TRADE IN LICENCES AND QUOTAS
77. The greatest change in the fishing industry since
the last Agriculture Committee Report has been the growth of trade
in licences and quotas. All fishing vessels (with "one or
two very minor limited exceptions")[281]
have to obtain a licence issued at the discretion of Ministers
before they can fish for profit for sea fish. There are different
types of licences available according to the category of fish
stock the vessel is permitted to catch and land, and each individual
licence specifies the tonnage and power of the vessel to which
it is attached. The current licensing schemes have applied to
the over 10m fleet since 1984 and the under 10m fleet since 1993.
A review of the licensing arrangements was ordered by the Government
in December 1997. The joint departmental/industry working group
entrusted with this task reported on 31 March this year. It concluded
that "the overall structure of the present licensing regime
should be retained",[282]
although it made several recommendations for adjustments to the
system. A second review on the management of the under 10m fleet
is still underway and it is likely that this will lead to changes
in the licensing arrangements for the vessels subject to this
regime.[283]
78. The licensing scheme is closed to new applications
in all sectors. To obtain a licence, therefore, it is necessary
to have entitlement based on a licence already issued to a vessel.
New vessels can only be introduced into the fleet if the fisherman
obtains a licence, with sufficient capacity, from an existing
vessel within the same sector of the fleet. In order to avoid
technological creep and assist capacity reduction, such transfers
are subject to a penalty of 10 per cent for single licence transfers,
20 per cent for aggregation of two licences and 30 per cent for
three or more (these are general figures, discounting exceptions).
All licences aggregated must be of the same type and no disaggregation
is allowed. The previous Government allowed the transfer of licences
in this way, rather than insisting that once detached from a vessel
they should all be returned to the Minister who retains legal
ownership, in order to free "ownership and fleet structure
to develop in response to economic and other needs".[284]
These other needs include the transfer of a licence within a family,
the wish of a fisherman to leave the industry, the wish of new
entrants to join the industry, the restructuring of existing fishing
businesses and the modernisation or replacement of ageing fishing
vessels.[285]
79. Licences are linked to the management arrangements
for quota. The national quotas for each stock subject to a TAC
are allocated within the UK on the basis of track record, ie the
catch levels of each vessel over a certain period. Until this
year the reference period was a rolling three-year one; since
1 January 1999 it has been fixed as the period 1994 to 1996, a
system known as Fixed Quota Allocation (FQA). For management purposes,
the allocations are made to three groups - individual POs on behalf
of their members with vessels over 10m, the non-sector (vessels
over 10m not belonging to a PO) and the under 10m's. The latter
two groups are managed directly by UK Fisheries Departments. The
non-sector receives a monthly catch limit which is incorporated
into each vessel's licence, while the smaller boats have a collective
quota and are allowed to fish until this is exhausted at which
point they are prohibited either by means of licence changes or
by statutory orders. When any of the three groups has taken its
full allocation, its members are prohibited from landing any further
catches of that stock or species.
80. POs are allowed to manage their quota allocation
as they choose. Most that we spoke to operate a pool system, with
the alternative being individual quotas. The Aberdeen Fish Producers'
Organisation, for example, grouped all track records in a common
pool and issued monthly or two monthly quotas.[286]
However, members who had bought additional entitlement "are
allowed to catch their own purchased fish when they want".[287]
The Cornish Fish Producers' Organisation told us that "This
PO is relatively unique in operating a pure pool system",[288]
where all quota is distributed equally. This gives vessels flexibility
to move between different sectors.[289]
POs maintain their own records on landings from each vessel to
ensure that quota limits are respected. Their ultimate sanction
against a member who breaks the rules is to fine them.[290]
However, the Chairman of the CFPO pointed out that this is against
the spirit of cooperation between members: "We have to operate
together or we fall to bits".[291]
There is also close cooperation between most individual POs. The
Chief Executive of the CFPO explained that "We have to swap
quotas and all sorts of things on an almost daily basis and we
all work as a team".[292]
There have been difficulties over the admission of quota hoppers
to some POs, specifically Fleetwood and the North Sea PO based
in Grimsby which was formed by and for quota hoppers, but the
industry has found a way to handle these developments in private,
if not always in public.
81. As implied above, a growing issue for POs is
how they handle additional quota purchased privately by their
members. This is a question which is going to become even more
pressing given the increase in trades between fishermen. Mr Deas
of the NFFO dated this development to the decision to make licences
transferable, thus making them tradeable.[293]
Subsequent changes such as "liberalisation of swaps between
producer organisations and attaching the track record on vessels,
the quota entitlements, to the licence rather than the vessel
... made administration of the industry and the quota system more
rational and more sensible, but they add up to a step by step
movement towards trading in quota".[294]
The Aberdeen Fish Producers' Organisation argued that the key
change was the decision in 1995 to attach the track record to
the licence which encouraged "the practice of vessels being
sold with the licence being retained by the seller for track record
purposes".[295]
It saw the introduction of FQAs as contributing significantly
to the increase in the trade of licences and quota entitlement.[296]
A fixed share of the UK quota for a particular stock gives more
stability to the system and hence adds to the value of the asset.
FQAs were introduced and welcomed by fishermen as a means of removing
the incentive for fishermen to catch as much as they could to
maximise their quota allocation for the following year, by including
"ghost fish" in their catching statistics if necessary
to support their claims.[297]
The fresh impetus FQAs have given to the growing market mechanisms
in the industry was perhaps an unintended consequence.
