Publication - Research publication

An Assessment of the Conditions Affecting Entry into the Scottish Fishing Industry and Potential Policy Responses

Published: 19 Sep 2014
Part of:
Marine and fisheries
ISBN:
9781784127817

New entry into the Scottish fishing industry is commonly perceived as a self-evident necessity for the long-term prosperity of the sector and its absence a signal for government intervention. The remit of this paper is to explore whether prohibitive condi

37 page PDF

1.2 MB

37 page PDF

1.2 MB

Contents
An Assessment of the Conditions Affecting Entry into the Scottish Fishing Industry and Potential Policy Responses
2. Identified Barriers to Entry

37 page PDF

1.2 MB

2. Identified Barriers to Entry

Barriers to entry exist across industries and represent anything from high start-up costs, brand loyalty and legal barriers that make it difficult for new entrants to break into a market or industry. The barriers to entry within the Scottish fishing industry are structural rather than strategic. Strategic barriers such as anti-competitive behaviour, collusion and predatory pricing are not applicable. Instead, the barriers to entry that affect the Scottish industry tend to be created by regulation and subsequent financial barriers, by cultural perceptions and through expectations about future wages and profitability.

2.1 High start-up costs: A common perception is that a key condition preventing new entrants from joining the industry is the high financial costs of entry. A new entrant must finance the purchase of a boat, a fishing licence and, if they intend to target species governed by a Total Allowable Catch ( TAC), fishing quota. Specifically, the new entrants 'problem' has become closely associated with the price of buying and leasing quota.

Since the introduction of restrictive licencing, capacity aggregation and quota tradability, the cost of purchasing or leasing quota has increased dramatically as fishing opportunities have become concentrated in the hands of fewer operators. When entering the industry, new entrants have to compete with existing fishers who can only expand their operations by obtaining additional quota. Quota purchase and leasing costs have undeniably increased over time ( e.g. see chart below) and are likely to rise further when the obligation to land all catches is implemented as part of the recently agreed reforms to the Common Fisheries Policy.

Figure 1: Quota lease Coast as % of Vessel Revenue for Whitefish Segments. Source: Seafish

Figure 1: Quota lease Coast as % of Vessel Revenue for Whitefish Segments. Source: Seafish

While it is likely that the high start-up costs and limited availability of quota do create financial barriers to the entry of new fishers into the industry (Fig. 1), discussions with industry representatives suggest that the effect across the fleet is not homogenous. Vessel prices in some sectors can be considerable, with a second-hand demersal trawler or scallop dredger ranging in value from £100,000-£800,000. However, other sectors such as the inshore creel industry report relatively low barriers to entry as while a new fisher must gain a licence, a vessel can be bought for £5,000-£10,000 and the targeting of non-quota shellfish species is possible. High start-up costs will affect new entrants who intend to enter the industry by purchasing larger whitefish trawlers with the associated quota costs. However, there appears to be alternative low cost avenues for entering the industry at a lower level. It would also appear rational that new entrants who wish to become owners/skippers are unlikely to enter into the industry at the deep-end but work their way up through the industry as they build capacity, financial capital, quota and skills.

An issue raised by some industry representatives was that the short supply of quota does not just affect new entrants in relation to the associated start-up costs but as quota places a constraint upon existing vessels' business models the demand for new, young crew can be dampened. It was argued, for example, that quota constraints can prevent businesses from expanding and offering permanent positions to apprentices and trainees.

2.2 Industry Exit: Another identified barrier to entry is potential unwillingness or inability of the current, older generation to retire and exit the industry. An appropriate balance between entry and exit in the workforce is essential within a framework which limits aggregate vessel capacity. Entry of new skippers and vessel owners into the system depends on an adequate rate of exit to provide new entrants with recycled opportunities. If fishers do not leave the industry, this constrains new entrants' access to quota, licences and vessels. Moreover, if retired fishers choose to lease quota, as it offers financial security in the absence of a pension, this does not alleviate the issue of quota availability as quota leasing prices are high. In engagements with some stakeholders and industry experts high quota price was attributed to quota availability and a perception by some that internal leasing mechanisms are cumbersome and inefficient which in turn increases price.

