Study cautions against repeating mistakes of B.C.’s speculative fishing quota markets

VANCOUVER, B.C.— A new socio-economic study released by Ecotrust Canada today highlights a long list of troubling trends that has resulted from the implementation of individual transferable quota (ITQ) markets in B.C. fisheries since the early 1990s. The report is coming out at the same time as Ottawa plans to expand ITQ markets in Canada and U.S. President Barrack Obama is considering the widespread adoption of ITQs, also known as “catch shares,” in American fisheries.

The study, titled A Cautionary Tale about ITQ Fisheries, found that B.C.’s highly unregulated market for trading fishing quota is encouraging speculative buying and leasing of quota by “armchair” fishermen and investors. This is driving up business costs for working fishermen, which is hindering their competitiveness relative to American fishermen. Income is also being drained away from skippers and crewmen to pay for expensive lease fees. More troubling are safety statistics and anecdotal reports that suggest the economics of ITQs may be affecting the safety of working fishermen.

“Individual transferable quotas are being heavily promoted as a solution for both conservation and the financial ills plaguing fishing fleets around the world. However, our experience in B.C. is that highly unregulated, speculative ITQ markets can create as many problems as they solve,” says Tasha Sutcliffe, Fisheries Program Manager for Ecotrust Canada.

“Under ITQ markets, working fishermen in B.C. are increasingly becoming ‘tenants’ who pay exorbitant rents to landlords, or ‘sealords,’ who own all the quota. The lucrative leasing has, in turn, driven up the cost of fishing and the price of purchasing quota, making ownership prohibitively expensive for many fishermen,” Sutcliffe adds.

The study also found that setting a scientifically defensible total allowable catch and establishing inclusive and transparent co-management between government and stakeholders are by far the most important factors in maintaining the sustainability of both fish stocks and fishing-dependent communities.

Individual transferable quotas were introduced in B.C.’s fisheries throughout the 1990s to end competitive fisheries, or the “race to fish,” whereby fishermen competed with each other for a share of the catch. Under ITQs, individual fishermen or their vessels are allocated a defined share of the catch or quota. In B.C., few rules limit the ability of fishermen to transfer the ownership of their quota, either through lease or sale agreements.

Currently, eleven fisheries in B.C. are managed under ITQ markets, representing 74 percent of the catch, by weight, of all B.C. fisheries. Pilot ITQ programs have also been introduced in select salmon fisheries. By contrast, only about one percent of global fisheries are managed under ITQs.

Portland-based Ecotrust, the sister organization to Ecotrust Canada, has recently submitted recommendations to a national Catch Share Task Force in the United States appointed by the Obama administration in June. The task force will assist with the implementation of ITQs in U.S. fisheries.

Ecotrust’s recommendations draw on research on ITQs done by both organizations, including the 2004 landmark study, Catch-22: Conservation, Communities and the Privatization of BC Fisheries. Recommendations include establishing a public registry to ensure the full disclosure of quota ownership, setting national standards around social, economic and ecological objectives, and promoting community quota ownership and mechanisms to facilitate and finance new entrants into fisheries. Ecotrust is calling for the establishment of a National Fisheries Innovation Fund to help seed community quota ownership throughout the United States.

“Ecotrust Canada has undertaken this analysis, not to argue for the dismantling of existing ITQ markets in Canada, but rather to improve their design, and to inform policy discussions on the West and East Coasts about new ITQ pilot programs currently under consideration,” says Sutcliffe. “Quota markets need to be regulated and properly designed to prevent monopolies, excessive corporate concentration and other market distortions.”

In the design of quota markets, the study also calls on government to safeguard social goods such as fair crew payments, equitable Aboriginal participation in commercial fisheries and the interests of fishing-dependent rural communities.
 

BACKGROUNDER

With refreshing facts and sobering analysis, Ecotrust Canada’s Cautionary Tale describes eight lessons to be learned from BC’s experience with ITQ fisheries since the 1990s.

  • Lesson 1: ITQs promote quota leasing, not ownership. In 1993, only 19 percent of the halibut quota was leased compared to 100 percent in 2008. Lucrative leasing has caused quota purchase prices to soar, making ownership prohibitively expensive.
  • Lesson 2: ITQs give fishermen a false sense of security. By allocating individual fishermen a defined share of the catch, ITQs can reduce a bit of uncertainty, but they by no means eliminate it and, in some cases, can exacerbate it. For example, quota lease fees negotiated pre-season can expose fishermen to increased financial risk if fish prices drop, fuel prices rise or foreign currency exchange rates change.
  • Lesson 3: ITQs facilitate resource privatization. Fishing licences and quotas are not property de jure, that is “in law.” Rather they are property de facto, that is “in practice.” ITQs create new forms of de facto property that can be divided, capitalized and transferred with even greater ease.
  • Lesson 4: ITQs increase capitalization in fisheries. While ITQ systems can rationalize fleets, reducing capitalization in vessels and equipment, they can also lead to speculative buying and leasing which increases the capitalization in quotas themselves. Today, fishing quotas and licences, or intangible assets, are worth $1.8 billion or five times the value of all the vessels and equipment in BC’s commercial fisheries. That means total capitalization in tangible and intangible assets has actually increased.
  • Lesson 5: Quota leasing hurts the financial performance of working fishermen. Quota lease fees are as high as 75 percent of catch landed value in many BC fisheries, draining revenues from working fishermen. In BC’s trawl fishery, as the amount of quota leased rises to 100 percent on a vessel crew shares decline by about 50 percent.
  • Lesson 6: ITQs don’t enhance science and monitoring. While ITQs fisheries usually require stricter monitoring because of high-grading problems, there is nothing about the nature of ITQ fisheries that inherently improves monitoring or scientific data collection.
  • Lesson 7: ITQs have safety problems of their own. The high cost of buying and leasing ITQs bleeds income away from working fishermen, causing boats to go out with inexperienced or insufficient crewmen, which can lead to accidents. Anecdotal reports and safety statistics suggest that the groundfish trawl fishery has become less safe since ITQs were introduced in 1997.
  • Lesson 8: Sound science and co-management underpin fisheries sustainability. ITQs don’t guarantee sound science and good governance. They represent only one alternative, among many input and output controls, to responsibly manage fisheries.

