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The Effect of Introducing Individual Harvest Quotas Upon Fleet Capacity in the Marine Fisheries of British Columbia, G.R. Munro

University of British Columbia
#997, 1873 East Mall, Vancouver, B.C. Canada V6T 1Z1
<GordonR_Munro@telus.net>

1. INTRODUCTION

The purpose of this report is to assess the impact of individual harvest quota schemes upon fleet-capacity in British Columbia marine fisheries. British Columbia now has many Individual Harvest Quota (IQ) schemes, the first one dating back to 1976[147]. The availability of data on these IQ schemes, however, varies greatly. In light of this fact, this report focuses on what are arguably the two most important of the B.C. fisheries into which IQ schemes have been introduced: Pacific halibut (Hippoglossus stenolepis) and sablefish (Anoplopoma fimbria)[148]. With respect to these two fisheries, most emphasis will be given to Pacific halibut, once again because of relative availability of data.

The introduction of individual harvest quotas (IQs) in the B.C. Pacific halibut fishery has been extensively studied by economists. In particular, there is a recent study on the impact of IQs on fleet-capacity in the fishery, using techniques which gained the approval of the recent FAO Technical Consultation on the Measurement of Fishing Capacity, Mexico City, November/December 1999 (FAO 2000). It will be argued that this study introduces what must be seen as the best available approach to assessing the impact of IQs on fleet-capacity.

The aforementioned study, when supported by the economics of the fishing capacity problems and the economics of IQs, allows some key conclusions to be drawn, which can be seen to have application to all IQ fisheries. To give but one example, it will be shown that a high degree of concern on the part of the resource managers about undue “concentration of ownership” can lead to the IQ scheme being accompanied by regulations that will seriously undermine the IQ scheme’s ability to ameliorate any excess fleet-capacity existing in the fishery.

Prior to turning to the two British Columbia fisheries, it is necessary to set forth some basic concepts and economic principles. In so doing, papers arising from the FAO meeting of the Technical Working Group on the Management of Fishing Capacity, April 1998 (Gréboval 1999), and the aforementioned FAO Technical Consultation on the Measurement of Capacity, November/December 1999, will be drawn upon extensively.

2. BASIC CONCEPTS AND ECONOMIC PRINCIPLES

2.1 Open-access fisheries: “pure” and “regulated”

It is now generally accepted that the problem of excess fleet-capacity in marine capture fisheries has its roots in the open-access, “common pool,” nature of these fisheries, in which property rights to the harvests, let alone the resources, are ill-defined, or simply non-existent (FAO 1998; Gréboval and Munro 1999). Among open-access capture fisheries, one can make a further broad distinction between “pure” and “regulated” open-access fisheries (Gréboval and Munro ibid.)[149]. A “pure” open-access fishery is one in which there is a complete absence of property-rights and government regulations, and which is open to all would be exploiters of the resource. The “pure” open-access nature of the fishery gives the fishers a powerful incentive to discount heavily future returns from the resource, with over-exploitation of the resource (from society’s perspective) being the inevitable result. High-seas fisheries, prior to the U.N. Conference on the Straddling Fish Stocks and Highly Migratory Fish Stocks 1993-1995, offered several examples, e.g. the Alaska pollock fishery of the Bering Sea ‘Donut Hole’.

In “regulated” open-access fisheries, by contrast, there is intervention upon the part of resource managers (i.e. government) to prevent “excessive” exploitation of the resource. Normally this is done by regulating the global harvest season-by-season. The resource managers do not, however, succeed in exercising effective control over fleet-capacity engaged in the fishery. The restricted seasonal harvest becomes the “common pool” with the fishers then having an incentive to compete for shares of the harvest. Those fishers who do not compete will have their harvest-shares diminish steadily. For reasons to be explained, the all-but-inevitable consequence of competition for shares of the limited harvest is the emergence of excess fleet-capacity in the fisheries.

Both the Pacific halibut and sablefish fisheries of British Columbia did, prior to the implementation of IQ schemes, have all of the attributes of “regulated” open-access fisheries (Casey et al. 1995; Turris 2000). For our purposes, assessing excess fleet-capacity in “regulated” open-access fisheries is, in contrast to “pure” open-access fisheries, a relatively straightforward process (Gréboval and Munro ibid.). Concepts and measures of capacity, which are routine in that branch of Economics known as Industrial Organization, can be applied without undue difficulty.

2.2 Measures of excess capacity in standard economics, and the “malleability” of capital

In the standard economic theory of the firm, such as is encountered in Industrial Organization, one thinks of “capacity” (plant plus variable inputs such as labour service) in terms of the firm’s ability to produce goods (or services) per period of time. The question then becomes whether the firm’s capacity is “optimal,” given the firm’s desired level of output. If the firm’s capacity is excessively large (or excessively small), the firm’s costs will exceed the minimum.

Capital, be it physical-capital or human-capital, is deemed to be perfectly “malleable” if it can be quickly shifted out of a particular activity (e.g. manufacturing automobiles) with negligible danger of capital loss[150]. If the capital cannot be so shifted, then it will be said to exhibit some degree of “non-malleability.” If excess (or deficient) capacity is to be meaningful, then some part of the relevant capital (physical or human) must be other than “perfectly” malleable. If this were not the case, then a firm with rational managers would never have excess or deficient capacity, other than momentarily (Arrow 1968). The typical firm can, in fact, adjust its capacity only slowly. Non-malleable capital is the norm, not the exception.

