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5.1 Recognizing Capacity Problems

Excessive levels of fish harvesting capacity have been held largely responsible for:

Yet, while many concerns about the need to resolve capacity-related problems have been expressed by scientists in different disciplines, little has actually been accomplished in terms of addressing excess capacity and overcapacity directly, especially in the fisheries sector. However, the situation is changing. The globalization of this phenomenon and the impact of excessive fishing capacity on the biological and economic condition of many fisheries throughout the world have been a matter of increasing concern in recent years (FAO, 1997).

For example, in 1998 the FAO established a technical working group (TWG) on the management of fishing capacity to review the various issues related to measurement and monitoring, management and reduction methods, broader policy and institutional considerations as well as specific high seas aspects of the issue. The TWG stressed the crucial need for countries and the international community at large to take steps to address and to prevent overcapacity as recommended by the 1995 Code of Conduct for Responsible Fisheries (CCRF) and produced a wide consensus on the need to:

5.2 Incorporating Capacity Issues Into Management

Proposed management approaches designed to solve the fish harvesting capacity problem in industrial fisheries typically have not explicitly incorporated the two different concepts of excess capacity and overcapacity. Furthermore, even where there have been distinctions made between incentive adjusting and incentive blocking management approaches, the distinctions of the impacts of these management approaches and their respective impacts on overcapacity have not been separated from their impacts on excess capacity.

Most proposed management approaches for commercial fish harvesting capacity have also not differentiated between small and large scale production platforms. Similarly, the issues of excess capacity and overcapacity in recreational and artisanal fisheries have not been explicitly addressed in management approaches.

Harvesting capacity management regulations have also not been related to strategic fishery management goals. Most proposed fish harvesting capacity management regulations implicitly or explicitly assume that economic efficiency is the desired objective. In actuality, the preservation of fishing-dependent communities or of communities which depend on artisanal fisheries for their survival may be equally relevant, if not higher priority, social objectives. For example, an allocation of the total catch level between commercial and artisanal fishermen that is economically and biologically sub-optimal may be required to preserve an artisanal fishing community; however, given that strategy and choice for sub-optimal allocation, the catch should be harvested as economically efficiently as possible; i.e., with the minimum level of harvest capacity for both sets of fishermen.

These sorts of additional management concerns need to be brought to the forefront of the fish harvest capacity debate, and the establishment of second-best bioeconomic criteria for their evaluation needs to be reaffirmed.

Once a fishery has been identified as having unacceptable levels of excess and overcapacity, a set of regulations that will control capacity in the short run and reduce capacity levels in the long run need to be developed by fishery managers. Capacity management strategies have focused on incentive blocking and incentive adjusting measures (FAO, 1998).

Incentive blocking measures can be argued to be measures that are designed to hasten the market adjustment of excess capacity. These short run solutions mitigate harvesting capacity by stopping or slowing its growth rate, but they do not change the market incentives that caused the overcapacity in the fishery.[30]

Incentive adjusting measures are designed to eliminate overcapacity by correcting the open access market externality endemic in fisheries. These long run solutions to correct overcapacity change the regulatory environment to create market incentives that reduce capacity levels in a fishery.[31]

Cunningham and Greboval (2001) have provided a background to the need for managing fishing capacity as well as a review of the technical and policy issues that arise in doing so. Guiding principles based on the CCRF are used as the basis for examining the origin, consequences, and dynamics of excessive fishing capacity development. Noting the problems associated with free and open access, together with the issues that arise when attempting to manage fisheries under such regimes, the authors reviewed a variety of the possible management actions - such as economic incentives and disincentives, individual quotas, limited entry, and co-management - in terms of their ability to reduce fishing capacity. The likely effect and constraints associated with these measures were also examined.[32]

5.3 Incentive Blocking Capacity Mitigating Measures

Incentive blocking measures attempt to block the open access fishery economic incentive to increase fishing fleet capacity and include:

Compliance is a problem with incentive blocking measures to control capacity. If a fishing firm is prevented from maximizing profits for its scale of production by a fishery management regulation, then an incentive has been created to circumvent the regulation. That is, if a different fishing strategy can be employed or if another factor input can be substituted for the controlled input, fishermen may violate the spirit of the regulation; e.g., widening a boat in response to a length restriction. If circumventing the regulation is not possible and the probability of detection and conviction are sufficiently low to cause the expected value of the fine to be less than the lost net revenue, then fishermen may adopt strategies to violate the letter of the regulation.

