CONSULTATION ON THE ALLOCATION OF SCOTTISH FISH QUOTAS

Chapter 4: Improvements to the status quo.

4.1 This chapter describes changes that could be made to the existing system that have potential to pursue the Government's objectives more effectively.

Background: The 2008 consultation

4.2 As is noted in chapter 2, the Scottish Government published in 2008 a consultation paper that proposed a number of changes to quota management arrangements. These changes were designed to create incentives that it was hoped would have made quota more accessible to the active industry. They were proposed, however, within the overall context of an approach that would have seen the FQA system maintained as the principal method by which the quotas available to Scotland would be allocated.

4.3 The Government continues to view positively the possibility that its objectives could be pursued effectively while also maintaining present FQA holdings as the main basis on which Scottish quotas are allocated. In this chapter, therefore, we consider changes that could be made to improve the present system that the Government consider can pursue its objectives more effectively. Some of the proposals here were also included in the 2008 document or are based upon them, and some are new.

The establishment of 'stewardship' rights

4.4 In 2008 the Government's consultation proposed to establish "stewardship rights" for holders of FQA units on Scottish licences.

4.5 Stewardship rights would mean that FQA holders could in general expect access to a defined portion of the fish quotas available to Scotland, subject to any management measures and modifications decided by the Scottish Government. The Scottish Government would in particular reserve the right to vary the amount of quota for each stock that it would allocate to the "Scottish sector" ( i.e. in relation to Scottish over 10 metre licensees in the membership of a PO), but would also undertake that any such variations would not impact significantly on the amount of quota available to those holding stewardship rights. The purpose of the proposal therefore was to offer holders of FQA units on Scottish licences a greater degree of certainty over access to quota than is the case now, but also to maintain the ability of fisheries managers to balance social and economic objectives.

4.6 Stewardship rights would not be granted in perpetuity, but would be subject to a rolling notice period. The purpose of the notice period would be to underline that Government continues to reserve the right to recall allocations if it considers that the quota system is not working as intended to provide social and economic benefits to Scottish fishing communities. Any such recall would be subject to consultation, and it would remain possible for a recall to be rescinded were issues of concern to Government to be resolved successfully. The overall effect would mean that each year, if the Scottish Government had not given notice of its intention to recall some or all quota allocations, the holder of a stewardship right could rely upon receiving broadly the same proportion of Scottish quota for a defined number of years into the future. A notice period of this kind operates in other countries, for example in Denmark.

4.7 In 2008 the Government proposed that stewardship rights should be granted subject to a rolling notice period of 5 years. In the February 2009 document that explained the interim outcome of the consultation the proposal was adjusted such that the notice period was extended to 7 years. This adjustment took account of concerns expressed in responses to the consultation that the 5 year period was too short to cover fishing business plans and borrowing profiles. We continue to believe that this longer period would be suitable were stewardship rights to be established.

4.8 The 2008 document also stated that there could be circumstances where external shocks, such as a unexpected and substantial change in the basis of EU allocations, or other unforeseeable events, made it necessary to reduce or remove altogether the period of notice. These observations remain valid now and in the future.

Quota holders: a new requirement for a positive link to the active fishing industry

4.9 In 2008 the Government stated that it wished to see fishing rights retained in Scottish fishing communities for the benefit of current and future generations, encouraging quota to be held by those with the means to fish it, and to discourage its emergence as a speculative asset. That remains the Government's policy now: we wish to ensure that quota allocations on Scottish licences are held only by individuals and organisations that have a contemporary and positive link to fishing, whether directly or as part of a wider structure of support or investment.

4.10 In 2008, the Government also expressed concern about the lack of transparency in FQA holdings, particular with respect to identifying the beneficial interests connected to holdings on PO dummy licences. In the intervening period, some progress has been made on this issue. In December 2013, the UK Fisheries Administrations released the first stage of a publicly accessible FQA register, which you can access here:

https://www.fqaregister.service.gov.uk/

4.11 This register shows details of the FQA units assigned to UK fishing vessel licences, licence entitlements and PO dummy licences, as at 1 January 2013. In relation to holdings on PO dummy licences, the register categorises and identifies persons and organisations that hold units. The categories include fishing vessel licensees of course, but also show units held by the PO for the common benefit of their members, by fishing vessel agents and owners and also those held by corporate bodies and private persons. The second stage of the register will be implemented in 2014, showing changes in holdings and will also have functionality added such that the process of transferring FQA units (insofar as such is permitted by the UK Administrations' rules) may be completed on the internet register, rather than through the paper process that exists now.

