CONSULTATION ON THE ALLOCATION OF SCOTTISH FISH QUOTAS

Chapter 5: Options for new bases and systems for quota allocation

5.1 This chapter describes alternative methods by which Scottish fish quotas could be allocated, and invites views about whether establishing a new basis or system for the allocation of fish quotas might pursue the Government's objectives more effectively than either the status quo or an improved version of it.

Intention to consult further about a new basis or system

5.2 The Government's purpose in including this chapter in this consultation document is not to require those responding to the consultation to select one of the options described here as the exact way in which they might wish to see quota allocation changed. Of course, if organisations or individuals feel strongly that one of the options, or some variant of them, is the best approach then they can indicate that in their response. But, for this document, what the Government is seeking to establish is what views there are in general about whether a new basis or system is necessary if there is to be a reasonable prospect of the Government's objectives being achieved.

5.3 To help that consideration, we offer some details about what different kinds of change could look like, but we are not in this chapter making definite commitments about how different systems might operate in practice. Rather, if the Government, after considering responses to the consultation, were to decide to change substantially the basis on which fish quotas are allocated, there would commence a further period of consultation. During this period, which would take place in 2015, the Government would describe exact methods by which quotas could be allocated. It is likely that the Government would wish to convene an expert steering group to consider the number of detailed questions that would arise. Chapter 6 explains how the Government would propose to manage a transition to new systems of fish quota allocation.

Options

5.4 This chapter considers 3 options:

• A re-basing of FQAs on a more recent reference period;
• The basing of allocations on a rolling reference period; and,
• A move to a system of collective allocation and management of fish quota.

Each of these options has different features, but their shared purpose is to design into the system of allocating fish quotas characteristics that pursue directly the objectives described in chapter 2 above, rather than, as is the case in chapter 4, seeking to adapt the status quo in ways that merely have potential to allow Ministers' objectives to be pursued more effectively.

Making FQA allocations on a new reference period

5.5 One possible method of reform is to maintain an FQA system but to move the reference period on which allocations to Scottish licence holders are based to a more recent period. The present reference period, 1994-1996, is now nearly twenty years old and catches recorded then bear little resemblance to holdings of FQAs and the general position now. FQA units have moved between licences, as a result of trade and substantial structural change in the fishing fleets, including after two publicly funded decommissioning schemes and a number of so called "reconciliation" exercises between 2002 and 2010.

5.6 A change in the reference period, for example to reflect catches taken during 2011-2013, or during a longer period, would result, at least in the short to medium term, in a larger proportion of Scottish vessels being allocated FQAs that more closely matched their share of recent fishing activity, thus reducing the need for them to lease in additional quota. The winners in this re-allocation will include fishermen that had invested in FQA units and fished against them. They would receive new allocations that generally reflected those investments (whether or not the units had been held on the vessel licence). This would also be true for those that had not acquired FQA units (or who had held but then disposed of units) but had also (during the new reference period) leased quota to maintain fishing activity.

5.7 Clearly, those that had held units but in the particular reference period had chosen not to fish all the quota arising would lose out. The losers will be a diverse group, including corporate entities and non-fishing organisations (for example, POs, local authorities and vessel agents and owners), retired skippers and fishermen who for whatever reason were unable to fish up to the level of their quota holding in the new reference period. This latter circumstance might well give rise to a requirement for a review process, so that representations about exceptional circumstances that had led to a lower allocation could be considered. Such a review process could of course be lengthy and complicated.

5.8 A new reference period could result in fish quotas being allocated only to the licences of active fishing vessels, at least at the outset, if only vessel landings were taken into account. In a straightforward sense, this approach would achieve one of the Government's policy objectives, which is to see quota in the hands of active fishermen. But a simple approach would also result in the withdrawal of allocations made now to Producer Organisations that are held either in the common interest of their members or for third parties such as local authorities, where quota arising is deployed to support local economic development.

5.9 It would be possible to conduct a re-allocation on a more selective basis, with units held by specified categories of person, such as POs or local authorities, being left as they are now, while other units were re-allocated on the basis of the new reference period. It would be important of course that the criteria supporting any more selective form of re-allocation were objective and transparent and a selective re-allocation on these lines could also give rise to a further basis for review of any exceptional circumstances. It would also be possible, if there appeared to be sound reasoning, for a re-basing of FQAs to be applied in relation to some fleet segments or stocks, but not to others. Such an approach might take account of the proportion of units held away from active licences and / or the extent to which consultation responses and other evidence highlights sectors where access to quota is most difficult.

5.10 The Government accepts that there is a requirement for a period of notice before a move to a new reference period. But a notice period does create some challenging issues of design for re-allocation. Chapter 6 envisages that a new system of allocation might come into effect in 2021. That being so, there arises the issue of which years the new reference period might include. Allocations that might have effect first in 2021, but which are based on catches taken in 2011-13, for example, will clearly not reflect contemporary fishing patterns in 2021. While in these circumstances it would be possible to eliminate some of the more perverse effects, for example by disregarding the catches of vessels no longer active, it is still likely that there would be very significant complications in assigning shares of catches recorded in 2011-13 to the vessels active in 2021.

