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The Effects of Transferable Property Rights on the Fleet Capacity and Ownership of Harvesting Rights in the Dutch Demersal North Sea Fisheries, W.P. Davidse

Agricultural Economics Research Institute, LEI
Burgemeester Patijnlaan 19, 2502 LS, The Hague, Netherlands
<w.p.davidse@lei.wag-ur.nl>

1. INTRODUCTION

This study considers the development of fleet capacity and harvesting rights in the Dutch demersal North Sea fishery since 1983. The Common Fisheries Policy (CFP) of the European Union was implemented in that year, which meant for this fishery a growing importance of harvesting rights. Individual vessel quota (IQs) for sole and plaice had already been introduced in 1976, within the framework of the North East Atlantic Fishery Convention (NEAFC)[41].

In the period 1976-84 these IQs were perceived by the vessel-owners as limitations rather than as rights. But enforcement of the quotas was rather weak in this period, so they were regarded as not much more than ‘a piece of paper’. Transferability of the IQs was officially allowed from 1985. This, and also intensification of enforcement, gradually brought a transition of perceptions from individual limitations, towards the view that IQs for sole and plaice are valuable property rights.

The CFP of the European Union (EU) establishes annual Total Allowable Catches (TACs) for almost all commercial species landed by vessels of the member states. The Council of Ministers of the EU decides annually on these TACs, which are proposed by the European Commission. Each country operates its own management-system in order to fulfill its TAC obligations. The Dutch fishing sector is so far the only one within the EU that operates under an individual transferable quota (ITQ) system.

At the end of 1983 the Dutch demersal North Sea fishery consisted of 595 vessels owned by some 500 firms, and composed of four main segments:

i. beam-trawlers, targetting sole and plaice; these were by far the most important segment. Most of these vessels have an engine-power that exceeds 800kW.

ii. roundfish-trawlers, concentrated in the 225-810kW range of engine-power

iii. vessels with an engine-power of 221kW, mostly operating in a variety of fisheries (beam-trawling for flatfish, demersal-trawling for cod and whiting, and shrimp fishing)

iv. vessels with engine-power under 221kW, which were generally specialised shrimp-trawlers. Some of these vessels operate in the Wadden Sea, in the north of the Netherlands.

Together, these four segments are known in the Netherlands as the “Cutter Fishery”.

Table 1 shows some major characteristics of the demersal North Sea fishery. Recent figures have been added to demonstrate the important changes which have taken place. The next sections of this paper explain how transferable property rights have influenced the changes in fleet-capacity and ownership of rights.

An example of a beam trawler, common in the Dutch ITQ fishery for sole and plaice

Table 1. Characteristics of the Dutch demersal North Sea fishery in 1983 and 1998


1983

1998

Annual quota (tonnes)

Sole

15400

14600

Plaice

53700

35300

Cod

22900

14900

Financial results

Proceeds (million NLG, deflated)1

840

607

Net Profit (million NLG, deflated)1

-44

39

Number of vessels

595

407

Value of harvesting rights per vessel (on average, NLG)2

150000

5000000

1 Deflated for 1983 on the basis of the NLG purchase power in 1998. 1 NLG= 0.45 EURO or 0.49 US$.

2 Estimated on the basis of market prices.

Source: Ministry of Agriculture, Nature Management and Fisheries, Shipping Inspection, Dutch Agricultural Economics Research Institute, LEI.

2. THE NATURE OF THE HARVESTING RIGHT

The transferability of the IQs for sole and plaice was officially allowed in 1985 by the Ministry of Agriculture and Fisheries after an informal trade in these ‘rights’ developed in the early 1980s. An extension of rights-based fishing came in 1994 when ITQs for cod were introduced, and in 1996 with the implementation of rights for herring and mackerel. As a result, today all quota species have been brought under an ITQ management-regime.

Co-management groups have pooled the quota (ITQs) of their members since 1993. This includes eight different management groups, whereby the board of each group is responsible for compliance with the group’s quota. The ownership of the rights remains with the individual holders. These groups facilitate trade, hiring and renting of the ITQs between their members, which makes the system far more flexible. The rights can be used as a collateral for a loan. In fact, the ITQs have always served as a security for Banks when a loan was required, for example to finance a new vessel. Investments in ITQs used to be encouraged by a tax allowance for depreciation. This included a 12.5% annual depreciation on the purchase price of the right.

During the 1990s trade in quota led to very high prices for the ITQs. In fact they have become an important production factor for the firms, as indicated by the high value of the harvesting rights (Table 1). The sole and plaice ITQs are responsible for the major part of this value.

Apart from ITQs the Dutch rights-based fisheries management nowadays consists of a number of other individual rights:

i. Licences, expressed in quantities of engine-power per vessel, were introduced in 1984. These transferable rights aim to limit the total engine-power of the sea-going fleet, and to give an entitlement to fish on quota species. This licence-scheme resulted from the first Multi-Annual Guidance Programme (MAGP), implemented in 1985 within the framework of the CFP. The target of the subsequent MAGPs has been the limitation of the capacity of fishing fleets in EU waters.

ii. Transferable entitlements for shrimp fishing in the North Sea and in the Wadden Sea.

iii. Entitlements to fish in the coastal zone, the so-called List I and II documents, which may also be transferred.

iv. Limitation of gross tonnage (GT) of each vessel, implemented in 1998, which has led to rising values for transferable GT licences. This measure results from the Dutch obligations under MAGP lV (which runs from 1997-2001).

