around 50%.[31]

Questionable modelling

28. The decommissioning recommendation attracted heavy criticism from the fishing industry. The SFF told us that the recommendation was based on "flawed data".[32] It claimed that the data the Strategy Unit had used to estimate the total number of whitefish vessels, and consequently the data on which it based its decommissioning recommendation, were "heavily skewed" because they significantly over-estimated the number of whitefish vessels in operation at the time of writing the report. The SFF claimed this had occurred because vessels which earn more than 70% of their income in the prawn (or 'nephrops') fishery—vessels which had "almost no effect on cod at all"—had mistakenly been included within the whitefish vessel figures in the Strategy Unit's calculations. This meant that, in the Scottish case, "instead of … a shade under 300 whitefish vessels, 700 were actually brought into the equation".[33] The SFF claimed that the leader of the Strategy Unit had conceded to the SFF that it was correct on this point.[34]

29. The National Federation of Fishermen's Organisations (NFFO) also criticised the accuracy of the modelling used by the Strategy Unit, although it said that it was not completely opposed to the possibility of further decommissioning in the future. The NFFO pointed out that the Strategy Unit model "did not seem to take into account the improved profitability that would arise from an improved catch per unit effort that would be associated with improved stocks". The NFFO commented that it was "things like these" that needed to be looked at in some detail before it could accept the Strategy Unit model as a basis on which to recommend cuts in the fleet.[35]

30. Doubts were also expressed about whether the Strategy Unit had taken full account of the 2003 decommissioning scheme, which was still in operation at the time of writing the report. Even the Scottish Minister for Environment and Rural Development, Mr Ross Finnie MSP, stated that the full impact of these reductions appeared to have been overlooked. He told us that he had "never been entirely comfortable" with the 13% figure proposed by the Strategy Unit "largely on the grounds that the evidence base which the report was based on did not take account fully of the decommissioning in 2003".[36]

31. When questioned on this issue, the Minister for Fisheries, Mr Ben Bradshaw MP, told us he was "aware that there has been an on-going debate about the modelling that was used in the [Strategy Unit] report and these discussions are still going on with the industry".[37]

Our conclusions

32. On the basis of current evidence, we are sceptical about the Strategy Unit's recommendation that the whitefish fleet should be reduced by 13%. As the Scottish Minister for Environment and Rural Development has conceded, doubts have been raised about the accuracy of the modelling used by the Strategy Unit. Any specific proposals formulated on the basis of that modelling must therefore be treated with caution.

33. Given the fact that the whitefish fleet is primarily based in the north-east of Scotland and that fishing is a devolved matter, implementation of the Strategy Unit's recommendation to decommission 13% of the whitefish fleet would fall largely to the Scottish Executive. At present, the Executive seems to have little appetite for further decommissioning, at least on the scale that the Strategy Unit envisages. Three days after the publication of the report, the Scottish First Minister, Jack McConnell MSP, told the Scottish Parliament: "We have no current plans for further decommissioning, and we are not contemplating that."[38] Mr Finnie's admission to us that he had "never been entirely comfortable" with the proposal and his questioning of the modelling used would suggest that the sceptical stance of the Scottish Executive towards the Strategy Unit's recommendation has not altered significantly.[39] It is apparent that the Scottish Executive is unlikely to implement further decommissioning in the near future, particularly as the industry is still re-adjusting to the severe reductions of 2003.

34. We accept that there may have to be further decommissioning of the whitefish fleet in the future in order for the sector to remain profitable and sustainable. Nevertheless, we recommend that the Government should make no further reductions until a thorough assessment has been carried out to establish the current capacity of the UK whitefish fleet and to accurately determine its unit profitability. It is essential that industry representatives are fully involved in the formulation of such an assessment to ensure it is informed and accurate. The Government should seek to persuade the devolved administrations to adopt a similar approach. We understand that discussions are currently underway, within the SFP and elsewhere, in an attempt to provide more accurate information, and we welcome these moves.

Tying-up an additional 30% of the fleet

Strategy Unit recommendation 4(b)]

The fishing industry would benefit from tying up a further 30% of the whitefish fleet for four years to accelerate stock recovery, but this should not be supported by public funds.

