House of Lords - European Union - Twenty-Fifth Report

Select Committee on European Union Twenty-Fifth Report

CHAPTER 3: ECONOMIC ASPECTS OF FISHERIES MANAGEMENT

INHERENT PROBLEMS OF THE FISHING INDUSTRY: THE "TRAGEDY OF THE COMMONS"

53. The economic fragility of the fisheries sector lies at the heart of the reform process. "Economics has defeated conservation measures time and again", in the words of the Chief Executive of the National Federation of Fishermen's Organisations.[40] The industry calls for continued subsidies to keep what is a unprofitable industry alive, at a time when scientists are warning that the very resource on which the future of the sector depends on is in many cases on the brink of collapse. We think that it is entirely wrong that EU taxpayers should continue to finance the over-exploitation of the fish stocks, when this very practice is likely to lead to the future collapse of the industry. The economics of fisheries is a key question, and one that was not properly dealt with by the 2002 reform process.

54. Ocean fish stocks have traditionally been regarded and managed as common property resources. Common property resources, as is well known, are subject to economic problems of over-exploitation and economic waste—the so called "tragedy of the commons".[41] In fisheries, the tragedy of the commons manifests itself in:

· Excessive fishing fleet and effort

· Too small fish stocks

· Little or no profitability and unnecessarily low personal incomes

· Unnecessarily low contribution of the fishing industry to the GDP

· A threat to the sustainability of the fishery

55. The reasons why the common property arrangement is so economically and biologically damaging are not difficult to understand. Under common property management, the fishermen are forced to over-exploit the fish stocks, even against their own better judgement. When many fishermen have access to the same fish stock, each has every reason to grab as large a share of the potential yield as possible lest the other fishermen reap all the benefit. Prudent harvesting by one fisherman, in order to maintain the stocks, will mostly only benefit other more aggressive fishermen. Thus, an individual fisherman's best course of action is to try to grab his share as quickly as possible while the resource is large enough to yield some profit. As a result, the fishery expands to an excessive level of fishing effort, leading to reduced or even collapsed fish stocks, and little or no net economic benefit.

56. The key issue for the success of the CFP as a resource management system is how to overcome this catch-22 situation whereby fishermen are forced to over-exploit the resource on which their long-term future relies. According to many fisheries economists the long-term solution to the tragedy of the commons lies in some form of property (or access) rights based approach.

POSSIBLE ALTERNATIVE ECONOMIC MANAGEMENT APPROACHES

57. Approaches based on property rights attempt to eliminate the common property problem by establishing private property rights over the fish stocks. Several types of property rights regimes have been employed across the world's fisheries. These include territorial use rights, individual catch quotas and community fishing rights.

58. Individual catch quotas attempt to solve the common property problem not by defining property in the fish stocks themselves but by allocating individual harvesting rights from these stocks. Thus, individual catch quotas constitute an indirect property right. Transferable or divisible catch quotas are usually referred to as individual transferable quotas or ITQs.

59. Permanent or tradable catch quotas make it advantageous for the quota holder to preserve and rebuild the marine resources. Larger fish stocks mean more profitable fishing. According to a study commissioned by the Department for Environment, Food and Rural Affairs, a consensus has emerged among fisheries economists that an ITQ system offers the most promising general approach to managing ocean fisheries.[42]

60. Since the 1970s there has been a clear trend toward the adoption of ITQ systems. Already several major fishing nations, including New Zealand and Australia employ property rights (or ITQs) as their primary fisheries management system.[43] In the EU, the Netherlands is the only country to employ a comprehensive ITQ management system.

61. The Dutch system seems to have had beneficial results. There has been a substantial reduction in fleet size, while the remaining industry, uniquely in Europe, is highly profitable.[44] There is considerable evidence that in the Dutch Case ITQs have contributed to increased sense of ownership, convincing quota owners that strong enforcement of regulations designed to conserve resources is in their own best interest. However, since TACs are set by the EU, increased Dutch resource ownership cannot really be brought to bear upon the setting of TACs in any significant way.

62. This does not mean, however, that ITQs are necessarily the best form of management in all fisheries. For instance, a prerequisite for this method is that the individual quota constraints should be enforceable. In addition, since they are really just a way of implementing, albeit much more effectively, the system of management by TACs and quotas, they suffer from all the disadvantages of this system in general. In particular, they still require high levels of investment in scientific research and monitoring, in catch reporting and recording, and in effective enforcement. It is therefore not surprising that they have been applied most successfully by relatively prosperous (and often small) countries, with populations which are conservation-minded and law-abiding, such as Iceland, New Zealand, and the Netherlands. Since these pre-conditions are not uniformly met within the EU, it is likely that some other way of establishing property (or access) rights, such as individual (vessel) effort allocations, would achieve most of the economic benefits more effectively. Individual allocations of rights also, by definition, favour the individual; and for some fisheries community-based approaches may be preferred.