3. MEASUREMENT OF FLEET-CAPACITY

3.1 Characterizing fleet-capacity

As noted in the introduction, this study considers the development of fleet-capacity over the period 1983-98, i.e. since the EU Common Fisheries Policy started in 1983. Individual quota changed gradually from limitations on activities, towards valuable property rights in the early 1980s, and the transferability of these rights, officially allowed in 1985, marks this development.

Specialised beam-trawlers, fitted with engines exceeding 810kW (1100HP) comprised the most important part (65%) of the total fleet-capacity in terms of engine-power in 1983. These vessels target sole and plaice, but take turbot, cod and whiting as by-catch species. Their crew varies from 6-8 persons.

The medium-size trawlers, with engine-power ranging from 222-810kW, operate in various fisheries such as otter-trawling or pair-trawling on cod and whiting, herring pair-trawling and also beam-trawling. This fleet segment consisted of 173 vessels in 1983 accounting for 24% of the total engine-power of the fleet. The 221kW vessels mostly operate in the beam-trawl and shrimp-fishery, whereas most of the smallest vessels are specialised shrimp-vessels.

Engine-power is mostly used to express the fishing-capacity of the Dutch demersal fleet because this parameter is likely to have the main influence on the catches of the vessels. For the beam-trawlers in particular, this relationship is rather clear. Table 2 gives an overview of the fleet-capacity and its development.

Table 2. Dutch demersal North Sea fleet, number of vessels and total engine-power


1983

1998

Total number of vessels

595

407

Number of vessels, by engine-power:

0 - 190kW

141

82

191 - 221kW

78

142

222 - 1104kW

295

32

>1104kW

81

151

Total engine-power (kW)

367000

319000

Source: Ministry of Agriculture, Nature Management and Fisheries, Shipping Inspection, LEI.
The fishing effort expended by the fleet comprises fleet-capacity and fishing-time. For the Dutch demersal fleet it is usually expressed as engine-power times days-at-sea. Table 3 gives this effort for the different types of gear. Beam-trawling accounted for 77% of the total effort in 1983, followed by otter - and pair-trawling on roundfish (15%).

The major part of the fleet was rather young in 1983, with most vessels having an age of ten years or less. This was caused by a wave of investment in the period 1979-1983, that resulted in the addition of 126 new vessels to the fleet.

3.2 Changes in fleet-capacity in the period 1983-98

The number of vessels has decreased significantly over this fifteen-year period, and the fleet-composition has changed dramatically (Tables 2 and 5). The segment of medium-sized vessels almost disappeared and two other segments became far more important in 1998. These two segments, the ‘Euro-cutters’ and the larger beam-trawlers (more than 1104kW) nowadays count for about 90% of the total engine-power of the fleet. In terms of engine-power the capacity of the fleet fell by 13%, and the fishing-effort was at a level 7% lower than in 1998. Thus, the average number of days-at-sea per vessel has increased since 1983.

Table 3. Fishing effort of the Dutch demersal North Sea fleet(100 000 Horse-power days)

Fishing method

1983

1998

Beam trawl

656

703

Otter trawl and pair trawl, roundfish

126

32

Pair trawl, herring

35

6

Shrimp trawl

33

38

Other

5

12

Total

855

791

Source: LEI.
Another important change regards the age-composition of the fleet. The number of younger vessels (less than ten years old) decreased from 39% in 1983 to 23% in 1998. In contrast, the number of older vessels (more than twenty years old) rose from 33% in 1983, to 41% in 1998.

The change in vessel numbers is analyzed further in Table 6. It appears that different subsequent decommissioning schemes[42] have had an important impact on the fleet-capacity. The decommissioned vessels had to be scrapped or sold to third countries, i.e. countries outside the EU.

Table 4. Dutch demersal North Sea fleet, age profile of the vessels

Age

1983

1998

0 – 10 years

231

94

11 – 20 years

170

148

> 20 years

194

165

Total number of vessels

595

407

Source: Ministry of Agriculture. Nature Management and Fisheries; Shipping Inspection; LEI.
Some of the vessels under ‘other withdrawals’ in Table 6 have been re-flagged to other EU countries. This means that the fleet under Dutch ownership is in fact bigger than the previous tables suggest. These re-flagged vessels operate in Euro-waters and they are entitled to British, German and Belgian flatfish and cod quota. The re-flagged fleet accounted for about 20% of the demersal North Sea fishery under the Dutch flag in 1998, in terms of vessel number, engine-power and fishing-effort. Taking this into account the demersal North Sea fleet under Dutch ownership has more or less stabilized in the period 1983-98 from the viewpoint of total engine-power and fishing-effort.

Table 5. Dutch demersal North Sea fishery, index of changes in fleet capacity from 1983 to 1998 (1983=100)


Index 1998

Total number of vessels

68

Number of smallest vessels (0-190kW)

58

Number of ‘Euro-cutters’ (191-221kW)

182

Number of mid-size vessels (222-1104kW)

11

Number of bigger vessels (>1104kW)

186

Total engine power (kW)

87

Total engine power (standard kWs)1

77

Fishing effort (in horse power/days):


Beam trawl

107


Otter/pair trawl

25


Shrimp trawl

115

Total fishing effort

93

1 Explanation see Section 3.3.

Source: Ministry of Agriculture, Nature Management and Fisheries, Shipping Inspection, LEI.

