Regulating fishing capacity

Issue

Regulating fishing capacity requires an understanding of links between capacity and several related aspects of fisheries management: the way in which access to the fish stocks is regulated, the way in which participants in a fishery react to different types of regulations, and the way in which subsidies affect participation in fisheries.

While many fisheries are now managed to some degree, much of the emphasis has been on controlling how fishers are allowed to catch fish or on controlling the amount of fishing effort that fishers put into fisheries, and not on regulating capacity as such. The relative effectiveness of different management measures in regulating fishing capacity is now better understood and it is clear that effective capacity management requires understanding the factors that drive fishing behaviour and fleet dynamics.

The existence of overfishing, overcapacity, and overcapitalization are symptomatic of the same underlying problem – namely, the absence of well-defined property or user rights. A key feature of these rights that can prevent overexploitation is the exclusivity of use of the resource (or part of the resource).

In fisheries that are subject to either little or no management, fish stocks are common pool resources, and individual fishers are unable to control the activities of other fishers in exploiting this common pool. Individuals’ attempts to moderate their own use of the resource will only result in benefits flowing to other users and, as a result, there is every reason to overuse, rather than conserve, the resource. In addition, fishers have a market incentive to over-invest in capital and other productive inputs in a bid to increase, or at least maintain, their share of the harvest, and the existence of profits in the fishery over and above those that might occur elsewhere in the economy also attract new entrants to the fishery, further increasing the pressure on the resource. The excessive use of capital and labour in a fishery causes biological overfishing to occur, resulting in a decline in sustainable yields. With the appearance of overfishing and resulting declines in stock abundance, overcapacity develops in the fishery and the net benefits generated by the fishery begin to decline.

The problem of excessive levels of fishing effort in the fishery is compounded by technological change - improvements in technical efficiency - that enable fishers to maintain their profits even as stocks diminish, creating further incentives for additional entrants to come into the fishery.

The problems associated with unregulated or pure open access fisheries have generally been recognized and relatively few fisheries around the world are subject to no management at all. However, in most fisheries, management has not fully addressed the problem associated with the absence of succinct property rights, and many of the incentives associated with free and open access still exist even if the number of participants is constrained.

Possible solutions

There are two ways in which management can change the set of incentives facing fishers: management instruments can be considered either “incentive blocking” or “incentive adjusting”.

Incentive blocking measures attempt to restrict the level of fishers’ activities in some way, whereas incentive adjusting measures attempt to address the property rights issue, create an environment in which fishers can be profitable within harvesting constraints, and allow the market to assist in reducing overcapacity. (see Table below)

Incentive blocking measures are effectively command-and-control measures that restrict the ability of the market to operate. Licence limitation programmes, while preventing new participants from joining the fishery, do not reduce the incentive for fishers to increase their individual catches. In contrast, management by aggregate quota, while limiting the total output of the fishery, does not prevent new entrants, encourages participants both to race-to-fish and to invest in capital in their attempt to increase, or at least maintain, their share of the restricted catch. In both cases, the fisheries are effectively open access despite the regulations imposed, and in many cases this results in both excessive fishing effort levels and the regulated reduction of fishing seasons.

This may result in limits being placed on other effort inputs such as days at sea, the number of traps, or the number of nets that can be used. These, in turn, create incentives to increase the use of other unregulated inputs in the fishery, e.g. larger sails or engines to cover more ground per day. This input substitution results in boats operating at a higher cost than they might in the absence of such regulations. Increased regulation in response to these adaptations encourages fishers to use increasingly inefficient mixes of inputs. The end result in many fisheries around the world is economically inefficient fishing fleets characterized by excessive fishing effort levels, overfished stocks of fish, increasingly complex fishery management, and overcapacity.

Unfortunately, without exclusive access to the resource provided by property rights, no individual fisher has a financial incentive to reduce capacity because cutting production simply increases the profitability of all the other fishers in the fishery.

The majority of incentive adjusting instruments are premised on rights-based fisheries management and entail limiting access in a fishery to participants who hold the rights to a share of a total allowable catch (TAC). A virtue of these systems is that they create incentives for the voluntary reduction of excess capital by the participants, because attention is drawn away from increasing catches and focused more on reducing the cost of catching fish.

Like most regulatory approaches, rights-based fisheries management can be challenging, particularly when applied to mixed species fisheries, because it is necessary to thoroughly understand the business behaviour of the participants to minimize the possibility of increasing the reasons for the participants to behave in unwanted ways (e.g., discarding bycatch, under-reporting catches, etc.).

