Has the IEA delivered a post-Brexit fisheries solution?

Sea Change: How markets and property rights could transform the fishing industry.

The upcoming departure of the UK from the EU provides many opportunities to improve current policies. I was looking forward to reading this post Brexit solutions paper from the IEA.

 

Personal View

I’ve been working in fisheries for more than 25 years on and off. There are plenty of fisheries in the world that are both profitable and sustainable. It makes sense to copy and learn from them.

Personally, I believe the best way to secure profitable and sustainable fisheries is through market-based approach.  Subsidies do not work and should be phased out or preferably simply banned. There is no reason for discarding dish. It makes bad economics and the technology exists to make enforcement simple. A decent centralised market space solution is the best one. I have taken these broad approaches even when I worked as the Head of WWF’s European Marine Programme, but these views are my own.

What I was looking forward to

I was expecting to see such a plan from the IEA in this publication. The pamphlet is useful for those with no or very limited knowledge of fisheries policy and economics. But, it falls short of a serious roadmap for delivering a sustainable and profitable UK fishing industry.

I skimmed through most of the chapters. I have read most of the materials that are mentioned. It is a useful summary of current thinking.

 

What I found

The European common fisheries policy is dealt with in chapter 3. It provides a useful summary of the development of the CFP.

I am more struck by the gaps.

First, it is perplexing to see the from the pages of a so-called free market think tank the implicit support for the idea of discrimination on the ownership of assets based on nationality. That, is after all, all that is at stake by not allowing third country fishermen to buy quota and fish in British waters.

It would be ridiculous to require only “native born” people to own land in Britain, or a company, or any other form of property.  The European Union has always upheld the important idea of the free movement and nondiscrimination. The idea that there is a problem that a Dutch vessels owns a large amount of the UK quota is perplexing. Anyway,it was  the UK government who opposed the idea of requiring the quota owner to land their catch locally.

Second, it fails to note that fishermen from Britain have been fishing in third country waters for many hundreds of years as have fishermen, from other countries. These historic rights have been recognised by the 1964 Hague Convention. The common fisheries policy imported many of these historic rights.

Third, what is curious, is that when even considering the reason for TACs being set too high is only that  Ministers asked for higher catches “to avoid their own national quotas from being cut” (page 68). This bookish analysis has overlooked the fishermen themselves were in denial of the state of stocks, and actively and effectively lobbied their ministers and the commission to set the quotas to high.

Fourth, it is also curious there is no substantive consideration of the widespread industrialisation of fisheries from the early 1970s. Technological creep is seriously overlooked by the author. The decline in fish stocks and the corresponding decline in jobs can as well be levelled at vessel owners investment, sometimes with the support of state subsidies, to build massive vessels for industrialised fishing.

It is important to note that there is no genuine issue with large-scale vessels. Sure, it allows fishing at sea for longer, but, it has the advantage of fisheries being safer, and all into important factor in what is still the most dangerous profession that exists. Small-scale fisheries are not by their nature more sustainable, even though many people believe this to be the case. Some of the most sustainable economic fisheries of the mega hundred metre long mackerel fishery is the north-east Atlantic.

Fifth,the author is correct in the lack of political will to deal with overcapacity. The lack of will was felt in most countries. The lack of political will to address control and enforcement was and is a serious issue. However, only Denmark seriously addressed the issue of control and enforcement, and few other countries were serious about it. Even the United Kingdom until recent years was plagued by illegal landings, questionable employment practices of migrants, and what can only be described as opaque ownership of quotas.

Sixth,the  reference to, without serious examination, of the idea of days at sea is startlingly. It  has been used in other regimes, such as the Faroe Islands. It has been an economic and stock disaster.

What is important is what the report does not mention.

Seven, Member states have been free to introduce free-market regimes within the existing common fisheries policy. Denmark and Estonia introduced ITQs. This helped address the issue of overcapacity in the market, and incentivized good stock management.

Eight, under the old common fisheries policy substantial discard ban trials existed. I worked with Denmark to introduce one many years ago. It worked. Before the new common fisheries policy, discard trials happened in other countries including the United Kingdom in England and in Scotland. They were  a success.