WHAT DOES THE COMMISSION OFFER FOR THE WAY FORWARD?

63. Why have alternative management tools, such as ITQs, not been proposed as part of the reform of the CFP? According to the Commission, the European fisheries sector is still characterized by specific features that make the application of market economics unrealistic. The Commission lists two key reasons:

· the total dependence of certain coastal communities on fisheries;

In other words, the CFP is viewed primarily as an employment vehicle rather than a business, and a heavily subsidised one at that.

64. The Commission does continue to say that "the EU will gradually contribute to creating a more favourable climate to the elimination of such barriers to normal economic activity".[46] As a first step, during 2002, workshops on economic management were held. These workshops involved representatives of fisheries administrations, the fisheries sector and other interests to discuss the scope for provisions, within the CFP or Member States fisheries management arrangements, on tradable fishing rights (individual or collective).

65. In recognition of the urgent need for the economics of fisheries to be taken as seriously as the biology of the CFP, ICES has been urged to take on a economic advisory role in addition to its marine scientific role. But it has declined to provide economic advice, conscious of the fact that it lacks the expertise to fulfil such a role. Mr David Griffith, General Secretary of ICES, nonetheless urged Member States and the European Institutions to give higher priority to fisheries economics.[47]

66. We strongly support the initiatives taken by the Commission to open a dialogue on the long-term economic management of the fisheries. Conservation measures will not work as long as fishermen's livelihoods depend on the over-exploitation of fish stocks. Indeed, it is highly unlikely that there will be sustainable fisheries in Europe until fishermen have strong economic incentives to protect the stocks.

67. There is of course a close relationship between levels of catches and fishermen's incomes, although this is modulated by the price of fish, which varies greatly in the short term and more gradually in the long term. However, there is equally a close relationship between catches, stock size and fishing effort (see Box 5, after paragraph 24), and moreover between fishing effort and the costs of fishing. The profitability of a fishery is in fact sharply reduced by excessive fishing effort (which increases costs, and reduces stocks, catches and earnings). Long-term profitability therefore depends crucially on achieving and maintaining appropriately low levels of fishing effort (even leaving aside the higher risk of stock collapse if exploitation is excessive).

AVAILABILITY OF ECONOMIC DATA

68. A more fundamental, if more prosaic, issue is how economic information can be generated and used. Economic information is typically limited and difficult to obtain, yet its quality and availability is crucial to the success of fisheries management. As long ago as 1988 the National Audit Office concluded that it was very difficult to obtain reliable data of financial support for the UK fishing support.[48] Ten years later the House of Commons Agriculture Committee highlighted the dearth of official information on the profitability of the industry.[49]

69. It remains difficult to gain access to economic data in the UK and on a European level. Fisheries economists, conservationists, and fisheries industry representatives are united in their criticism of the lack of economic information collected or made available by the Government. We note, however, that it is possible for economic (and other) data to be made available for research purposes while still respecting confidentiality and data protection laws, as evidenced by government practice in several Member States, including the Netherlands, Denmark and France.

70. We are concerned that important decisions on fisheries management and long-term planning are taken in the Council and within the Commission without rigorous economic (as distinct from scientific) advice. We urge the UK Government and the EU institutions to commit resources to the comprehensive gathering of economic data on the fisheries and making this information widely available.

THE FISHING INDUSTRY'S NEED FOR FURTHER FINANCIAL AID

71. Unfortunately the Commission and the Member States may not have the option of a gradual introduction of market conditions to provide for sustainable fisheries. In October 2002 the International Council for the Exploration of the Seas (ICES) recommended a moratorium on cod fishing in the North Sea—other fish stocks may follow shortly to the brink of collapse. To many the ICES recommendation for the North Sea in 2002 was all too similar to the moratorium the Canadian government was forced to impose in 1992 on its cod fisheries. The failure to act earlier cost the Canadian government dearly, and forced many Atlantic fishermen out of their jobs (see Box 7). In the event, the December 2002 Council failed to impose a moratorium on the North Sea. It remains to be seen whether the agreed 65 per cent cut in fishing effort will be enough to allow the stocks to recover. While the Government and the industry remain hopeful, environmentalists and scientists are more pessimistic.[50]

