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2.1 Genesis of management failure
2.2 Managing capacity
2.3 Input versus output controls and combination of controls
2.4 Resource allocation
2.5 A multidisciplinary approach to quota management

Although catch quota management has been extensively used in fisheries to control exploitation and to optimize economic performance, its success has not been good in achieving these goals. In a recently completed review of management success in OECD countries (OECD 1996), 18 of 24 countries reported using quota management for at least some of their fisheries. Notable users were the European Union, through its Common Fisheries Policy and International Fisheries Commissions for the North West Atlantic (ICNAF and NAFO), the Baltic Sea (IBSFC) and for halibut (IPHC). These management authorities are notable for their extensive and lengthy reliance on quota management as a principle method for fisheries management, and in some fisheries (e.g. herring stocks in Canada) quota management arrangements have been in place for more than 60 years. Of 22 fisheries in 11 countries (Australia, New Zealand, Canada, Denmark, Finland, Iceland, Netherlands, Norway, Spain, UK and USA) which were examined, the stocks in only six fisheries have been maintained at steady levels compared with 16 that have experienced a stock decline or collapse during the period in which quota management has been in place. Management by catch quotas in the fisheries of the European Union has been particularly ineffective, and current management objectives in many European Union (EU) fisheries is merely to maintain the status quo of over-exploitation (Corten 1996). Most notable stock declines have been in the herring fisheries of Canada, Iceland and Europe, while the International Council for the Exploration of the Sea (ICES) have reported that fishing mortalities in most stocks in the ICES area have risen appreciably since the introduction of TACs and quota management (Anon 1995). Even when catch quotas have been used in conjunction with other measures such as limited entry (e.g. southern bluefin tuna of Australia, Polish hake fishery, Draganik and Wysokinski 1988), stock declines have been more common than maintenance of stock biomass levels in most fisheries.

2.1 Genesis of management failure

Management ‘failures’ in fisheries have generally been considered from a biological, or resource, point of view and from the socio-economic point of view. In a biological sense, ‘failure’ has been taken as the decline, or even collapse, of the fish stock as a direct consequence of the management regime, while from the socio-economic point of view, ‘failure’ is reflected in poor economic performance of the fishery and unacceptable equity consequences related to re-distribution of rights, power, opportunities and wealth.

Most biological failures of quota managed fisheries have been in situations where the catch quota has not been individually assigned to operators in a fishery but has been established as a ‘global’ quota. OECD (1996) reported that of the 22 fisheries in 11 countries. Economic performance was also poor in almost all of these fisheries. This may be compared with 23 of 31 fisheries in the same countries which were managed by individual quotas and which maintained catches at or below the TAC. Most fisheries managed by individual quotas also experienced substantial improvements in economic performance and in product quality.

However, even in fisheries managed by individual quotas, the critical issue of setting the TAC has not always been done well. OECD (1996) reports that in 24 of 37 stocks in 11 countries managed by individual quotas, TACs appeared to have been set too high, resulting in at least temporary declines in stock abundance. When Individual Transferable Quotas were introduced in New Zealand, there was little information on the status of resources and that much information is still lacking both in New Zealand and in other countries that have introduced transferable quota management.

Based on an examination of fisheries which have implemented management by global catch quotas (as opposed to individual quotas), a number of reasons for the failure of quota management to achieve either stock conservation or optimal economic utilization of the resources become apparent. These may be summarized as follows:

· Increased competition among operators
to take as much of the TAC as possible before the season is closed. This enhanced competition, or ‘race to fish’, is a particular problem with ‘global’ quotas and results in increased capacity, significantly shortened seasons, increased harvesting costs and reduced profitability. In addition, product quality can suffer significantly thus reducing revenues (Wilen and Homans, 1994). Total economic rent from the fishery declines as a result of excess capacity. Increased competition and its attendant effects have been documented (OECD, 1996) in 20 fisheries managed by ‘global’ catch quotas (e.g. US and Canadian Pacific halibut, Alaskan King crab, Australian bluefin tuna and gemfish, Canadian geoduck, etc.) with no counter examples. Halliday et al., (1992) estimated that increasing capacity in the Nova Scotia inshore fleet had resulted in capacity levels which were approximately 4 times that required to exploit the groundfish stocks. Reduced profitability brought about by the enhanced competition in itself will often result in resource overexploitation because of increased financial pressures leading to illegal fishing, etc.