The changes in fleet-capacity have been caused by a chain of several factors which are described below in the sequence they are presented. It has to be kept in mind that there are no simple cause-effect relationships, as causes may be effects from other points of view. Transferable harvesting rights have played a role among other factors.

Common Fisheries Policy

The implementation of the CFP in 1983 was the first and main factor influencing fleet-capacity, through the implementation of TACs within the framework of the conservation policy and the introduction of MAGPs resulting from the EU’s structural policy. The CFP has led to several national measures which have caused major changes in the structure and scope of the Dutch demersal North Sea fleet.

TAC limitations

In the 1980s the national quota-levels for sole, plaice, cod and whiting caused a big imbalance between the capacity of many cutters and their fishing rights. A study by LEI (Salz et al.1988) pointed out that 70 000 - 100 000HP in the operating fleet would encounter liquidity problems in the next 2-4 years, due to this disproportion.

To comply with the TACs allocated to the Netherlands by the EU, a number of measures have been implemented, such as distribution of the national quota through ITQs, days-at-sea regulations, decommissioning, and stringent enforcement of the quota-system.

Table 6. Dutch demersal North Sea fishery: additions to, and withdrawals from, the fleet in the period 1988-1998


Number of vessels

Fleet on 31 December 1987

611

Period 1988-1998:


New constructions

+ 111

Second-hand, bought abroad

+ 22

Decommissioned

- 161

Other withdrawals 1

- 176

Fleet on 31 December 1998

407

1 Sold to other countries, re-flagged, changed to other activities, scrapped, etc.

Source: Fisheries Directorate, Shipping Inspection, LEI.

Horsepower licence system

In order to fulfill the obligations resulting from the first MAGP, the Dutch Ministry of Agriculture, Nature Management and Fisheries implemented a licence-scheme in 1984 which led to a total engine-power ceiling for the fleet. The total engine-power of the active fleet was allowed to increase until 1988 (due to orders for new vessels that were in the pipeline when the licence-scheme came into force in 1984). The decrease of total engine-power over the period 1983-98 (Table 5) demonstrates the effectiveness of the engine-power scheme, since it prevented an expansion of fishing-effort after the profitable years of 1991-92.

Decommissioning schemes

The first decommissioning scheme started in 1988 and this was followed by subsequent programmes so that decommissioning grants could be obtained throughout nearly the whole period 1988-98.

Quota-limitations for cod and whiting have forced most of the owners of otter-trawlers and pair-trawlers to apply for decommissioning. This has been the main cause of the decline of the cutter fleet after 1988, in particular the dramatic decrease of the number of medium-size vessels. A total engine-power of 183 000HP (135 000kW) from 161 vessels, was withdrawn from the fleet in the period 1988-98. The majority of these decommissioned vessels (120) belonged to the medium-size group (222-1104kW).

Stringent enforcement

A major intensification of enforcement of the ITQs in 1988, through a systematic control of landings carried out by some hundred inspectors, made the over-capacity of the fleet visible, sensitive and in need of reallocation. This had a major impact in contributing to the effectiveness of the decommissioning schemes.

Limitations for the coastal zone

A limited number of vessels are entitled to fish within the 12-mile limit. This is an EU measure (Regulation No. 55/87) whereby the vessels concerned are registered under two separate files. The engine-power of the coastal vessels should not exceed 221kW. This special entitlement has been the main cause of the increase in the number of vessels just under the 221kW limit.

High prices of fishing rights

The stringent enforcement, mentioned earlier, led to a sharp rise in prices for flatfish ITQs in 1988. The good profitability of the cutters in 1991 and 1992 kept these prices at a high level, and even resulted in further price increases. The decommissioning process contributed significantly to the trade in ITQs over the period 1988-98. This enabled those who remained in the industry to adjust their fishing rights according to the available capacity of the vessel, by buying additional ITQs. The high Dutch prices for rights stimulated the purchase of different types of rights in other countries in the early 1990s, which has led to re-flagging of vessels.

Allowances on fiscal investment

A special law for stimulation of investment (for all industries) was introduced in 1978. This allowed the deduction of a certain percentage (12% at minimum) of the investment amount from taxable income. In fact, it diminished the income tax or corporate tax amount, and stimulated the construction of new fishing vessels during the period 1979-88, which contributed to an increase of total engine-power of the fleet up to 1988. This investment allowance was however abolished in 1988.

Economic performance

A good level of profitability in the years 1985-87 and 1991-92 stimulated the construction of new vessels, together with (over 1985-87 only) the investment allowances mentioned above. The existence of a second-hand market for vessels abroad enabled investors in new vessels to sell their ‘old’ ones at rather high prices and to transfer the engine-power licence from the vessel sold to the new one. In cases of upgrading the engine-power of existing vessels additional licence-units could be bought from those who withdrew their vessels from the Dutch fleet (other than by decommissioning). However, in the early 1990s this mechanism stopped nearly completely, mainly due to the tightening of the licence-schemes in the UK, and caused a major fall in the demand for second-hand vessels.

