Commercial Fishing:
Economic Aid and Capacity Reduction II

97-441 ENR

CONTENTS FOR THIS SECTION

New England Groundfish
Gulf of Mexico
Canadian Atlantic Groundfish Strategy
Magnuson-Stevens Act Provisions

Capacity Reduction

Vessel Buyback

United Kingdom
Norwegian Purse Seine
Washington Salmon, 1976-1979
British Columbia Salmon, 1972 and 1981
New England Groundfish

License Retirement

Australian Northern Prawn
North Atlantic Salmon
South Australia Rock Lobster

New England Groundfish

Although some New England groundfish stocks are still considered to be healthy, others have been depleted to the extent that the Secretary of Commerce declared a fishery disaster on August 2, 1995. The traditional fishery for mixed groundfish species was the focus of greatest concern, and the local impacts of the stock collapse have been severe.

Funding was obtained, primarily from existing federal aid programs, totaling $90 million for FY1994-FY1996. These funds are financing a comprehensive package of measures, designed both to alleviate short-term hardship within affected communities and to allow stock recovery. Planned restructuring of the industry aims to sustain this recovery indefinitely. Loan guarantees from the National Oceanic and Atmospheric Administration (NOAA, U.S. Dept. of Commerce) and technical assistance and loans from the Environmental Protection Agency (EPA) have contributed to efforts by the industry to diversify into under-exploited fisheries and aquaculture. A NOAA funded retraining program has provided employment for 149 fishermen and trained 589 others, and the Fishing Family Assistance Centers, established by NOAA and now run by the Department of Labor, provide practical support. The aid package totals $63 million; the remaining $27 million is being used for a vessel buyback program. 16 (Details of the vessel buyback program are discussed later in this report.)

Gulf of Mexico

A fishery disaster was declared by the Secretary of Commerce for the Gulf of Mexico on August 3, 1995. A total of $5 million was made available to fishermen in the area for uninsured losses sustained between August 22, 1992, and December 31, 1995, as a direct result of hurricanes or floods, or through direct contact with resulting underwater hazards. 17 It was primarily fishermen in the stone crab and shrimp fisheries that were affected.

To be eligible, vessel owners or operators must have derived at least 50% of their income through fishing, and have annual revenues of less than $2 million from commercial fishing. Compensation for uninsured loss of as much as $7,500 per individual vessel is allowed, with a cap of $22,500 on aggregate applications. Charter vessels are also eligible for compensation. Not all the money available was claimed by the October 1996 deadline. Critics assert that the unexpended funding indicated that this "disaster" was not as severe as it had been portrayed.

Canadian Atlantic Groundfish Strategy

The largest fishery disaster relief program ever was put into place by the Canadian federal government in response to successive closures of Atlantic groundfish fisheries between 1992 and 1994. The collapse of these fisheries has been blamed on overfishing, resulting from such factors as poor implementation and enforcement of total allowable catch quotas and minimum fish size regulations. Most cod fisheries as well as fisheries for redfish in the Gulf of St. Lawrence and on a few flatfish stocks are still closed, and the economic aid was planned to last until May 1999. Economic aid was predicted to take the largest portion of the C$1.9 billion government aid package, which was also intended to fund a capacity reduction program.

Funds were provided for retraining schemes, early retirement, relocation to other areas, support schemes for non-fishing employers to increase their workforce, and community service. By far the largest share of funds went to income support for fishermen and affected families without income due to the fishing moratoria. Claims for aid were far greater than expected --40,000 applications were received compared to a prediction of 27,000. As a result, funding is expected to be depleted sometime in 1998. More than C$200 million of the C$270 million allocated for a license retirement program has been diverted to the aid program.

Magnuson-Steuens Act Provisions

Late in 1996, §116(a) of the Sustainable Fisheries Act (P.L 104-297) amended the Magnuso n-Stevens Fishery Conservation and Management Act to provide additional fisheries disaster relief in §312(a). In response to a request from a State Governor or a fishing community, or unilaterally, the Secretary of Commerce determines whether a commercial fishery failure is due to a fishery resource disaster of natural or uncontrollable human cause. Following an affirmative determination on cause and an additional determination that assistance will not expand the size or scope of the failure, the Secretary is authorized to provide as much as 75% of the cost of any assistance, with federal appropriations authorized through FY1999.