In any event, in order to measure the gap (if any) between a firm’s actual level of capacity and the optimal level of capacity, economists make use of the concept of capacity utilization. This is measured in terms of the firm’s actual level of output, and the output level for which the given capacity would be optimal. Let these two levels of output be denoted by Y and Y* respectively. One can then construct a “capacity” utilization coefficient” simply as follows:

CU = Y/Y*

If CU = 1, the firm is experiencing neither excess nor deficient capacity. If CU < 1, then the firm is experiencing “excess” capacity. Obviously if CU > 1, the firm is experiencing deficient capacity (Gréboval and Munro 1999, Kirkley and Squires 1999, Kirkley 1999).

Excess, or deficient, capacity is seen in the standard economic theory of the firm as a “short run” phenomenon. If a firm suffers from either, and if underlying conditions remain unchanged, the firm will, through time, seek to rid itself of the excess or deficiency. By way of contrast, in the case of regulated open-access fisheries, excess fleet-capacity, when it emerges, proves to be a problem that is chronic and persistent, rather than short term and self-correcting.

The “capacity utilization coefficient” as a measure of excess capacity can, nonetheless, be readily adapted to the case of regulated open-access fisheries. Output, Y, is now measured in terms of harvest. Actual output is the seasonal limited harvest determined by the resource managers, the total allowable catch (TAC), or equivalent thereof. The equivalent to Y* is the level of harvest which the fleet currently in the fishery could produce, given the existing resource or biomass, if the fleet were unconstrained. Refer to this equivalent to Y* as the Potential Harvest (Kirkley 1999). We thus have:

Once again, if CU < 1, then excess fleet-capacity can be deemed to exist (Kirkley 1999).

2.3 Regulated open-access fisheries and excess capacity

The reasons for the emergence of excess capacity under conditions of a Regulated Open-Access Fishery can be readily illustrated with the aid of a simple abstract example drawn from Munro and Clark (1999). The assumptions initially introduced are admittedly extreme, but this is done to simplify the example. At a later point, some of the assumptions will be relaxed. In any event, it can be argued that the basic principles which will be set forth will hold under more realistic and complex assumptions.

Assume that the fleet capital used in a particular regulated open-access fishery is perfectly non-malleable in that the “scrap” value of the vessels is zero - which implies that there are no alternative uses for the vessels. Assume as well that the rate of depreciation of the vessels is zero. Next assume that the vessels, crews, and owners are identical. Finally assume a constant TAC in the fishery.

Since the vessels, and their owners are assumed to be identical, a vessel-owner can be assumed to enjoy an average share of the TAC, and an average share of the Present Value of the operating profits associated with the constant TAC through time. It can be shown that, under these circumstances, it would pay the vessel-owners to invest in fleet capital, and thereby compete for shares of the global harvest up to the point that the unit cost of vessel capital is equal to the average Present Value of operating profits from the fishery (Munro and Clark 1999).

Now, letting K denote the fleet size, and letting c denote the unit cost of vessel capital, consider the following figure taken from Munro and Clark (1999).

Figure 1. Fleet capital versus present value

Let K0 denote the minimum size fleet required to take the annual TAC. It is assumed that at K0, the total cost of fleet capital, cK0, would be less than the Present Value of operating profits. If this were not the case, the fishery would not be viable.

The present value of operating profits increases as K approaches K0 and reaches a maximum at K0. Given the imposition of the fixed TAC, the Present Value of operating profits remains constant for the Present Value of operating profits remains constant for all levels of K greater than K0. Thus, if actual K > K0, then it is obvious that redundant fleet capital exists. It is equally obvious that one would find that: CU < 1.

Suppose, for the sake of argument, that the fleet size is at the level K = K0, which is not an equilibrium situation. Since cK = cK0 is less than the Present Value of operating profits, the unit cost of capital is less than the average Present Value of operating profits. It will pay vessel-owners to continue competing for shares of the harvest by investing in additional capacity, even though the additional capacity is redundant. The investment behaviour, which is absurd from the point of view of society, is entirely rational from the point of view of the individual investor. Equilibrium will be achieved at a fleet level, K = KOA, where OA denotes Open-access (Munro and Clark ibid.). At KOA, one has c = PV/KOA, where PV is the Present Value of Operating Profits.

2.4 The impact of individual harvest quotas (IQS) upon fleet-capacity

Now consider the impact of the introduction of an IQ scheme, assuming first that equilibrium had been achieved at K = KOA. Assume further that the IQs are attached to the vessels, that the IQs are granted in perpetuity and that the per-vessel IQ is equal to TAC/KOA. Since investment in vessels is a bygone, the interest of the vessel-owner is focussed solely upon the present value of operating profits associated with the IQ. If the IQ-holder can sell, or lease out, the IQ at a price in excess of the IQ-holder’s perceived present value of the associated operating profits, then the IQ-holder will sell (lease) the IQ and remove his/her vessel from the fishery. If the IQ-holder cannot so do, then no attempt to de-activate the vessel will be made. Therefore, the very first condition that must be met, if the IQ scheme is to produce any reduction in fleet-capacity is that the IQs be transferable. If there is no opportunity to sell/lease the quotas, no removal of fleet-capacity will occur.

Transferability is a necessary, but not sufficient, condition for the IQ scheme to have an impact upon fleet-capacity. If the vessels and vessel-owners are identical, then each vessel-owner will make an identical assessment of the present value of operating profits associated with an IQ. There will obviously be no scope for trading and one should look forward to no withdrawals from the fishery. Thus a second necessary condition, which in practice is virtually always met, is that there be differences among vessels and vessel-owners in terms of harvesting efficiency.

To this point we have assumed that the fishery is in “equilibrium” when the IQ scheme is introduced. Relax this assumption and suppose that the fishery is in disequilibrium at a fleet level such as K* in Figure 1. It is unrealistic to suppose that, if the fishery is in disequilibrium, equilibrium would be restored instantly. Suppose that the IQ scheme is introduced with K=K*, and that the per vessel IQs are equal to: TAC/K*.