Throughout the world, there is an emerging consensus about the successes of using rights-based fisheries management. The many types of rights-based management approaches ? including community development quotas (CDQs) or other group fishing rights, territorial use rights (TURFs), cooperatives, and individual fishing rights (IFQs) or individual transferable quotas (ITQs) - internalize the market failures, cause fishers to re-think their production decisions, and work to reduce or prevent the occurrence of overcapacity.

Of particular importance in applying these incentive blocking and adjusting regulations to fisheries is the issue of equity, or fairness. This is especially true for the incentive adjusting regulations because they make an explicit reallocation of wealth in the fishery - in contrast to incentive blocking measures which have implicitly allocate wealth. When establishing incentive adjusting programmes, those who receive the access right to harvest from the stocks of fish capture the resource rent that leads to overcapacity in the fishery. This rent can be substantial, and those who are left out of the initial allocation can be negatively affected.

In an effort to address this issue, in most cases initial allocations have generally been based on past fishing activity levels (e.g. a community’s or an individual’s catches of the species under quota over the last several years). Even this approach, however, is subject to difficulties as fishers who were less active over the qualification period, who had recently entered the fishery or who had recently replaced their boat with the expectation of higher catch levels were placed at a disadvantage. An alternative to giving away the quota is to auction it. This would allow some of the resource rent to be captured by the owners of the resource (society as a whole). Otherwise, the resource rent gets captured in the quota price, generating a windfall gain for the first generation of quota owners who may subsequently sell their quota. Subsequent quota buyers have to pay this resource rent to the initial quota holders, so do not capture the resource rent themselves.

Another issue for international fisheries is the existence of overcapacity in shared stocks. Management measures taken to control overcapacity in one jurisdiction can be undermined by another jurisdiction expanding its capacity to harvest from the same stock.

It can also be a problem in fisheries managed by regional management authorities. Even though TACs are set for each individual country, the aggregate effect on stock abundance can increase operating costs in countries that are trying to reduce their own capacity.

Incentive adjusting management measures for shared stocks need capacity metrics that generate comparable estimates based on common biological and economic reference points.

The standard alternative to rights-based fisheries management has been to attempt to control the many different inputs (the factors of production) which fishers may use. However, in fisheries that have been regulated using such input controls, the experience has been that capacity continues to increase despite the best efforts of the managers. This arises because fishers simply switch to different inputs that are not yet regulated (input substitution). There are many examples where, having initiated one round of regulations to control inputs, agencies have had to adopt additional rounds of measures aimed at reducing the power of the fishing units to offset the gains in fishing power achieved by fishers.

Action taken

Because the objectives of fisheries management usually involve balancing social, economic, and biological concerns, controlling capacity can be problematic because it does require finding a balance between the number of fishers in a fishery and the biological status of the fish stock.

Where fisheries are open access, the lack of alternative opportunities for employment and even for food has frequently meant that fisheries serve as a social safety net, despite the biological or sustainability problems that this may cause. In such cases, addressing the problem of overcapacity can be extremely difficult when there many more people than a fishery can support because it means that some fishers will have to leave the fishery and find other forms of employment.

Even when fisheries agencies can establish that economic benefits would accrue from reduced capacity, the consequences for poor fishing communities has invariably prevented managers and politicians from taking action unless there are viable alternative livelihoods offered and implemented as part of capacity adjustment programmes.

Outlook

No single, simple solution to the overcapacity problem in fisheries exists, and issues of equity, fairness, and displacement are of particular importance when designing and implementing capacity management programs. From inland waters to high seas, allocation issues are a major challenge to fishery managers and fishers, alike.  Fortunately, all of these issues are being discussed in international fora such as the the international conference Sharing the Fish ’06.

Changes in the regulatory institutions that give fishers a market incentive to reduce capacity in the long term are preferred to changes in the regulated, open access fishery management regime that provide only short-term relief from overcapacity. However, specific proposed management regulations must be carefully crafted by fishery managers and tested prior to their adoption to ensure they meet stated goals and objectives, and additional research needs to be completed before the impacts of proposed regulations on fleet capacity levels can be determined.

Capacity reduction in any form will result in some fishers having to leave the industry. Fortunately, the use of participatory rights-based management and the empowerment of local communities to make the difficult decisions about managing their fisheries mean that fishers are increasingly involved in deciding how to share the benefits generated by fisheries without the destructive economic and biological consequences of overcapacity.

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