Fleet Overcapacity: Problems and Solutions

16th July 2012 in Discards, Europe / Common Fisheries Policy

The European Commission has convinced itself, with the assistance of the European Court of Auditors, that publicly funded decommissioning of fishing vessels does not represent good value for tax payers’ money.

In its place it has proposed a mandatory system of transferable fishing concessions which it believes would solve any overcapacity issues in the European fleet by facilitating trade in quota; the theory being that any fleet overcapacity will disappear over time as more active, economically stronger vessel operators buy the quota of less active vessels.

At face value, the Commission and the Court of Auditors have a point. Something like a billion Euros has been spent on subsidised fishing vessel scraping schemes - but fleet overcapacity remains a stubborn problem in some fisheries.

However, there is a problem with this picture and it has its roots in the familiar CFP problem of over-generalisation: a blanket view of the problem, with blanket analysis, leading inexorably to blanket solutions, which generally fail.

Decommissioning

If the focus is moved from the broad European level, to the level of specific fisheries, a different conclusion emerges both from the perspective of stock conservation and from the viewpoint of strengthening the economic resilience of the individual units in the fishery.

It is doubtful whether the current progressive rebuilding of the North Sea cod stocks year-on year would now be underway without the large-scale fleet decommissioning schemes by the UK (both England and Scotland) and Denmark. (After all, the underlying problem of depleted cod stocks in the North Sea arose from the dramatic expansion of the fleet on the back of the gadoid outburst in the early 1980s, leaving a capacity overhang as the period of high recruitment passed; this was supercharged by European and domestic construction subsidies). Similarly, the meteoric rise of the North Sea plaice stocks would have been inconceivable without the large scale decommissioning of significant parts of the Dutch and Belgian beam trawl fleets. And the recovery of the Celtic Sea demersal stocks is not wholly unrelated to the significant decommissioning by the French, Irish and the UK.

In each of these cases the turning point in stock development has been the intervention by government with a well designed and targeted decommissioning scheme. The qualifying clause ‘well designed’ is crucial. It is not difficult to squander government money on a poorly thought through decommissioning scheme and there have been plenty of examples over the years. But it is to throw the baby out with the bathwater to reject publicly funded decommissioning in principle because some schemes have been poorly designed and implemented. Contrary to the prevailing orthodoxy, we assert that both from a stock conservation perspective and re-establishing healthy fleet economics, decommissioning has been amongst the few instruments that have actually worked and made a decisive difference.

Money

And then of course there is the money. It is undeniable that in these straitened times governments do not have access to the same level of funds for decommissioning.

On the other hand, (well designed) decommissioning schemes work and the evidence is reasonably clear that many other conservation measures, effort restrictions for example, don’t. A fair economic comparison of the effectiveness of the value for money of different measures would have to take into account the cost of management failures over many years with instruments such as effort control, and mesh size increases undermined by the perverse incentives created by the effort regime. The costs of these ongoing failures would have to be compared to the cost of a decisive strategic intervention through decommissioning. Stumbling on, year after year, with failed or only partially successful policies costs an ongoing fortune and accounts for the fact that in some member states we have reached the bizarre situation in which the cost of managing fisheries outstrips the revenue generated by those fisheries. A well timed decommissioning scheme putting a fishery on the path to recovery may well save a fortune in the medium to long term. But finding the money in the short term is certainly a challenge, not about to be made any easier if the the Commission’s proposal to removing scrapping support from the European Maritime and Fisheries Fund is accepted.

A further value-for-money criticism of publicly funded decommissioning rests on the observation that some vessel operators who have scrapped their vessel and surrendered their licence chose to remain in the industry by buying a licence from an existing vessel and attaching it to a new boat. This certainly could be a problem if there was no cap on licences but in a sealed licensing system (such as ours) one less vessel and one less licence matters, irrespective of who owns it. Again this is a question of scale. The evidence suggests that at the level of fishery rather than individual vessel, or a broad European canvass, decommissioning can make a decisive and positive difference.

Then there is the argument why public money should be used to right-size a fleet made up of private interests?

The answer lies, firstly, in the fact that it has principally been a failure of public policy that led to various stock declines; and, secondly, when it is accepted that civil society has the right to determine the conditions under which fish are caught, it is right that civil society shares some of the costs of achieving those objectives.

Transferable Fishing Concessions

The most salient point about a European system of mandatory transferable fishing concessions is that it will not happen. Member states have made it plain that there is no desire to move in the opposite direction to the rest of CFP reform towards some form of decentralisation, to a system of European quota controls, when this is already a member state competence applied in a wide variety of forms.

Leaving aside the fact that the Commission’s view of TFCs as a panacea for fleet overcapacity always had something of the desperate and unrealistic about it, even a mandatory obligation to apply TFCs at member state level is misconceived. TFCs have proven merits in some fisheries but equally, pool systems have a number of advantages that are evident where there is a need to frequently change target species to meet changing resource or market circumstances. A blanket mandatory system would repeat the problems of inflexibility that is the central problem in many other parts of the CFP.