35. This recommendation was almost universally dismissed by the industry. Even environmental groups expressed doubts. It was described as "a joke" (SFF), "an ill-thought through aberration" (NFFO), "not economically efficient" (WWF UK) and "totally unrealistic" (Shetland Islands Council and North Atlantic Fisheries College).[40] Much of the criticism stemmed from the fact that no government funding would be provided to assist those fishermen who tied up their boats. The NFFO stated that "in the absence of external funding, it is not going to happen, so I think we should put that [recommendation] aside".[41] Like the decommissioning recommendation, the 30% tie-up proposal was calculated on the basis of the Strategy Unit modelling which has been called into question (paras. 29-32).

Our conclusions

36. We do not support the Strategy Unit's proposal for an additional 30% voluntary tie-up of the whitefish fleet. We recommend that the Government does not implement this proposal and that it seek to persuade the devolved administrations to adopt a similar approach. As with the decommissioning recommendation, the 30% figure was calculated using the Strategy Unit's modelling of the whitefish fleet, about which doubts have been expressed. We have already noted the industry's and the Scottish Minister's concerns that this is not a satisfactory model on which to base suggested cuts.

37. Moreover, we consider the idea that fishermen would voluntarily tie-up their boats, without any compensation, for a prolonged period of time to be unreasonable and wishful thinking. This proposal is not a practical means of dealing with over-capacity in the sector. If further cuts are indeed considered necessary, government funding should be provided.

The quota management system: Individual Transferable Quotas

Strategy Unit recommendation 5(a)

Fisheries departments should change the system of quota allocation based on Fixed Quota Allocations (FQAs) into a system based on ITQs for all UK sectors by the end of 2006.

Perceived difficulties with the Fixed Quota Allocation (FQA) system

38. At present, most UK fishermen obtain quota through the Fixed Quota Allocation (FQA) system. In simple terms, this involves the UK's TAC quotas being divided annually between producer organisations throughout the UK which then, in turn, allocate the quota amongst their member vessels. The Strategy Unit identified fundamental flaws with the FQA system, related to legal title and lack of transparency.

Legal title

39. Over time, the FQA system within the UK has developed to allow a certain degree of tradability between fishermen. However, the Government insists that licence holders have no legal title to the FQA units attached to the licence because the quota that they represent is considered a national asset.[42] Therefore, it is actually the fishing opportunities associated with FQA units which are traded around the industry, while the FQA units themselves stay with the licence. This has resulted in a "muddying [of] the ownership of the stocks".[43] The Strategy Unit concluded that the current FQA system is "confused and confusing" because FQAs have some of the features of property rights "but their legal status is uncertain". It believed that this uncertainty has a negative impact on the industry because it "inhibits investment and long-term planning".[44] It also creates an unknown level of rentier costs received by some who are no longer fishing but paid by those who are.

Lack of transparency

40. The Strategy Unit also concluded that, whilst a certain degree of tradability certainly exists within the FQA system, full tradability was restricted by a "lack of transparency and bureaucratic hurdles".[45] It considered that this lack of transparency was, to an extent, a consequence of the uncertainty regarding the ownership of the stocks being traded around the industry. The SU report regarded the lack of transparency as detrimental to the UK fishing industry:

Real tradability is necessary in the offshore sector, not only to ensure competitiveness and manage the balance of species caught by fishermen, but also to provide a fluid, functioning market in which accurate price information can be transmitted.[46]

The Strategy Unit therefore proposed replacing the current FQA system with a system of Individual Transferable Quotas (ITQs).

Proposal to adopt Individual Transferable Quotas

41. The Strategy Unit visited several countries which operate a system of ITQs, including Australia, New Zealand, the USA and Iceland.[47] It was impressed with what it discovered:

The introduction of ITQs has had beneficial effects in fisheries which have adopted this management tool. These include restrictions in fishing effort, improved profitability and a greater sense of resource stewardship.[48]

42. Under an ITQ system, the government allocates shares of the TAC quotas to individuals, boats, or firms as a form of transferable right. Whilst the fishing rights themselves would still be considered a public resource, the ITQs would "represent a set of defined rights to use this resource under certain conditions".[49] The Strategy Unit claimed that this would clarify the current confusion regarding ownership which, in turn, would improve the transparency of the trading system. It did not however give any indication of the duration of the quota entitlement as a property right.

