TCS Daily


Turning Miners Into Custodians

By Kenneth Green - January 23, 2004 12:00 AM

Headlines about fishery fiascos in Canada are nothing new: the fisheries that have been historically most important, salmon on the west coast and cod on the east coast, have been in trouble for years. In 1991, the cod stocks collapsed and a fishing moratorium, which has yet to be lifted, was declared. Before the collapse of the cod stocks, it was clear that there was substantial over-capacity and over-fishing in the Atlantic fisheries. It has been estimated that in the near-shore Scotia-Fundy fleet alone there was four times the fleet capacity required to harvest the total catch.

On the Pacific coast, fears that salmon stocks were headed towards a similar collapse led the Minister of Fisheries and Oceans to introduce the Pacific Salmon Revitalization Plan in 1996. Despite the 1996 initiative, conservation concerns about some stocks of Chinook, Coho, and Sockeye salmon continue.

Economic woes also plague Canada's highest-profile fisheries. On the Pacific coast, poor salmon returns, fleet over-capitalization, and a fall in salmon prices due to the increased supply of farmed fish and wild fish from Alaska, have led to substantial economic losses in the fishery. This decline in income translated into increases in Employment Insurance (EI) payments to fishermen. Estimates from Human Resources Development Canada indicate that $1.85 was paid out for every $1 in premiums collected in the Pacific Region fishing sector in the early 1990s. On the east coast, the situation was more dire: before the cod closure, fishermen were receiving an average of $26 in EI payments for every $1 paid in premiums. These and other problems, such as unresolved disputes among aboriginal, sports, and commercial fishermen over how much fish each group should be allowed to harvest, have brought the competence of our fisheries managers into question.

The Evolution of Fisheries Management

From the late 1800s to the middle of the twentieth century, Canadian fisheries were completely unregulated -- anyone who wanted to fish could and the only limit on catch was human ingenuity. As long as the ability to catch fish is not so great as to threaten the future of fisheries under such "open access," conservation is not a concern. But, by the beginning of the twentieth century over-fishing was threatening the survival of many species.

As conservation and economic problems in unregulated fisheries in Canada and in other countries around the world became increasingly obvious, governments began to intervene by restricting entry into fisheries. In the late1960s, the Canadian government restricted entry to the salmon fishery by issuing licenses only to existing salmon fishermen. By the middle of the1980s, limited-entry licensing applied to all major fisheries on both coasts of Canada. Limiting entry was not enough to resolve fisheries problems, however, because it does not address the underlying problem in the open-access fishery. Fishermen still face the short-term incentive to catch as many fish as possible before someone else does.

To control the catching power of over-capitalized fleets, fisheries managers in Canada and in other fishing nations around the world have introduced a host of regulations aimed at reducing or restricting fishing effort. In Canadian fisheries, managers have shortened seasons, restricted fishing areas, imposed limits on the harvestable size of various species, introduced limitations on boat length, regulated gear and equipment, and bought back licenses. This strategy of trying to control the effort that goes into fishing has proved ineffective and wasteful, as fishermen have found ways around new regulations.

Regulations aimed at limiting fishing power tend to reduce the number of fish caught only temporarily, during the lag between the time a new regulation is introduced and the time fishermen find an innovative way around the new regulation.

As fishermen have learned to circumvent restrictions and as technology has continued to improve, fisheries managers have responded by increasing restrictions on fishing -- including shortening seasons or openings. Shorter fishing periods exacerbate economic problems in fisheries by creating supply gluts, which lead to low prices for fishermen and limited availability of fresh fish for consumers. Further, shorter fishing periods negatively affect product quality as less care is taken when handling the catch. The race for fish in short seasons has also created safety problems in many fisheries as fishermen feel compelled to fish in unsafe weather conditions so as not to lose the opportunity to get a share of the catch.

Fisheries managers and fishermen around the world have recognized that depleted stocks, high fishing costs, and low prices for landed fish are a direct result of the poor incentives created by trying to regulate the effort that goes into fishing. As a result, managers in many fisheries have switched from indirect control of the number of fish harvested through restrictions upon effort to direct control of the number of fish caught by allocating property rights to the fish, in the form of an individual quota, before they are caught. Although there are variations in the way individual quota systems are set up (and slight variations in the names given to these systems), the basic idea is to give participants a right to a portion of the total allowable catch (TAC). The TAC is the quantity of fish that biologists determine can be sustainably harvested in a season. Once the TAC for the industry is set, each license holder is allocated a portion of the total catch.

The theoretical benefits of individual quotas have been put to the test since the early 1970s when their use began to spread. Individual quota systems are now used to manage over 200 ocean fisheries around the world. Iceland, for example, first introduced a quota system for their herring fishery in 1975. Since the early 1990s, all major fisheries in Iceland have operated successfully under individual quotas. Four other fishing nations, Australia, Greenland, the Netherlands, and New Zealand, also use quotas to manage most of their fishing activity. Other countries, including Canada, now use individual quotas to manage many of their fisheries.

With secure access to a share of the resource, fishermen are not competing with other fishermen to maximize catch in a short period of time and, as long as there is adequate enforcement, there is no longer a need to race for the fish. This has several important theoretical implications.1 Individual quotas eliminate inefficient capitalization and increase profitability. Instead of working towards maximizing their ability to catch a lot of fish in a short period of time before other fishers catch them, fishermen can concentrate on maximizing their profits by increasing the value of their catch and keeping their costs low. The value of the catch is determined by a number of variables including quality, selectivity, product form and timing. Quotas usually mean fishermen can get higher prices for their catch as they spend more time marketing their product. In addition, the longer fishing seasons that often accompany quotas mean that fish can be landed over a longer period of time and sold fresh rather than frozen. The profit margin on fresh fish is generally higher.