In any event, there must be some scepticism about whether TFCs would be the panacea for overcapacity that their promoters claim. They certainly can assist with adjusting fleet capacity to match available quota but it is noteworthy that in those member states that have something approximating TFCs – Netherlands, Denmark and the UK – the introduction of TFCs have been accompanied or preceded by large-scale publicly decommissioning schemes. Similarly the establishment of the New Zealand system of Individual Transferable Quotas was accompanies by significant amounts of public expenditure in its early stages.

Policy vacuum

Having put all of its eggs in the TFC basket and having that basket dropped by the member states, the Commission has a policy vacuum on its hands. Depending on TFCs and proposing to remove scrapping subsidies from the new European Maritime Fisheries Fund, and having previously been through failed multiannual guidance programmes I to IV, the CFP no longer appears to have a credible means of dealing with fleet overcapacity where it exists.

Discard Ban

One possible way of circumventing the Commission’s policy impasse on overcapacity would be to put in place management arrangements that ensure that capacity is removed as an issue. This might be an option for some fisheries where there is confidence that all landings are recorded, discards are minimal, and quotas are allocated at individual vessel level. In these fisheries, whether the vessel operator catches his or her quotas with one large vessel, or ten small vessels, or a modern or obsolete vessel, is immaterial from a public policy perspective. As long as all catches are taken into account and are within the target fishing mortalities, these decisions can safely be left to the individual operators.

Against the background of CFP reform moving towards a discard ban and fully documented fisheries, in one form or other, the likelihood is that this will be a solution for an increasing number of fisheries. In these circumstances the capacity of the fleets disappears as issue of concern for fisheries managers.

Technical Creep

And then there is the problem of technical creep – the relentless onward advance of technological developments in fishing which in aggregate lead to an increase in the effective fishing power of the fleets.

But technology can work in two ways. Improved gear selectivity based on the application of research and technology has led to the development of square mesh panels, selectivity grids and other environmentally friendly fishing gear. GPS plotter trackers and net monitoring equipment have led, not just to increased catches, but also to more intelligent fishing, including underpinning cod avoidance strategies. The challenge lies in continuing to applying technology to the pursuit of intelligent fishing. The biggest technological changes in recent years have been the introduction of VMS satellite monitoring, electronic logbooks and CCTV cameras – all linked to the achievement of sustainable fishing.

Technological development is not therefore a one way street; it is already helping to manage stocks more effectively, protect the marine environment more thoroughly, and catch fish more intelligently as well as more efficiently.

Does Fleet Overcapacity Matter? Yes and No

Perhaps a bit late in the day but it is worth asking the question: does fleet overcapacity matter?

The tired rhetoric about too many boats chasing too few fish is no longer helpful, if it ever was.

The answer is that it depends how you define overcapacity. We would suggest that overcapacity should be judged against three criteria:

  1. Technical capacity: the capacity to catch considerably more fish that the quotas that are available
  2. Compliance: whether there is a significant misreporting problem in a fishery
  3. Economics: whether there is chronic lack of profitability in a fleet sector

Applying these criteria to for example the UK pelagic fleet it is possible to say that it has the technical capacity to catch many times its quotas; however it is compliant, as the once considerable black fish problem has been eradicated, and it is highly profitable. Pelagic fishing vessels can be equated to an expensive combine harvester taken out of its shed at certain times of the year at the right season, to harvest the mackerel or herring shoals. There is no overcapacity problem in the pelagic fishery so long as the fishery continues (leaving international fishing politics aside) to be well managed primarily through restrictive licensing policy.

By contrast, parts of the under-10m fleet, since the introduction of buyers and sellers registration have faced technical overcapacity, compliance issues and a chronic lack of profitability. Amongst the different layers of the problems facing the under-10s there is an undoubted overcapacity problem, at least amongst the 14% of the under-10s which catch 70% of the under-10 pool quotas; and it is difficult to see how the issue can be resolved without a publicly funded decommissioning scheme as at least part of the package of measures.

All this suggests that the public policy approach to overcapacity requires:

  1. A fishery by fishery approach which identifies where fleet overcapacity presents a problem
  2. The use of the three criteria: technical, compliance and profitability to define and identify fleet overcapacity
  3. The judicious and targeted use of publicly funded and well designed decommission schemes where appropriate
  4. The use of transferable quotas by member states within a system of safeguard where appropriate
  5. A European Maritime and Fisheries Fund that supports and facilitates this approach by making decommissioning funds available
  6. Steady but careful progress towards a management regime that removes overcapacity as a public policy issue for those fisheries where individual vessel allocations and fully documented fisheries apply.

Conclusions

Overcapacity has been a central issue for the CFP during its much of its life. Where there has been a problem of endemic fleet over-capacity, compliance and adequate profitability have been difficult to achieve, and the short term losses associated with many conservation initiatives difficult to accept.

The evidence at fishery level suggests that well designed decommissioning schemes can break this spiral of decline.

The current orthodoxy which sees decommissioning as a waste of tax payers money are focussed at either the broad European level or the level of the individual vessel. A focus at the fishery level leads to radically different conclusions.