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

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37 page PDF

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

37 page PDF

1.2 MB

4. Potential Policy Responses

4. 1 Providing financial assistance to new entrants

An internationally recognised method of reducing financial barriers to entry into industries such as fisheries and agriculture are government sponsored financial assistance schemes. These can take the form of subsidies to cover the capital requirements of entering the industry and/or the skills and training requirements. Figure 9 provides an overview of the financial assistance schemes used to facilitate new entry into the Scottish fishing industry and similar international schemes in operation.

Figure 9: Financial Assistance for New Entrants

Figure 9: Financial Assistance for New Entrants

4.1.1 Financial Assistance for Training: From the interviews with the industry representatives, an industry perception is that training for new entrants is generally good. The promotion and funding of skills, education and apprenticeships is highlighted as an important role for the government in encouraging new entrants, a process traditionally promoted within fishing communities through familiar and kinship ties. Specific attention was given to the FITA 3-week training course that enabled new entrants to gain the necessary certification to be legally employed on UK fishing vessels and after 18 months offers the opportunity to progress to gain an under 16.5 metre skippers ticket covering bridge watch keeping, engineering, stability and radio. While this was identified as a good course, it was noted that funding for the course will cease from 1 April 2014. It was commented by the Western Isles that this had proved a highly valuable asset for the community and a way forward for the government to support entry is to continue funding this course. It was noted that while the new Modern Marine Apprenticeship ( MMA) was a useful tool for areas that had a good local college framework, for more remote areas a dual-approach was needed to make funded training opportunities accessible across the country.

In a similar vein, the Shetland PO recently expressed concern that Scalloway's NAFC Marine Centre is facing further funding cuts that would harm the college and local fishing industry. The NAFC Centre provides a myriad of important services to the local community, including data collection and policy development as well as the provision of training for young people who want a career in the industry and for existing fishermen.

A general consensus within the industry engagements was that programs that are already well-established and fruitful should not be overlooked in an attempt to produce something 'new'. A potentially popular and effective policy response would therefore be to continue and/or increase Government support and funding for the programs identified as important by the industry. This could facilitate an expansion in capacity in these services that have a proven track record, as opposed to looking for new avenues to invest in which could spread available finances too thinly to be effective. A commented from two POs was that while training for the catching sector was important, opportunities could be tweaked to be more dynamic. Specifically, it was noted that training is needed for a variety of areas that all work to support the catching sector. Training is needed for new fish filleters in the processing sector, to train new fish salesmen, marine engineers and port workers such as electricians. A perception was that workers in these positions were aging as well. The concern was that a shortage of workers in these ancillary services increases the costs for firms in the catching sector. Another request was for supplementary training to be given to existing crews. One option discussed was to provide training that adds value to the catch, for instance on fish presentation at market.

4.1.2 Financial Assistance for Ownership: Figure 7 outlines some of the schemes through which financial assistance is offered to those wishing to establish ownership in the industry. The financial assistance available to new fishers is potentially quite substantial, specifically in relation to the purchase of a boat.

In addition to the government schemes, there are several private-industry schemes in operation around Scotland that facilitate new ownership. The Outer Hebrides have developed a number of programs that aim to create and retain employment opportunities in the area through supporting business development for those wishing to enter the industry. The Outer Hebrides Fisheries Support Scheme ( OHFSS), a partnership between Comhairle nan Eilean Siar, Royal Bank of Scotland and Western Isles Fishermen's Association finances low risk business plans in order to facilitate new, local entry into the industry (Fig. 10). Financial assistance is available for individuals to purchase a fishing vessel of less than 24 meters in length and between 5 to 30 years old. Loans of up to 40% of eligible costs are available up to a maximum of £100,000, with a repayment term of 10 years. The local fishing association and local authority identify low risk cases and support them through the process. The costs to the local authority are reportedly to be remarkably low, with an estimate of around £1,200 over a ten year period. It is reported that over the last 10 years, over 100 projects have been financed, with average loans around £150,000.

