Examination of Witness (Questions 60-79)
Mr Aaron Hatcher
12 MARCH 2008
Q60 Chairman: If you are putting
it all on one, if the emphasis is on quota measurement, that inevitably
leads to the issue of discards, does it not?
Mr Hatcher: Discards are an issue, but then
discards will occur in fisheries even in the absence of management
or even where we are trying to manage effort rather than catch.
Fishermen will always discard a portion of the catch, because
once you have got something in your net, you have a choice: you
handle it, you sort it and gut it, (if it is finfish) and, most
importantly, you have to ice it and store it, and this is costly,
and so every time a fisherman catches anything he is always weighing
up the likely gain from retaining it and landing it as set against
the costs of keeping it on board and handling it. So, discarding
is not only a problem of quota management systems, it is an inherent
problem of any fishery's management system and even in the absence
of management; but that being said, yes, the problem of discarding
is an issue that a quota management system has to face up to and
try to deal with, and countries like New Zealand and Iceland,
which have fairly sophisticated quota management systems, do employ
a variety of measures to try and minimise discarding.
Q61 Chairman: Can you give us some
examples?
Mr Hatcher: Basically, trying to create incentives
for fishermen to land catch rather than discard it. The systems
have a variety of mechanisms that enable or that help fishermen
to balance what they want to catch and land with the amount of
quota they have available. The more flexible the system is to
help the fishermen balance their catches and quotas, the less
incentive there is for fishermen to throw fish overboard because
they do not have quota for it, which is one of the biggest causes
of discarding in a quota management system. The more flexible
a system is, the less incentive there will be to discard. Discards
are actually not allowed in New Zealand and Iceland. They are
allowed in Australia. They are, of course, allowed in the European
Union.
Q62 Viscount Ullswater: Is that because
the fisheries are single-species fisheries or mixed fisheries?
Mr Hatcher: I think most of the New Zealand
fisheries, or at least a lot of them, are mixed fisheries. There
is a huge number of species in New Zealand that are subject to
quotas and, hence, an ITQ system, so new Zealand seems to have
dealt with the problem of mixed fisheries. Discard bans are all
very well, but, obviously, they can be extremely difficult to
enforce. It is hard enough to enforce controls on what is actually
landed in port. To enforce controls on what fishermen do at sea
is extremely difficult. If you have a very small number of large
boats, you could maybe put an observer or an enforcement officer
on every boat, but for the most part this is just too expensive
to do. There are ways of encouraging fishermen to change their
behaviour as well—encourage them to use more selective gear,
to avoid certain areas at the times of year when they are likely
to catch small, juvenile fish, for example—but, as far as
I can tell from the literature, the discard rates in New Zealand
and Iceland are relatively low, although, apparently, in Australia
discarding is more of a problem in some of the fisheries there.
Whether that is because there is no discard ban or whether the
relationship is the other way round, I am not entirely sure.
Q63 Baroness Jones of Whitchurch:
We have been touching on this anyway, but I just wanted to perhaps
allow you to reinforce the point you are making on quota management
and the advantages of tradeable rather than fixed quotas, which
you have argued in favour of. For the record, it would be helpful
if you could tell us specifically what you think are the advantages
and disadvantages of tradeable quotas. What is so good about them?
Mr Hatcher: You can look at this is in various
ways. One thing I would say in a general sense is that, if you
have tradeable quotas, then the individual fishermen decide what
quotas they need and should have for their fishing operation.
If you have a system of fixed quotas or any other system that
is decided by administrators sitting in Whitehall or wherever,
somebody else is telling each vessel how much quota it should
have. If it is based on some sort of historical catch history,
then it may at one point in time approximate what the vessel actually
needs, but it is likely to change over time very quickly, and
fisheries are very stochastic and unpredictable, and so the likelihood
that a fixed quota or a set of fixed quotas is going to match
exactly what a vessel needs in order to operate profitably and
efficiently is very small; but by making quotas tradeable, the
fishermen themselves can decide how much quota they need in order
to operate in the way they want to operate. Once again, it is
interesting that the UK industry has chosen to trade in quota.