Box 7

The Canadian Experience
For centuries the Canadian Grand Banks, off the coast of Newfoundland, were prime fishing grounds. The region's abundance of Atlantic Cod supported entire communities. The factory trawlers that subsequently moved on to the banks exacted a fateful toll. Stocks collapsed, and in 1992 Canada's Department of Fisheries and Oceans closed the fishery. In November 2002, the Canadian Fisheries Minister Robert Thibault announced that in all probability the few remaining cod fisheries in the four Atlantic provinces and Quebec would have to be closed in 2003, as the stocks showed no sign of recovery.[51]
A severe employment and revenue crisis followed in the immediate aftermath of the moratorium. Fortunately it proved possible to diversify the fisheries. By the end of the 1990s a booming shell-fish industry had increased the total value of fish landings from a cod-based fishery high of C$1 billion in 1988 to C$1.2 billion in 1998.[52] (This is an option largely not available in the UK where diversification has already occurred). While revenue of the fisheries has recovered, it has been achieved with a much smaller workforce and at considerable expense to the Canadian taxpayer.
Employment
At the peak of the ground fish[53] boom in 1988, the Atlantic fishery supported 59,000 fishermen working in 27,000 vessels.[54] In addition, this primary resource supported the activity of 780 fish plants and 30,000 processing workers.[55] In total, close to 90,000 Atlantic Canadians made a living off the ground fish fishery.
The capital-intensive shellfish industry, which came to replace the ground fish as the main employment in the region, was unable to absorb all of the excess labour capacity. The Canadian government estimates that some 30,000 people lost their jobs in the harvesting and processing sector as a result of the cod crisis.[56] Others argue that 30,000 is a rather conservative estimate.[57]
Cost to the Canadian Government
In 1992, the shellfish industry was marginal, or as in the case of shrimp, non-existent. It took several years to diversify the industry, during which the Canadian taxpayers footed the bill. The total federal government assistance to fisheries, already generous, grew from c C$150m in the mid-1980s to c C$700m per annum in the mid-1990s.[58] The bulk of the increased expenditure was due to the Atlantic crisis. Assuming that the most pessimistic assumption of a net of 30,000 lost jobs among fishers and the processing industry is correct, this amounts to an annual peak expenditure of c C$9,000 (£4,500) per individual. With the optimistic assumption that all of these job losses were absorbed by the booming shellfish landings, and by importing fish for processing, it still amounts to C$6,500 (£3,250) per person, a year.
Summary
Diversifying the Atlantic fishery has staved off the worst socio-economic effects of the cod moratorium. In the short-term the shellfish industry is achieving positive results. Long-term questions remain about the sustainability of the ever larger quotas for shellfish: will shrimp, crab, and lobster stocks eventually go the way of the cod fishery?

72. If the EU—Commission and Member States—is unprepared in the short term to accept the employment implications of an access or property based management system, it follows that some other economic measure is required to allow the most vulnerable stocks to recover. In the UK, a powerful lobby of the fishing industry, environmentalists and academics has emerged arguing for large sums of "transitional aid" as part of recovery programmes.[59]

73. The argument is that transitional aid would allow the industry to accept the short term losses associated with any meaningful conservation measures. Barry Deas of the National Federation of Fishermen's Organisations emphasised that the lack of transitional aid is "the fundamental reason why all these previous initiatives have failed" and until "that particular nettle is grasped I do not think we will have recovery".[60]

74. Transitional aid could only be justified to assist an industry to make a well-defined transition, from one state to another. In the case of fishing this invariably means a transition to a future state with permanently reduced fishing effort and capacity. Given technological advance in particular, reduced fishing effort and capacity means reducing the number of fishermen.[61] For this purpose exit payments in the form of decommissioning grants, and payments for permanent buy-back of any licences or individual access rights, would be appropriate. A possible model, provided by our specialist adviser, is in Appendix 4.

75. In some cases, however, more drastic action than reduction to some future sustainable level is required. This is, for example, the case of a temporary but total closure of a fishery, to allow a greater chance of recovery of a stock from a state of actual or imminent collapse. This is also the case with the North Sea cod at present, where the agreed TAC corresponds to a 65 per cent reduction in effort, which is more than the c 50 per cent reduction which is believed to be necessary in the long term.

