2011 Fully Documented Fishery Trial – Economic Evaluation

2011 Fully Documented Fishery Trial – Economic Evaluation

Executive Summary

This report builds on a similar exercise conducted for the 2010 trials and is broken down into two succinct sections:

1. An analysis of the impact of the 2011 Fully Documented Fishery Trial ( FDF) on the activity and financial performance of participating vessels, and
2. Analysis of the results of surveys to the fishing sector enquiring about experiences and perceptions of the FDF trial

Key findings are as follows:

• Participants in the 2011 FDF trial increased their total volume of landings while non-participants experienced a decline. Combined with increased prices, FDF vessels achieved a 30 per cent increase in the average value of landings per vessel.

• Landings of cod almost doubled in value for the FDF trial vessels driven by a large increase in the volume of cod landed and increased prices.

• The value of landings per day at sea achieved by vessels in the FDF trial was £7,160 which represents a premium of £490 per day at sea at least in part through participation in the trial.

• The operating profits for each vessel in the FDF trial was estimated on average to be £150,278. This suggests they earned a premium of up to £13,593 through participation in the trial although other factors may also have contributed. Uncertainties in the analysis mean that this figure should be treated as indicative rather than a precise measure of the benefits.

• The surveys found a diversity of views, with participants generally positive about the trial and non-participants decisively negative.

• Participants valued extra quota and exemption from effort restrictions in equal measure and broadly agreed that the trial had contributed positively towards profitability.

• Concerns were raised on all sides about the divisive nature of the trial and the upward pressure that it had placed on cod quota lease prices, although on the latter point other evidence suggests that the trial was not the only factor pushing leasing prices higher.

Analysis of Financial Performance

Introduction

Marine Scotland has evaluated the impact of the 2011 Fully Documented Fishery Trial ( FDF) on the activity and performance of participating vessels. Official landings data is used to estimate how participation in the trial may have affected key indicators such as landings, effort and profits compared to a control group of eligible non-participants.

Approach

This analysis compares the performance of the 23 FDF trial participating vessels with a representative control group that consists of 89 other vessels which were eligible for the FDF trial but did not participate. The performance of these vessels were compared between the FDF trial period (01 Feb 2011 – 31 Jan 2012) and a corresponding period prior to the FDF trial (01 Feb 2009 – 31 Jan 2010) ^[1] .The change in performance of the FDF trial vessels between these two periods is then compared with the change in performance of the control group vessels between the same periods.

The purpose of the analysis is to try to isolate the effects of the FDF trial. The assumption underlying the approach taken is that, on average, the vessels in the trial group are more or less equivalent to the vessels in the control group, that they have similar capabilities and face similar costs. To the extent that this is true, then it is possible to attribute the difference in performance between the two groups to the FDF trial. If there are other systematic differences between the two groups which could also affect performance, for example if one of the groups invested significantly more in cost reducing technologies during the trial period than the other group, then this will reduce the robustness of the results leading to either over or under estimates of the trial’s impact.

The landings volume, price and value, and days at sea data used in this analysis were extracted from the official landings data, while operating profits was derived using this landings data and additional data on operational costs taken from the 2009 Economic Survey of the UK Fishing Fleet (Seafish, 2011) ^[2] . Calculations were performed for each fleet segment and aggregated for participating and non-participating vessels.

Results

Landings and Revenue

The FDF trial vessels experienced, on average, a six percent increase in the volume of landings in 2011 compared to 2009, going from 879 tonnes to 932 tonnes. In contrast, the non-participating vessels saw their landing volumes slump by 14 per cent to an average of 371 tonnes per vessel. Overall, the already significant gap in volumes landed between the two groups widened by 25 per cent ^[3] . It is likely that the FDF trial, which provides a cod quota premium of 30 per cent and exemption from effort restrictions, is a key factor explaining this difference.

Both groups of vessels enjoyed price increases, averaged over all species, of nearly 25 per cent and as a result even the non-participating vessels experienced an increase in revenues in spite of declining volumes. The non-participating vessels experienced a seven percent increase in the average value of landings between the two periods. The FDF trial vessels on the other hand, combining higher volumes and higher prices, saw revenues jump by 30 per cent. These results echo the findings of the 2010 FDF evaluation ^[4] .

Figure 1: Change in the average volume of total landings per vessel

Figure 2: Change in the average value of total landings per vessel

Landings of Cod

Vessels participating in the FDF trial increased the volume of cod landed by an average of 69 per cent per vessel between 2009 and 2011, going from 110 tonnes to 186 tonnes. In contrast, the non-participating vessels saw little change in the volume of cod landed, with an average of 38 tonnes landed per vessel in 2011. Overall, the difference in the volumes of cod landed between the two vessel groups widened by 109 per cent following implementation of the FDF trial. This result is not unexpected. FDF participants had extra allocation of cod quota and, in some cases, had an incentive to acquire more cod quota to enable them to take advantage of the exemption from Days-at-Sea restrictions to fish out their quota allocations for other species.