Capacity Reduction

Vessel Buyback

United Kingdom. As a member of the European Community (EC), the United Kingdom (UK) is obliged to meet capacity reduction targets set by the EC Multi-Annual Guidance Program (MAGP). All member states have capacity reduction targets that, once met, allow access to funds for restructuring national fleets. Each nation has responded to the MAGP in a different way, and there is considerable disagreement among member states about different measures of vessel capacity. Full integration of capacity measurement is not due until 2003.18

In the UK, fishery access has been restricted for more than 20 years. In 1975, safety regulations were applied to vessels longer than 12 meters, removing many vessels from the British Register.19 Licenses for different "pressure stocks" -- stocks most at risk from overfishing -- were issued in 1985 to vessels exceeding 10 meters and with a previous track record. The growth in "rule beater" vessels of just less than this length followed as a result, and issuing of licenses for any length of vessel was frozen in 1992.

A vessel buyback scheme was initiated by the UK government in 1993. Vessel owners seeking to have their vessels purchased in the buyback scheme must submit a tender for the value of their vessel capacity units (VCUs). A VCU is defined as:

[vessel length x vessel width] + [0.45 x engine power (in kilowatts)]

Certain fleets were ineligible for vessel purchase in the initial years of the buyback scheme but, since many vessels were able to switch sectors, this approach was dropped. All vessels on the Register that 1) exceed 10 meters in length, 2) are at least 10 years old, and 3) have fished for 75 days in EC waters the previous year are now considered eligible for the buyback scheme.20

Until the UK meets its capacity reduction targets (and qualifies for EC assistance), funding is provided entirely by the UK central government. The first 2 years of the scheme were over-subscribed, with all the allocated money (approximately $14 million a year) spent and 297 vessels (4.6% of those eligible) bought back. Vessels bought in the scheme must be destroyed, although all equipment may be removed prior to destruction.

New vessels may enter the Register, but must purchase the appropriate number of VCUs from others leaving it. If licenses from a number of smaller vessels are combined to qualify for one larger new entrant, 10% of the combined units are forfeited.

Vessel reduction under the buyback scheme is obviously being achieved, although the MAGP target of a 19% reduction from 1992 levels will not be quickly attained. However, considerable criticism has been forthcoming from both fishermen's and environmental groups,21 who claim that only the oldest and least-efficient vessels are being destroyed, and that the reduction in vessel numbers and employment is not reflected by a similar reduction in the overall fishing capacity of the fleet.

Norwegian Purse Seine.22 In contrast to many vessel buyback schemes, this Norwegian program was intended to restore profitability to a fleet where effort had been fairly successfully limited by a system of quotas and seasons. A base fee plus a flat rate per gross registered ton was paid for each vessel bought back. Between 1979 and 1984, 67 vessels (25% of the total) were removed from the fleet, representing 18% of the total capacity, measured as tonnage. Although license prices rose in expectation of increased profitability after implementation of the buyback scheme, the buyback program was considered a success. Depletion of fish stocks was also reversed, and less pressure was exerted upon the government to raise quotas above sustainable limits.

The buyback scheme was funded entirely by the Norwegian government. An analysis in 1986 showed that the increased revenues of those remaining in the fishery were already greater than the costs of the scheme, and that the industry could have financed the buyback program.

Washington Salmon, 1976-1979. 23 A need to reduce capacity in Washington state salmon fisheries was first recognized in the early 1960s. However, the Boldt Decision of 1975, transferring 50% of the salmon catch to Native American Treaty tribe fishermen,24 precipitated the first attempts at capacity reduction.

Funded by the federal government but managed by Washington state, the aim of this vessel buyback program was to mitigate the hardship of non-Native fishermen caused by their catch reduction. A vessel buyback scheme was initiated in 1976, along with additional measures, such as retraining affected fishermen. Licensing for this fishery was restricted in 1974, prior to which access was attained by purchasing an annual state license.

Vessels were purchased at an agreed price after 2 appraisals by independent appraisers. License prices were fixed, and gear was valued at a fixed rate of depreciation from original cost. Vessels had to be delivered to storage yards prior to resale by public auction, and were not allowed to return to the fishery. Total return from resales was $2.25 million, 42% of the state's total buyback purchase price. Reasons suggested for the decline in value were deterioration of the vessels while in storage, separation of gear and electronics from vessels, and market saturation caused by auctioning off as many as 60 vessels at a time. The state's total purchase price does not include vessel storage costs.

Of a total of more than 7,500 vessels in the fishery, 253 (nearly all gill netters) were removed. Most buyouts were of marginal fishermen, and very little reduction in effort was attributed to the scheme; 40% of those selling vessels to the buyback program remained in the fishery, either by purchasing new vessels or by retaining a second licensed vessel.

