CONSULTATION ON THE ALLOCATION OF SCOTTISH FISH QUOTAS

Chapter 3: The status quo

3.1 This chapter describes the system of allocating fish quotas that exists now and asks whether it should be retained.

Development and review of the FQA system

3.2 The present system of 'sectoral' quota management, where Fish Producer Organisations ( POs) manage annual allocations of fish quota on behalf of their members, began in the 1980s. This approach enjoyed, at least for a period, a reasonable level of support in the fishing industry, because responsibility for day-to-day decisions on the management and uptake of quotas was in the hands of the industry, through POs.

3.3 Allocations of quota were based at first on PO member vessels' track record of catches in the previous three years (a "rolling" reference period). During the 1990s, however, there was increasing concern that fishermen were being put under pressure to take their allocations in full, since failure to maintain catches could result in reductions in future quota allocations. The system was also seen to encourage "paper" or "ghost" fishing whereby vessels recorded catches which they did not make simply in order to boost either the vessel's track record or its PO's uptake. It was also believed by some that the system inhibited the practice of swapping or gifting of fish between POs.

3.4 In 1995, the fishing industry was invited by the then Ministers to consider and put forward proposals for improving quota management which would be practical and command wide support. One proposal advocated by a number of fishermen's groups was the adoption of fixed quota allocations ( FQAs), in preference to allocations based on the rolling reference period.

3.5 In 1997, a working group of industry and Government representatives was set up to consider the introduction of FQAs to replace allocations based on the rolling reference period. The working group concluded that the arrangements for quota allocations could be significantly improved by the adoption of FQAs and a new system was introduced across the UK in January 1999.

3.6 The new FQA system involved POs and other quota allocation groups receiving a fixed percentage share of the UK's quotas each year irrespective of whether they had fully fished their allocations in previous years, with allocations from 1999 based (in general) on catches (track record) made in the fixed reference period 1994-96. Under FQAs, track records were converted into "quota units" which were then used to calculate POs' allocations.

3.7 It was considered that the FQA system would achieve a number of improvements on the previous system. These included:

• Greater year on year stability in managing quota allocations;
• Less pressure on fishermen and POs to maintain their track records by utilising their full quota allocations;
• The ability to swap or gift quotas without suffering a reduction in future quota allocations;
• Facilitating investment in the fleet by ensuring that track records were retained whilst vessels were being replaced or modernised; and,
• Reducing the bureaucracy and complexity of the previous system.

3.8 When the FQA system was announced, the then Ministers emphasised that it was not the Government's intention to establish a system of Individual Transferable Quotas ( ITQs). It was further emphasised that nor was it the intention to make it any easier for licences and quotas to be traded: it was stated in particular that there would not be a free trade in quota units.

3.9 At the time of the main announcement, in June 1998, it was also stated that the new arrangements would be reviewed in 2001. When the review took place, a number of POs and representative bodies pressed the Fisheries Administrations to allow for more flexibility in the operation of the system, and in particular to permit permanent transfers of FQA units between fishing licences.

3.10 The review concluded in 2002. Its main conclusion was that the FQA system had achieved its underlying objectives of more effective management of catches in support of stock conservation, and therefore that the system would continue to operate, with a further review then planned for 2006. In response to the representations calling for greater flexibility, rules were changed to allow individual FQA units to be transferred, but only in specified circumstances. The prohibition on transfers of individual units from the licences of active fishing vessels was maintained.

3.11 Notwithstanding the formal position in relation to FQA transfers, fishermen and others entered into private legal agreements to transfer to the 'buyer' each year the tonnes of quota arising from identified FQA units. Fisheries Administrations had / have no role in these private agreements, but recognising the reality that they do go on, have occasionally conducted 'reconciliations' where, by exception to the normal rules, individual FQA units have been moved between active vessel licences (where both parties agree). The purpose of doing this has been to make unnecessary the costs of maintaining legal agreements over a number of years. The last such reconciliation was in 2010.

How quota allocation and management operate under the Concordat

3.12 The 2012 Concordat changed the way in which quota allocation operates in the UK. Through the Concordat the UK Government apportions UK fish quotas among the four UK Fisheries Administrations. Before 2012, the UK Fisheries Administrations acting together allocated quota directly to UK POs. The amount of quota that each Administration receives for each quota stock is calculated in general on the basis of the number of FQA units on the licences issued by each Administration. Each Administration in general issues licences to fishing vessels that normally fish out of a port in their territory.