76. In such cases, additional temporary tie-up compensation payments (somewhat analogous to set-aside payments to farmers) could be justified. These would provide time-limited compensation for those fishermen who are forced not to exercise their access rights. For example, compensation for temporary suspension of entitlements might be set at (say) 10 per cent of past average daily earnings per day's suspension (to allow for reduction of short-run operating costs as well as earnings). Such tie-up compensation should be available only for the duration of the exceptional conservation measures, and would cease as and when the normal long-term conservation measures were restored. Such transitional aid would go some way towards reducing the violent opposition to complete closure experienced in December 2002 in relation to North Sea cod fisheries, on the grounds that the industry could not survive a complete cessation of a major part of its income for one year.

77. Transitional aid is problematic for several reasons. As the Canadian experience has shown, it can take a very long time for stocks to recover, if at all. Thus, the industry's optimistic guess[62] that it will take "three or four years" for cod stocks to recover is not shared by ICES, whose General Secretary said ten or more years was more realistic.[63] It is, however, not unheard of for stocks to recover. North Sea herring was fished out but did recover after a fishing moratorium in the mid-1970s. The pelagic fisheries in Scotland now appear to be on a sustainable footing.[64]

78. Another problem is how to ensure that transitional aid does not end up contributing to maintained or even increased capacity of the fleet at a time when it is vital to reduce capacity. The problem of "technology creep" is all too familiar. It would be manifestly absurd to allow stocks to recover only to over fish them again with an ever more powerful fleet financed by transitional aid. The Joint Nature Conservation Committee (JNCC), unlike WWF (which has signed up to the initiative), remains unconvinced that it would be possible to track the use of transitional aid and remains convinced that such aid would only contribute to increased capacity.[65]

79. The third question mark hanging over the initiative is how such transitional aid would be financed. The Commission, in its "Action Plan to counter the Social, Economic and Regional Consequences of the Restructuring of the EU Fishing Industry" published in November 2002,[66] made it clear that no new financing is to be available from the EU Structural Funds (see Box 8). The 2000-2006 structural funds are highly unlikely to be renegotiated in the 2003 mid-term review in favour of the fisheries. An example of the low priority of fisheries was the decision to redirect funding from EU fisheries agreements with third countries to finance humanitarian operations in Afghanistan in 2002.[67]

80. The Commission could only suggest redirecting FIFG money from new vessel construction into socio-economic measures—an option which is unavailable to the UK, which does not finance new vessel construction. It remains unclear which part of the UK's FIFG spending was used for the £60 million emergency aid package for the white fish fleet announced in January 2003. According to the Minister, some FIFG funding was used for this package, most of which will go towards decommissioning.[68] £10 million will be used for socio-economic measures in Scotland, but not tie-ups.

81. In our earlier Report (Unsustainable Fishing) we noted that in England and Wales the uptake of FIFG funds had been poor, at around 55 per cent—a significant underspend of the funds available. This, we were told, had been due in part to the inability of British vessel owners to gain access to Renewal and Modernisation Grants, because of the absence of matching funding. Many witnesses commented on the failure on the UK's part to take up full structural fund entitlements, citing the Fontainebleau Agreement as a principal reason for this.[69] In evidence to the present inquiry, the Sea Fish Industry Authority commented that the reluctance on the part of the UK Government to match available EU funding restricted opportunities for restructuring UK fishing and promoting the wider UK seafood industry.[70] We recognise that the Fontainebleau Agreement has wider implications than fisheries, but we would regard it as unfortunate if, because of the particular application of the Agreement to FIFG, opportunities are being missed for using FIFG funding for purposes which contribute to the diversification of local economies currently dependent on fishing and thereby to reductions in fishing effort. We recommend that the UK Government review the position in relation to assistance for fisheries communities.