5.11 An alternative to a new reference period that had become 'ossified' before it could even come into effect would be to have a reference period that included the three (or more) years immediately before the introduction of the new system. This approach would remove the flaws associated with a less recent period, but would in their place create a risk that vessels would alter behaviour during the "notice" period in order to boost their allocation. While improved systems of control and recording might make unlikely a return to 'ghost fishing' practices of the past, it may be that vessels decide to fish as much as possible, and not lease quota, in ways that could diminish economic efficiency and inhibit transfers of quota that are useful to the system as a whole.

5.12 It will also be necessary to consider in relation to re-basing, alongside the arrangements that apply when the re-allocation takes place, what rules might then govern the allocation and management system once the re-based allocation had been decided. If the Government concludes that the management system under the status quo has over time undermined its policy objectives, then it will be necessary to consider under a re-based allocation whether to introduce more stringent controls, for example on the ability to transfer units, that might inhibit a repeat in the future of the developments that cause concern now. It will also be necessary to consider whether the Government might state, in advance, its intention to conduct a further re-basing at a given point in the future, so that the developments that make it necessary for the Government to offer a notice period do not apply in the future.

Basing allocations on a rolling reference period

5.13 An alternative approach to a re-basing of the FQA reference period would be to base allocations on a rolling reference period. This was the system that applied before 1999: although of course a new system could have different rules to the one that operated then. Under a rolling reference period, allocations would be based each year on the catches recorded by vessels in a number of years immediately preceding the year in which the allocation was based. The reference period could be 3 years, as in the old system, or longer, for example, over 5 or 7 years.

5.14 The principal advantage of a rolling reference period is that it allocates quotas to fishing vessels in line with their recent fishing activity in a dynamic fashion. From the point of view of seeking to allocate quota to active fishermen, a rolling reference period is superior to a re-based allocation because the basis of allocation is updated annually, and the risk of ossification that is involved in a re-based reference period does not exist. A rolling reference period might also be considered superior in terms of the access to quota that can secured by newly established or developing catching businesses. New businesses would in all likelihood have to lease in quota in their first years of operation, but, over time, as the reference period rolled, their fishing activity would generate an allocation.

5.15 A rolling reference period also undermines substantially the basis for permanent trade in quota allocations, because no allocation is fixed, and its operation eliminates the risk that non-vessel interests can accumulate allocations that they then lease to vessels. But, as with re-basing, the provision of allocations to vessels alone would eliminate allocations to local authorities and Producer Organisations that hold reserves of quota in the common interests of members and / or to advance local economic development.

5.16 A move to a rolling reference period also creates winners and losers. Initially, these would be largely the same as those for re-basing the reference period. The difference with a rolling reference period is that those effects are dynamic and will be felt over subsequent years as well as in the first.

5.17 A rolling reference period also involves similar and potentially complex issues of design and transition. If it were concluded that a prospective reference period ( e.g. 2018-2020) involves too much risk of vessels altering behaviour to maximise future allocations, an alternative approach would be to maintain the status quo FQA system until 2021 and then only begin to 'roll' allocations after 2021. It would also be necessary to consider whether it was possible to design a new system in a way that could reduce or eliminate altogether the shortcomings that were considered to exist in the previous rolling reference period system, in particular with respect to the willingness of vessels and POs to lease or swap quotas when their allocation in future years would be diminished as a consequence.

Implications of change for business development and lending

5.18 It is important of course that any new system of allocation encourages enterprises to become more profitable and to invest in the continuing success of their business. A decision by the Government to re-base the FQA reference period or to adopt a rolling reference period would change significantly important assumptions underpinning the operating and development plans of catching businesses. Businesses and financial institutions will wish to consider how altered allocation systems could be taken into account in the consideration of businesses' plans for development and institutions' policies on lending and risk management.

5.19 Financial institutions will have a strong interest in the proposals about periods of made in chapter 6. If the Government were to decide upon a re-basing of the FQA reference period, the Government expects that they will also have a strong interest in the approach to re-basing and perhaps particularly plans for how long the re-based reference period might continue to be the basis for calculating allocations. Were the Government to opt instead for a rolling reference period, it would also be necessary to consider the approaches through which fishing businesses could raise capital from financial institutions for the purposes of business development.

5.20 Significant investments were obviously made during the time that a rolling reference period was in operation before, although that was one when fish quotas available were in some cases at a substantially higher level than is the case now. Were fixed quota allocations to be abolished, interactions between financial institutions and catching businesses might develop in time to resemble more closely those that institutions have with other enterprises.

5.21 The Government welcomes views on these issues and will continue discussions with financial institutions, and in particular of course with the Scottish clearing banks that play such a strong and positive role in supporting the success of the fishing industry in Scotland.

A move to a system of collective allocation and management of fish quota

5.22 All of the options so far considered in this consultation paper are based in one way or another on the allocation or assignment of fish quotas to fishing licences (which in turn are managed by POs). Albeit through changing methods, this has been the general way that quotas have been allocated and managed since catch limits were introduced through the Common Fisheries Policy, in the 1980s.