4.12 The Government considers the FQA register a welcome improvement in the transparency of quota holdings. We remain concerned, however, that there continues to be inadequate control over the types of persons and entities that are permitted to hold FQA units on Scottish licences. If the present FQA system is to be retained, one important improvement that could be made would be to introduce a more prescriptive test to decide whether a person might be permitted to hold FQA units on a Scottish licence, so as to be sure that units are held only by those with a contemporary and positive link to fishing. To this end, one might require that holders of units on Scottish licences fall into one of the below noted categories:

• Fishing vessel licensees;
• Fish Producer Organisations;
• A person or entity that owns (whether in whole or part) one or more Scottish fishing vessels;
• A person employed on a fishing vessel;
• A local authority constituted under section 2 of the Local Government (Scotland) Act 1994, or a joint board of such authorities; or,
• A charity or other entity whose objects, in the opinion of the Scottish Government, involve the promotion of the fishing industry in general and / or of localities from which fishing is conducted.

4.13 Were the Government to proceed with such an approach, we would welcome proposals for other categories of person or organisation that might be added to this list. It would also be necessary to consider the details of new requirements, including to: ensure that links were meaningful and could be verified, as well as contemporary and positive; have confidence that a person or organisation could properly be included in one of the categories; and, minimise any new administrative burden on POs and others.

4.14 It would be necessary to consider what steps to take in relation to present holders of FQA units that did not fall into one of the categories described. It would be possible for the quota arising from such holdings to be allocated by the Scottish Government in the annual allocation exercise only after the holder had informed the Government which fishing vessel(s) were to have access to the quota arising from 'their' units. Such an approach might continue for a number of years, after which the units might be recalled. Alternatively, the Government might require relevant holders to transfer their units by a specified point, with any units not so transferred after that point being recalled by the Government.

Improving fishermen's access to FQA units

4.15 Alongside the issue of the types of persons that might be permitted to hold FQA units on Scottish licences is the more practical and perhaps more pressing matter of the ability of active fishermen to secure holdings of FQA units, from which they might in due course establish new businesses, either on their own or with partners.

4.16 The Government has become aware, through discussions with skippers and industry representatives, that it has in recent years become very difficult, perhaps at times impossible, for younger fishermen and those that have been active for some time, to gain access to the FQA units which form part of the package needed for a fishing business to be established, or for an established business to grow.

4.17 The view has been expressed that this position has developed because, when FQA units become available, only a relatively small number of companies and POs are able to offer the prices being sought. Recent intelligence, based on discussions with industry representatives, suggests that the average bundle of whitefish FQA units becoming available for transfer might be made up of around 5000-6000 units, and that bundles of this size might 'sell' for amounts approaching £1 million (even though this number of units are unlikely themselves to produce tonnage sufficient to support fishing for more than a portion of the year).

4.18 If the reality of the general position is close to that described in these discussions, then the difficulties faced by fishermen aspiring to develop their own business are obvious. Indeed, a number of responses to the Cabinet Secretary's letter of 21 February described exasperation about this very issue. Comments from two fishermen, reproduced below, exemplify these views:

"No one can compete with the money these big players have. When a set of FQA units come up for sale they can bid over the odds prices"

"Why is that this generation [referring to those allocated FQA units in 1999] is to be given this opportunity and the newer current and future generations have little or no chance to grow successfully"

"It is virtually impossible for a young person to enter the industry unsupported by a family history and build themselves a sustainable business that extends beyond a very small under 10 metre operation"

4.19 The encouragement of new entrants into the fishing industry (in the sense both of the supply of labour and also the establishment of new enterprises) were issues considered in the 2008 consultation. Since then the Scottish Government has worked in partnership with the fishing industry and others to promote employment in the fishing industry, focussing on encouraging new fishermen to join the industry at the entry level: i.e. as crewmen. In tandem with the Scottish Fishermen's Federation, the Scottish Government has established a Marine Modern Apprenticeship. Alongside these actions, the Seafish Industry Authority and the Fishing Industry Training Association continue to provide introductory training for new fishermen.

4.20 There are also initiatives promoted locally that seek to encourage new businesses to be established. These involve local authorities, Producer Organisations, Fishermen's Associations, banks and others. One such initiative is in place in the Outer Hebrides and similar efforts are under way in Shetland, under the aegis of the Fish Producer Organisation. Limited funding for new fishermen has also been available under the European Fisheries Fund ( EFF).