Box 8

How does the EU allocate funding for fisheries?
The EU has four Structural Funds through which it channels financial assistance:
·  The Financial Instrument for Fisheries Guidance (FIFG)
·  The European Regional Development Fund (ERDF)
·  The European Agriculture guidance and Guarantee Fund (EAGGF)
·  The European Social Fund (ESF)
There are two additional ways in which the Community supports the fisheries:
·  Fisheries Agreements with third countries
·  Aid for research and enforcement
Financial Instrument for Fisheries Guidance
The FIFG is the main instrument for Community aid to the fisheries sector. Decisions on FIFG intervention are taken in two stages: (1) Member States submit a draft programme to the Commission, which sets out the strategy and priorities for assistance, as well as request for funding; (2) Commission negotiates the programme with the Member States, and having reached an agreement approves it. Member States can usually change their spending patterns during the budget cycle. Programmed expenditure under the FIFG for 2000-2006 amounts to €3.7 billion.
EAGGF
A very small part (approximately €10 million out of a budget of €40 billion per year) of the EAGGF goes into a price support mechanism is favour of the fisheries. Community aid for price support of fish is of marginal economic importance, representing less than 0.5 per cent of market value of the species concerned. It is only an occasional safety net to be used in the event of market failure
ERDF
ERDF resources are targeted at certain less favoured regions and Member States. Only a very small part of the €73.1 billion for the period 1994-1999 was used for aid for fisheries dependent areas. The ERDF does not allocate aid to the fleets. ERDF may typically be used for financing structural projects such as port improvements.
ESF
The ESF provides funding for programmes which develop or regenerate people's "employability". It is impossible to assess how much of this aid, approximately €42.9 billion in the period 1994-1999, goes to fishermen—but it is one way for fishing communities to access funding.
Fisheries Agreements
To support the EU's distant-water fleet, the Community funds substantial transfers to the authorities of third countries in return for right of access for European fleets in waters that are under-exploited.
Aid for research and enforcement
The Commission may target funds to encourage specific research on areas relevant to the CFP. In 1999 €20.9 million was used for support of fisheries research. In 2000 a specific Regulation was adopted by the Council to allocate the bulk of these funds to the collection of basic data for assessing the state of the fisheries.

82. Some funding may, however, be available from the Community budget in exceptional circumstances. The European Parliament voted in February 2003 to set up a special €150 million emergency fund to support the white fish sector. The proposal would allocate €50 million to transitional aid for forced tie-up schemes in 2003 and a further €100 million in 2004 for golden handshakes—early retirement and retraining grants.[71] The proposal does not include a country-by-country breakdown of the funding.

83. It is clear that if Member States are to finance tie-ups to increase the likelihood of compliance with conservation measures several conditions will have to be met. Transitional aid needs to be linked to a recovery plan with a clearly stated timetable for stock recovery. If stocks fail to recover within that period further, permanent, decommissioning will become necessary. Recovery plans will first need to be agreed to at the Council before individual Member States can commit funding.

84. Transitional aid would need to be monitored closely: it must not be allowed to contribute to increased capacity. One of the more interesting proposals put to the Committee, during an informal visit to Aberdeenshire, was that fishermen should be reimbursed for their loss of income whilst they are engaged in stakeholder dialogue, and on official business such as participation in Regional Advisory Councils—in other words, they should in effect be "paid to talk". The WWF emphasised that money is required for "stakeholder committees, identifying what is the best and most appropriate way forward in terms of management schemes and setting up fishing-free zones".[72] Transitional aid could be used to finance initiatives similar to the North Sea Commission Fisheries Partnership—a forum funded to promote trust and co-operation between scientists and fishermen in monitoring and managing fisheries in the North Sea.[73] ICES confirmed that the forum has been very helpful in promoting understanding, and giving the fishermen what they deserve—"an ownership of the problem".[74]

85. Transitional aid may be advisable in the temporary closure of an entire fishery but coastal communities still need to face up to the fact that the fisheries will provide less and less employment as technology continues to improve. There are many developments beyond the CFP which may lead to more profitable fisheries in the future (see Box 9), yet employment is unlikely to increase. The Committee was therefore encouraged to hear during its visit to Scotland of promising efforts in the port of Peterhead to diversify economic activity.

Box 9

Developments for more profitable and sustainable fishing
Ecolabelling
The Committee was given the example of the Marine Stewardship Council (MSC) label. The MSC programme was created in 1996-97 by Unilever and WWF. After 4 years of consultation a standard for sustainable fishing was developed. By 2003, seven fisheries had passed the standard and another 37 were in the process of being assessed. The attitude of consumers to ecolabelling in fisheries had been positive, with an increasing number of supermarkets willing to carry MSC-certified products. It is too early to tell what sort of impact the initiative is having on the fisheries. In the words of the MSC's international policy director, Christine Grieve, "more short-term and medium-term goals . . . would need to be put in place in order to achieve the much longer-term goal of pursuing some kind of certification."[75]
Fish Farming
While fish farming may still play an increasingly important role in complementing efforts to stabilise and boost stocks of wild fish, our witnesses were sceptical about the ability of fish farming to replace wild fish, particularly in the case of cod, largely because the high costs of feed and husbandry are likely to make it uneconomic for the foreseeable future.[76] Funding should continue to be devoted to the research and development of fish farming but, like eco-labelling, this is a long-term rather than an effective short-term response to the crisis in the European fisheries.