Now, even if IQs are not transferable, they should produce some positive benefit. With the introduction of the IQ scheme, vessel-owners will no longer be able to capture a greater share of the TAC by investing in further capacity. Hence, the IQ scheme should at least place a cap on capacity.

Next let us relax some further assumptions, and in so doing, ask what happens to vessels that are de-activated. First, suppose that quota-holders are permitted to transfer quotas, but only on a season-by-season lease basis. Vessel-owners who de-activate their vessels cannot actually eliminate the vessels, since the quotas are attached to the vessels. Those who de-activate their vessels must compare the return on leasing the quota with the return from using the quota themselves plus lay-up costs.

Secondly, suppose as well that the vessel capital lacks perfect non-malleability with respect to the fishery, in that there are alternative fisheries in which the vessel can be used, i.e. the vessel is licensed for several fisheries. If a vessel-owner sells, or leases out, its quota, the vessel-owner then may be able to devote more time to the alternative fisheries. If this is the case, the additional operating profits to be realized from devoting more time to the alternative fisheries must enter into the vessel-owner’s calculations when the vessel-owner is weighing the advantages of selling (or leasing) quota. This, in turn, raises an important policy issue.

If the alternative fisheries are non-IQ regulated open-access fisheries, then the fact that capacity exits from the fishery to which IQs have been introduced may lead to an intensification of the capacity-problem in the alternative fishery or fisheries. This is recognized in FAO reports on the fishing capacity-problem as the “spillover” effect (see, for example: FAO 1998).

In summary, the introduction of an IQ scheme can be expected, at the very least, to place a cap on the further expansion of capacity in a fishery. If the IQ scheme is to lead to the actual reduction in capacity in the fishery, then IQs must, at a minimum, be transferable. The greater the degree of transferability, i.e. if a vessel-owner can sell, rather than just lease, quota, the greater would be the impact upon fleet-capacity in the fishery.

Regardless of whether vessel-owners are allowed to lease, or sell, quota, one has to ask what happens to the vessels which cease to be active in the fishery. One cannot assume that they will be scrapped, or laid up. The de-activated vessels may “spillover” into other fisheries. If the other fisheries are characterized by regulated open-access, the “spillover” may intensify the excess fleet-capacity problems in these fisheries.

With these basic concepts and economic principles in hand, we turn to the British Columbia Pacific halibut fishery.

3. THE BRITISH COLUMBIA PACIFIC HALIBUT FISHERY, IVQS AND FISHING CAPACITY

3.1 Nature of the fishery and its history up to 1979

Pacific halibut, deemed to be one of the most valuable commercial species in the North Pacific (DFO 1999a), is a long lived species, which may attain up to 500lb in weight and live to over 100 years (Bell 1981). Typically, the harvested halibut range in size from 10 to 60lb. The fish generally recruit to the fishery at eight years of age (Casey et al. 1995).

Pacific halibut are a transboundary resource, being found predominately in British Columbia and Alaskan waters, and to a lesser extent in those off Washington. The commercial fishery in the Northeast Pacific commenced in the late 1880s with the completion of the first transcontinental railroad to Washington State. In light of the high value of halibut harvests and the slow-growing nature of the resource, it was, and is, highly vulnerable to over-exploitation. Clear signs of over-exploitation of the resource began to emerge in the years leading up to the First World War. The halibut industry, which was a Canadian/American integrated one at the time, urged the two governments to come together to conserve the resource.

The two governments responded. In 1923 Canada and the United States signed a Convention and established what was to become the International Pacific Halibut Commission (IPHC). Figure 2 shows the extent of the IPHC management areas.

Figure 2. International Pacific Halibut Commission management areas

There was general agreement (among economists at least) that, up to 1979-1980, the IPHC had been reasonably successful in conserving the resource. There was also agreement, however, that, up to 1979-1980, the economic management of the fishery had suffered by virtue of the fact that there was no control over fleet-capacity. By 1980 there was clear evidence of excess capacity on both sides or the border (Crutchfield 1981). The fishery was a true regulated open-access one.

In 1977, both Canada and the United States introduced Extended Fisheries Jurisdiction out to 200 nautical miles in anticipation of the forthcoming U.N. Convention on the Law of the Sea. In response to the joint declaration of Extended Fisheries Jurisdiction, the two countries signed a Protocol to the Convention underlying the IPHC. One consequence of the Protocol was that American harvesting of halibut in the waters encompassed by Canada’s Pacific Exclusive Economic Zone was eliminated[151]. Further, Canada was enabled to impose regulations on its own fleet so long as these regulations did not interfere with the conservation regulations of the IPHC. In 1979 Canada reacted to its newly obtained powers by introducing a limited-entry scheme to its fishery.

3.2 Vessel - and gear-types

The directed halibut fishery in British Columbia relies on hook-and-line (long-line) gear. Most halibut are captured with this gear but a small percentage being taken with troll gear (Casey et al. 1995). The vessels average between 40 and 60 feet in length, and are multi-licensed. Prior to the advent of the IQ scheme, a common pattern for the halibut fisherman was to gill-net or seine, for roe-herring in the early spring, switch to long line gear for the May halibut open-season, switch to troll gear for the July-August salmon season, and switch back to long-line gear for the September halibut open-season (Casey et al. ibid.).

In the pre-IQ era, there were virtually no vessels that were wholly dependent upon the halibut fishery. In the last pre-IQ year, 1990, approximately one-third of the gross earnings of the vessels actively engaged in the halibut fishery was accounted for by that fishery. The lion’s share of the fleet’s earnings (45%) was accounted for by the Pacific salmon fisheries (DFO 1999a).