The size composition of cod landings changed dramatically between the two groups over the period of analysis (figure 5, below). Whereas in 2009 the two groups had landed roughly the same proportion of small cod, during the 2011 trial the FDF group saw a 94 per cent increase in the proportion of small cod compared with a 40 per cent increase observed for non-participating vessels. Given that the FDF vessels have a strong incentive to avoid small cod, the extent of this differential is all the more striking and suggests that the difference between the two groups is due to the absence of high grading by FDF participants.

The size composition of cod landings fed through into average prices with FDF participants, with their greater proportion of less valuable small cod, enjoying a smaller increase in the average cod price (18 per cent) than non-participating vessels (26 per cent).

Figure 4. Change in the average volume of cod landings per vessel

Figure 5. Change in the proportion of small cod landed per vessel

Days at Sea and Value of Landings per Day at Sea

The FDF trial vessels spent on average 207 days at sea in 2011, a five percent decrease from the 218 days at sea in 2009. The non-participating vessels, which unlike the FDF group were subject to effort restrictions, saw a larger 17 per cent decrease in their average days at sea from 195 days to 160 days.

Change in value of landings for a given amount of effort provides an indicator of efficiency. The FDF trial vessels achieved a 37 per cent increase in the value of landings per day compared to 28 per cent for non-participating vessels This suggests in effect that participating vessels earned a premium of £490 per day at sea at least partly through participation in the FDF trial, for example as a result of keeping and landing all cod that is caught that would have previously been discarded (although, as discussed above, other factors may also have contributed to this performance differential). The evaluation of the 2010 trial estimated the per-day FDF premium in 2010 as £598.

Figure 7. Change in the average number of days at sea per vessel

Figure 8. Change in the average value per day at sea

Operating Profits

Profits provide a more rounded view of vessel performance than simple revenue and landings measures which do not take account of costs. The average operating profit ^[5] per FDF trial vessel was an estimated £115,835 in 2009, which compares to an estimate of £83,445 for non-participating vessels. Both vessel groups experienced an increase in profits in 2011 compared to 2009. The participating vessels saw an estimated 30 per cent increase to £150,278, while non-participating vessel saw a smaller 18 per cent increase in profits to £98,749 per vessel.

Overall, the gap in profits between the two vessel groups widened between 2009 and 2011 by an estimated 59 per cent. Had the FDF trial vessels experienced the same 18 per cent increase in profits as the control vessels, they would have achieved an average profit of £136,685 during the FDF trial period. This suggests that they earned a premium of £13,593 at least in part through participation in the trial although uncertainties in the analysis mean that this figure should be treated as indicative rather than a precise measure of the benefits.

In particular, the profit results are based on 2009 estimates of costs (except fuel costs which are based on 2011 fuel prices), averaged at the level of individual fishing segments ^[6] . If the average costs have changed significantly between 2009 and 2011 or if vessels in either of the groups analysed ( FDF and non- FDF) are very different from the segment averages then this will affect the reliability of the profit calculations. A particular consideration is the impact of quota lease prices. Anecdotal evidence suggests that quota lease prices have risen since 2009, especially for cod. If FDF participants are above-average leasers of cod quota (and the evidence on this is not completely clear cut – see note on the Skippers’ survey elsewhere in this report) then the method used here may underestimate that element of their costs. Similarly, if non-participants are spending less than average on leasing in cod quota (or increasing revenue by leasing out quota) then their profits may be underestimated and the overall impact of the FDF trial on profit differentials would be overstated.

Figure 9. Change in the average profits per vessel

Conclusion

Although the precise level of benefits is difficult to ascertain, the results of the financial analysis suggest that the participants on the 2011 FDF trial did enjoy a financial advantage as a result of taking part in the trial. The analysis shows other sharp differentials between the FDF and non- FDF groups, for example in the change in quantity landed and in the size composition of cod landings, which indicate that the trial has had wide-ranging impacts on performance and behaviour.

Analysis of Stakeholder Surveys

To augment the financial analysis, Marine Scotland commissioned Seafish to conduct three short surveys among various parts of the fishing sector to ask about experiences and perceptions of the FDF trial. Telephone interviews were conducted with:

1. Participants on the 2011 FDF trial: 19 skipper/owner interviews (representing 20 vessels) out of 25 participants

2. Non-participating skippers (seven interviews)

3. Producer Organisations and quota agents ( POs and vessel agents survey – five interviews)

Results of these can be found in Annex A. The surveys build on similar interviews conducted early on during the 2011 trial, with the exception of the PO and agents survey which was conducted for the first time this year. The small numbers involved in the non-participant and POs and agents surveys means that these results cannot be assumed representative of the respective populations and should be treated as illustrative only.

