Fishing vessels - economic link: business and regulatory impact assessment

6. Approach

This section outlines the analytical approach taken to the valuation of the benefits and costs associated with the attached proposal. A more detailed methodology can be found in Appendix B. The key underlying data sources for this analysis were Marine Scotland’s Sea Fisheries Statistics, the Seafish Seafood Processing Industry Report, and the Scottish Government’s Input-Output tables.

To ascertain the impact on the affected groups set out above, i.e. the catching, upstream, and downstream sectors, the following approach was taken.

6.1 Do nothing

The impact of the proposal is relative to a “do nothing” option, i.e. continuing with the current economic link licence condition and not introducing the proposed changes. This means that any benefits from the current economic link licence condition, such as current levels of quota gifting, must be deducted from the benefits of this proposal so as to accurately portray the net impact. Some of the impacts relative to the “do nothing” option have been monetised and are the focus of the cost/benefit analysis, while other – equally important – impacts have not been monetised, which instead are outlined qualitatively in the following sections.

6.2 Preferred Option: Scenarios 1-3

In order to assess the impact of implementing the preferred option, 3 scenarios were modelled to ascertain a range of potential impacts. The 3 scenarios are in Table 3 below and include potential responses by the pelagic and demersal fleets to the preferred option.

These scenarios are designed to capture a range of possible outcomes of this policy change, however they are not attempts to forecast the precise reaction of vessel owners. Scenario 1 and 3 represent the relative costs and benefits of the affected vessels either fully complying via landings or, alternatively, quota gifting i.e. the two options available under the proposals. Scenario 1 and 3 therefore present the lower probability scenarios, but show the potential range of expected impacts. Affected vessels are those assessed to be non-compliant with the proposal, i.e. vessels which land below 55% of their catch into Scotland.

Scenario 2 presents a central, or most likely, scenario where some vessels choose to increase their landings and others choose to quota gift based on their business circumstance. From business intelligence and consultation documents the largely Anglo-Dutch and Anglo-Spanish demersal vessels are not expected to change their landing patterns but are instead likely to continue quota gifting; while for the pelagic vessels it is expected that some will change their landing patterns. It has been assumed that pelagic vessels landing less than 20% of the 8 key species into Scotland have some sort of contractual or close working relationship with processors abroad. It is has also been assumed that these vessels will continue landing abroad at least in the short to medium term and choose to quota gift. It is further assumed that pelagic vessels landing between 20% to 55% of the 8 key species into Scotland will increase their Scottish landings and comply via additional landings.

Table 3: Description of 3 scenarios

Scenario 1: Compliance via increasing landings High impact, low probability

Fleet segment: Demersal

Assumption: Non-compliant vessels increase landings to 55%

Fleet segment: Pelagic

Assumption: Non-compliant vessels increase landings to 55%

Scenario 2 (Central Scenario): Compliance via increasing landings and quota gifting Medium impact, high probability

Fleet segment: Demersal

Assumption: Non-compliant vessels quota gift, no change in landings

Fleet segment: Pelagic

Assumption: Non-compliant vessels landing under 20% into Scotland quota gift, those landing 20% to 55% into Scotland increase landings to 55%.

Scenario 3: Compliance via quota gifting Lower impact, low probability

Fleet segment: Demersal

Assumption: Non-compliant vessels quota gift, no change in landings

Fleet segment: Pelagic

Assumption: Non-compliant vessels quota gift, no change in landings.

Table 4: Monetised and non-monetised costs and benefits of the preferred option

Monetised Cost

Catching Sector – Price differential for landed fish between Scotland & Other Markets

Monetised Benefit

Downstream – Increased fish processing

Upstream – Increased demand for goods and services by fish processors

Non-Monetised Benefit

Stable Supply chains could improve business confidence and investment

Quota gifts could go to more vulnerable communities or help new fishers

Increased export of in demand products could improve all fish exports through market penetration

Lower steaming costs and greenhouse gas emissions for vessels by changing ports, depending on the fish stocks targeted.

Non-Monetised Cost

Increased costs to the industry through increased port fees, and the Seafish levy

Potential loss of business relationships with current processors/ businesses from landing changes

Potential loss of Scottish resident crew or ship expenditure in Scotland

Potential cost to port authorities to facilitate additional landings to include potential costs of upgrading port infrastructure

Potential cost to industry should prices drop due to oversupply

Potential labour supply issues

Risk of non-competitive behaviour through processors leveraging their new market position to lower prices.

6.3 Expected monetised impacts

6.3.1 For the catching sector, the monetised impacts include: under Option A of the proposal (the landings target), the potential cost of a lower sale price in Scotland compared to abroad, or the rest of the UK; and, under Option B the cost of gifting quota.