In addition, fish processors Macduff Shellfish have recently initiated a program that makes available up to £250,000 in interest free loans that fund local business models in purchasing vessels. It is also reported that several other vessel-ownership schemes are funded by processors on Islay and Barra. The processor's motivation in investing in the community was to ensure that it was guaranteed adequate supplies. In a similar line to the OHFSS, this business model has been facilitated by using local authorities and fishing associations to identify low risk parties. A lynchpin of the Outer Hebrides' successful approach to new entrants is the creation of a central information point for the new candidates (either in accessing training or moving into ownership and employment), in assessing low risk business plans and for local companies that wish to facilitate loans. In the Outer Hebrides this role appears to fall chiefly upon the local fishing association but also within the local council.

Figure 10: Eligibility Criteria for the OHFSS Scheme

Figure 10: Eligibility Criteria for the OHFSS Scheme

A key component of the Outer Hebrides approach is to practice a positive attitude in relation to non-local labour. There is often a tendency to look at non-local labour in the short-run. However, the experience within the Outer Hebrides is that non-Scottish, EU workers interested in participating in the industry represent a viable investment that create numerous multipliers as most have families in the area and are well integrated. There is therefore evidence that non-Scottish EU new entrants can provide a positive future for the industry. An option going forward is to facilitate greater linkages between the completion of training programmes, apprenticeships and work on vessels. In the evolving Shetland New Entrants Scheme, this idea is being put into place by the Shetland's PO. Social pressure and economic incentives are being used to encourage vessels to hire the recent graduates of training programmes as opposed to relying upon agencies for cheaper workers. While this is already working at a local level, this could be encouraged nationally by disseminating information on schemes being operated in order to encourage similar practices elsewhere.

4.2 Providing quota for new entrants

A popular method of accommodating new entrants in the agricultural industry is to ring-fence a proportion of the total quota. There are several mechanisms that can be used to create this pool. Quota banks can be used to accommodate new entrants as lower lease rates can be charged to new fishers. This mechanism exists in Denmark, where fishers group quota in 'Fish Pools' that tend to be managed on a private basis. The objective of the Fish Pools is to promote transferability and reduce the costs of trading quota on the market, with pooled quota accessed via an online trading scheme. When quota is pooled in such a way, the opportunity exists to top slice a proportion of the pool and reserve this for new entrants, to whom it is loaned at low cost. This 'Fish Fund' has strict criteria in terms of who may access the reserved quota with access dependent on age and ownership status in vessels, with successful entrants receiving quota free of charge for a period of 4 years, with this reduced by 25% in 4 successive years. Typically, the policy of setting aside quota for new entrants can raise several challenges such as decided how much quota to reserve, who would be eligible and issues of equity and efficiency which may arise if quota is taken away from established fishers.

A similar system is operated by the Shetland PO and in the Outer Hebrides and conceivably a similar process could be administered within Scotland by the POs or by central government. There are several ways in which a quota pool for new entrants can be achieved, for example through orchestrated reductions in existing allocations, the ring-fencing of TAC increases, government buy-back schemes or the top-slicing of FQA sales.

Figure 11. International Examples of Quota Provision

Figure 11. International Examples of Quota Provision

4.2.1 Proportionate reductions in existing allocations: A mechanism used to facilitate new entry into high seas fisheries uses proportional reductions in existing members' quota holdings to create a pool of quota for new members ( OECD, 2009). This mechanism is more appropriate for international rather than national fisheries as in the former there will exist an allocation that allows existing and new members to be better off cooperating rather than not cooperating. The threat of free-riding works as an incentive for existing parties to relinquish a proportion of their quota. This condition does not exist to the same degree within national fisheries. Moreover, even within high seas fisheries the creation of quota for new entrants is undermined in practice by what Kahnemann et al., (1990) described as the 'endowment effects'. The endowment effect recognises that countries are likely to place a greater value on the certain current allocation than on an uncertain future allocation, even if the expected value of the future allocation is greater. In practice, the uncertainty over the future gains renders members reluctant to surrender some quota.