Directly setting a limit on the number of fish that each fisherman can take is a more effective way to conserve resources than indirectly limiting the number of fish caught through effort controls. Giving each fisherman a direct stake in the industry also gives him an additional incentive to conserve fish and to invest in new research initiatives. IQs create an incentive to increase or maintain the value of the fishery over time because the value of the fishery directly affects the value of the IQ.

A system of individual transferable quotas can also help eliminate the need to subsidize fisheries. First, since individual quota shares can be bought and sold, the most efficient fishers will acquire more fishing rights (IQs) from less efficient fishers. This is preferable to having unprofitable fishermen stay in the industry courtesy of Employment Insurance subsidies from taxpayers or be bought out through a government buy-back program funded by taxpayers.

Fishing seasons are safer under a quota system. Because fishermen are guaranteed a portion of the catch, they can fish at a more leisurely pace and do not feel compelled to fish in dangerous weather conditions.

Once an initial quota allocation has been made, there is a market mechanism to resolve disputes among commercial, sports, and aboriginal fisheries. These sectors can buy quotas from each other. This will reveal where the highest value lies and will eliminate political fights over fishing rights and create more certainty for those in the industry. IQs could also facilitate treaty negotiations as they give a clear sense of what is being allocated.

Conclusions from 10 Canadian Case Studies

Conservation

In eight of nine fisheries that changed to IQ management, conservation indicators showed improvement after the introduction of individual quotas. In these fisheries, actual catches are close to or below allowable catches, third party, industry-funded monitors have been hired, and more fishermen think of themselves as stewards of the resource. In many cases, the improvement was dramatic. For example, in the" shotgun" geoduck fishery, catches exceeded those targeted by the DFO by as much as 80% in the years preceding the introduction of individual quotas. Since the introduction of IQs to the fishery, actual catches have only exceeded the limits set by DFO in four years and these have been minor, averaging

In another example, license holders in red sea-urchin fishery were so concerned about the future of their fishery that they voluntarily left the fishing grounds in mid-season to negotiate a quota management program amongst themselves. Since the introduction of individual quotas, actual catches have not exceeded allowable catches in this fishery.

A critical factor in the success of the management change in these fisheries is adequate monitoring and enforcement. In most cases, the introduction of individual quotas was accompanied by the introduction of third party monitoring paid, at least in part, by fishermen themselves. This had two positive effects. It improved overall monitoring in the fisheries and, since fishermen were paying for it directly, they had a greater incentive to ensure that they were getting their money's worth and that the monitoring was effective. In the one case where conservation did not improve, the abalone fishery, third-party monitoring was absent and widespread poaching is considered to be a main part of the reason that the individual quota program was not able to turn around the failing fishery.

Economic viability

Switching to individual quota management also had a positive economic impact on most fisheries. Eliminating fishermen's need to catch fish quickly in order to secure their share allowed fisheries managers to extend fishing seasons. This, in turn, means that fishermen can land fish over a longer period of time and, therefore, sell more of it fresh (usually for a higher price). In the geoduck fishery, the amount of product sold fresh doubled after the introduction of individual quotas. Another positive consequence of longer seasons is a reduction in fishing costs since over-equipping boats to catch fish before another fishermen does is no longer necessary.

In the geoduck fishery, an astounding 100% of the license holders surveyed indicate that profitability in the fishery improved after the introduction of individual quotas. The pace of fishing in the halibut fishery slowed dramatically: the fishing season went from six to 214 days after the introduction of quotas. As with geoduck, this meant higher prices for fish and lower fishing costs, leading to an estimated $4-million increase in net income by the fishing fleet the year IQs were introduced. The impact of IQs on the sablefish fishery was similar: a dramatic increase in the length of the season accompanied by a corresponding increase in revenues and decrease in costs. A longer fishing season has also increased earnings in the groundfish trawl fishery.

Working conditions

Another dramatic change in many fisheries is an improvement in safety. Before the introductions of IQs, there were serious concerns surrounding the dangerous conditions under which harvesting was taking place in many fisheries including halibut, sablefish, geoduck, and groundfish trawl. Individual quotas stopped the race for fish in these hectic fisheries and replaced it with a stable, slower-paced fishing environment.

Of the license holders surveyed in the geoduck fishery, 83% believe that working conditions have improved and a number of them indicated the best thing about moving to an individual quota system was the improvement in safety and, particularly, not feeling compelled to fish in dangerous weather. Since the quota system was implemented, there has been a significant decrease in accidents as everyone co-ordinates their harvests in accordance with market demand without having to operate under adverse fishing conditions

Overall assessment

Experiments with management based on property rights in the fisheries on Canada's Pacific coast have been highly successful. In most fisheries, using IQs have improved conservation, economic viability and working conditions. Beyond these changes, IQs have had an impact on the attitude of many license holders. As one fishermen explained: "I am a custodian of my fishery, not a miner of resources." Evidence of such a change can be found in many fisheries, where participants now voluntarily contribute extra funds for research and enhancement projects.

From "Managing Fish," published by The Fraser Institute.


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