3.13 After receiving quota from the UK, each of the four UK Fisheries Administrations allocate quota to POs. In relation to most quota stocks these allocations are made by the Scottish Government now according to the number of FQA units held for the stocks allocated. This 2 step process is summarised in the diagram overleaf.

3.14 POs also hold 'dummy' fishing licences ( i.e. they do not license a real vessel, but are issued to the POs by one of the Administrations) to which they may assign FQA units on behalf of their members or other persons. FQA units held on a PO dummy licence administered by the Scottish Government count towards the Scottish allocation for a given stock.

3.15 A Scottish fishing vessel may join any UK PO, and the Scottish Government will make allocations to any UK PO with Scottish vessels. Once allocations are made to POs, the quota is fully within their control (subject to quota management rules). UK POs can in theory receive allocations from all 4 UK Administrations (if they have members from all 4 countries). The allocation process is summarised in the diagram:

3.16 Tonnes of quota allocated to UK POs may in general be transferred freely throughout the UK and may also be swapped (with the approval of the UK and the relevant Fisheries Administration(s)) with other EU Member States, in return for quotas that are wanted by UK fishermen. The in-year transfer of tonnes of quota has no effect on allocations in the next year (thus why FQAs are Fixed Quota Allocations).

3.17 The Concordat allows each UK Administration to give notice of its intention to alter the basis on which quota within its control is distributed. That may mean not using FQA units if the relevant Administration so decides. 'Notice' in these circumstances is given to holders of FQA units on fishing licences and other interested parties. The Scottish Government gave such notice in Quota Management circular 1/2014 of 28 January 2014.

3.18 When notice is given, the relevant Administration may also introduce a temporary halt to the transfer of FQA units from its licences to the licences of other Administrations. Again, such an arrangement was introduced by the Government via circular 1/2014 of 28 January 2014. After consultation, the relevant Administration may make decisions about a new allocation system. When it does so, it may also offer to existing FQA holders affected by the new system a continuing notice period (which started when notice was first given) during which time the existing allocation system will continue. Under the terms of the Concordat, the expiry of this notice period is to be agreed among the UK Fisheries Administrations and will, of course, depend on the nature of the change.

Arguments for retention of the status quo

3.19 It is clear from formal and informal consultations with fishing industry representatives, Producer Organisations, skippers and other interested parties that there remains a significant body of support for allocations to continue to be made under the present FQA system. Many take the view that the FQA system is a positive aspect of stability in the operation of fisheries management, and offers in particular a sound basis by which businesses can plan for the future. It is also argued that it is significant that there remains support for the approach of the FQA system even while, in the last decade, the quota arising from holdings of individual units has in some cases declined significantly, as Total Allowable Catches ( TACs) have reduced, and the number of vessels in some fleets has declined.

3.20 It is also argued that stability in shares of national allocations, which is the defining aspect of the FQA system, has encouraged banks and others to look more positively upon lending to fishing businesses.

3.21 These views are exemplified by comments offered by the Shetland Fish Producers Organisation, in their response (in a letter of 26 March 2014) to the Cabinet Secretary's letter of 21 February:

"Those fishermen, who remain in the industry today, despite the significant pressures of change in recent decades, are by and large those with the greatest commitment to the future of their industry. Most of these fishermen have been forced through this period to make substantial financial investments in quota in order to remain viable. Many have also borrowed money on the security of the value of their quota holdings to invest in the new equipment and fishing vessels essential to the future of the fishing industry"

"…the current system of quota management and allocation in Scotland may not be perfect, [but] it has worked effectively for many years and is probably as fair as any system anywhere in the world."

3.22 Arguments emphasising the utility of the FQA system to the evolution of the fishing industry were also offered by the Aberdeen Fish Producers Organisation, in their e-mail of 20 March 2014:

"Since its introduction in 1999 the FQA system has been administered by all actors to provide economic solutions to management problems. The Government throughout this period did not interfere with the exchange of allocation between actors in the industry."

3.23 The principal arguments offered in favour of the status quo are that it has provided a stable system through which the fishing industry has been able to develop and adapt during fluctuating economic and biological conditions, and has encouraged investment as a result of the security that is considered to exist in holdings of FQA units. Those holding this view often argue that the Government should reinforce and reward investment by maintaining the status quo, and not, in their view, undermine investment by responding to calls for a changed system. It is sometimes argued that the calls for change come from individuals and businesses that did not invest in allocation units when such investment might have been more possible, preferring then perhaps to extract higher profits.