The issue facing Scotland is that while the industry may support the importance of a new entrants scheme, rational operators would be unwilling to see a reduction in their quota holdings in order to accommodate new competitors. Existing operators traditionally benefit from barriers to entry as they offer protection against competition from new operators who compete for market share. Further, an issue highlighted by the industry was that this mechanism also raises concerns over efficiency. New entrants are likely to be less efficient users of quota than experienced fishers, at least in the short run and the transfer of quota to new operators may reduce the net value of the fishery although this effect may be more than compensated for over the longer run.

4.2.2 Ring-fencing of TAC up-lifts: Changes in the TAC are distributed amongst existing fishers in relation to their proportional holdings of FQAs for each stock. A more acceptable method for creating quota for new entrants is for fishery managers to hold back some proportion of any TAC increases from the existing fleet and ring-fence these opportunities for new entrants. Under this arrangement, existing fishers would fish at least the same amount as the previous year, therefore suffering no direct reduction in opportunities. As within the previous mechanism discussed, access arrangements would then be put in place. New entrants could access the quota through an auction, lottery, or the used of pre-defined criteria such as age, certain experience, qualifications, or access through an apprenticeship scheme. One option is to create a link between apprenticeships and training courses and access to New Entrants quota, thereby increasing the impact of the training schemes.

While this mechanism may appear more acceptable than removing quota from existing fishers, in practice it too produces issues of efficiency, equity and acceptability. Firstly, TAC increases are in no way certain. Therefore this mechanism may be subject to year on year fluctuations. Secondly, TAC increases are unlikely to produce new quota holdings that reflect the true catch composition. While an increase in the haddock TAC will increase opportunities for the prosecution of this species, under the landings obligation is it likely that fishers will have to acquire quota for the bycatch of haddock, such as whiting or cod. Acquiring this additional quota could prove difficult as financial capital is in short supply. If quota holdings representative to true catch is not held by new entrants, they will either be forced to land illegally or limit operations at the binding TAC. Additionally, issues of inefficiency may arise in the short run as improvements in fishing opportunities are reserved for the potentially less efficient new entrants.

A final issue is that the option of ring fencing TAC increases for new entrants offers only an ostensible option in terms of fairness and acceptability. Changes in stock abundance are produced by an amalgamation of factors; however one driver is the impact of conservation measures that limit fishing mortality. These limits force fishers to carry short-run economic costs as they adhere to conservation measures such as reductions in catch quota, effort quotas, gear restrictions and spatial and temporal closures. Fishermen have largely accepted these often substantial short run costs on the expectation that they will eventually be rewarded by future long-run increases to the revenue streams coming from stocks as TACs are increased. If the benefits of such action are not awarded to these actors, but instead allocated to new entrants, this implicit bargain between managers and fishermen is significantly undermined.

4.2.3 Government Buy-Back/ Top Slicing of FQAs Sales: An alternative mechanism in setting aside quota for new entrants is to facilitate a government buy-back scheme. As part of a settlement with Maori tribes, the New Zealand government had to buy back quota from the market, with this mechanism also floated by Poland and Italy in order to allow for new entrants to enter the EU Emissions Trading Scheme. Once the quota has been acquired, this can then be leased to new entrants on a prearranged basis.

One option that may become available to the Scottish Government under the plans to alter quota management arrangements is the ability to top-slice a small proportion of FQAs when they are sold. This quota would then be ring-fenced for a new entrants scheme, such as young fishers coming out of training programmes and apprenticeships. This could be used in the same fashion as the Shetland scheme, by using the quota as an economic incentive for vessels to take the young fishers on as crew. Some form of loan system could be set up, such as in the EFO or Danish Fish Fund programme where the quota is leased to new entrants as a low interest quota loan. Over time, the loan (quota) would be returned to the government in instalments, allowing it to be allocated to other individuals.