Q64 Baroness Jones of Whitchurch:
Can I come back to the point that was made earlier about enforcement,
if we are talking about the potential downsides of that sort of
scheme. We heard last week from scientific advisers to Defra that
in fact there is an awful lot of fishing rights trading going
on out there—different countries buying and selling the
rights to fish in our grounds and so on—and so already we
have got quite a complex picture of who is out there and who is
fishing for what. If you started trading in quotas as well, is
not the enforcement going to just become unmanageable: nobody
would really know who is fishing for what, who is legitimate and
who is not?
Mr Hatcher: Enforcement apparently works very
well in countries like New Zealand and in Iceland. There are a
number of issues you have raised in your question. There is no
provision in the Common Fisheries Policy for international trade
in quota. There are bilateral agreements between Member States
to exchange quota following the annual quota setting round, but
there is no international trade in quota. The whole idea of relative
stability is that Member States are given quota allocations and
that is for the Member State to do what they see fit with. If
you are thinking about quota hopping, that is really a different
issue. That is the issue of whether a United Kingdom based business
can be bought by someone from another EU Member State, and there
is nothing we can do under EU law to prevent that. That is the
same for any business, whether it is fishing or not.
Q65 Baroness Jones of Whitchurch:
I think the point about all of that was how do you track it and
enforce it, when potentially that is already happening, and if
you allow trading of quotas as well, who is going to manage that
effectively?
Mr Hatcher: What generally happens is that the
administration, whether it is the Government Fisheries Ministry
or an agency employed by the Ministry, basically keeps a real-time
record of what quota vessels have, which in turn dictates what
they are allow to catch. I think in Iceland the catch records
are transmitted to the Ministry twice daily, electronically, from
the ports of landing, so there is a completely up-to-date, real-time
record of what individual vessels have caught and how much quota
they have, and so it is just a case of enforcing that, which is
probably a bit easier than the task that Defra have at the moment
where we have this rather complex system involving the producer
organisations and a lot of so-called "quota swaps" that
are actually mostly reflecting quota leasing that is going on
between individual fishermen. The only way quota can, in reality,
be moved around is via these quota swaps between producer organisations
that Defra has to try and keep track of but nobody really knows
what any particular vessel is allowed to catch at any one time
because all the producer organisations have completely different
ways of allocating quota to their membership. Some just use monthly
limits from a pool, some have individual quota systems for some
species and it is all very complicated. A fully-fledged ITQ system
would, I think, if anything, be easier to enforce than what happens
at the moment. The international dimension of the CFP inevitably
makes everything a bit messier than it is for countries that are
in the happy situation of having their own EEZ to control, which,
of course, applies to Iceland and New Zealand. We still have to
rely on records coming back from ports in northern Spain for some
UK registered vessels, but that is a problem that we have to deal
with under any management system. I am sorry; does that answer
your question?
Q66 Baroness Jones of Whitchurch:
Yes. Are there any other disadvantages to the tradeable system?
Mr Hatcher: From an economic perspective, I
can see no disadvantages. People may dislike the idea of trading
in quota for ethical or political reasons, but from an economic
perspective there is no disadvantage to trading in quota. Generally
economic inefficiency follows from the inability to trade rather
than the ability to trade.
Chairman: I think we are going into more
detail on this area.
Q67 Lord Palmer: I have to say, I
am getting slightly confused about this whole quota system; I
do not know if I am the only one around the table. Can you try
and explain in very simple terms how a tradeable system of quotas
might actually work in reality and whether it would be best to
operate it at individual vessel level or at another level, such
as that of the producer organisations? You have mentioned Iceland
and New Zealand several times. Have we a lot to learn from the
way their fisheries are managed, do you think?
Mr Hatcher: Yes, I think so, as I referred to
before, given the extra dimension of having to operate within
the CFP. I cannot go into huge amounts of detail about the day-to-day
operation of, say, the Iceland or the New Zealand system, but
they appear to be fairly sophisticated and, in each case, there
are a number of mechanisms in operation other than just the ability
to trade in quota that assist fishermen to balance their catches
and their quotas. Basically, the idea is that a tradeable quota
system operates at the level of individual vessels, so that each
vessel or each company buys and sells quota so that it has the
right amount of quota that it needs for the catches that it wants
to achieve.