General attitudes

Overall, the great majority of participating skippers who responded to the survey expressed positive views of the FDF trial with some commenting, for example, that the scheme had benefited both their business and fish stocks. Concerns were raised by some participants, however, about the divisive nature of the trial. In contrast to the largely positive views of participating skippers, the overwhelming views of non-participants were negative with respondents labelling the trial divisive and unfair. Taken together, these findings echo responses in last year’s survey but positions were even more polarised this time around.

Respondents expressed some disappointment that scientific benefits of the trial were not being realised as quickly as they had hoped and this was highlighted as an area for improvement.

Figure 10: Attitudes to the 2011 FDF Trial – Participants and non-participants

Benefits and impact on performance

Around half of participating skippers felt that being on the trial had resulted in improved profitability and a similar number answered that it had not had a significant impact on their financial performance. Respondents were also split half and half when asked whether the main benefit to them came from either the extra cod quota available or from the exemption from Days-at-Sea restrictions. This is in contrast to last year’s survey when a clear majority had answered that additional cod was the key benefit, possibly reflecting changes to the Days-at-Sea restrictions.

Figure 11: How did the FDF trial affect financial performance – Participants only

Extending the trial

When asked whether the trial ought to be extended to cover other species, scheme participants who responded were of mixed views. Most were ambivalent, with skippers noting practical difficulties and the need for extra quota to be available for an extension to be workable. Only around a quarter of respondents thought that the trial should definitely be extended to other species compared to last year when more than half had said so.

Changes in fishing patterns

The purpose of the FDF trial is to incentivise cod avoidance measures and almost all participant skippers responding said that they had taken steps to do things differently. Of the 19 respondents, 16 said that they had changed where they fished in order to avoid cod-abundant areas. 15 said that they had changed when they fished with respondents having changed both when in the year they focused their activity and at what times of the day they fished. Just over half, compared to three quarters last year, said that they had changed the type of gear they used or how they used it. This lower number may reflect the fact that some skippers had already changed to more selective gears prior to joining the trial. Of those who had altered their gear, a number noted their use of an Orkney Trawl.

Impact on catch

When asked about the impact of the trial on catch quantity, most participants felt that it had not made a big difference although a number commented that they were now catching more bigger fish and fewer small fish as a result of selectivity measures. When asked about discards of non-cod species, around two thirds of skippers who responded said that there had been no effect and a third said that discards had decreased.

Impact on key costs: fuel and quota lease prices

Just over half of participating skippers who were surveyed felt that their total spend on fuel had changed as a result of being on the trial. Some had experienced greater fuel use as a result of changes to their fishing patterns whereas others had used less, for example because they were keeping more fish and hence needed to spend less time at sea.

Anecdotal evidence collected over the period of the trial had suggested that the impact of the trial on cod quota leasing costs was a major concern for skippers and so the surveys were used to explore this issue in more detail.

Of the participant respondents most (14 of 19) believed that the trial did place upward pressure on prices although some noted that other factors were also at play. Among non-participants and POs and vessel agents the results were unequivocal with all respondents saying that the trial had contributed to increases in quota lease prices.

Perceptions then are very clear- the FDF trial is seen as a major factor in driving quota lease prices upwards during 2011. But other evidence from the participants survey is more ambiguous. Among skippers on the scheme, survey respondents were split between those who had needed to lease in more quota because they were on the trial and those who had actually leased less as a result of participation. In the former category, increasing leasing, there were only seven out of 19 (around 35 per cent) and in the latter group, reducing leasing, five out of 19 (around 25 per cent). Taken together this suggests that overall the direct effect on demand for quota is likely to have been positive but possibly not as substantial as some people have perceived ^[7] . Indirect effects, as a result of expectations around demand, may also have played a role and are discussed below.

Respondents to all three surveys felt that quota availability declined through the first half of the year becoming particularly tight during the summer and then increasing in availability at the very end of the period. This suggests that some fishing firms may have built up their quota holdings on a precautionary basis, fearing running out later in the year, and then tried to offload excess holding toward the year end as a result of which prices fell significantly. It is plausible that, in this way, expectations about the impact of the trial on lease prices became self-fulfilling as people sought to pre-empt anticipated shortages by amassing quota, either for their own use or in speculation of future price rises. The result potentially was the creation of a short-lived price bubble that was only partly related to real underlying changes in demand arising from the FDF trial.

All skippers surveyed were asked the highest and lowest prices that they had paid during the year to lease cod quota. The results are shown in the table below and illustrate, as expected, that trial participants were prepared to pay higher prices per tonne of cod quota than non-participants.

Price of leasing in cod quota: Participants and non-participants

		Average	Range
Participants	Highest price paid	£1,790	£1,300 - £2,200
	Lowest price paid	£920	£500 - £1,350
Non-participants	Highest price paid	£1,440	£1,000 – £2,000
	Lowest price paid	£970	£700 - £1,400