4.2.4 Industry engagement: One clear theme emanating from discussions with the industry on the issue of new entrants and possible policy responses is that certain sections of the industry believe that the provision of quota to new entrants should not be a role taken on by the government. Instead, it was mentioned that any transfer of quota between the existing fleet and possible new entrants programs should be left to the industry to decide upon. This view is likely to be shaped by nervousness amongst existing fishermen of the government administering reductions in current or future quota holdings. It was commented that control of this mechanism should remain within the industry, either at PO or community level. One strong perception from POs representing the North-East was that providing quota for new entrants was a red herring as there were so very few young people interested in joining the industry. For those that did have the passion, it was likely that their drive would allow them to enter into the industry anyway, with the hardship making them a strong and determined fisherman. One Fishermen's Association representing the inshore sector commented that one policy that could be welcomed was an increase in licences. In line with EU capacity limitations, the Scottish Government is able to create more licences. These could then be ring-fenced for new entrants if they were able to purchase a vessel with no licence attached. If the fisher then decided to move on to another vessel, the licence would be returned to the new entrants pool and re-allocated.

4.3 Community quota holdings

Encouraging communities to hold quota is a direct way of supporting fishing communities and has been used in Iceland and in the US to facilitate new entrants schemes. Once a community quota holding has been established, control over how the quota is used lies with the community. Quota can then be leased or sold to young members of the community so as to lower barriers to entry. This policy is attractive as it works to alleviate anxieties over the impact of quota trading and fleet consolidation on the economic viability of fishing communities ( GAO, 2004).

Community quota holdings operate in the Alaskan halibut and sablefish fishery and, in New Zealand, the Chatham Islands Community Trust receives quota allocations from New Zealand fishery management which it leases out on an annual basis to community fishermen. However, the most prominent example of a community quota holding that facilitates new entry is the community based management initiative in Shetland. The Shetland's community quota was purchased by both the Shetland's Fish Producer Organisation ( SFPO) and the Shetland's Island Council ( SIC). The scheme was initiated by the SFPO in 1993, which began purchasing quota from decommissioned vessels and using the holdings to augment members monthly quota allocations. The SIC then began to invest in quota to create a pool of community held quota, which has been used to help new entrants get started in the industry. The SIC pool is managed by the SFPO, but held aside for fishers who cannot afford to purchase quota. The Shetland's New Entrants Scheme attempts to help young fishers who lack the capital to enter the industry. New entrants use the quota to become members of the SFPO and fish out of the general quota pool despite not owning any individual quota. The new fishers pay a proportion of their gross earning to the SFPO as 'rent' for share of the community quota. To date a number of "new entrants" have been able to acquire a boat and licences and start fishing without having to purchase quota. The rental income for the quota and the appreciation in quota values offers the ability to continue to invest in quota.

The Shetland PO is in the process of designing a new scheme that attempts to link newly qualified fishers with placements on vessels. While the training courses are valuable, experience on a vessel is necessary for young fishers to increase their skills and capacity and promote them to a good standard. The SFPO has identified that due to the distinct pattern of ownership in Shetland- where, for instance, 6 out of the 7 crewmen own a share in the boat and only one or two crewman are outside of this ownership structure- it can be hard for young fishermen to gain establishment on boats. In response, the SFPO has designed specific social pressures and economic incentives to foster this link. As well as promoting the use of new, young workers as apprentices on board vessels, the SFPO used the quota pool to incentivise this. If a new trainee is taken on board a vessel, the SFPO grants the vessel additional quota from the pool to cover the expected costs, which are estimated to be in the region of £10-£12,000 per annum. The current intention is to use the quota pool to help create opportunities for 3 or 4 new starts a year, with the quota pool ring-fencing up to £150,000 of quota. The SPO see this scheme as requiring several commitments: one from the young trainees to sign up and apprentice on board, one from the existing vessels to hire more expensive new starts as opposed to cheaper agency staff, and a sacrifice across the whole PO as quota is siphoned off from the PO's quota pool.