The rate of exit depends on whether older fishers can retire and whether they want to. Older fishers may stay in the industry due to lifestyle choices. They may also remain in the industry because of debt or because they have limited pension provision. Highlighted in the ADAS 2004 report prepared for Defra on Entry and Exit into UK farming, one of the key recommendations was that financial assistance and information should be provided on retirement for older workers. The concept of low exit as a constraining effect on new entry was generally supported within the discussions with industry representatives. The fact that fishers do not generally have pension schemes was conveyed as a factor almost forcing the older generation to stay at sea, whether they have debt or not.

In fisheries the world over, subsides are an important policy instrument. The rationale for the use of subsidies is that they will either be used to correct market failure (provide a public good or correct for an externality) or to redistribute resources in order to improve welfare. In Scotland, there are a number of direct and indirect mechanisms for supporting the industry. . These subsides, however, can also have negative effects on the industry. A 2004 report by the Office of Fair Trading ( OFT), concluded that subsidies can create market distortions that affect allocation, productivity and dynamic efficiency. In particular, it was highlighted that the use of direct subsidies that cover fixed and variable operating costs affect firms behaviour and entry and exit decisions ( OFT, 2004). The use of direct subsidies gives incumbent firms an advantage over potential new entrants. This facilitates a low rate of exit as recipients of these subsidies will be allowed to remain in the market when they may otherwise have experienced business failure and exited. This affects competition, with an artificially low rate of business failures making it difficult for new firms to enter the industry. While there may be good grounds for the various subsidy programmes which benefit the fishing industry, it is important to be aware that, in addition to their beneficial impacts, they may have unintended implications for exit and entry into the industry.

2.3 Expected Returns on Investment: Analysis of entry/exit decisions in the North Sea English beam trawl fishery revealed that the decision to exit or enter a fishery depends on the expected benefits of either action (Tidd et al., 2011). Given the operation of complex conservation regulation, new entrants may be discouraged from entering into the industry given the uncertainties created by regulation that affects the potential future revenue streams from fishing regulated stocks. For example, a Fixed Quota Allocation ( FQA) holding provides an opportunity to receive a revenue flow from a fishery, however, as the quota is a percentage of a set TAC, the quantity in weight of fish landed is open to vary year on year, therefore creating uncertainty over future profit streams. Other regulations, such as effort controls and the upcoming landings obligation, are likely to produce uncertainty as well as economic factors such as prices and costs. Consequently low expected returns on investment may exacerbate the financial barriers to entry. If expected returns were high, the financial barriers to entry would be less of an issue.

2.4 Acquiring knowledge and skills: To gain a career at sea, potential fishers have to gain specific skills and qualifications. Education and training requirements can act as a barrier to entry as fishers must undergo basic safety training as well as specific oral exams for skipper and mates tickets. Access to education, in terms of funding, is often a constraint in many markets.

2.5 Cultural perceptions: The International Maritime Organisation ( IMO) identified that in some parts of the world, particularly the traditional maritime countries, there is an apparent reluctance amongst young people to choose seafaring as a profession. The implication behind this trend is that the profession of 'seaman' in the OECD countries is becoming less attractive from the point of view of personal and even professional life. Cultural perceptions have also limited entry into Scottish farming, as potential new entrants have turned away from farming in favour of other, more financially secure professions ( ADAS 2004). In Scotland, the fishing industry has strong competition from other marine careers, notably oil and gas, renewables and the merchant navy, that offer younger workers greater financial security. Despite this, a strong commonality across the industry engagements was that adequate enthusiasm exists amongst younger persons in Scotland towards a career in the industry.

2.6 A role for government?: While there are clearly barriers to new entrants and potential, though uncertain, benefits from increasing the rate of entry, the basis for any government intervention is less clear. It is broadly accepted that well-functioning markets in which price is determined by the interplay of supply and demand are an effective means of allocating scarce resources. Where markets do not function well i.e. where there are market failures, then markets may misallocate resources resulting in inefficient outcomes. Even where markets are efficient, they can lead to inequitable outcomes which are regarded as morally or politically unacceptable .

Government may seek to intervene to improve outcomes where there is market failure or significant concern about the distribution of incomes and wealth. It is not obvious that either of these situations prevails in the case of new entrants in the fishing industry, beyond minor failures in the availability of information and provision of training, and the case for government intervention is at best unclear even in theory. The Scottish Government Economic Strategy (2007) notes that " without addressing significant market failures or legitimate equity concerns, government action risks crowding out private sector activity or creating new sources of inefficiency or inequity".


Contact