Fishing vessels - economic link: business and regulatory impact assessment

5. Sectors and groups affected

It is anticipated that the Scottish Government’s preferred option as outlined above will primarily affect fishing vessels and fish processing businesses and to a lesser extent, sectors from which the fish processing sector derives inputs. To better understand the impact of the policy, we considered who might be affected by it and grouped them into three broad areas:

The Catching sector – those vessels that will have to change landing patterns to comply with the new requirements, including their owners and crew; and vessels receiving gifted quota.

The Upstream sector – there are two main upstream sectors that were looked at. The first is those businesses which supply the fishing fleet with fuel, engineering parts and other consumables. These are not expected to see a substantial change in their business as the majority of these supplies are bought in the home port anyway. The second is those businesses which supply the fish processing sector with inputs such as such as energy, packaging and other intermediate supplies, as well as the businesses which support these businesses. These are expected to see a change due to the expected increase in throughput seen by the fish processing sector.

The Downstream sector – these are the sectors that handle, process and add value to outputs from the catching sector, including seafood processors, fish merchants, fish market porters, etc. Whilst the fish processors are expected to see changes, as it is expected that much of the fish will be exported we do not expect more downstream benefits as a result of increased landings.

The potential impact on these businesses is discussed below.

5.1 Groups affected

5.1.1 Catching sector

Within the catching sector, there are two main sub-groups that are expected to be impacted:

• Fish catchers – pelagic – in 2020 there were 22 vessels with pelagic fishing gear in the Scottish fleet.
• Fish catchers – demersal & Nephrops – in 2020 there were 110 demersal vessels over 10 metres with demersal fishing gear, and 187 vessels over 10 metres with Nephrops trawl fishing gear in the Scottish fleet.

These vessels could be affected in several ways. For those who are non-compliant, they will have to either increase landings into Scotland or quota gift which could result in them receiving lower prices for their catch or, in them losing business partnerships already established in other countries. Compliant vessels could also be impacted, both positively through the receipt of gifted quota, or negatively through the possibility of lower prices as a result of increased landings into Scotland. Further vessel specific data is provided in the Scottish Firms Impact Test section.

On average, there were around 2,070 active vessels in the Scottish fleet between 2016 and 2020. Having reviewed their landing patterns, we note that of these vessels around 99% already comply with the Scottish Government’s proposed changes to the economic licence condition. Based on 2015 to 2019 data it is expected that around 31 vessels would not be fully compliant with the proposed changes and hence may be affected in terms of their operations and/or turnover. A multi-year average of 2015-2019 was used to overcome the year on year variation in landing pattern.

These 31 vessels landed around 103 thousand tonnes of the 8 key species abroad each year (around 82% of their landings of the 8 key species) between 2015-2019. In order to comply with the proposed changes to the economic licence condition through option A (i.e. the landings target) they would need to land an additional 46 thousand tonnes of the 8 key species into Scotland per year. By reference to expected 2023 prices (detailed in appendix B), this could be worth an additional £45.6 million of landings into Scotland per year, with pelagic species comprising around 94%. This is equivalent to an annual uplift in total landings into Scotland of up to 11%. The actual tonnages and value of this policy will depend upon future quotas, market conditions, and which option (A or B) vessel owners choose to exercise with the proposed changes to the economic licence condition.

As an alternative, licence holders/vessel owners may choose to continue landing the 8 key species outside of Scotland and instead comply through option B (quota gifting). If all 31 non-compliant vessels chose this option, the Scottish Government could receive up to £11.8 million (in expected 2023 prices) more in quota gifts than it currently receives in any given year. Note that this would be a maximum based on current landing patterns and depends on the business decisions by vessel owners.

5.1.2 Upstream sector

There are a number of upstream businesses to the fish processing sector that may be impacted by this policy:

• Haulage
• Machine maintenance
• Fuel and energy providers
• Packing producers

It has been noted above that the upstream businesses to the fishing fleet are not likely to see much change, as the majority of these supplies are bought in the home port anyway. However, it is expected that there will be an increase in fish processing which would have a more significant effect on upstream businesses. This would likely increase demand for further upstream inputs, which may result in the affected companies investing in order to take advantage of these new opportunities, such as expanding the production of a line of packaging. Although, this is not expected to be the case.

5.1.3 Downstream sector

Within the downstream sector, three key sectors are expected to be affected:

• Pelagic fish processors – Seafish’s processing survey data shows that in 2021 there were 5 processing sites that processed pelagic fish only and a further 40 that processed pelagic and other species in Scotland (i.e. mixed processors).
• Demersal fish processors – Seafish’s processing survey data shows that in 2021 there were 25 processing sites that processed demersal fish only and a further 49 that processed demersal and other species in Scotland.
• Businesses that are in the downstream supply chain of the catching sector in addition to the processing sector may also be affected, such as fish markets, transport businesses, and freeze storage businesses.

Note that pelagic and demersal processors that also process other species may be double counted in the above figures. Although, this gives an indication of where impacts may fall.

It is expected that any additional pelagic landings into Scotland would be processed in Scotland. This would ensure a higher and more stable supply to Scottish pelagic fish processors. Demersal processors could also gain from increased landings and more stable supplies. However, relative to pelagic species, it is more likely that any additional demersal species landed in Scotland could be processed abroad due to being more cost effective to transport and therefore a proportion of any extra demersal fish landings may not be processed in Scotland. Overall, we don’t expect any change in demersal landings patterns, those that habitually land in Scotland will continue to do so and those that habitually land abroad, those generally foreign owned, will continue to land abroad and comply via the quota gift.

Similar to the upstream sector, the downstream sector may choose to invest to make the most of these new economic opportunities. Overall, it is expected that this sector would be positively impacted by the proposed changes such that it would likely be the primary beneficiaries of it.

5.1.4 Competition

Consideration was given after concerns were raised by those opposed to the regulatory changes whether, by encouraging increased landings of the 8 key species into Scotland, this could result in less competitive activities from the fish processors leading to a significantly decreased purchase price for raw fish. Marine Scotland appreciates that this is a legitimate economic concern, however there are a number of reasons why we have assessed the offering of significantly lower prices (beyond the natural fluctuation of prices) to be unlikely. Firstly, Scottish processors have an incentive to offer competitive prices in order to incentivise Scottish vessel owners to land in Scotland and not, alternatively as per the licence condition, land abroad and quota gift. From our consultations, Scottish processors are keen for additional landings, and therefore will want to maintain competitive pricing to avoid vessels quota gifting. Fishers have the option of continuing to land the 8 key species abroad and meet the economic link licence condition through the payment of quota gifts. This means that if increased landings of the key species into Scotland was to have the effect of lowering prices, fishers could choose to land outside of Scotland thereby increasing competition and prices in Scotland. There is also the consideration that pelagic factories have excess production capacity which means that the marginal cost of production decreases with increasing throughput (up to the point where capacity is reached). Therefore, processors are incentivised to compete for as much market share as their factories can take to increase the profits they can make with their business model’s relying on high volume to maximise profit. This, coupled with relatively low barriers to entry, should make it very difficult for the processors to lower their offering to the catching sector as they risk losing fishers to other factories, including the higher number of mixed fish processors.

Furthermore, lower prices are not expected to be received for the sale of fish products from the fish processors as the pelagic stocks targeted by the new license condition are traded on international markets with fixed sale prices.

Also, it is anticipated that a more stable supply will result in increased investment in the processing industry which would see processors improving their ability to compete with processors located in other countries.