The solution to these compliance problems is to carefully craft fisheries management regulations and to provide sufficiently large penalties and enforcement levels that the expected fine creates a sufficient disincentive for fishermen considering violating either the letter or the spirit of the regulation.

Unfortunately, no evidence exists that strict compliance will lead to a reduction in capacity in a fishery.

5.3.1 Limited entry

License limitation is not by itself a sufficient measure to reduce capacity, and it requires other mechanisms to control the rate of increase in capacity that can take the form of:

Limited entry licensing did not prove to be effective in Mexico, for example, because enforcement lacked the capability to determine if vessels actually fishing had a license (FAO, 1998).

Modifications to license limitation programs to address capital stuffing include transferability and fractionalization of licenses. Transferring of licenses allows new entry to occur as existing fishermen exit the fishery. While the charge for the license captures some of the rents generated by the stock, it does not prevent capacity from increasing over the long run. The rate of increase of capacity is reduced, but it continues to increase over time.

Fractional license programs assign each participant in a limited entry fishery a portion of a license to fish. As an example of how a fractional license would work, the holder of such a license would be required to buy another fractional license from another fisherman to obtain a whole license. As a result, the total number of license holders in a fishery could be reduced.

5.3.2 Buyback programs

Vessel and license buyback programs are being proposed and increasingly used as a management instrument to reduce excess fish harvesting capacity. Such program literally buy and removes vessels and/or licenses from a fleet to decrease capacity. Many countries have experience in operating buyback programs including Japan, the United States, Canada, Norway, Australia, the European Community, and Taiwan.

Similar motivations and goals existed in each program even though the mechanics differed; some programs purchased licenses instead of vessels, whilst others restricted license use or participation in commercial fishing. Typically, the conservation of fish, improvement of economic efficiency through fleet rationalization, and transfer payments (such as disaster aid to the fishing industry) are the goals of vessel buyback programs.

Holland, Gudmundsson, and Gates (1999) examined vessel and permit buyback programs in a number of fisheries around the world to evaluate their efficacy and discovered that, while the program objectives are usually similar, the design details of the different buyback programs varied widely. The authors concluded that, although the proper design of buyback programs can improve the immediate performance of this sort of approach, the programs have not generally been an effective way to achieve their stated goals of reducing capacity.

At best, buyback programs may reduce capacity be reduced in a fishery in the short run; however, as long as the open access fishery incentives remain, improvements in stock abundance will attract additional capacity into the fishery. If the market incentives are corrected through regulatory and management changes, then individual fishermen are more likely to conserve their resource stocks including the stock of fish and then buyback programs would be more effective because then resource rents are captured by the regulatory instrument that grants access to the fishery.

5.3.3 Gear and vessel restrictions

Gear and vessel restrictions attempt to control capacity by controlling the use of inputs in the production of fishing effort. Minimum mesh sizes (New England Groundfish Fishery), restrictions on the number of pots or traps (Florida Spiny Lobster Fishery), limits on the length of longlines, or the banning of gear (Florida trawl gear) are methods that have been employed in various fisheries. Regulating a vessel’s physical characteristics to control capacity have also been used.

In general, fishermen circumvent the regulations by substituting other factor inputs or new types of gear for the inputs that have been restricted. Vessel length restrictions have been circumvented by increasing the beam of a vessel or improving the horsepower of its power plant. In the Florida finfish fishery, fishermen substituted tarps for trawl nets and continued to fish under a net ban.

5.3.4 Total allowable catch

Total allowable catch (TAC) is used to maintain or rebuild fish stocks by establishing catch quotas for domestic fisheries, to allocate a fish stock between different fishing gears or user groups, and to allocate international stocks between nations.

At the Technical Working Group meeting, “There was general agreement that TACs used in isolation in virtually all situations are an invitation to disaster, that is, to speedy growth of fishing capacity” (FAO, 1998). As stocks of fish recover due to reduced fishing mortality, rents appear and attract new capacity into the fishery if entry of new fishermen or the expansion of existing fishing effort is not controlled. As a result, a race for fish or fishing derby develops that results in increased harvest capacity, shorter fishing seasons, and higher harvesting costs needed to land the same amount of fish in a shorter period of time. When approaching the limits of a binding TAC, sufficient real time data may be difficult to obtain to use as a basis to close the fishery, resulting in frequent overruns of the TAC.