The role of transferable property rights in changes in fleet-capacity

As noted above, the causes of changes in the capacity of the Dutch demersal North Sea fleet have been complex and it is difficult to assess separately the impact of transferable rights. But it can be stated that the input-rights and output-rights have had several consequences:

i. Withdrawals from the fleet (apart from decommissionings) realised high earnings from the sale of ITQs.

ii. Decommissioning of vessels: vessel-owners who left the fishery had to relinquish to the seller their engine-power licence, but they could keep their ITQs. The high earnings from these rights have stimulated decisions to decommission vessels.

iii. Concentration of rights amongst the owners of the larger beam-trawlers: this has led to the domination of these vessels in the total engine-power of the whole fleet.

iv. The absence of a high level of construction in the 1990s after a series of profitable years: The effective engine-power ‘ceiling’ imposed has prevented such an expansion of the fleet. This constraint led in the early 1990s to a shift in investments from vessels towards ITQs. Such investments in ITQs have more-or-less absorbed all the depreciation funds of the companies, so future new vessel construction also will be at a lower level than in the 1980s.

v. Re-flagging of vessels: the Dutch vessel-owners have acquired much experience in the market for harvesting-rights. High prices for ITQs in the early 1990s prompted them to look at the situation abroad. Low prices for such rights in the UK and other countries have encouraged decisions to buy rights abroad through the purchase of foreign companies. A number of Dutch cutter-vessels have been re-flagged to these foreign subsidiaries becuase they could not operate profitably in Holland at that time.

vi. Better utilisation of the vessels and a more efficient uptake of quota: in particular the possibility of hiring and renting of ITQs has contributed to a better adaptation of the rules to business practices. The co-management sytem, established in 1993, created an important condition for this improved efficiency.

The Dutch experience demonstrates that co-management can secure the ITQ-right by sound management of group quotas. This includes the monitoring of landings, and measures such as warnings not to land abroad, etc. when a group member has caught almost all his ITQ.[43]. Such group management guarantees that the individual holder can fully take-up his own ITQ. The threat that he will forego catch because of colleagues taking a part of his ITQ by over-fishing their own quota has been removed.[44]

3.3 Consequences of changes in fleet-capacity

The lower capacity of the demersal North Sea fleet, shown in Table 5, has had many consequences:

i. Improvement of the profitability level of the cutters: the sector has been profitable or at break-even levels since 1991. This represents a long period of good economic returns, in view of developments in fisheries in the 1970s and the 1980s when profitable years were followed by years with adverse results. Fleet expansion through investments in new cutters after good years previuosly used to dissipate such profits, but this is impossible now because of the effective engine-power licence-limitation scheme.

ii. Decrease of employment from 2750 crew members in 1983, to 1920 by the end of 1997: generally speaking those who have left the fishery could find jobs ashore, particularly in the past years. But now in many cases it is even difficult to find enough capable crew members for the cutters, due to the climate of good economic development in the Netherlands, and the ageing of the labour force.

iii. Decline of fishing communities: the industry fears that the ‘critical mass’ of some communities may be too small for their sustainability in the longer term.

iv. A much higher proportion of the larger beam-trawlers in the fleet: this has affected the productivity of the sector. Such vessels show decreasing returns (i.e. revenue per kW/day for sole and plaice plus some less important bycatch (Smit et al. 1999)), so the fleet-capacity has in fact diminished more than the ‘nominal’ number of engine-power units indicates. Table 5 gives also the capacity expressed in standard kWs. This measure corrects for lower revenue per kW/day among the larger beam-trawlers so that a better estimate of the real capacity is obtained. In the same way, the real fishing-effort is in fact lower than the index shown in Table 5. When the lower productivity of the bigger vessels is taken into account, the real fishing-effort decreased by some 20% over the period 1983-98, in stead of 7% ‘nominal value’.

v. Difficulties to catch the full quota: apart from the engine-power limitation the cutters are also restricted in their number of days-at-sea. The current MAGP includes further reduction in days-at-sea per vessel, which may make it impossible for the fleet to land all the quota (Smit et al. 1999).

4. CONCENTRATION OF OWNERSHIP

4.1 Status prior to the programme

The demersal North Sea fleet of 610 vessels was owned by 530 enterprises in 1985, the year when transferability of flatfish IQs was officially allowed by the Fisheries Directorate. These firms were family enterprises, in many cases employing several members of the family. Ownership may rest with the father alone or with him and several sons or brothers. In particular the situation of one owner with several sons, has led to expansion of the enterprise, since the aim was that each son should eventually be skipper on his own vessel. This kind of expansion was possible before rights-based fishing became effective, in the second half of the 1980s. It resulted in a number of bigger firms owning more than one vessel. In fact a concentration-process was already going on before 1985, thus leading to more engine-power in the fleet being exploited by fewer enterprises. In 1987 about half of the total engine-power was concentrated in these ‘multi-vessel’ companies, whereas they only accounted for 13% of the total number of firms (Salz 1987).

The flatfish IQs introduced in 1976 were, up to the mid-1980s, not much more than just ‘a piece of paper’. Informal trade of these notes at that time, and the introduction of official transferability, demonstrated their growing importance around 1985. In subsequent years the trade in IQs has led to a concentration of rights with the bigger firms. This accelerated after 1988, because strict enforcement of the ITQ-regime forced the owners of the bigger cutters to acquire enough rights for their vessels. The introduction of ITQs for cod and whiting in 1994, and ITQs for herring and mackerel in 1996, gradually strengthened this concentration-process.