In Scotland, community quota holdings are also held as an asset in the Outer Hebrides. Several years ago, the local authority chose to invest £500,000 to purchase Nephrops quota. This quota is held within the Scottish Fishermen's Organisation and the Orkney PO and ring fenced for new entrants and is leased at a significantly lower rate than the market price for purchasing quota. This quota is not only leased to local operations but was recently leased to an Irish vessel that lands locally.

Theoretically, the Shetland and Outer Hebrides models representing a form of community held quota could be replicated in other Scottish POs and communities. The Shetland PO is, however, in a fortuitous position in that it already owns this quota and does not have to raise the financial capital to create a new entrants pool. This would not be the case if a new community/ PO scheme was to be encouraged. As experienced in the Alaskan Halibut and Sablefish fishery, the creation of community quota holdings can create several problems. While the programme did not encompass a specific new entrants function as in the Shetland's example, its operation highlights the problems in practice associated with community purchasing. The North Pacific Community Quota Entity Programme ( CQE) was created by the North Pacific Fishery Management Council in 2002 as a policy response to the steady decline in total quota held by small, coastal communities since the introduction of IFQs in the 1990s ( CQE Review, March 2010). The intent was to allow eligible communities in specific areas to purchase commercial IFQ halibut and sablefish quota shares to lease to community residents. The aim was to create a permanent asset for the community, for it to use on behalf of its residents such as by leasing quota to individuals who were unable to purchase quota themselves.

Based upon agreed criteria (Fig. 12), 42 communities were identified for inclusion in the programme. The communities had to form non-profit organisations to manage the quota on their behalf, with the CQE placing limits on how much quota could be purchased by each community and by individuals within. Allocation at a community level aims for an equitable distribution across the community. However, the criteria and weighted used when allocating internally differs across communities.

Figure 12. Quota Access Criteria in the Alaskan Halibut and Sablefish CQE Programme

Figure 12. Quota Access Criteria in the Alaskan Halibut and Sablefish CQE Programme

A 2010 review of the CQE concluded that while the programme could be viewed as a success, the efficacy of the programme had been undermined by funding issues. Due to an increase in the price of quota and other market realities, it had proven very difficult for communities to finance quota purchases in the absence of grant money. In response, the State of Alaska facilitated a loan programme to communities in order to finance the CQE programme. The likelihood is that Scottish POs and communities would face similar financial problems when acquiring quota and would require some form of financial assistance from the government. Moreover, if some communities were able to purchase quote while some weren't, this may lead to some communities calling for financial help in order to compete and protect their operations against the increased competition for quota. If communities began buying up quota, this would most likely lead to an increase in the price of quota, which would have a negative impact on other communities and individual operators and may constrain quota availability at a national level. Government involved in the financing of community purchases is likely to be a controversial process with the potential for unintended consequences.

Another issue with community quota holdings is that they have the potential to sustain inefficiency within the fleet, as the ring-fencing of quota by communities - while producing the desired social objectives - can prevent quota from travelling to more efficient operators and regions. A concern expressed in the industry interviews was that allocating out quota on the basis of community preference and to new entrants - who are generally less efficient than established fishermen - will see the subsequent price increase unaccompanied by a concurrent increase in efficiency. The objective of quota transferability is to facilitate the concentration of quota in the hands of the more efficient operators, allowing the inefficient to exit (Maloney and Pearse, 1979). Given that community quota schemes restrict tradability and are likely to preferentially award quota to less efficient operators such as new entrants and those typically unable to purchase quota on the market, a potential efficiency loss is likely.

4.4 Facilitating Industry Exit: The concept of low exit as a constraining effect on new entry was generally supported within the industry engagements. 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 ADAS's report on entry and exit in UK farming, it was reported that the low rate of exit reflected that many older farmers did not want to retire, not that they are unable to, with only around one-third of farmers reported to have intentions to retire completely. Following on from the recommendations of the ADAS report, one option is for Marine Scotland, the wider Scottish Government and the Department of Work and Pensions to proceed to produce an advice pack on retirement and succession for the industry. Advice on these issues could be more widely incorporated into the advisory services offered to the industry.

