Transferable Fishing Concessions – the Danish experience

Transferability in fisheries management is instrumental in achieving a balanced fleet capacity and a day-to-day option for fishermen to match quotas with catches, writes Mogens Schou, adviser to the Danish Fisheries Minister. In this op-ed, he describes the opportunities and pitfalls of a TFC system.

Allocating the right to fish is a central aspect of fisheries management. Member states have developed a variety of models, often with a questionable performance. Fleet overcapacity, excess pressure on fish stocks, and the resultant need for subsidies, are visible consequences.

The European Commission proposes that member states should address this problem by introducing mandatory Transferable Fishing Concessions (TFC).

Some guidelines should be observed when introducing TFCs, primarily in setting the right objectives, defining the policy on safeguards and aligning the regulation with the principles. In the following the relevant elements are discussed, in the light of the Danish experience. 1st January 2003 Denmark introduced individual transferable quota (ITQ) management in the pelagic fishery and 1st January 2007 a transferable vessel quota (TVQ) management in the demersal fishery.

Transferable Fishing Concessions – the main issues

Transferable Fishing Concessions (TFC) are in the EU context quota shares allocated in such a way, that the quotas can be fished, sold or leased out by the holder of the right. They key elements are the identifiable right and the transferability.

The quota share will each year release a quota allocation of a size depending on the overall quota made available by the member state.

With TFCs the fisher obtains a right that he can fish, sell or lease. This will in a normal market economy result in fleet overcapacity being transformed into cost saving gains. These may materialise as capital assets for the fisher and allow him to invest in his fishery, they may have as a result that the fisher sells his right and pulls out of the fishery with a considerable amount of money or they may be withdrawn from the fisheries sector by public taxing. The public may also decide to redistribute the gains obtained e.g. by financial transfers or by reallocation of fishing rights for certain political priorities or developments, for example in coastal communities. A likely market effect is also that a concentration of rights will occur if there are no restrictions.

After the initial allocation of rights and establishment of the management a transformation into a more normal market situation will take place. Now newcomers to the fishery will have to pay not only the price for the vessel but also the value attributed to the fishing right. To them – and their bank, it becomes a financial investment calculation to invest.

TFC elements

Marine resources are a public good, and it should be considered whether the user right should be restricted to active “fishermen” in order to sustain the EU policy of fishery as an activity tied to cultural and geographical traditions.  Also the right should differ from normal market rights by carrying a revocation clause.

Denmark has reserved fishing rights for registered and active fishermen and has established a quota retrieval model that allows the rights to be revoked with 8 years notice. In addition to that a withdrawal of quotas for the FishFund is done every year and redistributed to e.g. young fishermen investing in the fishery for the first time.

TFCs can be allocated in a number of ways. By auction; this is a relevant method for allocating new fisheries but may create uncertainties if used in well established fisheries. Allocation according to the individual vessels’ or owners’ historic catches seems to be the most common method as it reflects both tradition and performance. Other criteria as vessel size, use of gear type etc may be applied, for example to benefit sustainable practises. This method however entails redistribution by legislation rather than by market forces and it may show difficult to ensure that the practises will continue.

An alternative way to ensure sustainable practises is by result based management where the fisher is accountable for the full impact his fishery has on the resources. The Commissions’ proposal of “all catches being recorded and landed” is an example of this approach which will result in fishermen exchanging the incentive to discard with the incentive to fish selectively. The initial allocation of rights can be compared to a financial asset and a distribution that is considered legitimate is important in relation to the individual fishers’ perception of the system. As TFCs are likely to produce an economic benefit this management offers the opportunity to support EU and member state policies regarding coastal communities and small scale fishing e.g. by giving these segments a quota premium – a guaranteed share or similar. In Denmark the group of coastal vessels less than 17 meters was allocated a 10% increase in the quota for cod and sole. If the number of vessels in the group is reduced the individual premium will increase and vice versa.

The terms for the use of a TFC have to be decided. Transferability is what makes the TFC work. But it can be regulated in a number of ways. The transfers of shares can be restricted in relation to geography, which is difficult to enforce, fleet segments or in relation to safeguards regarding ownership or vessel concentration.

Similarly leasing of the yearly quota allocation can be regulated in terms of activity or to take place within organisations for example a Producer Organization or as in Denmark the FishPool. The main concerns here are concentration of ownership and ensuring that owners are active fishermen.  The pool is a strong instrument in relation to quota utilization. In Denmark a fisher having caught more than his vessel quota may land the fish and within the quota year cover the quota need by leasing in the pool.

The TFCs’ property right makes financing of the fishery easier. Financial institutions appreciate that known quota rights allow for planning and the given quota right has a value that can be mortgaged. On the other hand the financial requirement is considerably higher.

Taxation will have to be dealt with according to national law. However one must consider whether the right is a continuation of an already given access or if it is taxable as a given new economic benefit.

In fisheries with restricted access registered vessels normally has a higher price because of the access they give to the fishery. With TFCs the fisher is allowed to sell the fishing right without the vessel. It may be scrapped and the cost saved by reducing the fleet will be reflected in the price for the fishing right – the benefit will be capitalized; more overcapacity in the fleet means more potential for saving costs by reducing the fleet and the higher price can be paid for the right. If the fishery is subsidised the subsidies can be removed or reduced. The capitalization may be taxed by the public or it may be reduced by allocating some of the fish for certain prioritized purposes as is done in the Danish FishFund.

The Danish case

As mentioned, Denmark has introduced individual transferable quota (ITQ) management in the pelagic fishery and a transferable vessel quota (TVQ) management in the demersal fishery.

Restrictions are few in the pelagic fleet. Here large and efficient vessels are required to compete in the fishery for small cheaper fish, often at long voyages to the North Atlantic.  Transferability is very flexible, and a fisher may own up to 5.000 GT vessel tonnage.

The demersal fishery is more varied, the fisher literally has each fish in his hand and small vessels can be very competitive. Here the coastal fishery is safeguarded by the premium mentioned.

There was a clear political understanding that a change of management would result in fewer vessels and some reduced employment.

Writing 2011 the results in a nutshell have been that the Danish fleets are in balance with fishing opportunities. Profits have risen and so have investments in quality and better working conditions. Fishermen plan their fishery according to market developments – to the extent that the EU days-at-sea allows for it, and day-to-day leasing of quotas has reduced discards. The coastal fishery is competitive under the new regime. The segment has actually increased its share of the most important demersal stocks.

Mogens Schou
Minister’s adviser for fisheries and aquaculture, Danish Ministry of Food, Agriculture and Fisheries

A more detailed account of the Danish model can be found at www.fvm.dk/yieldoffish

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