These large landings over short time periods frequently result in excess processing capacity; i.e., the peak load problem. This results in excess-capacity and idle capacity in the fish processing sector.

5.3.5 Vessel catch limits

Individual vessel catch limits are a form of individual quota without transferability between fishermen.

By restricting the amount of fish landed, the race for fish can be slowed which is one indication of excess capacity in a fishery. Staggered or tiered catch limits have been used in fisheries to allow full time or specialist fishermen higher catch limits than part time or generalist fishermen; e.g., the Gulf of Mexico red snapper fishery. Fishermen could circumvent catch limits by landing fish at out of the way docks and ports. Vessel catch limits could have applications in community-based fisheries and where landing sites are restricted.

5.3.6 Individual effort quotas

Individual effort quotas (IEQs) limit the fishing effort a fishing craft can apply to a fishery. Usually a restriction is placed on trawl time, time away from port, or fishing days that the vessel can employ. Where IEQs are transferable, fishermen can purchase IEQs from existing fishermen or sell to new entrants. However, as with vessel catch limits, enforcement is difficult since effort is expended away from port and restrictions can be evaded.

As with gear and vessel restrictions, capital stuffing is a common occurrence under IEQ programs. While days fished or trawl time may remain constant, the fishing power of the vessel can be increased by substituting other factor inputs in the production process for the fixed effort variable causing the effective fishing effort of the vessel to increase. As a result, fleet capacity can increase over the long run.

5.4 Incentive Adjusting Capacity Correcting Measures

Incentive adjusting measures offer long run strategies to control capacity by changing the regulatory environment to create market incentives that causes fishermen to adjust their fishing capacity. Measures in this category include:

These sorts of fishery management regulations eliminate the open access externality by causing fishermen to behave as if they own the in situ fishery resource. When fishery resources are no longer free to whomever harvests them first, fishermen are willing to invest in the future by conserving the fishery resource as well as other resources used to harvest fish.

As a result, overcapacity is eliminated in the fishery.

5.4.1 Individual transferable quotas

Individual transferable quotas (ITQs) are effective at controlling capacity in the fishery to which they are applied.

While self-adjusting with regard to capacity, ITQs are not believed to be practicable in all cases. Questions have been raised regarding the application of ITQs to highly variable fish stocks, such as the Gulf of Mexico shrimp fishery, and to multi-cohort stocks because of concerns with high-grading catch. Bycatch is another issue that has been raised with regard to ITQs that has not been adequately addressed empirically. A capacity cascade or spillover of capacity may occur if ITQs are sequentially adopted in a series of fisheries. Processors who have overinvested in inventory capacity in response to derby fisheries may face severe economic impacts if excluded from the initial ITQ allocations.

However, for fisheries in which ITQs have been applied, substantial long run declines in capacity have been observed. Moving beyond issues of improved market performance under individual transferable quota systems, Arnason, (1998), specifically addressed the effect that individual transferable quotas have had, as management instruments, on excess and overcapacity. He found that new investment in fishing capital had been reduced and that the fishing fleet contracted under the individual vessel quota system in Iceland. Indeed, in some Icelandic fisheries, the number of operating units and, as a result, fishing effort levels dropped significantly. In addition, an analysis of economic rents and the value of quota shares indicated that substantial net economic benefits were being generated by this management system.

5.4.2 Taxes

While a tax on landings is theoretically equivalent to ITQs in reducing capacity in a fishery, little empirical evidence of their actual impacts is available.

A serious problem in developing taxes is determining the optimal tax rate to apply to the fishery at each point in time. That is, the amount of capacity in a fishery depends upon the abundance of fish, the ex-vessel price, and the unit cost of fishing effort at each point in time. As costs, prices, and abundance fluctuate, capacity levels need to be adjusted by the appropriate tax. The tax needs to be adjusted on a timely basis. With ITQs, these adjustments occur in the ITQ market automatically to determine the optimal capacity level. With taxes, a government authority has to determine the appropriate level and when to change it to optimally control capacity. In Asian countries, a tax on landings caused widespread protests amongst small scale fishermen and consumers who expected the taxes to result in higher prices (FAO, 1998).