4.5 Changes to quota management

Changes to current quota management arrangements could help alleviate conditions that prohibit new entry as they could be tweaked to make quota more widely traded and available (transferability) or to improve the efficiency of trading mechanisms to reduce transaction costs. Moreover, open and transparent trading mechanisms can help improve economic performance through encouraging the more efficient use of available quota.

4.5.1 Increased tradability: The Scottish government is consulting on possible changes to the quota management system. One option is to create long term fishing rights, the so-called 'stewardship rights' and/or the condition that FQAs need to be tied to a licence. This second option could be used to facilitate a more transparent and efficient market for quotas, which could allow for real-time swapping. One of the reported issues affecting the fleet is the high price of quota, in particular the costs of leasing quota. Young fishers do not necessarily have access to sufficient capital for purchasing quota, therefore by leasing quota they can participate in the fishery while building up savings. By removing the link between FQA holdings and licences, an online trading platform could be established that would facilitate information sharing, transparency and efficiency. The current FQA market, run by POs and lacking in transparency, is likely contributing to the inflated prices paid to buy and lease FQAs. A public record of FQA sales and some sort of privately run online trading platform could aid new entrants by creating a downward pressure on lease prices.

4.5.2 Limits on the concentration of quota: One option is to place concentration limits upon how much quota any one participant can hold. This mechanism has been used in several international fisheries and typically represents a restriction on the percentage of the annual allocation that an individual can hold (Table 3). Internationally, the range of limits sets varies widely, from 0.5-1.5% in the Alaskan Halibut and Sablefish Fixed Gear IFQ Programme up to 30-45% of species ITQS in the New Zealand quota management system. Setting quota concentration limits can help fisheries management achieve specific social goals. However, limit should be determined on a fishery by fishery basis, as some fisheries such as the offshore pelagic sector which requires significant capital investment may be more likely to have high level of concentration in comparison with near shore fisheries accessed by smaller boats. This mechanism would be aided greatly by the recent publications of the UK FQA Register of quota holders and their holdings.

Table 3. Quota Concentration Limits in International Fisheries

Fishery

Quota Holding Limitations

Alaskan Halibut and Sablefish Fixed Gear IFQ Programme

0.5-1.5% of the halibut or sablefish shares- this varies depending upon the area and excludes vessel with grandfathered rights.

British Columbia Integrated Groundfish Programme

4-10% of a species' yearly catch limit, with the percentage varying between species

Gulf of Mexico Red Snapper IFQ Programme

6.02% of total IFQ shares

New Zealand Quota Management System

Between 30-45% of total species ITQs

4.5.3 FQAs can only be sold as segments: The Government can put in place restrictions on how FQAs are sold. In particular, if an FQA were to be split into a number of equally sized segments, with no individual or grouping able to buy more than one or two segments, then the price of FQA segments may become more affordable to aspiring new entrants. A similar system operates in the US Pacific halibut fishery. The key beneficiaries of this option would be those individuals and firms who currently wish to hold FQA units or to increase their holdings of FQA units but are unable to do so due to the prohibitive costs of buying whole FQA units or bundles of whole FQA units. Demand for FQA segments may come from current skippers or owners, crew members, new entrants and aspirant new entrants.

The overall impact of this option is uncertain. It would affect a somewhat arbitrary redistribution of FQA holdings compared to the do nothing option - from larger to smaller operators in the first instance - and may in some circumstances increase economic efficiency and in others may reduce it. Likewise the expansion of the market and the attendant reduction in the market power of large buyers may increase prices, to the benefit of sellers. Alternatively, there may be downward pressure on prices because the new demand comes from financially constrained smaller operators - sellers may be forced to cut prices in order to find willing buyers.


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