43. The Strategy Unit also identified ITQs as having the following benefits:

·ITQs help to achieve the optimum number and configuration of vessels. Quota will tend to gravitate to the most efficient operators and eliminate excess capacity from the fleet.

·Free pooling or transfer of quotas between fishermen helps to solve the problems of unintentional by-catch, over-quota fishing and under-catching of quota.

·Transferability results in savings on implementation and enforcement. It is difficult to allocate quotas in a way which matches current fishing practices. A market system can provide a self-correcting mechanism whereby greater catches can be covered by the purchase or lease of additional quota.

·ITQs encourage responsible behaviour from fishermen because the quota can only be held 'under certain conditions'. Repeated, serious breaches of fisheries rules would result in confiscation of all or part of a fisherman's ITQs.

·ITQs make it easier to exit the industry. Quota holders who are not able to make a profit have a valuable property right which they can capitalise to finance exit from the industry.[50]

44. The SU report itself did not provide specific detail on how an ITQ system should be implemented and administered in the UK, on the grounds that it was "beyond the scope" of the report and a "matter of discussion between the fisheries departments and the catching sector".[51] It also pointed out that ITQs are applied differently in the various countries currently with the system.Defra told us:

Our first exercise as part of the work we are doing with stakeholders in the SFP is to identify what an ITQ system might look like before we decide whether or not ….ITQs are the right route because there are different models that could be applied.[52]

Criticism of ITQs

45. Witnesses' views on the proposed introduction of ITQs were mixed. Criticisms were centred on the potential dangers of concentration of ownership and leakage of quota abroad.

Concentration of ownership

46. The SU report acknowledged that concentration of ownership has "occurred in some fisheries where ITQs have been introduced". In particular, it cited the examples of Iceland and New Zealand where it has been shown that "some regions and some (smaller) operators can be disadvantaged by the introduction of ITQs".[53]

47. This point was a matter of concern for many of our witnesses.The South West Fish Producers' Organisation (SWFPO) told us that, although that it was not entirely opposed to the introduction of ITQs:

… it has been observed in other countries around the world, where ITQs polarise fishing communities and the quota opportunities gravitate into the hands of a few corporate owners, that this has had a severe knock-on effect on fishing communities.[54]

48. The ANIFPO stated that it was "very fearful" that, if a full ITQ system was imposed, "it will not be too many years until you see [the over 10-metre] fleet drastically shrink".[55] Dr Palfreman, an independent consultant, expanded on this point:

….a market-driven system of fishing rights [such as ITQs] tends to favour those people who have the financial resources. I fear that [concentration of ownership] would be enhanced if there were a free-for-all on ITQs in the UK. The academic literature more or less supports that position as well, that once [the quota] is gone, it is gone for ever and the ITQ system would encourage that to happen more.[56]

49. The SU report acknowledged this problem and, as a solution, proposed that a proportion of quota should be 'ring-fenced' for the sole use of particularly vulnerable communities. It claimed this would be "the least distortionary way" to prevent an excessive concentration of capital.[57] We look in more detail at the community quota proposals later in our report (paras. 61-71).

Leakage of quota abroad

50. The SU report acknowledged that, within a market-driven ITQ system, UK quota could be purchased by foreign-owned vessels. This is because EU internal market laws prevent any discrimination on the grounds of nationality. It stated, however, that, "with a healthy UK fishing industry, there is no reason to expect quota to leak overseas in large net amounts".[58] The Minister for Fisheries confirmed that leakage of quota abroad was "theoretically possible".[59]

51. This was another area of concern for several witnesses. The South Devon and Channel Shellfishermen told us the prospect of quota leakage to foreign-owned vessels was "a very, very serious problem". It warned that whole fishing communities in the UK could lose all their fishing activity because "we could not stop any other country buying … quota".[60] The Royal Society of Edinburgh (RSE) believed this was an issue of particular concern to the Scottish industry, which is largely composed of owner-skippers and partnerships. It warned that the "very well financed fishing companies" in other countries "might … be able to outbid the local skippers in Scotland".[61]