4.2 Restrictions on transfer of ownership

The following more detailed quota regulations were in force in 1998:

i. A continuous individual-quota regulation, with annual changes in the Dutch part of the EU’s TAC and resulting changes in ITQs. These are included in an Appendix to the regulations. This continuity of rights replaced the annual allocation process in 1997.

ii. Quota for related species are connected, which means that there should always be an ITQ for sole and plaice, just like one for cod and whiting.

iii. Transfers of the ITQs have to be registered by the Fisheries Directorate of the Ministry of Agriculture, Nature Management and Fisheries.

iv. ITQs should in principle be attached to a vessel, although an exception allows that the rights may be reserved separately during five years at most (from 1 January 1998). This only applies to ITQs that have been included in the total quota of a Group. This allowance for reservation enables right-holders, which have, for instance sold their vessel, to assign their ITQ temporarily to another operator while a new vessel is being built.

Some rules explicitly limit the transfer of ITQs:
i. Selling part of a quota for sole or for plaice to vessels that do not have such ITQs is not allowed.

ii. A quantity of both sole and plaice quota should remain after such a sale; the same applies for cod/whiting ITQs - so as to ensure that the TAC is not exceeded.

iii. ITQ holders are not free to withdraw their ITQ from the group quota during the course of the year, unless the group board agrees and the group quota that has been harvested up to that date does not exceed 90% of the group’s total. Sale of the vessel, or bankruptcy, are two other cases in which the ITQ may be separated from the group quota.

A regulation stipulates a time-schedule for a number of requests to the Ministry. This regards mainly:
i. formation of group quota for the main species before 1 February.

ii. requests for transfer of a reduction in an ITQ for sole into one for plaice (or vice versa) before 1 March and

iii. requests for lease/rent transactions of ITQs between groups before 1 December. For fishermen of non-group members this date is 1 March

4.3 Prices received

The prices of ITQs are not publicly recorded, however the co-management groups have a good overview of these prices through their involvement in the trade of rights. Table 7 presents indications of prices for flatfish rights, which are expressed per kg quota right (Davidse et al. 1997). These prices are derived from the LEI cost-and-earnings panel, and from interviews with representatives of co-management groups.

Table 7. Price indications of flat fish ITQs

Year

Flat fish ITQ

sole/plaice (NLG/kg)1

sole only (NLG/kg)

1986

10-15

10-15

1987

70-85

.

1988

100-120

70-80

1989

100-120

70-80

1990

100-120

70-80

1991

130-150

90-95

1992

130-150

90-95

1993

70-95

55-75

1994

65-90

50-70

1995

a)

60-80

1996

a)

75-85

1997

a)

70-90

11.0 NLG=0.45 EURO or 0.49 US$.

a) Plaice ITQs have been traded more and more separately, at higher prices: NLG 9-13 in 1996 and NLG 10-18 in 1997.

Source: LEI; Co-management groups.

Rather high prices have been paid also for other entitlements: the documents for cod/whiting - NLG 14-17/kg since 1998, and permits for shrimp on the Wadden Sea, some NLG 300 000. Furthermore, engine-power licences were priced at NLG 800-1500/kW in 1998 and 1999.

The prices for flatfish ITQs increased sharply in 1987-88 as shown in Table 7. This reflects the fact that control measures became very stringent in 1988 and therefore effective in conserving the resource. In this year the systematic control of landings was implemented and was carried out by some hundred inspectors. In 1993-94 these prices for sole and plaice quotas dropped, due to the high level of the national sole quota, and diminished catches of plaice. These catches were low in many cases compared with the available plaice quota so that there was no need, generally speaking, to buy plaice quota.

In summary, with respect to price developments of Dutch ITQs, a number of major influences can be distinguished:

i. Enforcement of quotas: a major improvement of enforcement in 1988 caused a sharp price increase.

ii. Profitability of the fishery: a greater profitability in 1991 also caused higher quota-prices. Formerly, investments in fishing vessels used to increase sharply in such a situation, but in 1991 the investments in vessels were replaced to a major extent by investments in flatfish ITQs.

iii. Availability of fish biomass relative to the quota-level: in 1993/1994 the national plaice quota was rather high in view of the catch-possibilities for this species. This contributed to a downward price trend for plaice quota.

4.4 Effectiveness of regulations governing ownership of rights

The ITQs should normally be attached to a vessel, so that in fact they are owned by the owners of that vessel. Dis-connection from the vessel is allowed for five years (for instance during new vessel construction) provided that the vessel is included in a group quota.

Conditions have been attached to very small boats in order to ensure a distinction between bona fide commercial vessels. Conditions for linkage with ‘serious’ vessels have been strengthened by the requirement that they undertake commercial exploitation. But, the phenomenon of fishermen who primarily remain ashore and try to make a living from leasing-out their ITQs still exists, and this is a matter of concern (although not a major one) for the industry.

The possession of valuable rights has gradually resulted in rather complicated arrangements to facilitate, for example the transfer of ownership of the rights to the son(s) of a rights-holder. Nowadays, ITQs have the same commercial importance as agricultural-rights, such as milk-quota.

4.5 Affects of the programme

The major intensification of enforcement in 1988, accompanied by the decommissioning of vessels, induced more and more transfers of rights. Vessel-owners who had to adjust their flatfish rights to the capacity of their vessel, were prepared to pay high prices for sole and plaice ITQs. The extra revenue from the additional quantities only had to cover the marginal cost of catching and landing the extra fish. Moreover, the desire to avoid heavy fines (through fishing with inadequate quota) was an important condition for this willingness to pay such high prices.

Table 8 shows that the owners of the larger cutters (over 1104kW) possessed 86% of the quota for sole in 1998, compared to 56% in mid-1988[45]. This change in the rights-situation has followed the trend towards larger beam-trawlers in the fleet. But the share of this segment within the total of flatfish-rights has increased somewhat more than its contribution to the total fleet engine-power (54% against 49% in 1988).