4.21 A question for this consultation therefore is whether complementary steps should be taken nationally to provide incentives for new fishing enterprises to be established from within the active fishing industry. In the 2008 consultation, the Scottish Government asked for views in particular about the possible establishment of a national quota reserve that might provide access to quota for new fishermen. At the time, the Government asked for views about:

• How and from where would quota be acquired for a national reserve;
• How such a scheme might be organised; and,
• Who might be able to access the fund, and on what terms?

4.22 It is possible to conceive of a number of answers to these questions, and different ways in which a new entrants scheme might operate.

• The Concordat provides the Scottish Government with power to retain centrally amounts of quota, and amounts could be retained to establish quota for a new entrants fund. An alternative approach would be to recall a small percentage of units on each occasion that FQA units were transferred from Scottish licences, and thus over time build up a reserve of units to provide quota for a new entrants fund.
• A scheme could be organised nationally. The Government might invite bids, which conceivably could require endorsement from a PO willing to 'match-fund' Government allocations, at least to some extent, and for an initial number of years. Alternatively, the Government might invite POs to operate a new entrants scheme.
• Perhaps the most challenging issue of design would be to consider which applicants would be selected and how such start up quota should be allocated. This could well require a judgement to be made between a number of qualifying applicants. New entrants selected could be offered quota incentives over a limited time, and with decreasing amounts of quota provided as businesses became established and developed their ability to source fishing opportunities. Under such an approach, while there would be initial assistance for start-up, the onus would be on new businesses to be successful, and the resources of the quota reserve could be re-cycled and re-used on a rolling basis. An approach on these lines is adopted in the Danish 'Fish Fund', which offers quota to new skippers that have demonstrated a financial commitment to the industry, such as by purchasing a new vessel.

4.23 Responses to the 2008 consultation recognised that attracting new entrants was an area that required attention. Although there was some support for it, in 2008 the proposal for a reserve was a contentious one. Many responses emphasised that the level of quota was already very restricted, and that retention of some to fund a reserve could not be afforded.

4.24 A new entrants fund, on the general lines of that proposed in 2008, remains an option for Government action. Another possibility would be to adapt the rules that control transfers of FQA units so as to make it easier for new entrants to acquire FQA units.

4.25 FQA units must be associated with a fishing licence. Permanent transfers of individual units between licences are permitted only in certain circumstances. The Scottish Government has always been cautious about relaxing the rules around permanent transfer of individual units from active licences ( i.e. licences licensing a vessel). We have been wary that an uncontrolled progression towards free trade in FQA units could have damaging and unintended consequences. We did propose in the 2008 document that transfers of units from active licences be permitted, but only when the new Scottish system of quota management and licensing then proposed was fully established. We continue to be open to this possibility, but also remain very focussed on ensuring that any possible development of the FQA system is used positively to support our policy objectives, and does not defeat them.

4.26 To this end, one change to the FQA system that we would be willing to consider now would be to permit transfers of individual units from active licences, but in a way designed to ensure that smaller 'bundles' of units became available for transfer, with the expectation that such bundles might be more affordable for individual fishermen or groups of fishermen interested in establishing their own businesses. Controls could be placed on transfers. For example, a transfer involving 33% or more of the units on an active licence might be permitted only insofar as it had been preceded by not fewer than a certain number of transfers (perhaps 3) where the percentage of units transferred had been less than 10% (but more than a minimum percentage) of those on the licence, and where there had been three separate recipients of the units transferred out. There would of course be many details to be considered and worked through in an approach on these lines, or in similar approaches.

4.27 We welcome consideration of this proposal and invite other ideas and proposals for other adaptations that might have potential to encourage positive evolution from within the fishing industry, in ways that keep more power over fish quotas in the hands of active fishermen and their communities.

Attempts to control leasing costs directly

4.28 As is discussed above, the cost of leasing quota was one of the issues raised most often by skippers in the course of the 2013 Quayside Conversations.

4.29 There is of course a need under present arrangements for quota to move around the system in order to reach those that need to fish it: full utilisation depends centrally upon the efficient circulation of quotas. With many POs and quota holders involved, this movement has and is likely to continue to be most commonly and efficiently achieved through trading.