Ninth, the report fails to mention that then Commissioner Damanaki, a former Communist revolutionary, introduced in the Commission’s proposal the idea of mandatory  rights based management like ITQs. This was opposed by many countries including the United Kingdom.

Tenth, The report also does not mention the new common fisheries policy was inspired by the practice and lessons of Iceland and in particular Norway. It is interesting to note that this booklet does not consider seriously  Norway. Is this because many years ago then socialist fisheries minister overnight banned subsidies and discards and introduced mandatory ITQs.

 

Conclusion

These are things the UK could do overnight. Indeed,  it could now most of it today. But, Ministers and officials, who are all too often too close to the fishing industry prefer a more cosy pact.

I look forward to a system that ensures a profitable and sustainable fisheries. The manual needs to be written.

How well are fishermen really doing

It is the annual fisheries trade show in Brussels this week. Taxi drivers are trebling their prices, and hotels only doubling their rates. Autumn weather has returned for a visit at the end of April. Is the economic outlook for fishermen so uncertain?

There is an easy way to find out how the catching sector is doing and that is read the annual “The 2015 Annual Economic Report on the EU Fishing Fleet” (STECF) available here. If you don’t want to read the 434 page report, here are some highlights.

2013  and 2014 were  good years for most, and spectacular for some

If you listened to the ongoing debate about the UK membership of the EU, you would think that fisheries in the EU and the UK in particular was a disaster. The economic data is less exciting.

STECF state” The amount of Gross Value Added (GVA) and gross profit (all excl. subsidies) generated by the EU fishing fleet (excl. Bulgaria, Cyprus, Greece and Malta) in 2013 was €3.4 billion and €1.3 billion, respectively. GVA as a proportion of revenue was estimated at 49% and gross profit margin at 20%. With a total net profit of €506 million for the EU fleet in 2013, 7.8% of the revenue was retained as net profit. Sixteen out of nineteen member states (excludes Bulgaria, Cyprus, Greece and Malta) generated net profits in 2013; the remaining three MS (Belgium, Finland and Portugal) generated net losses” (page 24). 2014 projections are positive with ” all Member States analysed generated net profits in 2014, with the exclusion of the Netherlands, Belgium and Poland” (page 24).

This said, as someone mentioned to me  this week, fishermen and farmers are the same, how ever good it is, they will always say it is bad. There is an objective way to see how an industry is performing. It is to look at the RoI – the Return on Investment. In this low interest rate environment, some of the returns from some countries are enticing.

You’ll see from the chart below, that some countries are doing very well. The British fleet in 2013 was making 23% net profits!

Indeed, the large-scale fleet was making in 2014 a projected net profit margin of 32.6% and a RoFTA of 84.9%. These numbers would have put the best hedge fund manager to shame in the hey day. The small-scale fleet was not doing so well, but not too badly, making 6.5% net profits or 10.2 % RoFTA. These are levels many firms would be very happy with, especially in the hight of a grim recession.

 

Screen Shot 2016-04-27 at 11.56.13

See Report, page 55.

The report provides clear summaries of the economic performance of each country’s fisheries. I have listed them below. The report uses RoFTA (Return on Fixed Tangible Assets)  is used as an approximation of ROI

You’ll see that economic performance between large and small-scale fisheries can often vary a lot within a country and between countries. Some fisheries are clearing excellent net profits – some in excess of 30% –  and others making continual losses.

UK

See Report, p.385.

RoFTA  large-scale fleet 84.9%, small-scale fleet 10.2%

Screen Shot 2016-04-27 at 12.13.50

 

Spain

See Report, p. 367.

RoFTA  large-scale fleet 12.6%, small-scale fleet – 65.1%, distant water fleet 59.2%.

Screen Shot 2016-04-27 at 15.11.49

 

Poland

See Report, p.322.

RoFTA  large-scale fleet – 3.5%, small-scale fleet -2.9%

Screen Shot 2016-04-27 at 12.45.58

 

 

Slovenia

Report, p.356.

RoFTA  large-scale fleet 49.6%, small-scale fleet -8.7%

Screen Shot 2016-04-27 at 15.06.16

Romania

Report, p.349.

RoFTA  large-scale fleet 15.7%, small-scale fleet 56.2%

Screen Shot 2016-04-27 at 15.04.33

Portugal

Report, 331.