Price differentials – Pelagic vessels mainly land in Norway. Based on the average of 2015 to 2019 data, Mackerel is expected to receive £35 per tonne less in Scotland than in Norway and Herring is expected to receive £31 per tonne less in Scotland than in Norway. These are expected 2023 prices. The price differential for demersal stocks has not been included due to the high variability in price each year, and the fact that this is more likely due to particular business contracts than real market fluctuations. Had demersal price differences been included, it would have resulted in an increase in price per tonne for landing in Scotland. In the longer term, there is also the possibility that the price received by fishers in Scotland could decrease due to increased supply and greater market power of buyers. This has not been included into the main analysis but rather is presented in the sensitivity analysis.

In terms of demersal, non-Scottish landings are primarily to Spain or Ireland. Some Nephrops vessels will be affected by this proposal as they are known to land into (non-Scottish) UK ports. For these vessels, there is not expected to be a great difference in sales prices as between Scotland and the UK. As such, should they decide to meet the licence condition through Option A (the landings target), they are unlikely to see a significant price differential. On the whole, Scottish vessel landings into the rest of the UK comprise a relatively small proportion of total landings and any impact by the economic link proposal is not expected to be significant. Of the vessels/licence holders whose patterns or behaviour to date show that they are already in compliance with the proposal, it is assumed that there will be no change to their behaviour and therefore they will be unaffected by the proposal.

Quota gifting – To model the impacts of Option B, quota gifting, it is assumed that quota gifts are provided in the 8 key species, and are representative of what is being caught by these vessels at present, which is then distributed amongst those Scottish fishing vessels that meet the landing component of the new economic link licence condition. The cost of the quota gifted (26% of the landing value gap) by non-compliant vessels is mostly balanced by the gain to the compliant fleet. However, there is a still a cost to the industry as a whole from the price differential. As the fish could have attracted a higher price if landed abroad rather than quota gifted and landed into Scotland where the price is noted to be lower for pelagic species.

6.3.2 For Quota gift benefits, as only a proportion of the total catch is gifted back, Scotland does not get the full suite of benefits that would occur had all the catch been landed into Scotland. Therefore, while quota gifting undoubtedly benefits coastal communities in Scotland, it does deliver lower benefits per tonne of landings than increased landings into Scotland.

However, the gifted back quotas which are landed into Scotland will benefit Scottish coastal communities. These benefits are achieved by the Scottish Government allocating any gifted back quota to the landing compliant portion of the fleet. While some of this may be landed abroad, between 5-15% based on historic data, the bulk is expected to be landed into Scotland thereby accruing all of the benefits associated with this, such as upstream and downstream activities, benefitting coastal communities. For all intents and purposes, quota gifting has the same costs and benefits as landing into Scotland directly, but scaled down to around 26% of those impacts.

6.3.3 Upstream impacts are based on extra purchasing required by fish processors, which is then attributed to any additional landings expected. These impacts are calculated by using a mixed exogenous/endogenous variable model (detailed in appendix B) of the economy based on the Scottish Government Input-Output (I-O) tables for the fish processing industry. This method controls for the upstream effect back to fishers so that we are not double counting the benefit in the I-O table.

6.3.4 Downstream impacts are calculated in terms of the amount of activity that may be expected in fish processing from the anticipated additional landings. Pelagic landings are assumed to be processed wholly in Scotland, while only half of demersal landings (reflecting the greater opportunities to process elsewhere) are assumed to be processed in Scotland. The primary reason for this assumption is that a notable amount of demersal fish is transported out of Scotland prior to any processing, in contrast to pelagic fish which is rarely transported in this way due to the lower value per tonne and their more specialised method of landing directly to factories. However, Scotland has substantial demersal processing capacity and the additional volume of demersal fish is expected to be manageable for Scottish processors to process. Pelagic processing capacity was cited as a concern in the 2017 consultation and again in discussions with businesses to inform this BRIA. As was the case 2017, supporters of the change refute this – stating that Scotland has the processing capacity to manage the proposed change. The majority of pelagic processing in the UK is in the North Eastern Scotland region and this industry is already subject to relatively large variances in their inputs due to changes in quota, hence the expectation that they have flexibility in terms of processing additional input.

6.3.5 The additional number of jobs supported through this proposal was derived by using the mixed exogenous/endogenous variable model of the economy based on the Scottish Government Input-Output tables for the fish processing industry as used for the upstream figures. These tables include estimates for all jobs in the fish processing industry, along with all the indirect and induced upstream jobs. These estimates were derived using the total extra output figures from the fish processing sector.

6.4 Presentation of results

Results are presented over a 10 year appraisal period in expected 2023 prices in terms of their contribution to Scotland’s economy through GVA. They are discounted using a 3.5% social discount rate (more details available in appendix B) according to the UK Government Green Book Appraisal Guidance.