Table 8. Concentration of fishing-rights according to engine-power

Fleet Segment (kW-group)

Mid 1988

January 1998

Number of vessels

Total power 1000 kW

% sole quota

Number of vessels

Total power 1000 kW

% sole quota

0 - 190

141

19

1.0

87

12

0.3

191 - 221

125

27

4.7

143

32

9.6

222 - 1104

201

151

38.5

30

18

4.1

>1104

139

236

55.8

156

264

86.0

Total

606

433

100.0

416

326

100.0

Source: Ministry of Agriculture, Nature Management and Fisheries, Shipping Inspection, LEI.
Apart from these output-rights the input-rights in the form of engine-power licences became more important in the late 1980s and in the 1990s. Owners who wished to increase the engine-power of their vessel, or to build a new cutter, had to buy additional engine-power rights on the market. In this way a trade in engine-power rights has also arisen, in particular during the 1990s.[46]

In Table 9 the distribution of individual quota for sole is considered against the size of the ITQ.[47] This size is expressed as a percentage of the total national sole quota. The values range from the ‘mini’ ITQs, representing holdings of 0.005% of the total sole-quota (an annual landing of 1.18t of sole on the basis of the 1994 TAC), to 1.5-2.5% (354-590t) for the biggest ITQs.

Table 9 shows that some concentration of ITQs for sole occurred during the period 1988-94. In 1994 owners of the bigger holdings of ITQs for sole, having 1% or more of the national sole-quota, represented a higher share (8%) of the total number of ITQ holders, compared with 1988 (4.7%). On the other hand, the percentage of holders owning smaller ITQs (up to 0.5%) decreased since 1988. The ownership-distribution with respect to the ITQs for plaice (not given in the Table) shows the same development, though holders of the biggest ITQs for plaice (1.5-2.5%) were somewhat fewer compared with the ITQs for sole.

Table 9. Distribution of ITQ-holders according to size of the ITQ, expressed as percentage share within the total allocated Dutch quotas for sole in 1988, 1994 and 1997

Share of ITQ within total quota for sole

Percentage of ITQ-holders

1988 (n=387)

1994 (n=289)

1997 (n=276)

0.005% (mini ITQ)

20.2

17.3

14.9

0.005 - 0.5%

65.3

57.7

59.7

0.5 - 1.0%

9.8

17.0

17.8

1.0 - 1.5%

3.9

4.5

3.6

1.5 - 2.5%

0.8

3.5

3.6

>2.5%

0.0

0.0

0.4

Total

100.0

100.0

100.0

Source: Ministry of Agriculture, Nature Management and Fisheries, LEI
Table 9 also records the ITQ-distribution against size for the 1997 allocations: it shows that the concentration tendency did not continue clearly during the period 1994-1997. The number of the smallest ITQ - holdings decreased on the one hand, but so also did the number of bigger ITQ-holders (category >1%). The underlying factor seems to be less trade in ITQs, since the number of holders remained rather constant between 1994 and 1997.

The important decrease in the total number of ITQ-holders (by 25%) in the period 1988-94 was caused by selling of sole/plaice ITQs, in combination with decommissioning, or exiting the business for other reasons, or by operating only beam-trawls. The share within the total Dutch sole/plaice quotas, of the holders of the 20% biggest ITQs, is another measure for the level of concentration. In 1994 this group owned almost 60% of total Dutch sole quota and 56% of the plaice quota. In 1997 the corresponding figures were 58% and 56% respectively. Nearly all of these ITQ-holders were companies owning more than one vessel.

The regional concentration of flatfish rights within Holland has also been considered in the property-rights study (Davidse 1997). The conclusion derived from the situation in 1997 was that the share of the main Dutch fishing port (Urk) in the national quota has decreased somewhat, whereas the Den Helder/Texel region has expanded its share. However, there was no major concentration of flatfish ITQs in just a few regions during the period 1988-97.

5. DISCUSSION

5.1 Reduction in fleet-capacity

The Common Fisheries Policy of the European Union has two main aims: limiting the catches by fixing annual TACs, and reducing fishing-capacity by implementing multi-annual guidance programmes (MAGPs). It must be said that the MAGP objectives for the Dutch demersal North Sea fishery have not been met so far, although an engine-power licence-scheme has been in place since 1985, and subsequent decommissioning schemes have been implemented. The owners of the cutters could not be forced to leave the fishery so that the actual fleet-reduction depends on the profitability of the fishery, and also on the ownership situation, i.e. the presence of a successor for the current vessel-owner. In the past eight years most of the cutters have operated on or above the break-even point, so many skipper-owners have not had any compelling reason to stop fishing.

The Dutch Ministry of Agriculture, Nature Management and Fisheries has indeed been successful in preventing expansion of fishing-capacity after several profitable years. This kind of expansion had occurred regularly before the licence-scheme became effective in the early 1990s.

Looking at the developments over the past fifteen years, two reactions by vessel-owners have been contrary to the expectations of the policy-makers:

i. Extra orders for new vessels were placed just before the engine-power licence-scheme was put into place in 1985. As a consequence the Ministry limited the validity of the ‘floating’ licences and strengthened the conditions for attachment to a vessel.

ii. Re-flagging of cutters to other countries, in order to get more harvesting-rights for the remaining vessels in the Dutch fishery. In fact this has not been a major problem for the management of the Dutch fisheries since it contributed to compliance with obligations under the Dutch TAC and the MAGP.