· Difficulties of enforcement of TACs
Problems with enforcement of quotas apply equally to ‘global’ quotas and to individual quotas and may even be greater in individual quota- managed fisheries because of the additional surveillance requirements to monitor quotas at an individual vessel level. Of 21 fisheries managed by ‘global’ quotas for which information is available, only 7 have been able to keep actual catches at or below the recommended TAC. Catches exceeded the TAC in all the other 14 fisheries. Many of these enforcement difficulties, particularly in the European Union, (Corten 1996) relate to the multi-species nature of the fisheries and the consequent need, for stock conservation purposes, to set TACs for a number of species which are captured concurrently. Such a management process is, however, often impractical and ignores the realities of the harvesting process. This has lead to both a common practice in many fisheries of illegal landings and to the discarding of otherwise saleable fish because the quota for that species had been reached. Difficulties of enforcement have also been reported as a result of inadequate planning of compliance and enforcement programs to match the quota setting mechanisms. For example, in the Dutch beam trawl fishery, which takes a mixture of cod, sole and plaice, each of the 500 or so vessels had individual quotas assigned for each of the three species. Given that catches are landed frequently at a large number of fishing ports, the small number of fisheries inspectors were faced with an almost impossible task of enforcing these vessel quotas which inevitably resulted in a large scale practice of illegal landings an political crises (Corten 1996).

· Inappropriate TACs
In setting the TAC for any quota managed fishery, whether it be a ‘global’ quota or ‘individual’ quotas, there have been numerous instances where the failure of the management process can be linked back to an inappropriate TAC. Inappropriate TACs may result from:

i. The introduction of quota management into inapppropriate fisheries, such as those with high by catch levels or in which a large number of species are captured simutaneously. This often stems from a lack of understanding of the operational aspects oft heindustry by the managers and scientists introducing the quotas (see below).

ii. Inadequate capability and/or data for the provision of scientific advice and analysis on TAC levels. This was, and continues to be, a significant problem in many fisheries. When ITQs were introduced in New Zealand, there was little information available about the status of many stocks (such as orange roughy) and, as a result, TACs may have been set too high in some fisheries (Annala 1996). In Australia, the introduction of individual quota management was delayed in many fisheries because inadequate data existed to confidently establish TACs (Scott & Geen 1991).

iii. Manipulation of the TAC in a negotiating context. Even when the scientific basis or TACs is well established, TACs have been subjected to manipulation in a political context. This has been a significant problem in the European Community and has been identified (Anon 1991) as one of the major shortcomings of the Common Fisheries Policy.

iv. Lack of structure in recommended TACs where price differentials between age or size classes are large. This can result in targeting on specific parts of the stock or size classes with unexpected implications on overall fishing mortality rates and spawning stock abundance.

v. Constant catch quotas in situations where stock levels vary considerably as a result of natural variation in recruitment. This can result in increased risk of stock collapse (Hannesson 1988 and Section 4 below) and varying exploitation rates since, when recruitment is low, a constant quota will take a larger proportion of the standing stock than it would when recruitment is high.

In New Zealand, for example, quotas for several fish species were apparently set at too high a level, and the necessary reduction in TACs in response to declining stock abundance led to serious dissent between the regulatory authority and the fishermen (Francis et al. 1993). Although the establishment of TACs for quota management purposes imposes added responsibility on the stock assessment techniques used to calculate them (Sissenwine and Mace 1992), the recommendation of an inappropriate TAC may not always be the result of poor scientific advice. Within the European Union, the TACs agreed to by Ministers during annual TAC negotiations are nearly always higher than the amounts recommended by scientists (Corten 1996). An evaluation by the European Commission of the first 8 years performance of the Common Fisheries Policy identified this systematic raising of TACs by politicians as one of the main shortcomings of the CFP (Anon 1991). Inappropriate TACs can also result from a lack of structure in the recommended TAC where catches are not specified by age group, size etc. This can lead to targeting on the more valuable age or size classes e.g., German pollock fisheries (Reinsch 1994) and, if the price differential is significant, in gross distortion of the pattern of exploitation from that expected under an assumption of non-targeting.
· Inappropriate institutional arrangements
In most countries where quota management has been introduced, it is a Government organization which usually determines quotas and administers and enforces them. OECD (1996) have identified industry support for management arrangements as the most critical factor for successful fisheries management and, in some countries (e.g., Australia, Canada, New Zealand) significant progress has been made in moving towards a system of co-management of fisheries resources with both Government and industry contributing expertise to the development and implementation of management policy. Previous failures in quota management can often be attributed to poor institutional arrangements which kept Government and industry functions separate and which lead to a poor understanding of the industry by the scientists and managers who were setting quotas. For example, the introduction of separate TACs in multispecies demersal fisheries (such as in the European Union), and the problems which ensued as catches were landed illegally or saleable fish were dumped, highlights the lack of understanding of the operational aspects of the industry in trying to implement such TAC management. The resulting lack of confidence in the abilities of the scientists and fisheries managers made the quota system not only expensive to enforce but ineffective and virtually unworkable.