4.30 But while the Government accepts the need for quota movements, we also consider that there is an onus on Government to examine whether there would be public benefit in managing quota movements in ways which regulate the free market to meet social objectives. This is because we consider that fish quotas are a public asset belonging to no one individual or set of individuals.

4.31 In developing proposals to improve the status quo system, therefore, we have considered whether it might be possible to address the problems raised with us by attempting to control leasing costs directly. This would in theory involve some method by which Government could successfully take control over or set limits on the commercial interactions that give rise to the swapping or leasing of quotas.

4.32 After consideration, however, we have not been able to devise any proposal for a method by which the Government could lawfully and effectively secure direct control over lease prices for quota. We are also alive to the possible risk that Government attempts at control could inhibit the flow of quota in a way that could cause significant disruption to business activity and could prevent businesses from responding promptly to developing market conditions.

4.33 It appears to the Government that the only way to secure direct control over leasing prices (or, indeed, to eliminate quota leasing altogether) would be for the Government to take a considerably more prominent role in the day to day management and utilisation of fish quotas. Options for how the Government or public bodies could take on a role of this kind are discussed in chapter 5.

4.34 Therefore, instead of seeking control over lease prices directly, the Government's proposals in this chapter encourage quotas to be held by those who can fish them and to reduce the costs of quotas by making it easier for active fishermen to acquire FQA units, thereby potentially reducing their reliance on leasing.

4.35 The Government does however remain interested to receive proposals for action that could be taken by the Government, properly, or by the industry, which might have potential to reduce leasing costs. We would also be very keen to hear from the fishing industry and other representatives about steps that could potentially be taken by the industry itself to improve the efficiency and transparency of the quota leasing market. Would it be of help, for example, for more leasing of quota to take place publicly, through a number of competing and fully transparent internet platforms? How might such developments be encouraged? Could quota management rules be adapted to make the emergence of such transparent trading platforms more likely? We welcome ideas and debate on this issue.

4.36 The Government would also be interested to receive in consultation responses any evidence that would suggest that the lease market for fish quotas is being distorted by anti-competitive behaviour of some kind. We are not aware of any evidence that there is in this market a dominant undertaking that is abusing its position to undermine competition, nor that there exist anti-competitive agreements that might be thought to constitute a cartel. If there is evidence that competition is being undermined in some fashion, we would be keen to receive it, because it would inform considerations about whether there was a need for Government intervention.

Conclusions

4.37 In this chapter we have considered whether the status quo FQA system could be developed in ways that pursued the Government's objectives more effectively. It does seem to the Government that there are improvements that could be made to the present system that have potential to:

• Seek to retain fishing rights for fishing communities and as a Scottish national asset, by better defining the rights that FQA holders have over quota allocations, in ways that allow social and economic objectives to be balanced; and,
• Encourage quotas to be held by those who can fish them, by:
  • Ensuring that only those with a contemporary and positive link to fishing may hold FQA units on Scottish licences; and,
  • Making it easier for active fishermen to gain access to FQA units, so that they can develop their businesses.

4.38 In addition, the retention of the status quo FQA system as the principal basis for allocation would also retain its advantages in terms of:

• Providing a stable regulatory environment; and,
• Encouraging the growth of businesses and the regeneration of the fleet.

Consultation questions

• Do you favour the establishment of 'stewardship rights' for holders of FQA units on Scottish licences?
• Do you agree that FQA units on Scottish licences should be held only by persons and organisations that have a contemporary and positive link to fishing?
• If you do agree with the need for a link to fishing, do you consider that the categories of persons and organisations proposed as having such a link is correct? Should there be further or different categories?
• Do you favour the establishment of one or more reserves of quota that would be deployed to assist new entrants to the fishing industry?
• If you favour the establishment of one or more reserves of quota for new entrants, what are your views about:
  • How such a scheme might be organised;
  • How and from where would quota be acquired for a national reserve; and,
  • Who might be able to access the fund, and on what terms?
• Do you favour allowing individual FQA units to be transferred from the licences of active fishing vessels?
• If you are in favour of allowing such transfers, do you also favour controls on such transfers, such that units become available in smaller 'bundles', which might be easier for newer businesses to acquire? What are your views about the method described by the Government?
• If you favour retention of the present FQA system, are there other improvements to the system, different to those described by the Government, which you consider would better pursue the Government's policy objectives?
• Is there action that could be taken by the Government, properly, or by the industry, which might have potential to reduce leasing costs?
• Are there steps that could be taken by the industry itself to improve the efficiency and transparency of the quota leasing market?