RoFTA  large-scale fleet 2.3%, small-scale fleet 22.4%, distant water fleet 28.2%

Screen Shot 2016-04-27 at 15.00.24

 

Netherlands

Report, p.311.

RoFTA  large-scale fleet – 0.3%, small-scale fleet – 22.4%

 

Screen Shot 2016-04-27 at 12.49.45

 

Malta

Report, p.303.

RoFTA  large-scale fleet – 3.1%, small-scale fleet 10%

Screen Shot 2016-04-27 at 12.52.58

 

Lithuania

See Report, p.204.

RoFTA  large-scale fleet – 15.9%, small-scale fleet 11.1 %, distant water fleet 314.4%

 

Screen Shot 2016-04-27 at 12.55.33

 

Latvia

Report, p.280.

RoFTA  large-scale fleet 6,4%, small-scale fleet 3.5%

 

Screen Shot 2016-04-27 at 12.58.53

 

Italy

Report, p.270.

RoFTA  large-scale fleet 30%, small-scale fleet 12%, distant water fleet 5.1%.

Screen Shot 2016-04-27 at 14.00.04

 

Ireland

Report, p.257.

RoFTA  large-scale fleet 13.7%, small-scale fleet 50%

Screen Shot 2016-04-27 at 14.03.15

 

Germany

Report, p.239.

RoFTA  large-scale fleet 5.6%, small-scale fleet -46.3%

Screen Shot 2016-04-27 at 14.07.38

 

France

Report, p.229.

RoFTA  large-scale fleet -1.9%, small-scale fleet 3.0%, distant water fleet N/A

Screen Shot 2016-04-27 at 14.09.35

 

Finland

Report, p.214.

RoFTA  large-scale fleet 32.2%, small-scale fleet -21.6%

Screen Shot 2016-04-27 at 14.12.44

 

Estonia

Report, p.204.

RoFTA  large-scale fleet 10.1%, small-scale fleet 18.1%

Screen Shot 2016-04-27 at 14.15.04

 

Denmark

Report, p.194.

RoFTA  large-scale fleet 10.4%, small-scale fleet -13.2%

Screen Shot 2016-04-27 at 14.17.40

 

Cyprus

Report, p.187.

RoFTA  large-scale fleet -6.3%, small-scale fleet -5.8%

Screen Shot 2016-04-27 at 14.39.19

 

Croatia

Report,p.179.

RoFTA  large-scale fleet 12.2%, small-scale fleet -18.6%

Screen Shot 2016-04-27 at 14.43.25

 

 

Bulgaria

Report,p.171.

RoFTA  large-scale fleet -18.6%, small-scale fleet 3.5%

Screen Shot 2016-04-27 at 14.47.41

 

Belgium

Report, p.160.

RoFTA  large and small  scale fleet – 4.05%

Screen Shot 2016-04-27 at 14.52.08

Fish Farming Now Bigger Business Than Wild Caught Fish

Bloomberg dropped the news today.

“For the first time, the world is eating more fish from farms than from the open sea, spurring billions of dollars of takeovers as one of the largest food companies seeks to capitalize on rising demand.”

We are now eating more farmed bred fish than wild caught fish.

 

The Laws of Supply & Demand: You Can’t Avoid Them

There are many reasons for this shift. The basic reason is that the demand for fish out-strips supply. Given that the supply of wild caught fish is not able to fill the gap – and too often is facing declining supply –  companies are stepping in and filling the gap with farmed fish.

Screen Shot 2015-08-19 at 11.19.38

 

 

Innovation’s Winners & Losers

The long-term bets being taken by trading houses like Cargill and Mitsubishi Corp. show the supply and demand for farmed fish is likely set to grow and grow. Industrial cattle, poultry and pig farms are going to be joined by industrial fish farms.

And, some day soon, the fish farm entrepreneurs will work out how to farm cod,blue fin tuna, and other sought after fish. They will  produce them on a large scale. These entrepreneurs will undercut the fishermen, and the fishermen will see their markets slowly evaporate.

 

Europe’s Fisheries Stuck Behind the Iron Curtain

It takes a revolutionay to see the light, reject state socialism, and see that the ownership of property is key for a free and  prosperous society. It takes a particularly brave soul to introduce the idea in fisheries.