A second round of the scheme gave owners the choice of selecting either vessel buyback or license retirement. Eleven vessels and 238 licenses were purchased in the second round, and vessel buyback was subsequently eliminated as an option.25 The license retirement scheme is discussed below.

British Columbia Salmon, 1972 and 1981.26 Entry to British Columbia salmon fisheries was limited in 1969, but licenses had been issued to many vessels that fished only sporadically, in years of peak abundance. Following many years of capacity increases by increasing vessel size, rules against increasing or upgrading vessel capacity were introduced, with limited success.

In 1970, license fees for the fisheries were doubled to fund a proposed vessel buyback. Although 362 vessels (4.5% of those licensed) were purchased in 1972 for a total cost of about C$6 million, most were below-average producers, representing just 3.9% of the previous year's catch. Vessels were purchased after valuation by an independent appraiser and were purchased on a first-come, first-served basis. No attempt was made to target the buyback to any particular sector of the fleet. The program retired the least efficient vessels and probably had little long-term impact on capacity.

The cost of the 1972 buyback, after deducting revenues from resale of the vessels, was C$3.4 million. Vessel sales recouped 43% of the purchase price, before expenses. This was thought to be due to a combination of poor vessel maintenance and the requirement that vessels not return to any British Columbia fishery.

A second buyback in 1981 was funded by a C$2.9 million grant from the federal government. This scheme was over-subscribed, and 36 vessels were purchased, with the stated aim of "purchasing the maximum capacity at the lowest cost;" $660,000 was received through resale of the vessels.

A report commissioned after the buyback was completed made several recommendations for changes to any future scheme.27 It suggested that, to be effective, any attempt at capacity reduction would need to require permits to be both area- and gear-specific, and that further schemes should be funded by a royalty on catches and by auctioning 10-year permits to those wishing to remain in the fishery. A rough estimate of a 50% reduction in vessel numbers was projected as necessary to ensure a stable and healthy fishery.

New England Groundfish. A pilot vessel buyback scheme, the Fishing Capacity Reduction Initiative (FCRI), modelled in large part on the United Kingdom's decommissioning scheme, was instituted following the declaration of a fishery disaster in August 1995. Access to new entrants was limited in 1994,28 making a capacity reduction program possible. However, only 412 of 1,663 vessels with limited access groundfish permits (25%) were deemed to be active in the fishery.29 Thus, latent capacity of the inactive vessels in this fishery poses a challenge to meaningful capacity reduction.

The pilot scheme solicited buyback bids for vessels working in the fishery and all attached licenses, not just those for groundfish. To be eligible, vessels must have earned at least 65% of their total gross income from the groundfish fishery in 3 of the previous 4 years. Bids were divided by the average annual groundfish revenues for 3 of the previous 4 years, and the vessels with the lowest resultant scores (i.e., the lowest bid per unit revenue) were purchased. Vessels originally had to be destroyed, although a subsequent change in the scheme now means that vessels may be sold for such purposes as research or training, as long as vessels do not return to any other U.S. fishery.

Bids were submitted by 114 vessels, 28% of those active in the fishery. Eventually, 11 vessels (fewer than 3% of active vessels) were purchased for a total of $1.9 million. In addition to their groundfish licenses, owners of these vessels surrendered 15 other limited access licenses. These owners retained the right to remain in, or re-enter the fishery, by purchasing another licensed vessel.

The successful completion of the pilot scheme has meant that an additional $25 million of federal funds has been made available for a greatly enlarged buyback. This is believed to be sufficient to purchase approximately 80 vessels (19% of the active vessels), equivalent to removing capacity responsible for 23% of the historic annual groundfish revenue, but only about 5% of the vessels having groundfish limited access permits.30 The large number of bids in the pilot scheme and the National Marine Fisheries Service's intent to purchase only vessels that it deems "good value for the money" suggests that expanding the scheme would not inflate vessel prices significantly.

The problem of latent capacity in the fishery (the inactive 75% of the vessels) is also being addressed. The U.S. Fish and Wildlife Service has made $400,000 available, in conjunction with $600,000 from private funds through the National Fish and Wildlife Foundation, to buyback licenses from vessels not active in the fishery.31 Bids will be sought that relate to the vessels' effort capacity, with the lowest bids accepted until the funds are exhausted. At this stage, no projection is available for the number of licenses expected to be surrendered. However, if you consider that about 5,000 vessels have either federal limited or state open access permits for the groundfish fishery, a large latent capacity remains.