The long-line gear employed by the commercial vessels in the halibut fishery falls into two broad categories: conventional gear and snap-on gear. A detailed description of the gear-types follows (taken from DFO 1999a).

Conventional gear

Traditionally, a unit (skate) of conventional setline gear or fixed gear consists of groundline, gangions and hooks. Loops of light twine (beckets) are attached at regular intervals to the groundline. Short branch lines (gangions) 3 to 4 feet long (0.9 to 1.2 meters) are attached to the beckets and a hook is attached to the end of each gangion. The most common rigs have been 3, 9, 13, 18, 21, 24, and 26 feet, (0.9, 2.7, 4.0, 5.5, 6.4, 7.3, and 7.9 meters) as those intervals facilitate baiting the hooks and coiling the lines. The skates with the baited hooks are set over a chute at the stern of the vessel.

The gear is retrieved on a power-driven wheel (gurdy). One person stands at the roller and one person coils the line after it passes the gurdy. The gear is then inspected for necessary repairs, baited, and recoiled in preparation for the next set.

Snap-on gear

Snap-on gear differs from traditional setline gear in that branchlines (gangions) are attached to the groundline with metal snaps rather than being tied to the groundline with twine. Further, the groundline used for snap-on gear is one continuous line that is simply stored on a drum after the gangions are removed, instead of being coiled. The method of attaching the hooks to the gangions is the same for snap-on gear and traditional gear. Gangions and baited hooks are stored on racks and the freshman snaps the gangions to the groundline as it unwinds from the drum during setting. Hook intervals can be changed with each set. When the gear is retrieved, the gangions are unsnapped as the groundline is rewound in the drum.

3.3 History of the fishery 1979 - 1990

At the outset of the limited-entry scheme, the Government of Canada issued 435 vessel licences, accompanied by strict limitations on their transferability. During the first year of operation, not all vessel licences were used. Some 102 licensed vessels did not participate.

Over the course of the following decade, the limited-entry scheme proved to be ineffective. To all intents and purposes, the B. C. Pacific halibut fishery continued to be a regulated open-access one (Table 1).

Table 1. British Columbia halibut fishery: number of active vessels, season length, and total harvest 1980 - 1998

Year

Number of active vessels

Season length (days)

Harvest (lbs)

1980

333

65

5650400

1981

337

58

5654900

1982

301

61

5524800

1983

305

24

5416800

1984

334

22

8276200

1985

363

22

9587900

1986

417

15

10240500

1987

424

16

12251100

1988

433

14

12859600

1989

435

11

10738700

1990

435

6

8569400

1991

433

214

7189300

1992

431

240

7530200

1993

351

245

10560100

1994

313

245

9901000

1995

294

245

9499700

1996

281

245

9499700

1997

279

245

12581400

1998

288

245

12876700

Source: Grafton et al., 2000, and Mylchreest (Pers. comm.).
At the commencement of the limited-entry programme the annual season length was 65 days, well below the historical maximum of 240 plus days per annum. Although the harvest doubled over the ensuing decade the annual season-length steadily diminished until by 1990 it was only six days in length. The rapidly declining season-length was a clear indication of increasing fleet-capacity. The number of active vessels rose reasonably quickly to approach the upper limit of 435 set by the Canadian government. This upper limit proved to be a wholly ineffective barrier to the growth of capacity. Fishers strove, with success, to improve their gear as they competed for shares of the harvest. The resource managers had no effective control over gear improvements (Macgillivray 1996).

By the end of the decade, it was obvious to both the industry and to the Department of Fisheries and Oceans that the situation was wholly unsatisfactory. The short fishing-season produced a ‘derby-style’ fishery, which had, in turn, a series of malign consequences. First, fishing conditions were hazardous. Second, the resource managers were unable to keep the annual harvest within the TAC limits. Third, there was additional economic loss due to poor handling of the fish, and due to the necessity of freezing most of the catch and holding it over much of the year (Casey et al. 1995).

In November 1990 the Minister of Fisheries and Oceans, after a lengthy consultation with the industry, announced that the Department had decided to introduce an IQ scheme in the form of Individual Vessel Quotas (IVQs) on an experimental basis, for the 1991 and 1992 seasons (Casey et al. 1995). The experiment was deemed to be a success, and is still in place at the time of writing.

3.4 The Pacific halibut IVQ scheme and the consequences for fishing-capacity

Under the IVQ scheme each licensed vessel receives an allocated quota, specified as a percentage share of the TAC[152]. The fishing season was returned to its historical March-to-October term.

In the discussion of the economics of IQs and fishing-capacity, considerable emphasis was given to the importance of the transferability of quota. Hence, the transferability provisions of the IVQ scheme require close attention. These provisions have gone through three stages:

Stage I: 1991-1992. Permanent transfers of quota were allowed, but only if the transferred quota was accompanied by the vessel licence, and the transfer was made to a hitherto unlicensed vessel, which was not more than 10 feet greater in length than the vessel from which the quota and licence were stripped. Otherwise, there was an outright ban on quota-trading (Grafton et al. 2000). A key reason given for the ban on quota-trading was the fear of concentration of ownership of quota (Grafton et al. ibid.).

Stage II: 1993-1998. Over this period, restricted seasonal leasing of quota was permitted. Each vessel’s quota was divided into two equal segments at the beginning of the season. A vessel-owner could lease out both shares if he so decided. A lessee vessel, however, could hold a maximum of four shares during any one season. If a vessel were to acquire the four largest shares in the fleet, its share of the TAC could not exceed 1.57% (Grafton et al. 2000).

