Fishing - Quota Management Group (QMG) trial: evaluation

3. Literature review

A literature review related to the management of quota by sectoral groups was undertaken as part of this project. This involved a review of published government policy, review papers, as well as academic literature. The literature review approach is explored in the Annex A: Methodology.

3.1. Overview of the sector

In 2006, Nautilus Consultants undertook a review of the UK quota management and provided a ‘baseline’ of the PO sector (Nautilus Consultants, 2006). While this report is almost two decades old, many of the insights remain relevant today. For example, the report focused on the market share of the POs, showing that the 4-5 largest POs by landings are responsible for 60% of the UK quota value while the smallest 11 POs are responsible for around 20% of the UK quota value. According to the 2022 UK Sea Fisheries Statistics, this split in the market share remains roughly the same as in 2006 with the 6-7 largest POs responsible for 60% of quota value (Marine Management Organisation, 2023). The change from 4-5 to 6-7 largest POs holding the majority of quota is likely to be due to the fact that Interfish and Klondyke (that later became a QMG) split off from the large pelagic POs. The report also stressed how diverse the UK POs are (in terms of fleet make up, and sizes of POs), with significant differences in their operational models.

The report found a preference for different management models of quota depending on species fished (Nautilus Consultants, 2006). For example, pelagic fisheries were opting for management by individual quota through their PO, whereas nephrops fisheries would often opt for a shared pool system (quota shared by PO members often in addition to any vessel individual quota allocations) in their PO. Additionally, they noted that larger organisations were better able to maximise their quota uptake. See also Innes et al (2014) with regards to the Australian example who argue that the greater uptake of quota might be linked to the greater demand for quota.

The Nautilus Consultants’ report also noted a shift in how POs prioritise responsibilities (Nautilus Consultants, 2006). For example, administration of quota (leasing and swapping) is often prioritised over other objectives, such as interactions with the market. POs rarely intervene in the market, especially compared with the past. An example of a market intervention in the past is the administration of withdrawal prices. It was done when the markets were less developed. Indeed, the EU market intervention initiatives were removed by the mid 2010s following the introduction of the new Common Organisation of the Markets regulation.

With regards to other PO objectives (food quality, sustainability, safety standards), the report noted that POs often allied with other organisations (e.g. fisheries associations) on research or projects to satisfy these criteria and, therefore, did not need to heavily commit to these objectives (Nautilus Consultants, 2006). This finding in the literature corresponds with the interview findings of this research project covered in the Interview Analysis. This report found that administration of quota is one of the key areas of PO work, although by no means the only request on their time.

3.2. Market-based management and sector consolidation

The majority of articles reviewed for this research focused on market-based management of fishing quota, with particular interest in sector consolidation.

For instance, Appleby et al reviewed the current Fixed Quota Allocation (FQA) system – a mechanism used in the UK by where quota holders are guaranteed a fixed share of the UK’s Total Allowable Catch (Appleby et al, 2018). This research considered how quota is distributed and how this may affect the PO system. The review highlights that there is a risk of the current system inadvertently treating quota as property.

Appleby et al also noted that the current quota system created an unusual situation whereby POs (purchasing FQAs for collective use) and their members (purchasing FQAs for individual use) are often competitors on the UK FQA market (Appleby et al, 2018). Moreover, some members of the POs might exercise significant power over POs, because POs do not want to risk losing their members (and the associated levy that members pay to POs). Appleby et al believe that these power dynamics might exacerbate the trend of buying FQA for individual rather than collective use in the UK (ibid.).

Using the example of England, Appleby et al estimated that the vast majority of English POs have either one or two members holding 50% or more of the total FQA holdings, giving them a form of a controlling stake in those organisations (Appleby et al, 2018). Thus, a minority of actors have a controlling financial interest resulting in powerful individual commercial enterprises in the fishing sector. The Appleby et al review argues that regulators should require POs to provide information on the ultimate controlling parties of quota in their organisation. Among other reasons, authors note concerns about potential abuse of the dominant position in the market that some large quota holders may have.

The Appleby et al review does not elaborate whether the same issues arise in Scottish sectoral groups but, given the similar system of operation in Scotland in comparison to England, this is likely to be a risk. With regards to the Scottish context, in 2021 Cross reviewed Scottish POs ‘Production and Marketing Plans’ to explore complexities surrounding quota transaction behaviours (accumulation and dispensation of quota) and market-based policies (Cross, 2021). Cross’ review is a rare example of the analysis of POs’ work in Scotland, as there is generally a lack of information and a lack of academic interested with regards to this topic.

In the review, Cross noted that the pelagic quota in Scotland is monopolised by a few POs (and since 2020, also by QMGs). He highlighted that the accelerated consolidation may lead to inefficiency and may become a tangible problem in Scotland. This is particularly important for pelagic fisheries due to the reduction in the number of small boats across all POs, a lack of quota, and a lack of competition between POs in this space. As mentioned above, pelagic members within POs mostly use the model of individual transferable quota as opposed to the pool system. This model may incentivise quota holders to consolidate. Sector consolidation, therefore, is not always driven by the PO but PO members’ actions.

Cross (2021) noted that Scotland’s quota market appears to be a self-regulating system largely driven by industry actors. At the same time, information related to quota management is usually collected for governance purposes and is not open to the public. In this context of scarce information, Cross noted that it is hard to ascertain the efficiency of this market (e.g. how quota is leased between actors) and how this can be improved. One of the areas of future interest are electronic auctions, because they can increase information transparency (ibid.).