Individuals Owning Property Is Bad?

The idea seems preposterous. But, former Commissioner Maria Damanaki, did just that. While the reform of the Common Fisheries Policy, as put forward by the Commission was in the main backed, Member States, the fishing catching industry and most (although not all) NGOs banded together to generate the idea that modern property rights should not be used in fisheries.

By modern, I mean the idea that individuals can own and trade property with limited interference from the State. After the demise of communism in most of the world, the economic ideas of North Korea, that reject the idea that individuals should hold property rights, own farms and housing, have been soundly discarded. In any other area of economic life, people who wanted a return to the economic middle ages would be laughed out, but not in fishing.

 Feudalism Alive

What people do not realise is that fisheries is often one of the last vestiges of  feudalism backed up by state protectionism. I am not talking about the flow of taxpayers money (which we call subsidies) that in any countries props an otherwise bankrupt industry. I am talking about two stranger realities.

First, the ownership of the quota in fisheries is often held by the government. The property right is held not by the individual, as one would with a company, farm or house, but with the State. In Ireland, the government hands the quota out each year at their discretion. In the UK, fishermen learned, after going to court, that it was the government, and not the fishermen, who owned the quota.

Second, all too often the details of who holds the quota is secret.  The UK government and industry fought off a campaign by Greenpeace and others to have the details made public. It took the common sense of the former UK  fishing Minister, Richard Benyon MP, to reveal the information.

Big Profits For Some

Fishing quotas are big business. The right to fish the sea is valuable. Leasing the stock brings returns often in excess of 10% or more. Those are returns that only some of the best hedge fund managers could secure.

Despite this less than clear form of ownership banks continue to loan money to fishermen based on the guarantees drawn from the quota. And, fishermen buy and sell quota in a less than public, but never the less profitable, market for quota.

There Is An Alternative

But, there is an alternative. In California, the US NGO  The Nature Conservatory were allowed to buy  the quota in Morro Bay, California. They were able to buy a lot of it. But what they did with it is remarkable. They leased the quota back to the local fleet. But, they placed conditions on what fishermen did when they went fishing.

The fishermen did not like this. Rich outsiders were coming in and telling them how to fish.  This NGO would only lease quota to boats that used selective fishing gear and  demanded that the vessels use CCTV to ensure that the rules were complied with.

I suspect the fishermen were angry as hell. Rich outsiders had turned up on their patch, bought up what they saw as their quota, and imposed rules upon them they did not want. But, with private property rights protected in the US, they didn’t have government to turn to as the government no longer owned the quota. It was now in the hands not of self-interested venture capitalists, but of philanthropists,  who wanted to bypass the indolence of the regulator, politician and fishing lobbyist, and drag the industry into the 21st-century.

Unsurprisingly, it all worked. The industry prospered, the stock, in an and in all likelihood the value of the quota of style skyrocketed, and the idea of returning to the past would be laughed away.

Why Europe Should Follow

 Philanthropists and venture capitalists should be able to do the same thing in Europe as they can in America. But, governments, all too often beholden to the interests of fishing industry trade associations, will stop this.

Even countries that have introduced ITQs, all too often introduce national ownership rules. Of course, whilst the idea of nationality requirements and residency rules are contrary to EU basic principles, it will not be easy to drag some of  the industry into the  21st Century.

Interestingly, many fishermen realise this to be the best way forward. They want ITQs, they see the benefits, they know it works.  And, it is clear that if governments allowed the progressive investment community to enter into the market, stocks in the North Sea, the Baltic, and other parts of Europe’s seas and oceans, could be bought, and preserved.

Time for Government To Step Out

 The challenge is for government to remove itself from the equation.

The government’s track record on fisheries stock conservation is in most cases a poor one. As anyone who has witnessed the EU’s annual quota setting exercise, ministers  seem more interesting in appeasing their industry by briefing their industry representatives, before, during, and after negotiations, and I’m sure there have been cases when governments signed in fishing industry representatives as part of the government delegation.

It was not surprise that the former Greek Revolutionary Communist, Maria Damanaki,  took the opportunity to work with The Nature Conservancy when she left office. She has seen the future, and she knows it works.