Who Pays for all this
It is clear in terms of resourcing and also the management of the science that there will be an extra cost to Government.
In Norway the industry pays for much of this through an auctioning scheme, which has an upfront payment for the licence they receive. The money raised in the last auction round (2020), was estimated at 5.9 billion kroner (circa £497 m). This was shared on a ratio of 70% to local municipalities, 10% to county authorities and 20% kept centrally (Åm, 2021; DoF, 2021). On a per tonne basis that equates to around £18,2933 per tonne of production on all sites in Norway. It is also designated as a financial mechanism that can be treated for accounting purposes like a 'tax' rather than a fee so it does not have a material impact on the applicants EBITDA (earnings before interest, taxes, depreciation and amortization) and Profit and Loss Accounts.
The Norwegians also have categorized their coast line and off shore areas in relation to environmental parameters and the cost of licences vary by location category. I am not suggesting at this time, the same for Scotland, but I believe Marine Spatial Planning should form part of the future framework. This is a longer term aspiration but will be guided by the Vision, National Planning Framework and any changes to the National Marine Plan. Also for spatial planning for aquaculture to be part of the new proposed framework going forward we must all first agree on what the sector will look like in the future perhaps rather than it is now.
In terms of licencing costs Salmon Scotland have undertaken some assessments of the current cost to operate in Scotland. While further work will need to be done to validate these numbers, add anymore for the purposes of this report and also contextualise my recommendations, they are a good place to start.
Their estimate of the overall costs of doing business in Scotland, under the current licencing regime, accounts for in excess of 1% of farm gate value and could be as high as 1.5%. Currently the combined costs of SEPA, Crown Estate Scotland, Scottish Government and Local Authorities and other modelling costs are in excess of £13 million each year (potentially £15 million). The SEPA proposed charging scheme (not yet implemented) suggested an increase of 120% cost to producers (on monitoring, subsistence and application costs) to around £9.5 million p.a. (up from £4.2 million p.a.). The Crown Estates Scotland's recent consultation suggest an increase of 50% to charges incurred by the sector to in excess of £9 million p.a. across the industry. If these increases were put in place the overall aquaculture sector charges could be in the region of/in excess of £20 million p.a. These costs do not include all the employment hours and investment required which are borne by companies and others to satisfy the demands of the above and their customers. What is also useful to examine is how costs of production in Scotland compare with others across the world in this sector given that finfish in Scotland is predominantly owned by large international businesses who can chose where to invest. However, Scotland's finfish price is still at a premium so to an extent that may balance those costs despite what is set out below. Again from work Salmon Scotland has done, it appears that Scotland has a relatively high production cost base compared to other main Atlantic salmon countries. Figure 2 shows the total Atlantic salmon production costs per kg HOG (head on gutted) in 2018. The cost of the regulatory approach taken in Scotland is 64% more than the equivalent in Norway (Iversen et al., 2020). However, if Norway's auction costs are not deemed to be charges but a tax and do not appear in the industries EBITDA then further work would need to be done on these numbers to ensure we are comparing the same thing across countries, which may not be the case I believe.
I suggest the increased costs of what I am proposing will in the main fall to Scottish Government which will both create and oversee the frameworks for each part of aquaculture sector as well as operate and manage the single consenting process. Where that sits within Scottish Government is for Ministerial consideration, but a new and separate part of Marine Scotland or within Scottish Government could be considered. As I state in the section on this above, it would have to be led and managed by individuals who bring the degree of expertise and knowledge (local as well as general) that will be required. The industry also accept that to put in place the framework, and a better licencing and consenting system will mean extra cost and are prepared to look at how they can contribute to that. However, there is a balance to be struck in doing so, that recovering costs does not endanger further investment.
I recommend that to pay for these changes a new single licencing payment is introduced based on tonnage output of each site, which covers the costs of all bodies involved in the process and addresses community benefit as well. A separate charge on established sites that are to continue post review to be examined.
The payment would be based on the current predicted output of the site so if there were to be growth later beyond that tonnage then an additional payment would be made at the time of agreement of that increase. In introducing a new payment system and process, I recommend it is done in the context of:
- A review of the length of validity for all the licences involved so all consents share the same timescale;
- The time of the licence/consent validity is long enough for the licence holder to gain value from the site and ideally allows it to be capitalised as an asset on their balance sheet;
- The full payment will only apply to new tonnage and not any transfer of existing tonnage to a new site, if that has come from consolidation of others e.g. if a company creates a new 5000 tonne site by closing three 1000 tonne sites, then the payment would only be calculated on the additional 2000 tonnes;
- That a separate tonnage payment be agreed for existing sites once consolidation is complete;
- Who makes the collection and distribution of the payment to be agreed by all regulators including Crown Estate Scotland, the latter which should be an integral part of the process;
- There is an allowance in the licence charge for local community benefit for the area where the site is situated. It's my belief that a significant amount of what is collected (similar to Norway) goes back to the communities in whatever form so that they can also benefit from the economic prosperity that the farms will bring. Decisions will have to be made on whether this part of the payment should be collected by Government for redistribution or whether the operator should be legally obliged to disburse that payment themselves directly to the community;
- Part of the licence cost is used to fund further scientific and other research in areas which are mutually agreed through the new composite scientific body;
- The payment be designated for accounting purposes in a way that allows it to be treated in a way that it can be taken out of annual EBITDA calculations, and
- It should cover the costs of the new licencing and consents unit as well as the costs and fees of other bodies involved in the process.
This has to be agreed as part of the new process at the outset. Without it, each of the bodies involved would have to look at their own charges and more specifically the resource they have to deliver it in light of the new recommended process.
Finally, the process should encourage innovation and development across all three sectors with special consents or licences aligned to innovation including the length of validity and costs.
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