3.24 It is also argued that the FQA system has provided a basis through which family businesses and small consortia, highlighted by the Scottish Fishermen's Federation as a distinctive and valued feature of the Scottish industry, have been able to develop and strengthen their businesses. Furthermore, Producer Organisations, local authorities and other organisations and companies with community and / or social objectives have also pursued these objectives by acquiring FQA units and deploying the quota deriving from these units. Community quota schemes have been operated, through Producer Organisations, in Orkney, Shetland and the Western Isles. In this context, it is argued that it is the security that is considered to exist in FQA holdings that has encouraged local authorities and others to make investments in community quota schemes, which might not have been made were an alternative system in place. The Scottish Government certainly sees community quota schemes as a positive aspect of the present system and, however the quota allocation system might evolve, would wish to see further strength added to community initiatives.

3.25 Those supporting the FQA system do not dispute that the leasing of quota has become a significant operating cost for active fishermen, primarily in the whitefish sector, but they dispute that the level of costs encountered is a function of the quota allocation system. Rather, they contend that it is a function of the aggregate levels of supply and demand for target whitefish stocks. This overall position is illustrated in the table below, which shows, for 2013, the allocations available to Scottish Producer Organisations for selected stocks, and the total landings for those stocks.

3.26 The table illustrates the gap between allocations and landings in some important stocks. The gap is made up through swaps and leasing, and is particularly marked for cod, where the highest leasing prices (as a proportion of landing value) are often encountered. Quotas tend to be leased from the rest of the UK, whereas quota gained from other EU Member States is more often the result of swaps. Access to additional quota depends therefore upon a free flow of quota from and to Scotland and upon business and working relationships among fishermen, Producer Organisations and companies in the rest of the UK and the EU, and between the UK Fisheries Administrations and other EU Member States.

Stock	Scottish POs total	Scottish POs total	Landings as % of allocation
	2013 allocation	2013 landings
NS cod [4]	6,446	9,193	143%
NS haddock	22,317	26,497	119%
NS whiting	7,924	8,772	111%
NS saithe	3,801	6,473	170%
NS plaice	3,279	1,225	37%
NS hake [5]	327	938	287%
NS monkfish	5,941	3,697	62%
WoS haddock	2,939	3,512	119%
WoS saithe	2,572	3,521	137%
WoS plaice	288	34	12%
WoS hake	2,040	1,851	91%
WoS monkfish [6]	1,157	1,550	134%
WoS mackerel	109,229	116,728	107%
NS herring	37,732	38,834	103%
A-S herring	7,507	8,342	111%
NS Nephrops	10,515	5,163	49%
WoS Nephrops	10,654	8,827	83%

3.27 It has also been argued that the high lease prices for cod are in part an unintended consequence of the Scottish Government's Fully Documented Fishery ( FDF) scheme for North Sea Cod. Vessels participating in this scheme are not permitted to discard Cod in the North Sea and therefore must retain access to Cod quota in order to continue fishing in that sea area. While only a minority of the fleet has been involved in the FDF scheme (numbers in recent years have varied between 18 and 25 vessels) it is contended that their requirement for cod quota has injected additional demand into the leasing market, placing upward pressure on price.

Conclusions

3.28 The Scottish Government acknowledges the logic of the arguments offered in favour of the status quo. The Government also accepts without question that the organisations, companies and individuals who argue positively for the utility of the FQA system are as sincerely committed as the Government is to the success of Scotland's fishing industry and its communities. We welcome responses to and views about the issues raised in this consultation from those that favour retention of the FQA system.

3.29 The Government does invite those that might prefer the status quo to continue to consider in particular and to offer views about how the objectives described in chapter 2 can be pursued effectively. In this respect, there seems a reasonable level of evidence to indicate that retention of the status quo would enable the Government to pursue some of its objectives effectively, in particular to:

• Provide a stable regulatory environment; and,
• Encourage the growth of business and the regeneration of the fleet.

3.30 Moreover, it is acknowledged that the current FQA system has been utilised by fishermen and other active participants to pursue some of the Government's other objectives, including to:

• Ensure that Scottish fishing communities retain their fishing rights;
• Encourage quotas to be held by those who can fish them; and,
• Keep down the cost of quota

3.31 But it remains the case that the status quo FQA system does not in its construction offer any particular support or preference to social or community objectives. It is quite possible for the present system to serve and be driven by purely commercial interests that have no desire to maintain a balance between social and economic priorities. The Government considers that this will remain a risk were the status quo system to continue in an unmodified form, and we invite consideration of this issue.

Consultation questions

• Do you favour retention of the present FQA system as the principal basis of allocation for Scottish quotas for vessels in the membership of POs? How do you consider that this approach will pursue the Government's objectives effectively?