Fishing - Quota Management Group (QMG) trial: evaluation

6. Conclusions of the review

The QMG trial was reviewed based on the evidence collected during this research project. Evidence considered in the review included the Literature review, the Review of QMG and PO annual reports, and the Interview Analysis. Due to the small number and uniqueness of sectoral groups, it was not possible to quantify the impacts of the trial. Instead, the review used qualitative data to consider whether the outcomes of different aspects of the trial have been negative, neutral, or positive.

6.1. Do QMGs meet the stated objectives?

The first research aim was to evaluate the QMGs against their stated trial objectives. These objectives included the following:

• Help inform future policy around sectoral quota management as part of our Future Fisheries Management initiative.
• Gain insight into the benefit returned to Scottish communities by QMGs/sectoral groups.
• Gain a greater understanding of the utilisation of quota, a national asset, by private bodies.
• Establish whether private bodies outside of the PO structure can manage quota effectively, and in line with Scottish Government objectives.

On the objective of informing future policy around sectoral management, the QMG trial was found to have contributed positively. The additional information provided in the QMGs’ annual reports around how quota is utilised and shared, and more generally evidence on how this alternative sectoral management model works in practice, will help future policies in this space.

On the objective of gaining insight into the benefits to Scottish communities, the QMG trial has seen neutral or slightly positive contributions. While the QMG reports have pushed for greater information in this sphere, the nature of the organisations meant that much of this information was already known (e.g. their landing patterns and linked processing). However, the objective ensures that any future QMGs would have to provide more information than through the PO reports, thus possibly providing further insights if further QMGs were created.

On the objective of gaining a greater understanding of the utilisation of quota, the QMG trial was found to contribute positively. The QMG annual reports require additional information that was previously not accessible by the Scottish Government. This information is beneficial for future policy development.

On the objective of establishing whether private bodies outside of the PO structure can manage quota effectively, the QMG trial has contributed neutrally to positively. The current QMGs are effective in managing quota and were previously POs operating primarily pelagic quota which require less quota management than demersal fleets. Interviews suggested that the trial has, therefore, not tested how QMGs could work for actors without previous PO experience. This could be mitigated in future by establishing probation periods for any new QMGs with stricter requirements in the first years.

Overall the QMG trial has either positively met its objectives or has been neutral, with the primary reason for neutral scores being a lack of data.

6.2. Are QMGs a suitable sectoral alternative?

This evaluation also aimed to understanding if QMGs are a suitable alternative management model in fisheries in comparison to other sectoral groups (POs) and non-sector. To establish this, the review considered the Key characteristics of QMGs and POs (especially creation requirements and reporting requirements). See sub-sections below for the discussion.

6.2.1. Suitability of the creation requirements

The interviews suggested that the creation requirements of QMGs were generally appropriate. Most interview participants supported high creation requirements for QMGs to prevent fragmentation and maintain high standards in the sector. This indicated that the creation requirements for QMGs are suitable.

The removal of the plural membership and the democratic functioning from the creation requirements for QMGs was a notable point of criticism. Some interviewees noted that allowing private vertically integrated companies (QMGs) to operate in the sector may result in less accountability and incentivise private financial gain at the expense of benefits for Scottish fishers. This point was challenged during the interviews by QMGs who were keen to demonstrate value created for the fishers, the supply chain, and broader positive socio-economic impacts.

With regards to accountability, it was noted during the interviews that the current structure allows fishers to have a voice within a PO, whereas under commercial enterprises (QMGs) fishers may lose this. QMGs disputed this point during the interview, demonstrating how fishers feed into the companies’ operations. It is true that if an independent vessel were to join an existing QMG, they would likely be at a disadvantage given the imbalance of power and would need to adjust to internal companies’ rules. Meanwhile, POs appear to be more balanced. That said, academic literature highlighted that potentially not all members within POs have the same voice and power. It is also important to bear in mind that large amounts of quota are managed in Scotland through agents, and this can present a challenge to true democratic accountability (both due to the sway among vessel and the value of levy).

The accountability is an important consideration, but there appears to be a lack of transparency in the sector at large (both POs and QMGs). Multiple interviewees noted that PO and QMG annual reports are not publicly available, and without seeing more detail on how groups operate it is hard to comment on their effectiveness. A possible mitigation for this could be more transparent reporting, albeit this raises a question on how to deal with commercially sensitive information.

Therefore, it is reasonable to conclude that questions about the plurality of members and democratic functioning are a sector-wide issue, suggesting that a full sectoral review might be needed in the future.

6.2.2. Suitability of the reporting requirements

The review of the annual reports indicated that some reporting requirements of POs and QMGs overlapped. The overlapping reporting requirements returned similar quality of responses from QMGs in comparison to POs, showing that QMGs are a suitable sectoral alternative to POs. Moreover, the interviews highlighted that due to the QMGs’ vertical integration, it was easier for QMGs to provide more detailed information on environmental issues, exceeding information provided by the POs. However, there were also some additional reporting questions required only from the POs (stabilising the market and elimination of illegal, unreported and unregulated fishing). The review showed that these additional requirements did not detract QMGs from being a suitable sectoral alternative (see discussion below).

Regarding the market stabilisation, evidence showed that there is a broad range of actors involved in the market (e.g. selling agents). Therefore, POs were not the only organisations influencing this space. In addition to this, QMGs lacked exemption from the EU competition rules under the CMO regulation, giving these groups less ability to intervene in the markets. Evidence showed that this exemption was used by POs in rare circumstances. Any future intervention of a similar scale would likely require legislation and through this legislation additional powers or exemptions could be given to non-PO groups if this was deemed necessary.