52. There was also some confusion amongst witnesses about what would happen to the concept of 'relative stability' between the various CFP nations if foreign-owned vessels were able to purchase significant amounts of UK quota. The SFF commented that relative stability would go "right out of the window" if ITQs were adopted.[62] The Scottish Minister for Environment and Rural Development was cautious about the introduction of a system of ITQs because of its potential effect on relative stability, although he acknowledged that the present FQA system did "radically need to be reviewed".[63]

Other criticisms

53. WWF UK told us that the case was "not yet proven" on the environmental benefits of ITQs, despite the Strategy Unit's claim that ITQs encourage more sustainable and responsible fishing practices amongst fishermen.[64] Some other witnesses raised doubts about whether it was practical to apply examples of other countries with 'successful' ITQ systems countries, such as Iceland and New Zealand, to the UK context, because they tended to have much simpler systems of governance and fish migration patterns, and were in sole control of their own waters so did not have to deal with the complexities of the Common Fisheries Policy (CFP).[65]

Assessment of the FQA system

54. The evidence we received indicated that most organisations were content with the existing FQA system. Several witnesses stressed to us that many of the supposed advantages of an ITQ system—particularly regarding tradability—were already present within the current system. In fact, the Scottish White Fish Producers' Association (SWFPA) commented that, as far as the industry was concerned, the UK currently has ITQs "in all but name".[66] Similarly, the NFFO felt a move to ITQs would simply be "a re-branding exercise":

We have a functioning [FQA] system which has evolved over time and it has struck a balance between a facility for fishermen to trade quota, to obtain quota if that is what they want to do; but also a collective element in as much as the allocations are made to producer organisations and therefore there is a community or regional element involved. We think that is probably the right sort of balance.[67]

55. The SWFPO told us that the current system was "pretty much a fully functioning system of transferable quotas, whilst not being ITQs as such", and that this view was shared by the majority of fish producer organisations.[68] The Royal Society of Edinburgh (RSE) also stated that the present system "goes quite a long way to ITQs" and observed that "one has to ask oneself what has to be gained if you move to a full ITQ system".[69]

56. When questioned on this issue, the Director of Fisheries at Defra agreed that the two systems did share some similarities :

As an issue of principle ITQs would not move us any further forward or backwards from the FQAs. We already have a system of quota allocations which are tradable and that does not change.[70]

57. Most witnesses who wished to maintain the FQA system did admit, however, that it needed refinement in some areas. The NFFO, SWFPO and RSE all told us that the confusion with legal title and ownership needed to be clarified.[71] The SFF and Seafish believed that transparency and visibility of the trading system needed to be improved.[72]

Our conclusions

58. There may turn out to be some advantages in the introduction of ITQ system. ITQs could clarify the current confusion surrounding legal title and could ensure the trading process is more transparent—the two main problems identified by witnesses with the current FQA system. It is also possible that ITQs could improve profitability, efficiency and self-policing amongst the fleet and could improve the sustainability of stocks.

59. We are concerned, however, that the benefits of an ITQ system may be outweighed by the potential disadvantages. It is possible that an ITQ system would allow further significant purchase of quota by foreign-owned vessels. It seems to us that, under EU law, nothing could be done to prevent such purchases. We are also concerned about the concentration of ownership of quota that has occurred in other countries with ITQ systems.

60. At this stage, it would be wrong to reach a final view on whether an Individual Transferable Quota (ITQ) system should be adopted in the UK. There is still a lack of detail about what model of ITQ system is proposed and how such a system might operate. We understand that discussions are underway within the Sustainable Fisheries Programme, with extensive involvement of industry representatives, to develop a potential ITQ model to be applied in the case of the UK. We believe such a model would be acceptable to the industry only if there were to be some retention of the current Fixed Quota Allocation structure. Until such a model is proposed, the industry will no doubt continue to adopt a cautious attitude.

24 Net Benefits: A sustainable and profitable future for UK fishing, p.41 Back

25 Ibid. p.54 Back

26 Q283 [Scottish Minister for Environment and Rural Development] Back

27 Net Benefits: A sustainable and profitable future for UK fishing, p.58 Back

28 Ibid. p.59-79 Back

29 Ibid. p.58 Back

30 Ibid. Back

31 Ibid. Back