 To view or download the full study, visit www.ecotrust.ca/fisheries/cautionarytale

For more information, contact:

Tasha Sutcliffe, Fisheries Program Manager
tel: (604) 682-4141 ext. 233 or tasha@ecotrust.ca

Eric Enno Tamm, Communications Manager
tel: (604) 682-4141 ext. 235 or cell: (604) 219-1472 or eric@ecotrust.ca


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Great article.

Excellent and very well written.

Response to comment from Johanna Thomas of Environmental Defense

Dear Johanna,

Ecotrust Canada’s motivation for publishing a “Cautionary Tale about ITQ Fisheries” stems from the fact that some industry and environmental groups — including EDF — exaggerate the importance of catch shares in sustainable fisheries and have ignored or downplayed their negative side. Your blog posting makes our report sound like a glowing reference for ITQs and minimizes our critique of some fundamental problems as experienced in British Columbia, Canada.

We are also not in agreement that catch shares alone will conserve fish stocks: other factors, like restricting destructive gear, ensuring proper enforcement and stock assessment, are perhaps even more important. In fact, we have seen fish stock declines in catch share fisheries in BC, including abalone, halibut and hake.

A proper and more balanced reading of our report would suggest that, as implemented in BC, catch shares have created huge market distortions and have missed the mark in achieving a number of objectives. Specifically, EDF promotes catch shares because:

1. Catch shares “give fishermen a financial stake… in fisheries.”

In BC, those initially gifted catch shares have become the owners of the resource, but many have decided to lease their quota instead of fishing it themselves. In the halibut fishery, 100% of the quota is leased. Lease fees often consume 70 to 80 percent of the landed value of the catch. The lucrative leasing has pushed up the price of quota and now new entrants or fishermen with little quota are unable to purchase it and are forced to continue leasing. Ironically, in BC, catch shares have had the opposite effect of encouraging ownership. In the future, fewer working fishermen will have a financial stake in fisheries; that’s especially true for new entrants who now lease other people’s expensive quotas.

2. Catch shares “improve fishing safety.”

The high cost of leasing quota bleeds income away from working fishermen, both captains and crews, forcing vessels to go to sea with inexperienced or insufficient crew. There is considerable anecdotal evidence that vessels in the trawl fishery, which became a catch share fishery in 1997, are fishing with fewer crew as a result. Safety statistics, particularly the number of fatalities on trawlers, suggest the groundfish trawl fishery has become less safe after the introduction of catch shares. Longline fishermen are also airing similar complaints about crew shares and the lack of money to properly maintain vessels.

3. Catch shares “increase profits.”

Profits for whom? Many fishermen in BC are complaining that despite high prices for fresh fish few of them are profiting from BC’s sustainable fisheries. Leasing fees for catch shares take up to 70 to 80 percent of the landed value, leaving very little for working fishermen. In 2008, fishermen formed the BC Longline Fishermen Association (http://www.bclonglinefishermen.com) to reform the catch share fishery because of acute financial problems.

“As we know,” writes the group’s leader Art Davidson, “the B.C. Hook and line Groundfish Fishermen are in a desperate state and if nothing is done soon the fleet will be operating under unsafe conditions and experienced crew will be non existent. It is time to take action to make the industry viable to ensure upkeep of the vessels and to pay our crew a fair wage to reflect the demands of the work and the sacrifices they make.”

What can be done? Both Ecotrust Canada and Ecotrust have been working on solutions to these many problems. The U.S. Fisheries Management Councils should support community structures such as Community Trusts (e.g. the Cape Cod Fisheries Trust), Community and Regional Fishing Associations as permitted by the Magnuson-Stevens Fisheries law, and other examples from British Columbia, such as The Pacific Coast Fishermen's Conservation Company and Groundfish Development Authority. These structures can address many of the problems elucidated in our study, including high debt loads for new entrants, high lease rates, and so on.
I encourage all those with an interest in American fisheries and fishing-dependent communities to read Ecotrust Canada’s report carefully so that you don’t repeat the same mistakes with catch shares that have left many BC fishermen in a “desperate state.”

Regards,

Eric Enno Tamm
eric@ecotrust.ca
Communications Manager
Ecotrust Canada

Response to the study, A Cautionary Tale About ITQs in B.C.

In the paper, Ecotrust affirms the conservation benefits of ITQs and highlights that catch shares have led to increases in the value of fisheries. Significant societal benefits are associated with these changes, including providing fishermen and crew with more stable jobs; providing opportunities for creative business innovations; more highly valued seafood; and increased investment in modernizing fishing boats and gear. However, in the paper Ecotrust focuses on the economic impacts on a specific group of stakeholders in fisheries: primarily fishing crews. The paper's central complaint is that the practice of leasing quota share disadvantages British Columbia fishing crews, compared to share owners or other stakeholders.

As catch shares become more common, a close look at particular aspects of their design can help create a healthy dialogue about how best to fine-tune the programs. The design of any fishing regulation should be as fair as possible with regard to participation by all of society in the economic upside of well-managed fisheries. Most unfair of all would be to continue managing our fisheries on an unsustainable course.