The PO requirement to contribute to the elimination of illegal, unreported and unregulated fishing appears to provide little returns. Evidence suggests that rules for the elimination of illegal fishing are implemented by the government for the fleet in general, and sectoral groups are limited in what they can achieve without government interventions. For example, in the past instances of illegal fishing were identified through the government investigations rather than actions of the POs. As such, the removal of this objective from the POs’ requirements is unlikely to be a loss for the current system, although considerations should be given to the Scottish Government’s compliance strategy and whether sectoral groups can potentially play a more important role in this system.

6.2.3. Summary: QMGs as a suitable sectoral alternative

Overall, evidence suggested that QMGs are a suitable alternative to POs. With regards to some reporting requirements (e.g. reporting on environmental issues) QMGs provided more detailed information than POs, thus benefitting sectoral management. The main concerns regarding the QMGs focused on the plurality of members and members’ influence on the sector. Evidence showed that power dynamics within the sector are a broad issue beyond QMGs. The review of QMGs prompted comparison to the PO requirements. Some requirements were difficult to compare (e.g. stabilisation of the market), because POs and QMGs have different legal standing in this sphere. The review also highlighted that a broader sectoral review might be needed in the future, as some PO reporting requirements (e.g. elimination of illegal fishing) appear to provide limited returns.

6.3. Unexpected QMG trial results

The research aimed to understand if the QMG trial had any unexpected impacts in the industry. Interviews conducted for this research highlighted that no unexpected impacts have occurred to date. However, interview participants noted a number of potential changes in the sector in the future, if QMGs are made permanent. These include potential loss of members from POs to QMGs, accelerated consolidation of the fishing industry, and the subsequent risk of non-competitive behaviour from an oligopolistic market. These potential impacts are discussed below.

Given the constrained size of the industry based on the total available quota, any new QMGs are likely to be formed by vessels splitting off the existing POs. Fish agents were considered a possible group of actors interested in the QMG status. Current fish agents often operate vessels spread across multiple POs. If these vessels left their POs to form a new QMG, one possible impact would be diminished membership and resources (e.g. levy paid by members) for some POs. This could also diminish these POs’ influence on the market. In addition to this, some POs might need to pull together resources to be able to meet the PO creation and reporting requirements. The short-term impacts of these processes might be an increase in competition, with the long-term impacts of sector consolidation and fewer players in the future.

Related to this was interviewees’ concern about the wider sector consolidation (vessels and quota distribution in the sector) and how it impacts new entrants into the industry. Sector consolidation might act as a barrier for fishers who want to join the industry as independent vessel owners, forcing fishers to join as hired crew or skippers. This trend has been seen over the past decades and was not caused by QMGs. That said, QMGs could be an enabler of consolidation. It is expected that sector consolidation would continue irrespective of the implementation of QMGs. If the Scottish Government were to choose to change the trend of consolidation it is unlikely that QMGs would act as a barrier to this, because QMGs can be formed both by single entities and/or multiple separate groups. The review of the costs or benefits of consolidation are beyond the scope of this report

A knock-on concern from the consolidation would be possible anti-competitive behaviour from groups occupying dominant market positions. While QMGs could enable anti-competitive behaviour by allowing these groups to form distinct entities, some actions on behalf of the government could mitigate potential negative impacts. For example, upholding rigorous reporting requirements and potentially introducing new requirements (e.g. on quota use and leasing, prices paid for quota) could help the Scottish Government to better understand the sector and act if there is a need. Increased transparency in the sector (e.g. commercial fisheries policy team publishing full or parts of annual reports) could also help mitigate anti-competitive behaviour.

While these are relevant concerns, it should be noted that none of these are occurring due to QMGs. However, QMGs could exacerbate this trend. QMGs are unlikely to be a barrier to change if the Scottish Government tried to change the direction of consolidation. So, while consolidation should be considered vis-à-vis the trial outcome, it should not be the deciding factor for the trial outcome.

6.4. Summary: Conclusions of the review

Overall, the QMG trial achieved neutral or positive results against trial objectives and, therefore, should be seen as a success.

The QMGs neutrally or positively contributed to their objectives providing additional information regarding the sector to the Scottish Government. Where QMG benefits were less apparent, this was due to lack of data. QMGs appeared to be a suitable alternative to POs in the sectoral space, matching POs in many regards. While some possible future risks were identified through the trial, these can be mitigated within the system.

Scottish Government’s commercial fisheries policy team should consider publishing the QMG and PO annual reports or part of the annual reports in future to allow further scrutiny of the sectoral groups. This might be useful to mitigate potential future impacts. Interview participants highlighted that one of potential future trend is sector consolidation. QMGs were seen as potential enables of the existing consolidation trend. It is important to note that QMGs were not seen as the cause of consolidation. In fact, QMGs may support any potential government interventions regarding consolidation with the improved information they provide on the existing system. The review suggested that the overall effect of QMGs in this space is neutral.

The success of the trial does not automatically suggest that these bodies should be made permanent, as the trial objectives were primarily information gathering. When deciding the next steps, considerations should be given to the QMGs’ suitability in the sectoral space and wider deliberations (e.g. whether a full sector review is needed in the future).