The FCRI appears to have the support of the fishing industry. However, the economic state of the fishery is thought to be too poor to self-finance any capacity reduction scheme. The problem of latent capacity, that has caused difficulty in other capacity reduction schemes, may become more apparent as stocks of the principal groundfish species recover. If it becomes economically attractive for vessels to return to the fishery, active capacity could increase enough to seriously deplete stocks a second time. Other management measures, such as gear and quota restrictions, may help to reduce the possibility of a second disaster. The ultimate success or failure of the FCRI will not be known for some years to come.

License Retirement

Australian Northern Prawn.32 A license retirement scheme for the Australian northern prawn fishery was introduced in 1986, primarily because of concerns about stock depletion. Initially capacity reduction from 116,000 units33 to 70,000 units over a 6-year period was planned. Increased effort by those remaining in the fishery caused this target to be lowered to 50,000 units, with a new deadline of 1994.

A tendering process was used initially, but bids were considered to be too high. As the scheme progressed, a fixed rate per unit was agreed with the industry, comprising a fixed value for the units purchased and partial compensation for the reduced value of a vessel that no longer had a license. Capacity reduction still failed to reach the levels sought and, in 1993, all vessels remaining in the fishery were forced to surrender 30% of their units. Those choosing to continue in the fishery were obliged to purchase units from vessels wishing to retire. However, substantial displeasure resulted when fishermen retiring from the northern prawn fishery relocated into Queensland's prawn and other fisheries.

Initial finance for the scheme came from A$5 million in government funds. A further A$35 million came from within the fishery, paid through an annual levy on the remaining vessels. Over the 7 1/2 years that the scheme ran, vessel numbers within the fishery fell from 302 to 137.

A decline in prawn prices and increased effort and costs (from purchasing new units and paying the levy) for those remaining in the fishery reduced the long-term biological and economic benefits of the scheme. An announcement of compulsory unit purchase price, prior to the request for bids, might have considerably reduced the overall cost of the scheme, although those choosing to surrender licenses would argue that the prices paid reflected a fair value for their retirement from the fishery.

North Atlantic Salmon. 34 A fishery for maturing Atlantic salmon developed around the Faroe Islands during the 1980s. Following numerous complaints about a decline in salmon returning to rivers in northern Europe, the North Atlantic Salmon Fund, an independent, non-profit organization supported by the sport angling industry, bought all the licenses of the Faroese fishermen in 1991. These licenses are no longer used. Subsequently, the Fund also concluded an agreement with Greenland fishermen to purchase their 1993-1994 Atlantic salmon quotas.

Initial research appears to show that the economic impacts of the retirement program were positive.35 The economic benefits of salmon caught by sport anglers is high (each salmon caught by anglers on the River Spey, Scotland, contributes an estimated $700 to the local economy) and the total cost of the license retirement has been outweighed by the value of salmon returning to rivers that would otherwise have been caught at sea. Similarly, a number of river boards in Scotland and England have purchased the netting rights of local estuarine fishermen. In a number of cases, it has proven economically beneficial, as well as less controversial, to offer retired fishermen jobs in license enforcement.

South Australia Rock Lobster. The South Australia rock lobster fishery is a pot fishery, and license holders have strictly defined limits on the number of pots they may use, with no limitation on pot size. In 1987, a two-year license retirement scheme was initiated, mainly in a bid to increase economic efficiency, with the objective of retiring 40 licenses or 2,400 pots. The state government borrowed A$6.5 million to initiate the program, which was repaid by the industry through an annual levy on remaining license holders. Licenses were not transferable during the two-year program. The scheme was over-subscribed, and 41 license holders of a total of 238 were bought out before the scheme was closed in 1989, 3 months ahead of schedule. Retirement prices were paid on a fixed "per-pot" basis, and thus one's total retirement payment was related to the number pots the license holder was entitled to use.

Subsequent analysis of the fishery36 showed that although catches for those remaining within the fishery rose, economic efficiency did not. Increased costs associated with the levy and an increase in effort were cited as the main reasons, although a decline in the real price of rock lobsters compounded the problem. Effort increases among vessels continuing to fish were such that overall effort within the fishery was reduced only marginally, despite a 17% reduction in vessel numbers. License values rose significantly following the retirement, but were thought to reflect the perception of future, rather than immediate, returns. Subsequently, management of this fishery was modified by introducing an individual transferable quota program, since license retirement was believed to have achieved little in terms of controlling effort.

ENDNOTES

16 For further details, see the testimony of John K. Bullard, Director of Sustainable Development and Intergovernmental Affairs, NOAA, U.S. Dept. of Commerce, before the House Resources Subcommittee on Fisheries, Wildlife, and Oceans, August 1, 1996.