82. The market for licences and quota has three elements
which Mr Goodlad, Vice President of the SFF, explained with admirable
clarity: "The first part is the authorisation to fish. You
cannot go out and fish without the appropriate licence. The second
part is that the licence is quantified in terms of its VCUs, its
vessel capacity units. You will need a larger licence, a larger
number of VCUs, to place on a larger trawler than you will need
to place on a smaller trawler. These VCUs now have a value. If
you were to build a new ship of a certain size, you would need
so many VCUs. The more VCUs you need, the more you have to pay.
The third element of the fishing licence value is the so-called
track record, the fishing entitlement which comes with the licence
... Those are the three parts which are now bought and sold within
the industry and fishermen recognise the value attached to all
three parts of the licence."[298]
83. The extent of the trade is hard to quantify.
It includes not just outright sales but leasing arrangements for
quota either on a short-term or long-term basis. We accept Mr
Goodlad's caution that "the vast majority of licences on
fishing vessels in the UK have not changed hands"[299]
but the number of fishermen involved in such transactions and
the value of the trade is still substantial and growing. For example,
one PO, the Scottish Fishermen's Organisation, told us that 120
of their 450 member vessels now have "some additional fish
that they have bought, leased or whatever".[300]
Mr Morley told us that the trade "has now become very big
business ... it is calculated that the licences and quotas are
worth probably over £1 billion to the industry, it is worth
probably more than the total value of the fishing fleet, actually,
in terms of the value of the vessels".[301]
While all would agree with the latter half of this statement,
the figure of £1bn is probably an underestimate: we heard
a similar value put on the Scottish industry alone which represents
around two thirds of the UK's catch.[302]
The NFFO advised us that it was not straightforward to calculate
the tonnage which had changed hands, although this information
is held by the UK Fisheries Departments, because "licences
can be transferred with the vessel more or less as a byproduct
of the sale or transferred to a different vessel either as a straightforward
transfer or as part of an aggregation exercise involving two or
more licences".[303]
It was able to tell us that as of February this year "whitefish
licences are trading at around £500 [per] vessel capacity
unit", depending on the specific quota entitlement attached
to the licence. Prices for pelagic licences were much higher.[304]
Two had recently changed hands in Scotland for £5m and £6m.[305]
We heard informally that the price of quota had been subject to
rapid inflation in the last few years. White fish quota used to
cost £200-300 per tonne. It had now reached 150% of market
value, which itself has increased, with the result that quota
for cod was priced at £1,800-2,000 per tonne.[306]
Finally, rental values for cod, haddock and saithe quotas were
around £300 per tonne per year.[307]
84. Most representatives of the fishing industry
voiced their strong disapproval of the trade but also their acknowledgment
that it had now become "a recognised and accepted practice
which cannot be stopped because of the amount of money which has
changed hands".[308]
The trade has had a profound impact on the structure of the industry.
It has led to what the North East of Scotland Fishermen's Organisation
described as "self- rationalisation" of the fleet,[309]
a point also made by the individual fishermen we met in Cornwall.[310]
The Minister believed this had caused the increased profitability
the industry had experienced recently.[311]
In particular, two witnesses attributed the generally accepted
fall last year in the levels of blackfish to the trade. Mr Smith
of the SFF simply pointed out that "the individuals who are
catching more fish than others have bought extra quota so that
if they do catch more fish then they have entitlement to land
it legally."[312]
Mr Gilland of the NESFO offered the more considered view that
"if somebody has purchased a track record to legally land
what he catches he is very quickly aware that he does not want
anybody to be landing blackfish ... to undermine the value he
is going to get for the additional fish he has bought".[313]
This implies a new attitude among fishermen towards ownership
of measures which restrict their activities and are primarily
aimed at protecting stocks but which also protect their investments.
Mr Couper of the Scottish Fish Merchants' Federation believed
that "the perception of the fisherman is now changing from
the hunter to harvester and he has got a vested interest in the
fish and looking after it for the future" because of ownership
and the sense of having "something to hand over to their
sons".[314]
Fishermen are therefore becoming "self-policing" and
market mechanisms appear to be delivering conservation.[315]
85. The sense of ownership resulting from the purchase
of quota is somewhat misleading as the legal owner of licences
and of quota remains the UK Government. There is naturally some
unease among fishermen at the uncertain status of their agreements
to buy or to lease from other vessel owners. At the moment, the
UK Fisheries Departments have to approve and register changes
in licences. The situation on quota is more complicated, particularly
with the trend towards leasing. Although fishermen draw up legal
agreements which are endorsed by the relevant POs and notified
to the Government, what is being exchanged is not a property right.
Mr MacSween of the SFO described this as "a very odd situation",
adding "I keep saying to the lawyers who draw [the agreements]
up 'How can you draw up a legal agreement to sell something that
does not belong to you? How do you advise clients to buy something
from somebody who has no proper legal title?'"[316]
There is a genuine concern here. The fishermen who have invested
so much capital in their business need to be certain that what
they have bought is legally their own. The Government has recognised
this anxiety in part by ratification of all the transactions undertaken
in the last year at the end of 1998, a procedure it now intends
to repeat on an annual basis.[317]
It has also indicated that licences and quota entitlements are
assets which could be accepted by banks as security for loans.
Yet, as Mr Morley stressed, "in the end, the title does belong
to the state."[318]
This means, as the SFIA observed, that "there is the risk
that the licence, will at some point, become valueless".[319]
86. The question of legal ownership must be resolved.
The trade in licences and quota and the value it brings into the
industry have reached such an extent that it is almost inconceivable
that any Government could recall the title it theoretically retains
without facing massive compensation claims. Yet it is being pushed
into this position by market forces rather than by any strategic
decision. We are not confident that the Government has adequately
addressed the legal implications of the tradeability of quota
and licences and we recommend that MAFF provide clear guidance
on the legal title to licences and quota in the context of transactions
between individuals and/or organisations.
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