Q68 Lord Palmer: Does this happen
on a very regular basis?
Mr Hatcher: Essentially there are two types
of trading. There is trade in permanent quota, which is not actually
tonnage of fish, it is usually a percentage of the annual total
allowable catch. In our case it would be the annual quotas that
we get from Brussels. Vessels have their permanent quota holdings,
which they hold in perpetuity, if you like, but most of the trade
on a day-to-day basis is within year leases, so it is trade in
actual tonnage of fish just for the current year so that fish
that is leased will go back to its original ownership after the
end of that year.
Q69 Chairman: Is there any way of
making it simple? This is the nonsense question, I am afraid.
Is there any way of getting instantaneous tradeability. I put
my net in the sea and it comes up with haddock that I do not have
cover for, and I get on the phone and say, "Look, I want
some haddock quota." Is there a market I can go to and there
and then get quota cover for the haddock I have got in my net?
Mr Hatcher: To some extent that happens already,
but, yes, that is the way it operates. Big companies will have
quota managers. Other smaller companies, or the single vessels,
will rely on buying and selling quota via brokers. Essentially,
the broker just puts buyers and sellers in touch with each other,
and it works in a similar way to a stock market. Some countries
have set up central quota exchanges, but I do not think these
have been particularly successful because the institutions that
have arisen spontaneously, if you like, seem to be perfectly efficient
and capable of dealing with trading on a real-time basis. Particularly
with the Internet, it is very easy having systems whereby buyers
and sellers instantaneously are in touch with each other. Also,
the Internet facilitates communication so well that fishermen
know what the price of quota is at any moment in time and can
make a decision about whether they want to buy more quota or stop
fishing.
Q70 Lord Palmer: As we are sitting
here, quota will actually be being traded at the moment?
Mr Hatcher: At this moment in this country?
Q71 Lord Palmer: Yes.
Mr Hatcher: It is, yes. This has already happened
to some extent in this country, but, as I said, what economists
tend to refer to as transaction costs, which are the tangible
and the intangible costs of trading quota, appear to be rather
burdensome at the moment. They could be made a lot less so if
the system were actually designed for quota trading rather than
accommodating quota trading, which is what happens at the moment.
Quota trading is going on in this country but it goes on under
the guise of swaps of quota between producers' organisations.
Q72 Lord Palmer: Going back to the
Chairman's point, if he suddenly found he had an awful lot of
haddock and he could not trade the quota, then presumably they
would just get discarded?
Mr Hatcher: Yes, if for some reason he was unable
to buy any more haddock quota, then he would either have to discard
it or there may well be some system in place for him to land the
fish without quota. I am not talking about what is going on at
the moment, I am talking about the sort of thing that happens
in other countries. There are various mechanisms that could enable
him to deal with that problem after he has landed and sold the
fish. He might be given a few days, a week, or a month to try
and find enough quota retrospectively to cover those landings,
he may be able to borrow against his quota allocation for the
following year, he may be able to land the fish and sell it and
pay a tax to the Government, some notional amount roughly equivalent
to what he would have paid if he had been able to buy quota. Countries
like New Zealand have a variety of mechanisms that they have fine-tuned
over the years to try and minimise the problem of people not having
quota, but there is something more fundamental that managers can
do, which is, in a multi-species fishery, to try, within reason,
to set quotas in more or less the proportion in which the fish
are going to appear in the fisherman's net to avoid the situation
that we have historically had in the North Sea where the saithe
quota is just out of all proportion to the quotas for other species
in the white fish fisheries. There are a number of ways in which
these sorts of problems can be dealt with, but do not for a moment
think that any of these problems disappear if you have a system
of fixed (non-tradeable) quotas. If anything, the problems are
likely to be worse.
Q73 Baroness Jones of Whitchurch:
As an economist, surely the tendency will be for all the really
big fisheries, the big companies, to absorb all the quotas and
squeeze out the little guys. Is that not what is going to happen?
Mr Hatcher: That is the fear that is often raised.