2.2 Managing capacity

One of the prime failures of quota management (see Section 2.1) has been that, without individually allocated quotas, the race-to-fish incentives have inevitably resulted in increases in capacity beyond that which is economically or biologically optimal for exploitation of the resource. At best, this has resulted in reduced economic rent being generated from the fishery and, at worst, has resulted in declines or collapses in the stock. OECD (1996) has estimated that 20 out of 23 fisheries which were managed by ‘global’ quotas and for which it had information showed evidence of excess harvesting capacity.

Excess capacity can be developed in a number of ways, depending on the fishery in question. Increasing efficiency, through larger or more efficient vessel and gear designs, leads to increased individual fishing power even in situations where limited vessel entry is used in conjunction with quota management (e.g. Australian bluefin tuna fishery). Where entry is not limited, capacity in the fishery can also be increased through the entry of additional vessels into the fishery. In situations where rents being generated from the fishery are minimal, capacity has usually increased by the introduction of more efficient vessels and gear by those already involved in the fishery since the alternative of attracting new entrants to the fishery involves capital costs which are usually significantly large to discourage investment. Subsidies paid to fishermen to increase capacity by building more efficient vessels are common and distort the real rate of returns in favour of excess capacity.

The response to excess harvesting capacity has often been to reduce the fishing season (or to adopt other restrictive measures) to compensate for the increasing efficiency or increasing numbers of individual vessels. This response is well documented in fisheries which have experienced excess harvest capacity situations. OECD (1996) reports that all 23 fisheries managed by global quotas for which it had information had experienced a reduction (often substantial) in the fishing season as capacity increased. Combining other management measures (such as gear restrictions or limited entry) sometimes reduced, but in no case eliminated, capacity increases. This would be expected since such additional measures address only one aspect of the capacity issue and leave the issue of increasing efficiency and fishing power unresolved.

Because of the non-malleable nature of capital in the fishing industry (Clark et al. 1979) it is usually difficult and painful to achieve a reduction in fishing capacity. For example, in accordance with directives from the European Commission under their Multi-Annual Guidance Program (MAGP), all member states have been set targets for reducing their fishing fleet capacity. In the United Kingdom, for example, this reduction is being achieved through a combined process of capacity reduction through decommissioning vessels and restrictions on time spent at sea. In three successive annual tendering rounds, 7% of the fleet, in GRT terms, was removed by the decommissioning process in the period 1993-1996 at a cost of 28 million pounds sterling (HMSO 1996). Further reductions are planned.

2.3 Input versus output controls and combination of controls

Input controls where limitations are placed on the number or capacity of fishing units is a commonly used mechanism for controlling exploitation and is used either alone or in combination with other measures including other input controls or output controls such as TACs. The expectation of input controlled fisheries is that input control measures alone do not adequately control fishing mortality since they do not usually place any impediment on the increase in efficiency of individual fishing units. Input controls may therefore slow, but do not prevent increases in exploitation rate. OECD (1996) found evidence of stock declines in 11 of 18 fisheries in OECD member countries which were subject to management by input controls. In situations where input controls have been successfully used (an outstanding example is in Australia’s largest fishery, the western rock lobster fishery, which has been managed successfully by input controls since 1963), constant re-adjustment of the input control measures have been needed in order to limit exploitation rate to target levels. Townsend (1990) has noted that the effectiveness of input controls such as limited entry is correlated with their restrictiveness. This implies increased surveillance and compliance costs to meet ever more stringent and complicated regulations and, in the Australian western rock lobster fishery, these compliance costs have increased at a rate greater than the rate of inflation over the past 10 years. It is only in fisheries where the technology of production is sufficiently inflexible (so that changes in time used and productivity of each fishing unit are unfeasible) that licence limitation can be expected to control the expansion of total fishing capacity and fishing mortality. Such conditions are met in successful input-controlled fisheries such as Western Australia’s western rock lobster fishery where Lindner (1994) has noted that the limitation on the number of pots was the effective policy instrument since the feasibility of lifting pots more than once in each 24 hours was subject to severe diminishing returns.