While the leasing of quota shares was, de jure, strictly temporary, the leasing could, de facto, be longer. There was nothing to prevent a vessel-owner from entering into a sub-rosa agreement with a fellow vessel-owner, or owners, to lease the quota year-in and year-out.

Stage III: 1999 to the present. Commencing in 1999 vessel-owners were permitted to make unlimited permanent and temporary reallocations of halibut IVQs. This provision was, however, accompanied by a restriction on the amount of quota that an individual vessel could hold. An individual vessel cannot, during any one season, hold quota in excess of 1% of the TAC. A vessel to be in good standing in the fishery must hold permanent quota equal to not less than 0.01149% of the TAC. However, minimum permanent quota can be leased temporarily (Appendix 2 in DFO 1999a).

In Section 2.2 above, the concept of Capacity Utilization Coefficients (CU) as a measure of excess capacity was discussed. It will be recalled that, when applied to a fleet in a regulated open-access fishery

If CU < 1, this can be taken as evidence of excess capacity.

A thorough investigation of excess fleet-capacity in the British Columbia halibut fleet, and the impact of IVQs on such excess capacity, would involve an attempt to measure fleet CUs through time. Such an investigation was undertaken by Squires et al. 1999). In their investigation, the authors attempted to measure capacity utilization coefficients on a per vessel, per day basis. The technique employed in estimating the coefficients consists of Data Envelopment Analysis, a technique which gained the approval of the FAO Technical Consultation on the Measurement of Fishing Capacity (FAO 2000). The summary results, for the years 1988, 1991 and 1994 are shown below in Table 2, presented as mean values.

Obviously, in the pre-IVQ year of 1988, the evidence of excess capacity was clear. Disconcertingly, the mean capacity utilization coefficient declined (sharply) between 1988 and the first year that the IVQ scheme was in place in 1991. The explanation given by the authors is that, over the period, the TAC was reduced by over 40%, while the biomass declined by only 3%. Not surprisingly, this combination had very negative consequences for the fleet CU (Squires et al. ibid.).

Table 2. Capacity utilization coefficients - British Columbia Pacific Halibut Fleet

Year

Mean capacity utilization coefficient (CU)

1988

0.47

1991

0.23

1994

0.55

Source: Squires et al. (1999) Table 3.
What there is no way of telling is whether the fishery was in “equilibrium” in the immediate pre-IVQ years. If it was not, the IVQ scheme may have served to cap the growth in capacity. In other words, if the IVQ had not been introduced, the mean fleet CU for 1991 might have looked even worse (Squires et al. ibid.)[153].

Be that as it may, from 1991 to 1994 (the last year for which the authors have data) the capacity utilization coefficient (CU) improved substantially. Now, with Table 2 in mind, return to Table 1 and consider the number of active vessels over time. During the first two years of the IVQ scheme, the number of active vessels was essentially unchanged from the last pre-IVQ year of 1990. From 1993 on, however, the number of active vessels has steadily declined while the CU per vessel has apparently improved (at least up to 1994). This is precisely what the theory would predict. The years 1991 and 1992 coincided with Stage I, in which there was an outright ban on quota-trading.

The post-1992 decline in the number of active vessels in the fishery, and the improvement in the per vessel CU, coincided with Stage II, when partial quota-trading was permitted. It was argued that quota-trading would not take place if fishers are identical - but then they never are. Indeed, quota-trading steadily increased, as is indicated in Table 3.

Table 3. Temporary transfers of individual quotas in the B.C. halibut fishery

Year

Number of transfers

Number of vessels involved

Percentage of total quota

1991

0

0

0

1992

0

0

0

1993

178

94

19

1994

306

154

34

1995

360

184

39

1996

413

216

44

Source: Grafton et al. 2000, Table 3.
While it is not possible to produce definitive proof, the evidence strongly suggests that the introduction of IVQs did lead to significant reduction in fishing-fleet capacity in the British Columbia Pacific halibut fishery, but only after the quota achieved some degree of tradeability[154]. This in turn suggests an obvious trade-off. If restrictions are placed on quota-trading for fear of emerging undue concentration of ownership, then the power of IQ schemes to reduce fleet-capacity will be diminished.

An awkward, and probably unanswerable, question is left. The question is: what has become of the de-activated vessels? It may be that the time they would otherwise have spent fishing for halibut is spent at the pier. On the other hand, it may be that the vessel-time has “spilled over” into non-IQ fisheries, with all that that implies.

3.5 Concentration of ownership

The evidence on shifts in the concentration of ownership in the fleet is opaque. Consider the following information provided by the DFO, which shows the number of vessel-owners in 1990 and 1999. A “person,” owning a vessel, is a legal person, who can thus be either an individual or an incorporated company. A vessel can have more than one owner. Consequently the total number of vessel-owners exceeds the number of licensed vessels in each year.

Table 4. Vessels Owners: B.C. Pacific Halibut Fishery - 1990 and 1999

Number of licences held

Vessel-owners

1990

1999

1

481

467

2

15

35

3

0

2

4

1

3

5

1

0

6

0

0

7

0

1

8

0

1

19

1

0

Source: Canada, Department of Fisheries and Oceans
Table 4 suggests no perceptible shift in concentration of vessel-ownership. Owners of vessels can, of course, transfer quota. Consequently, there could be a concentration of de facto quota-ownership, which would not be reflected in Table 4. Yet, one must recall that, under current regulations, a single vessel cannot hold quota in excess of 1% of the TAC. Thus, evidence of significant increased concentration of ownership is close to non-existent. Grafton et al. (2000), in their recent study of the B.C. Pacific halibut fishery, are insistent that:
“... despite the transfers [of quota] quota is neither heavily concentrated by area, individuals, or companies, and most active vessels remain owner operated[155]“.