It does not seem to be what has happened in practice. If you introduce
an ITQ system and it is very well enforced, you may then have
some contraction in industry capacity, but if that happens that
probably should have happened anyway because that implies that
your previous level of capacity was too high—that is one
thing—but the idea that all the quota will be bought up
by a small number of big companies is rather unlikely and certainly
does not seem to have happened in other countries to the extent
that some people might have feared. There are a number of reasons
why small fishing vessels may, for some stocks, be more profitable
than large vessels, because they can target larger fish and land
them in a better condition and serve higher value markets, and
so it is not necessarily the case that very large companies are
going to be able to outbid small fishermen for quota. This does
not seem to have been a concern that has been realised in practice.
Interestingly, I was looking at a paper the other day by somebody
writing in Norway where they have opted to have fixed-vessel quotas,
which are not tradeable—they are tradeable, but you can
only buy and sell the whole quota, you cannot buy and sell a part
of the quota—and they are becoming more concerned about
the loss of smaller vessels in Norway because it is only the bigger
companies that can afford to buy and sell quota in such big lumps,
if you like. Interestingly, for political reasons they have tried
to avoid structural adjustments in the industry, and yet it seems
to be having the opposite consequences to what they intended by
not having tradeable quotas.
Q74 Viscount Ullswater: Before we
move away from quotas, I suppose the quota is divided between
the boats under ten metres and boats over ten metres. In your
system of ITQs, are you suggesting that quota can be tradeable
across any divide, whether it is a large boat, a small boat or
in between small boats or anywhere across the whole application
of quotas?
Mr Hatcher: Ideally, yes. I think in Iceland
all the small boats are now part of the quota management system,
and I think in New Zealand as well.
Viscount Brookeborough: The rights-based
management that exists here: what is your view on how it actually
works? Are you committed to a change in our system here?
Q75 Chairman: And is the present
system making it efficient?
Mr Hatcher: I would just like to say, this is
not my system or my commitment; I am speaking as an economist.
Q76 Viscount Brookeborough: In your
view?
Mr Hatcher: In my view, I can see no reason
why the UK should not move towards an ITQ system.
Q77 Viscount Brookeborough: And not
a fixed quota allocation, although I notice that at times you
said "a fixed quota allocation that is not tradeable",
so there are fixed quota allocations that can be tradeable. You
said it earlier.
Mr Hatcher: By a tradeable quota system I mean
that, whatever quota you have, you can trade in units of a tonne,
or 500 kilos, or five kilos—I do not know what the lower
limit would be—but that whatever quota you have is perfectly
divisible. You can buy and sell parts of it; that is what I mean.
Q78 Viscount Brookeborough: I notice
in the paper that we have got from you that the great the majority
of the sector (and this is talking about the fishermen) appeared
to be happy with their POs quota management. Are you disappointed
that you are failing to bring the fishermen round to your point
of view? A short while ago you were suggesting that the producer
organisations are not the most efficient way of managing.
Mr Hatcher: They may be able to play an extremely
efficient role in a quota management system, whether it is tradeable
or not. I am not saying that they are a cause of inefficiency,
I am saying that the present system—
Q79 Viscount Brookeborough: But they
are part of our system which you say could be much more efficient?
Mr Hatcher: In a tradeable quota system, the
producer organisations could assist the efficiency of the system
by providing a quota brokerage service for their members, by holding
amounts of quota for troublesome bycatch species that members
could then lease on a short term basis, by generally providing
an administrative service to their members in much the same way
that they do now, except now they have to work within this swap
system. Some years ago the producer organisations were given quota
allocations on behalf of their membership, which they tended to
just hold as a pool of quota and would say to their members, "You
can catch five tonnes a month of this, " or whatever. Increasingly
the POs have moved towards managing individual quota systems internally,
so large parts of the industry are already operating under individual
quota systems, but the trading that fishermen need to do is made,
I think, more difficult than it needs to be. The finding that
you refer to, I think, came from a survey that we did at the time,
and this was a few years ago now. I think that survey also found
that a large part of the industry wanted more flexibility in their
ability to trade quota, as I recall.
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