5.4.3 Royalties

Royalties are similar to a tax on landings in their effect on reducing capacity.

A fee paid per pound of fish landed or on quota holdings to the managing authority would theoretically reduce the ex-vessel price received by fishermen which would slow the rate of growth in harvest capacity in a fishery. New Zealand is the only country that has tried this approach prior to implementing management cost recovery. In the United States, this method is used by the Department of Interior for recovering rents in natural resource extraction activities (e.g., offshore oil leases) and could be employed in fisheries management.

5.4.4 Group fishing rights

Community-based and co-management systems have been introduced in several countries with some success at controlling and reducing capacity. However, they are not expected to perform well where there is no institution building capability, when membership cannot be restricted, or when the ability to enforce rights and rules does not reside with the community.

For group fishing rights systems to be effective, it is essential that the group be able to exclude outsiders; i.e., that the group right is enforceable. In addition, if the costs of reaching an enforceable agreement (transaction costs) are not too great, community based management may be fully efficient. If the transaction costs are too high, the outcomes may be undesirable.

Community-based management methods have proven to be effective in some cases; e.g., Senegal, Japan, and, during the 1940’s and 1950’s, the Gulf of Mexico shrimp fishery.

In the United States, the National Marine Fisheries Service (NMFS) and the Fisheries Management Council system may be considered a co-management system that has been unsuccessful in controlling capacity in domestic fisheries.

Community-based management is attractive because of the improved proximity of the decision-makers to the consequences, but the wide scope of potential decisions and outcomes means that capacity issues may not be adequately resolved. Quite simply, because community-based management still result in the application of any method for governing capacity decisions within the community, there is the possibility of using incentive-blocking measures to mitigate, not correct, capacity problems.

Nonetheless, a number of exceptions to this general result exist and where groups have adopted capacity correcting measures. In the United States examples of this include: the wreckfish fishery in the southeastern region, the halibut and sablefish fisheries in the northwest and Alaskan fisheries, and the surf clam fishery in the mid-Atlantic region of the United States. Similarly, the Community Development Quotas (CDQs) instituted for Alaskan native tribes serve as an example of an effective group fishing rights program: because the community can effectively control effort, they are able to reduce capacity.

5.4.5 Territorial use rights (TURFs)

TURFs are another means to control capacity by causing fishermen to behave as if property rights for a fishing ground exist. Access to, and use of, a particular fishing ground or site is restricted to a small group or an individual, and this group can determine how to harvest fish from the site and to whom the fish gets allocated.

Oyster leases can be considered a form of TURFs, and a study comparing private ownership to public access revealed that the TURFs resulted in both a reduction in capital investment and an increase in labor employed to harvest oysters (Agnello and Donnelley, 1976).

5.5 Strategic Capacity Management

There is a plethora of management tools that can be used in the effort to try to mitigate or otherwise manage capacity problems.

The most durable solutions to overcapacity in fisheries come under the category of incentive adjusting capacity correcting measures, but the use of these strategies may actually require changing existing management approaches, and this is not necessarily simple to do. Alternative, interim measure can be implemented, but then consideration must be given to both the near and longer term incentives and impacts that these measures create. Ultimately, the actual adoption of capacity mitigating or capacity correcting measures is a political decision and, as such, may not necessarily relate directly to the most technically efficient strategy.

[30] Permit moratoria or license limitation programs are examples of what the FAO TWG termed incentive blocking mechanisms. Entry by new fishermen is prevented, but existing fishermen still behave as if an open access fishery exists. As a result, the rate of growth in harvest capacity is slowed but not prevented nor is total capacity reduced.
[31] The wreckfish fishery in the southeastern region of the United States and the halibut and sablefish fisheries in the northwest region are two examples where fishery managers have changed market incentives by altering the management institution and have caused fishermen to reduce their harvest capacity.
[32] There are also selected administrative and institutional requirements and issues that arise in specific fisheries, such as the high seas and small-scale fisheries. The recommendations of the paper include the assessment of fishing capacity, policy framework, management options, monitoring and research, small scale fisheries, and industry participation.

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