5.23 It is possible however to conceive of quite different approaches to the organisation of fish quotas and the fish catching industry, and the Government - while making no specific proposal about these possibilities - does seek views and suggestions about how radically different approaches could be developed. We also invite those with an interest to consider what risks and rewards could exist in wholly new approaches to the management of this national resource.

5.24 Across the world, there are many different approaches to the management of fish quotas. In some places, individual quotas have become more prominent, such as in Denmark, Iceland and, indeed, in the United Kingdom. Other countries and some UK POs have sought on the other hand to maintain a more collective approach to the allocation of fish quotas, and to underline that quota remains throughout a national resource that is controlled in the collective interest. In some places, for example in the Republic of Ireland, the national Government continues to perform a prominent role in the in-year management of quotas, setting catch limits for most fisheries in the way that in Scotland is now confined to vessels not in the membership of a PO. In the Republic of Ireland, if for any reason vessels do not catch their quota for a given period, the quota is returned to the state for re-allocation.

5.25 Collective management does of course exist in Scotland now, through POs. Some POs operate pool systems of allocation whereby catch limits are set according to the aggregate amount of quota available, although some also allow members to top up collective catch limits with individual leasing. Other POs operate purely on the basis of individual catch limits for vessels, based on the quota arising from vessels' FQA holdings and the quota that they lease. But, as is observed earlier in relation to the FQA system in general, these models of management continue because of preferences of individuals and organisations rather than anything in the set-up of the system. There exists nothing in the present rules to prevent all POs moving to systems based only on individual quotas.

5.26 It would be possible for the Scottish Government to establish, conceivably through primary legislation were that considered necessary, a new system of fisheries management based upon collective allocations of fish quota. A new system could involve, for example, the establishment of regional fisheries management authorities. These authorities could potentially be public bodies in their own right or legislation might provide instead for a system of time limited franchises. They could be established (or franchises granted) with duties or statutory objectives that would be prescribed by the Government in statute or in some form of binding agreement. A primary objective could be to stimulate sustainable economic development in fishing communities through the allocation and management of fish quotas. But the bodies established would not be permitted to assign to fishing vessel licensees fixed allocations of quotas, and swaps of quota between Scottish bodies would also be controlled nationally.

Conclusions

5.27 As is noted at the outset, the Government's purpose in this chapter is not to make definite proposals nor to require respondents to commit themselves to a clear preference. Rather, our intention here is to underline that the Government could introduce significant or even fundamental change and that we wish all with an interest to reflect on the possibility that a substantial shift in approach might be required if the Government's objectives are truly to be pursued effectively.

5.28 Chapter 4 described ways in which the status quo FQA system could be adapted to better pursue the Government's objectives. There may however be a view that measures designed to modify and improve the status quo may in the end prove insufficient if the Government wishes to shape decisively the way in which the fishing industry in Scotland is to develop. There may be a view that significant change is necessary if the social and economic benefits of fishing are to be distributed widely around our coast and if smaller family and local businesses are to continue to play a strong role in the future.

5.29 The Government concludes therefore that it is possible that new bases or systems of allocation do have considerable potential to pursue, directly and effectively, some of the Government's policy objectives. In particular, change could:

• Ensure that Scottish fishing communities retain their fishing rights, now and in the future, and that fishing rights remain a Scottish national asset, particularly if a new system did not operate on the basis of fixed quota allocations being assigned to fishing licences;
• Ensure that quotas are held by those that can fish them, and prevent them from becoming a speculative asset, by re-basing allocations or by moving to a rolling reference period; and,
• Keep the cost of quota down, by discouraging permanent trade and using the power of Government to seek to ensure that quota was allocated directly to active fishermen.

5.30 On the other hand, significant change in the allocation system could also bring challenges.

• Change itself could be regarded as a strain on the resilience of the fishing industry, which faces a number of other challenges in the short to medium term, including the implementation of the landing obligation;
• By definition, there would not be a stable regulatory environment, at least until new arrangements had been introduced and had time to settle down; and,
• It will also be necessary, in considering the merits of new bases and systems of allocation, to reflect upon how approaches to business development and lending might need to evolve to ensure that the quota allocation system could continue to encourage effectively the growth of businesses and the regeneration of the fleet.

Consultation questions

• Do you consider that a new base or a new system for quota allocation is necessary if the Government's policy objectives are to be pursued effectively?
• If you favour fundamental reform, but also consider that allocations to individual licences should continue, do you favour re-basing allocations to a more recent reference period or allocations based on a rolling reference period?
• If the Government opts for either a more recent reference period for FQA allocations or for a rolling reference period, are there quota stocks or categories of quota holder where the new base should not be applied, and the present FQA system should continue to determine allocations? Do you favour a different approach, for example, for Nephrops, whitefish and / or pelagic stocks?
• If allocations are re-based on a new reference period or there is a move to a rolling reference period, how might approaches to business development and lending evolve to ensure continued growth of businesses and regeneration of the fleet?
• Do you think that the Government should move away from a system of quota allocation based on allocations to individual licences, and opt instead for a new system based on the collective allocation and management of quotas?
• If you favour a move to a collective approach, how do you think such a system should be best organised?