The impact of IVQs upon capacity is not just confined to the harvesting sector. In the ‘derby-fishery’ era, most of the catch (roughly 60%) had to be frozen. Only a few large processors had the necessary freezing capacity. With the advent of IVQs and the lengthening of the fish season, a far greater percentage of the catch (over 90%) went into the fresh-fish market (Casey et al. 1995). The barriers to entry to processors engaged in the fresh-fish market are much lower than are those engaged in the frozen-fish market. Casey et al. (1995) report a resultant decrease in the degree of concentration in the processing sector. Moreover, it comes as no surprise to learn that among the bitterest opponents of the proposed IVQ scheme in 1990 were the large processors (Casey et al., ibid.)[156].

4. THE BRITISH COLUMBIA SABLEFISH INDUSTRY

The British Columbia sablefish fishery has been much less intensively studied than the British Columbia Pacific halibut fishery. There have been, for example, no attempts to estimate capacity utilization coefficients (CU) for the fishery through time. It is for this reason that the halibut fishery was examined first, even though the introduction of IVQs to the sablefish fishery preceded the introduction of IVQs to the halibut fishery. Nonetheless, definite inferences can be drawn from the available data. The conclusions arrived at will be found to buttress those arising from the examination of the Pacific halibut fishery.

4.1 The nature of the fishery and its history prior to 1990

Sablefish (black cod), like halibut, is a high-valued groundfish species. The unit landed-value of the two species is roughly comparable[157]. In contrast to the Pacific halibut fishery, however, the British Columbia sablefish fishery is a relatively young one.

Prior to the 1960s sablefish was caught off British Columbia only as a by-catch in long-line and trawl fisheries. In the mid 1960s, Japanese distant-water fleets developed a directed fishery for sablefish off of British Columbia. With the advent of Extended Fisheries Jurisdiction in Canada in 1977, Japanese harvesting was eliminated (DFO 1999b). By the late 1970s, a viable Canadian fishery had been developed with the primary market being Japan.

Two forms of gear are employed: traps and long-lines. Vessels have varied in size from 30 to 120 feet (Grafton 1992). Currently the average trap-vessel is 75 feet in length, while the average long-line-vessel is 60 feet in length (Turris 2000). Thus the vessels are somewhat larger than those that are typically employed in the halibut fishery. Like the halibut fishery, on the other hand, the fleet was in the pre-IQ era a decidedly multi-licensed fleet. In the last pre-IQ year (1989) 48% of the active sablefish fleet’s gross earnings were accounted for by species other than sablefish (Canada, Department of Fisheries and Oceans).

The history of the sablefish fishery, from the late 1970s to the introduction of an IQ scheme in 1990, is similar to that of the B.C. Pacific halibut fishery. With the escalating fishing-effort becoming increasingly evident, the Department of Fisheries and Oceans introduced a limited-entry scheme in 1981. The Department issued 48 licences (to be renewed annually). The initial season length in 1981 was 245 days.

Between 1981 and 1989, the TAC increased by 42%. Nonetheless, the season shrank from 245 days to a per-vessel season-length of 14 days by 1989 (DFO 1999b). As Table 5 indicates, the number of active vessels in the fleet was initially well below the ceiling of 48. As in the case of the halibut fishery, the number of active vessels steadily grew through the decade and approached the ceiling. In addition, capacity increased through the adoption of more and better gear. The similarity to the halibut fishery continues in that, by the late 1980s, there were complaints that the fishery was dangerous, that there was post-harvest economic loss through inferior handling of the fish and through the costs associated with short intense gluts confronting processors, followed by periods of famine. In addition, it became increasingly difficult for the resource managers to enforce the TAC (Turris 2000).

4.2 The IVQ scheme of 1990 and its impact upon capacity

Once again, as for Pacific halibut, the unsatisfactory situation led to months of discussion between the Department of Fisheries and Oceans and the industry in 1989. In late 1989, it was announced that an IQ scheme, in the form of IVQs, would be introduced for the years 1990 and 1991 on an experimental basis. The experiment was deemed to be a success and continues to the present day. As a further advance, co-management was introduced in 1993. The fishery is co-managed by the Department of Fisheries and Oceans and by the Pacific Black Cod Fishermen’s Association (DFO 1999b).

Under the IVQ scheme, each licensed vessel receives a certain percentage of the TAC[158]. Quota assigned to one vessel can be re-assigned, i.e. leased, in unlimited quantity to other vessels in the fleet, subject to the approval of the Department of Fisheries and Oceans. The re-allocation is, however, strictly seasonal. Once again, however, it would be impossible to prevent vessel-owners from entering into sub rosa, de facto, long-term leasing agreements.

While the similarity of the histories of the sablefish and Pacific halibut fisheries is striking, there is one significant difference. In the case of the sablefish IVQ scheme, unlimited, leasing of quota (albeit on a strictly seasonal basis) was permitted from the inception of the scheme. It may be that the relatively small number of vessels in comparison with the halibut fishery and the resultant lack of prominence made it unnecessary for the authorities to show the same caution as they did in the Pacific halibut fishery.

A proper analysis of the impact of IVQs upon fishing-capacity in the sablefish fishery would involve estimates of fleet CU (capacity utilization) through time, as we now have for the halibut fishery. Such estimates, as we have indicated, do not exist. One can, nonetheless, draw inferences from Table 5. The pattern is similar to the halibut fishery in that the period of limited-entry was marked by a rapidly declining season-length. The introduction of IVQs, as in the halibut fishery, saw the season-length rise rapidly to the maximum. The number of active vessels in the fishery declined by over 50% between 1989 and 1998. It is difficult to believe that the fleet CU coefficient did not rise significantly over this period.