The economic impacts of input controls has been reviewed by OECD (1996) who concluded that, while licence limitation (either alone or in combination with other measures) may result in some economic benefits, the approach “cannot achieve maximum economic performance”. They identified excess capacity and capital stuffing as the two most likely consequences of input controlled fisheries.

Figure 1: Real compliance and research costs (i.e. adjusted for inflation to real 1985 dollars) for the western rock lobster fishery of Western Australia. Note that, as input controls have needed to become more restrictive and complicated to control exploitation, compliance costs have risen significantly.

In a detailed analysis of the western rock lobster fishery in Western Australia, Lindner (1994) estimated that with present technology the maximum resource rent which could be generated from the fishery was $A54.7 million compared with the present (1994) generated rent of approximately $A29 million. He therefore concluded that present management arrangements resulted in rent dissipation of $A25.7 million of which $A22.5 million was due to excess capacity and $A3.2 million to capital stuffing.

2.4 Resource allocation

Allocation of scarce and finite fisheries resources occupies considerable time of fisheries management agencies, no matter whether that allocation is done within the context of a quota managed fishery or whether other management controls, such as input controls, are in place. However, within a quota management context, the issue of allocation becomes more sharply focussed since the object of the allocation decision (ie the total allowable catch) is a much more readily conceptualised and understood entity than indirect “allocation” decisions through means such as gear restrictions etc.

The decision, therefore, to move towards a quota management arrangement brings with it the need to specifically and explicitly address the question of allocation of the TAC. Such a focussing of attention on the allocation issue has often resulted in considerable political and sociological debate as to who should receive what share of the TAC. It is therefore not surprising that allocation issues have generated by far the greatest concerns and debate when a decision is made to move to quota management (see Section 5). Such a debate also introduces associated issues such as the concepts of property rights in fisheries which is discussed in Section 5.3.

The allocation of fisheries resources can be made between any number of interested stakeholders. Some of the more common resource allocation decisions which need to be made are between:

· Different segments of commercial fisheries interests (e.g. net fishermen and hook and line fishermen)

· The commercial sector and recreational fishermen

· Commercial/recreational fishermen and conservation groups

· Commercial/recreational fishermen and alternate users of the sea area (such as coastal development etc.).

The number of possible allocation decisions is only limited by the social complexity of the community and extent of multiple use of the resource.

Apart from the over-riding issue of resource sustainability, perhaps the key issue in addressing allocation issues and one which is often not given sufficient attention by Governments is the impact of allocation decisions on individual operators in a commercial fishery or individuals within other stakeholder groups. Allocation decisions within a quota managed fishery directly affect individual’s income and expenditure more directly than within alternative management arrangements (such as input controlled fisheries) and therefore information on these expected financial impacts is an important background data requirement in any allocation process. For example, in the Gulf St. Vincent shrimp fishery of South Australia, a decision was taken in 1986 to re-allocate the resource to a smaller number of operators in the fishery (Morgan 1994) in return for an additional levy being paid by the remaining operators for this exclusive access. However, this decision was taken in the absence of any financial analysis of the effects of the levy on economic performance of individual operators within the fishery with the result that, even today, the operators have difficulty meeting the levy payments. This has resulted in a run down of capital investment in the fishery, marginal or negative profitability and a dissatisfied industry.

Allocation decisions therefore become a much more important issue when moving to a quota management arrangement. As a result for any such process, it should be ensured that the ability and willingness to address complex allocation issues exist before any irrevocable decision on moving to quota management is taken.

2.5 A multidisciplinary approach to quota management

As can be seen from the experiences outlined above, quota management has often been introduced into fisheries as a tool to address principally concerns of biological over-exploitation, excess harvesting capacity and inappropriate allocation of the resource. It is actually quite surprising that, although techniques such as individual quota management are often resource economists’ policy tool of choice in fisheries management and that the theoretical rationale behind many moves to quota management are based on economic considerations, quotas have rarely been introduced in fisheries to address economic concerns. Rather, quota management is seen as a convenient technique, based on sound economic principles, of addressing biological issues.

This apparent lack of a comprehensive rationale for introducing quotas in many instances has often lead to a less than complete appreciation of their impacts. For example, there are few instances where the financial impact of individual operators in the fishery have been considered and only slightly more where even macro-economic implications have been taken into account. The emphasis in this current contribution is that quota management needs to be seen, and to be implemented, as a ‘management system’ which affects the biological, economic and financial levels of the resource and those who exploit that resource. Only by considering quota management as such a system can the full implications and information needs be fully understood and explored.

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