Echoing this research, Cardwell (2014) investigated the UK’s market-based management system for fisheries and how it changed over time. She argues that the fishing sector has been developing an increasingly ‘marketised’ system that demotes the role of vessel owner-operators in favour of larger companies. According to Cardwell, such a system creates less efficient capital structure across the industry due to monopolisation. This trend is becoming more prevalent since the first generation of fishers who were initially allocated the quota started to retire at which point they might sell their quota to a larger company.

Another aspect relevant to market-based management of fishing quota concerned EU intervention mechanisms (e.g. carry-over operations, flat-rate compensations, etc.) and their role in market stabilisation (European Parliament, 2010). These mechanisms had low use by entities in the UK in comparison to other EU member states. In the UK, the most frequent examples were payments to remove fish from the market. The use of these mechanisms depended on the PO’s experience of fish marketing. As Nautilus Consultants noted, PO market management has been diminishing since the 2000s (Nautilus Consultants, 2006). The EU intervention mechanisms were also mostly removed in 2013 (Scholaert, 2020) and are therefore unlikely to play an important role in the current system of quota management.

The topic of sector consolidation was also discussed during the interviews conducted as part of this project (discussed in Section 5.5. of the Interview Analysis).

3.3. Geographical aspects

Two geographical aspects were discussed in the quota management literature: regionalisation of quota (whether POs should cover distinct geographic regions) and Transnational POs.

With regards to regionalisation, Cardwell argued that fishers (particularly smaller operators) strongly believed in the stewardship of their local areas (Cardwell, 2014). This often resulted in territorial attachment and friction between local fishers and those who were new to the grounds (particularly larger vessels). These dynamics fed into fishers’ interest in a geographically organised approach to quota management, including regionalised quota. It is worth noting that most POs in the UK and Scotland originally had a core geographic area of operation. Over time, this approach has changed, as some (particularly larger offshore) fishing vessels do not need to be tied to specific regions. This point is relevant for the review of the geographically linked sectoral requirements.

The second geographical aspect concerned Transnational POs (T-POs) defined as organisations with members in more than one state (European Commission, 2020: 43). The European Commission published a review of T-POs across the EU, investigating the current PO structure and why a very limited number of organisations are T-POs (European Commission, 2020). The report mentioned that in the EU only 4 of the around 200 POs identify as T-POs. Acquiring a status of a T-PO could facilitate growth for existing POs, provide more international competition, and potentially also efficiencies for the industry. Despite these potential benefits, the report explained the limited number of T-POs might be due to a lack of awareness and uncertainty over the rules for T-POs (which are down to the different member states to determine). Moreover, often national POs can have foreign vessels registered with them, and there is, therefore, a perceived lack of value in registering as T-PO. The lack of interest in T-POs shows that despite consolidation across POs, these organisations generally remained nationally or even geographically focussed. This evidence relates to the findings in the interviews that vessels rarely moved between POs (see Section 5.1. in the Interview Analysis.

3.4. International examples of quota systems

Several articles looked at quota management in the international context.

Le Floc’h et al provides an overview of how fisheries are managed in European waters, particularly showing the different methods of managing fisheries by different coastal states (Le Floc’h et al, 2015). For example, France gives POs the responsibility to manage ‘sub-quotas’ but restricts transferability of fishing rights. The legal framework has been evolving to give more responsibility to POs and some pioneering POs have been experimenting with assigning individual quotas, for instance, with regards to the sole fishery (Dudouet, 2023). In Ireland, the Celtic Sea herring fishery is co-managed, with POs on the board of the advisory committee that dictates aspects of co-management, such as weekly allocations and the lengths of season. In Spain, pre-existing organisations were ‘rebranded’ as POs so that they could access EU funding. Spanish POs often have a wide remit with some POs administering quota for some species, while other species are managed centrally by government with weekly allowances. These systems seem to have similar or fewer responsibilities than the UK POs. This also indicates that central government management of quota is possible, although it might be difficult to implement in practice.

Beyond Europe, Innes et al investigated the quota trading market in Australia with respect to the coral fin-fish fishery (Innes et al, 2014). This fishery is managed using individual transferable quotas (ITQs), similar to that utilised in the UK and Scotland. Before the introduction of ITQs, around 10% of those who held quota for this species did not actively fish it. Small holders utilised the lowest levels of quota. Authors suggested that smaller vessels’ transaction costs were higher than those of larger operators. This research suggested that both smaller quota holders and overall market efficiency could beneft from actions that reduce market assymetries and the transaction costs of quota trading.

3.5. Summary: literature review

The review revealed that there is a very limited literature on the management of quota by sectoral groups. The review found several papers that focused on a broader discussion of sectoral groups, but quota management was not the main focus of these publications.

Part of this likely arises from the lack of publicly available information, with reports generally being produced for governments or authorities who have access to management information.

The central themes in the literature focused on the management of the market and consolidation of the sector, especially with regards to pelagic operators. There were concerns regarding the potential harmful effects of consolidation that could allow large actors to dominate the market. Some articles recommended that sectoral groups should provide information about their members to the government to avoid the risk of power abuse by few dominant actors.

The literature review suggests that there are economic efficiencies in consolidation but consolidation might disadvantage smaller vessels due to the high barriers to entry. Also, consolidation can lead to anti-competitive behaviour which may remove local fishing opportunities and subsequent benefits for local communities.

There was a lack of examples of significantly different quota management styles, with neighbouring European states (such as France, Spain, Ireland) utilising similar methods to UK POs. Notably not many Scottish or EU POs registered as T-POs, indicating a lack of desire to be transnational PO. There was little movement of members between POs. These points suggest the strong importance of geography, with many fishers supporting regional approaches.

Some literature suggested that an increased publication of reports, such as annual sectoral reports, could help foster further research and evaluation of the quota system.