What is different from the halibut fishery is that the decline in active vessels commenced immediately upon the introduction of IVQs. The number of active vessels in the fleet declined by over one-third during the first year of the scheme[159]. The reason is straightforward: sablefish IVQs were transferable, albeit imperfectly so, from the inception of the IVQ scheme.

Table 5. British Columbia sablefish fishery: number of active vessels, season-length and total harvest - 1982-1998

Year

Number of active vessels

Season-length (days)

Harvest (lbs)

1982

n/a

202

7745700

1983

23

148

8906400

1984

20

181

8004000

1985

27

95

8888500

1986

41

63

9093200

1987

43

45

9506800

1988

45

**

10269900

1989

47

***

10734600

1990

30

255

9424600

1991

26

365

9990900

1992

25

365

10047300

1993

21

365

12021200

1994

22

365

9993400

1995

24

365

8176500

1996

21

365

6984400

1997

24

365

8581900

1998

24

365

9180800

** In 1988 there were seven 20-day fishing periods during the year. Each vessel was allowed to fish in one.

*** In 1989 there were eight 14-day fishing periods during the year. Each vessel was allowed to fish in one.

Source: Canada, Department of Fisheries and Oceans.

While there are less data available for the sablefish fishery than exist for the halibut fishery, the sablefish results support those arising from the halibut fishery[160]. The introduction of IQs can indeed lead to a reduction in fishing-capacity given that IQs are transferable. The unanswered, but critical, question is what happens to the fishing-capacity that is removed from the fishery.

4.3 The question of ownership and concentration

The evidence on concentration of ownership is somewhat less clear than it is in the case of halibut. Table 6 is the sablefish equivalent to Table 4. Once again, a “person” owning a vessel may be an individual or an incorporated company. A vessel may have more than one owner. Hence, the number of licences appear to exceed the number of licensed vessels.

Table 6. Vessel-owners: B.C. sablefish fishery - 1989 and 1999

Number of licences held

Vessel-owners

1989

1999

1

60

50

2

4

2

3

2

0

4

0

3

5

0

1

6

0

1

Source: Canada, Department of Fisheries and Oceans
Like the Pacific halibut fishery, there is no perceptible shift in concentration of vessel-ownership. Unlike the halibut fishery, however, there does not appear to be a strict upper limit on the amount of quota held by any one vessel[161].

5. CONCLUSIONS

The purpose of this report has been to examine the impact of individual harvest quotas (IQs) upon fishing-capacity in British Columbia marine fisheries. Two fisheries were selected for investigation: Pacific halibut and sablefish. In both cases, individual harvest quota schemes have taken the form of individual vessel quotas (IVQs).

The B.C. Pacific halibut fishery has been extensively studied by economists. An attempt has recently been made to measure changes in fleet-capacity, using sophisticated statistical techniques in the form of Data Envelopment Analysis. The conclusion that can be drawn from this fishery are that the introduction of IQ schemes can indeed lead to a reduction in fleet-capacity - given that the IQs are tradeable. If the IQs are not tradeable, then about the best one can hope for is that the IQ scheme will serve to cap the expansion of fleet-capacity. The conclusions arising from the experience of the sablefish fishery buttress those arising from the halibut fishery.

IVQs in the Pacific halibut fishery were initially made non-tradeable, in part out of fear of undue concentration of ownership. The cost of giving high attention to increased concentration of vessel-ownership (and hence quotas) will be that of reducing the positive impact of the IQ scheme upon fleet-capacity.

In the end, the government relented and allowed increased tradeability in Pacific halibut IQs. Although it is not possible to offer conclusive proof, the evidence does suggest that the remaining restrictions and regulations, which the government has in force, have been sufficient to prevent a significant increase in the degree of concentration of vessel - (and quota-) ownership in the halibut fishery. While the evidence from the sablefish fishery is weaker, the evidence also suggests the absence of a marked degree of increase in concentration of vessel - and quota-ownership.

6. ACKNOWLEDGEMENTS

The author would like to acknowledge the invaluable assistance which he has received from Mr. Russell Mylchreest, Senior Economist, Policy and Economics Analysis Branch, Department of Fisheries and Oceans, Pacific Region, and from Ms. Stephanie McWhinnie, Department of Economics, University of British Columbia.

7. LITERATURE CITED

Arrow, K.J. 1968. “Optimal Capital Policy with Irreversible Investment,” In: Wolfe J.N. (ed.), Value and Capital: Papers in Honour of Sir John Hicks, Edinburgh, University. of Edinburgh Press, pp. 1-20.

Bell, F.H. 1981. The Pacific Halibut: The Resource and the Fishery, Anchorage, Northwest Publishing Company.

Casey, K.E., C.M. Dewees, B.R. Turris, and J.E. Wilen 1995. “The Effects of Individual Vessel Quotas in the British Columbia Halibut Fishery,” Marine Resource Economics, vol. 10, no. 3, pp. 211-230.

Crutchfield, J.A. 1981. The Pacific Halibut Fishery, Economic Council of Canada, The Public Regulation of Commercial Fisheries in Canada, Technical Report No. 17, Ottawa.

DFO - Department of Fisheries and Oceans 1999a. DFO Pacific Region, Integrated Fisheries Management Plan: Halibut 1999, Vancouver.

DFO - Department of Fisheries and Oceans 1999b. DFO Pacific Region, Management Plan January 1 1999 - July 31, 2000: Sablefish, Vancouver.

FAO 1998. Report of the Technical Working Group on the Management of Fishing Capacity, La Jolla, California, United States, 15-18 April 1998, FAO Fisheries Report No. 586, Rome.