The capacity of the cutter-fleet was 8% above the MAGP requirements at the end of 1997[48]. This target has been expressed in effort (days-at-sea) for the current MAGP which runs from 1998-2002. One goal of this programme is a further reduction by 17% for the segment of the larger beam-trawlers compared with the situation in 1998[49].

The industry strenuously opposes these effort-reductions since the quota allocations cannot be taken up with such a lower fishing effort. The industry representatives assert that the quota should take priority and not the capacity limitations. The co-management system has been able to ensure compliance with the quota since 1993, so that further substantial reductions of capacity are not necessary. In fact now, there are two conflicting kinds of management in the Dutch demersal North Sea fishery:

i. A management by command-and-control, aiming at reducing the fleet within the framework of the CFP;

ii. A type of co-management characterized by responsibility for compliance with national quota by groups of quota-holders. Centralized targets for fleet-capacity levels thwart these decentralized quota responsibilities. Therefore, giving priority to fleet-reduction above compliance with national quota would heavily undermine the Dutch co-management system.

This conflict between input-targets and output-targets was discussed in November 1999 between the Dutch government and the European Commission. In the autumn of 2000 a solution was found: with the EC allowing a higher capacity for the cutter fleet. The reason for allowing this correction was a previous wrong assumption regarding the number of vessels that would have a break-even level of revenue, estimated for the first MAGP in 1986. A new analysis of these historical data pointed out that there was ‘economic room’ in the fleet at that time, for an extra 59 000kW (+17.5%). This correction of the wrong start of the capacity-limitations has resulted in a proportional increase of the current, fourth MAGP, ending in 2001. As a consequence, today there is hardly any over-capacity in the Dutch cutter fleet.

5.2 Concentration of ownership

ITQs for all quota species have now become an important production factor for fishing enterprises. They are major intangible assets on the balance sheet of many fishing firms. The rights can be used as collateral for raising finance, and tax allowances for depreciation are in force, as for other assets. The co-management system facilitates transfers and the lease of rights via the group boards. Thus, co-management of ITQs in the past five years has brought advantages in the form of increases in price, for plaice in particular, through compliance with much lower quota.

Transferability has, since the mid-1980s, led to a continuing concentration of rights (although this has not, at least so far, resulted in just a few companies owning a major part of the rights). It is assumed that this process will continue in future. Newcomers cannot enter the fishery since the prices of rights are too high to make a new firm profitable (Davidse et al. 1997), hence in the future the number of enterprises should only diminish.

It is necessary to understand the nature of quota-trade in order to explore future developments. ITQs have mainly been purchased by vessel-owners who already had a vessel with harvesting-rights. Thus, high prices could be paid since marginal revenues only had to cover the marginal costs. Such a high price-level will hamper a major concentration of rights because of financial limitations. Nowadays the economic depreciation of vessels has been absorbed, more or less, by the quota investments, so vessel-replacement may be difficult to achieve in a number of cases. However, the quota-market depends on the future price-levels of rights. In this respect the concentration process is not hampered, apart from some restrictions described above in Section 4.2.

An important aspect of the concentration of rights is the scheduled review of the CFP in 2001. Quota-hopping by Dutch enterprises in the past has made clear that the issue of concentration of rights has gone further than that of just a national situation. The question is whether there will arise from 2001 onwards any new possibilities to acquire harvesting rights in other countries. If so, the concentration of rights may accelerate in a more open, international market. That would bring the fishing sector more in line with other branches of the economy in the common EU market.

6. LITERATURE CITED

Davidse, W.P., H. Harmsma, M.O., van Wijk, L.V., McEvans, N. Vestergaard. 1997. Property rights in fishing, LEI-DLO report 159. 328pp.

Salz, P. 1996. ITQs in the Netherlands: twenty years of experience, ICES paper. 17pp.

Salz P., A. den Dulk, H. Harsma, W.P. Davidse. 1987. Visserij in cijfers, annual edition for 1987, LEI.

Salz, P., J. Smit, W.P. Davidse. 1988. Vooruitzichten voor de Nederlandse plat - en rondvissector op korte en middellange termijn. LEI-DLO report nr 5.79. 64pp.

Smit, W., P. Salz, W.P. Davidse, M.O. van Wijk, J. de Jager, C. Taal. 1998. Ondernemend vissen, Toekomstperspektief van de kottervisserij. Rep. 1.98.01. LEI. 100pp.

Smit, W. 2001. Dutch demersal North Sea Fisheries: Initial allocation of Flatfish ITQs. In: Shotton, R. (Ed.) Case studies on the allocation of transferable quota rights in fisheries. Fish. Tech. Pap. No. 411, FAO, Rome.

Van Wijk, M.O., C. de Ruijter, M.H. Smit, C. Taal. 1999. Visserij in cijfers, annual edition for 1999, LEI

Appendix I. Historical overview of the Dutch fisheries management measures

1975: NEAFC sets TACs and national quota for six species, including plaice and sole.

1976: The Netherlands introduces an IQ system for sole and plaice based on historical catch record. IQs are specified as percentage share of national quota. On the basis of the quota and the share, fishermen are allocated annually a specific weight (in kilograms) of catch of a particular species.

1977: IQ system is revised to take into account heavy investments undertaken in that period. IQ is based a combination of engine-power (50%) and historical catches (50%).