17 61 Federal Register No. 63 (Apr. 1, 1996): 14293-14296

18 For example, see "Tonnage Fiasco," Fishing News, July 1996.

19 Entering the British Register is a prerequisite for any boat wishing to fish under the UK flag, but does not in itself confer any right to fish stocks for which quotas are set. Further licenses must he purchased, relating to the particular area and species targeted.

20 For full details, see MAFF News Releases, Nos. 381/94 (Oct.21, 1994; 2 p.), 227/94 (June 15, 1994; 3 p.), 268/95 (July 14, 1995; 3 p.), and 279/95 (July 25, 1995; 1 p.). Ministry of Agriculture, Fisheries, and Food, London, UK.

21 Great Britain. Parliament. House of Lords. Select Committee on the Common Fisheries Policy of the European Union. Report. Her Majesties Stationary Office, 1994.

22 For a more detailed review, see Hannesss,n, Rognvaldur. "The Regulation of Fleet Capacity in Norwegian Purse Seining." Fishery Access Control Programs Worldwide, Proceedings of the Workshop on Management Options for the North Pacific Longline Fisheries, Orcas Island, WA, Apr. 21-25, 1986. Nina Mollett, ed. Alaska Sea Grant Report 86-4 (December 1986). 65-83.

23 For further details, see Schelle, K., and B. Muse. Buyback of Fishing Rights in the US and Canada: Implications for Alaska, 114th Annual Meeting of the American Fisheries Society, 1986, New York; and Jelvik, Mary L. 1986 Annual Report, Washington Dept of Fisheries Commercial Fishing Fleet Adjustment Program, Washington Dept. of Fisheries, Olympia, WA. 1987.

24 Federal court decisions found that treaties signed with the tribes in the 19th Century granted them equal access to fish stocks. For more information, see CRS Report 81-204 GOV, Indian Treaty Fishing Rights: Resource Issues, Legal Developments, Legislative Initiatives.

25 Program officials were investigated for dereliction of duty associated with the deterioration of vessels held in storage. Personal hard feelings from these circumstances contributed to creating a bitter attitude toward vessel buyback, and may explain why subsequent Washington state programs shifted to license retirement. These lingering attitudes may complicate future action on vessel reduction components of the Snake River Salmon Recovery Plan, wherein vessel purchases are required for the non-Indian gillnet fishery on the Lower Columbia River and half of the capacity of the troll fleet from Cape Falcon, north to the Canadian border.

26 For further details, see footnote 15, and Rettig, R.B., and J.C. Ginter, Limited Entry as a Fisheries Management Tool, University of Washington Press, Seattle, 1978.

27 Pearse, P.H. (Commissioner). Turning the Tide: A New Policy for Canada's Pacific Fisheries. Vancouver, Canada: Commission on Pacific Fisheries Policy, 1982

28 Amendment 5 of the New England Multispecies Groundfish Plan. Other amendments closed access to several other New England fisheries at the same time.

29 Defined as vessels earning at least 65% of their gross income from the fishery. Of the 1,663 vessels with limited access groundfish permits, about 65% of these vessels are catching some quantity of the 10 regulated groundfish species.

30 For details of all the above, see 61 Federal Register No.168 (Aug.28, 1996): 44300-44305.

31 For further details, see the testimony of John K. Bullard, Director of Sustainable Development and Intergovernmental Affairs, NOAA, U.S. Dept. of Commerce, before the House Resources Subcommittee on Fisheries, Wildlife, and Oceans, August 1,1996.

32 For further details, see Australian Fisheries, July 1992, p.5-6 and November 1993, p. 24-26; and Dunn, T., and S. Pascoe. A Bioeconomic Model of the NPF. Australian Bureau of Agricultural and Resource Economics Research Report 94.13, Canberra, 1994.

33 Units are defined as underdeck volume (in cubic meters) plus engine power (in kilowatts).

34 For example, see "The North Atlantic Salmon Fund" at: http://www.gamefishing.co.uk/NASF/

35 However, Atlantic salmon recovery may be less attributable to license retirement than to the advent of extensive aquaculture for this species, which caused the market price for Atlantic salmon to drop sufficiently such that commercial harvest became less desirable and more fish became available for recreational anglers.

36  Staniford, A. An Economic Evaluation of the 1987 Buyback in the Southern Zone Rock Lobster Fishery. REARK Research Consortium, Perth, Western Australia, 1993.

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