FAO 2000. Report of the Technical Consultation on the Measurement of Fishing Capacity. Mexico City, Mexico, 29 November - 3 December 1999. FAO Fisheries Report No. 615. FAO, Rome. pp51.

Grafton, R.Q. 1992. “Rent Capture in Rights Based Fisheries,” PhD dissertation, University of British Columbia, unpublished.

Grafton, R.Q., D. Squires and K.J. Fox (2000) “Private Property and Economic Efficiency: A Study of a Common-Pool Resource,” Journal of Law and Economics. 43:679-713.

Gréboval, D. 1999. Managing fishing capacity: selected papers on underlying concepts and issues. FAO Fish. Tech. Pap. No. 386. Rome. 206pp.

Gréboval, D. and G. Munro 1999. Overcapitalization and Excess Capacity in World Fisheries: Underlying Economics and Methods of Control. In: Gréboval 1999 (ed.). Managing Fishing Capacity: Selected papers on Underlying Concepts and Issues, FAO Fisheries Technical Paper No. 386: pp1-48.

Kirkley, J. and D. Squires 1999a. “Measuring Capacity and Capacity Utilization in Fisheries,” In: Gréboval, D. (ed.). Managing Fishing Capacity: Selected Papers on Underlying Concepts and Issues, FAO Fisheries Technical Paper No. 386, Rome, pp.75-200.

Kirkley, J. and D. Squires 1999b. “Capacity and Capacity Utilization in Fishing Industries,” FAO Technical Consultation on the Management of Fishing Capacity, Mexico City, Mexico, 29 November-3 December 1999, Background Document No. 20.

Macgillivray, P. 1996. “Canadian Experience with Individual Fishing Quotas,” In: Gordon, D.V. and G.R. Munro (eds.). Fisheries and Uncertainty: A Precautionary Approach to Resource Management, Calgary, University of Calgary Press, pp.155-160.

Munro, G.R. and C.W. Clark, 1999. “Fishing Capacity and Resource Management Objectives,” FAO Technical Consultation on the Measurement of Fishing Capacity, Mexico City, Mexico, 29 November-3 December 1999, Background Document No. 12.

Squires, D., Y. Jeon, R.Q. Grafton and J. Kirkley 1999. “Tradeable Property Rights and Overcapacity: The Case of a Fishery,” FAO Technical Consultation on the Management of Fishing Capacity, Mexico City, Mexico, 29 November - 3 December 1999, Background Document No. 3.

Turris, B.R. 2000. “A Comparison of British Columbia’s ITQ Fisheries for Groundfish Trawl and Sablefish: Similar Results from Programmes with Differing Objectives, Designs and Processes,” In: Shotton, R. Use of property rights in fisheries management. Proceedings of the FishRights99 Conference, Fremantle, Western Australia, 11-19 November 1999. Mini-course lectures and Core Conference presentations. FAO Fish. Tech. Pap. No 404/1. FAO, Rome, pp254-261

Wilen, J.E. 1987. “Towards a Theory of the Regulated Fishery,” Marine Resource Economics, vol. 1, pp.369-388.


[147] The first IQ scheme in British Columbia was introduced into the herring spawn on kelp fishery in 1976. Subsequently, IQ schemes have been introduced into the following fisheries, in addition to Pacific halibut and sablefish: geoduck clam; red sea urchins; green sea urchins; sea cucumber; groundfish trawl; abalone (fishery closed since 1990), (Mylchreest, Pers. comm.).
[148] One could argue that the groundfish trawl-fishery is also very important. The IQ scheme introduced into this fishery is very complex, involving some 55 quota species. Moreover, it has only been in effect since April, 1997 – less than two years. The IQ scheme simply does not have enough history to make any reasonable assessment feasible (Turris 2000).
[149] The terms: pure open-access, and regulated open-access, owe their origin to James Wilen (1987).
[150] The concepts of malleable and non-malleable capital are analogous to the financial concepts of liquid and illiquid assets.
[151] With respect to the Pacific halibut fishery, the Canadian EEZ was deemed to coincide with IPHC Fishing Area 2B – see Figure 2 (Casey et al. 1995).
[152] Quotas were issued to vessels holding “L” licences. The quota shares were based 70% upon vessel performance between 1986 and 1987, and 30% upon vessel-length (Casey et al. 1995).
[153] In some of the American IPHC Fishing Areas, seasons were reduced to one or two days (Casey et al. 1995).
[154] One would anticipate that, as part of the fleet-rationalization process, there would be a greater degree of vessel specialization among fisheries, with the consequence that the degree of fleet dependence upon the halibut fishery would increase. There is some evidence of this specialization occurring. Whereas halibut harvests accounted for roughly one-third of the gross earnings of the active halibut fleet in 1990, they accounted for 70% of the earnings of the active halibut fleet by 1998 (Department of Fisheries and Oceans, Canada).
[155] Grafton et al. forthcoming, p. 10.
[156] The Casey et al. article was published in 1995. A reversal of the de-concentration in the processing sector may have occurred since 1995. We have been unable to obtain any hard evidence that would support, or refute, the reversal hypothesis.
[157] Over the period 1996-1998, the unit landed value of halibut was approximately $Can3.10/lb, while that of sablefish was approximately $Can3.50/lb, Department of Fisheries and Oceans, Canada.
[158] Holders of “K” licences.
[159] There is no clear evidence, according to Grafton (1992), of a marked shift in fleet composition.
[160] In keeping with the Pacific halibut fishery experience, there is evidence of increasing fleet specialization. In 1998, just under 90% of the active sablefish fleet’s gross earnings were accounted for by sablefish harvests (Department of Fisheries and Oceans Canada).
[161] Thus, it is conceivable that there has been an increasing concentration of de facto quota ownership, not reflected in Table 6.

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