1977-84: IQs are barely implemented. They function mainly as just a ‘piece of paper’.

1978: A national investment-stimulation scheme is introduced, including for sea-going vessels. It offers a tax rebate of 12% on new vessel construction.

1981: First codfish entitlements introduced (‘k-documents’). They are not transferable.

1984-85: A licensing system is introduced based on the engine-power of the vessels. The ceiling set on the total engine-power of the fleet is made partly ineffective because of large investments made just prior to the introduction of the licenses. All vessels ‘under construction’ must also be given a license. Licenses are freely tradeable and divisible. Free licenses, not attached to any active fishing vessel, remain valid for 2 years.

1985: Transferability of IQs is officially allowed after a period of substantial informal trade during the previous years.

1987: National reserve is created: part of the national quota is not divided among ITQ holders, but retained by the administration to cover individual over-fishing of ITQs and to allow others to fully utilize their rights. The reserve is about 5% of the national quota.

1987: Uniform prosecution of fishery offences is promoted by creation of regular consultations among the responsible Attorneys-General.

1987: Fiscal subsidy on investment is stopped

1987: Maximum engine-power of new vessels to be built is set at 2000HP. Previously vessels of up to 4500HP were built. Maximum beam is set at 12m.

1987-92: System of obligatory days in port introduced.

1987-89: Legal framework for ITQ management is gradually developed. Responsibilities between the various Ministries are not shared effectively.

1988: Second codfish entitlement introduced (annual and seasonal, ‘j-documents’ and ‘s-documents’) which are non-transferable.

1988: Strict monitoring of landings is introduced with 120 controllers on 600 vessels. Strict rules are set regarding places, times and conditions for unloading fish.

1988: Several violent encounters occur between fishermen, controllers and riot police.

1988-89: First decommissioning scheme (MAGP II). Industry contributes approximately 10% of the total costs.

1988-90: Creation of first quota-management groups. But these groups failed because of insufficient control and their weak legal position.

1989-90: Administration cracks down on auctions which allow trade in illegal landings. Several individuals are held for questioning. Severe fines are imposed unconditionally.

1990: Fisheries Minister has to resign because of inadequate measures to contain infractions on overfishing of quota.

1990: Overfishing of ITQs is ‘punished’ by cutting the ITQ of the following year by the nominal amount of overfishing. In this way the government did not have to compensate vessels which were not able to fully utilise their ITQ because of the early closure of the fishery.

1990 Trading in quota is only allowed as long as the vessel has not taken up more than 90% of its ITQ.

1990-92: Legal prosecution of offences becomes more effective. Fishermen give up their previous continuous challenge of legal validity of new regulations after the administration begins to consistently win cases in court.

1992: Days-in-port are changed to ‘days-at-sea’, based on ITQs.

1993: Upon transfer of any licence which is not attached to an active vessel, its nominal value is reduced by 10%.

1992-93: Second decommissioning scheme implemented (MAGP III).

1993: Validity of ‘free licenses’ restricted to 6 months (from previous 24 months).

1993: Co-management groups are created, with a mandate to facilitate trade in ITQs (and effort allocations) on behalf of their members. Groups are not (yet) ITQ owners. About 95% of the fleet joins such groups which offer greater facility for trade in ITQs. There is a threat of obligatory decommissioning.

1993: To control the landings, sale through auction becomes obligatory. (Council Reg. 1847/93, par. 9 requires sales-slips to support logbook declarations.)

1993-96: Existing system is maintained. Stress is put on cooperation between the government and sector organizations.

1994: Codfish documents become ITQs for cod and whiting.

1996: Third decommissioning programme implemented (MAGP III).

1996: ITQs for herring and mackerel are introduced.

1996: Validity of free licenses extended to 24 months again.

1997: Fish-quota are treated like milk-quota for succession and gift taxation proceedures, on the basis of the Law ‘fiscale structuurversterking’ in force from 1 January 1998.

1998: ITQs may be separated from the vessel for a maximum of 5 years, if they belong to a Group quota.

1998: Fishing-effort, expressed in number of days-at-sea, is heavily reduced to meet the MAGP requirements

1998: Gross tonnage included in the fishing-capacity licence. GT-licences are tradable but are reduced by 10% upon transfer.

1998: Within the framework of MAGP lV a new ‘segmentation’ was applied to the fleet: vessels up-to-10m, vessels up-to-300HP, vessels more-than-300HP, and distant-water trawlers. Transfer of capacity-rights is only allowed within the same segment.


[41] See Smit 2001.
[42] The first decommissioning scheme started in 1988.
[43] One of the co-management groups expelled three members in October 1999 and held one vessel under arrest because of ITQ over-fishing. Visserijnieuws 29 October 1999.
[44] This advantage of co-management in an ITQ fishery has been emphasized by Dick Langstraat, Chairman of the Dutch Fish Board (pers. comm.). Transfer of some competence from the individual right-holder to the collective of the management group is essential in that case.
[45] The concentration level has been measured in rights for sole, but the same conclusions can be drawn for the ITQ rights for plaice and cod.
[46] In the first years after the introduction of horsepower licences a quantity of ‘floating’licences existed because of extra orders for newbuildings just before this licence scheme was put in place in 1985. Therefore trade of these rights mainly began only after some five years after the introduction.
[47] Analysis from Davidse et al. 1997 p.184.
[48] “Ondernemend vissen”, LEI, 1998, p52.
[49] Visserijnieuws 21 May 1999.

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