Fishing vessels - economic link: business and regulatory impact assessment

8. Costs

As mentioned in the analytical approach section, it is expected that there will be some net costs associated with the attached proposals compared to the Do Nothing situation. This section sets these out, again in terms of monetised and non-monetised costs.

8.1 Monetised costs

Table 7 shows the expected monetised costs associated with the proposal, these only impact the catching sector and vary across the scenarios as they depend on the uptake of additional landings or the choice of quota gifting. Figures are presented as a GVA change to the economy of Scotland.

Under the Central Scenario (2), the proposal would cost Scotland an estimated £6 million in GVA relative to the Do Nothing Scenario through the lower price received in Scotland compared to abroad. This would manifest itself through less direct taxes paid, lower earnings for fishers, or lower investment in vessels. The price differential is still experienced for quota gifted fish landed into Scotland, as our analysis shows that higher prices would be achievable if they were to be landed abroad.

8.2 Non-monetised costs

There are several key costs that have not been monetised, often due to the complexity in doing so and/or the relatively small expected effect. However, some of these costs could have a material impact upon the catching fleet and the Scottish economy as a whole and are therefore considered below.

The pelagic, demersal, and Nephrops fleets may have non-price related reasons for landing abroad which cannot be monetised, which is particularly evident in the foreign-owned fleet with close business ties to their home countries. One implication of having secure markets abroad is that if vessels move their landings to Scotland, they may face higher transportation costs to get fish to their markets abroad. This could not be accurately modelled, but the net impact is not expected to be significant.

There could be circumstances whereby vessels are fishing closer to Scandinavia or are having maintenance work done there in which case they could experience higher costs in returning to Scotland to land.

In addition, due to the dropping of the operational expenditure and crewing requirements from the economic link licence condition, these could lead to costs to the Scottish economy. At present, no Scottish vessels comply with the economic link licence condition via the operational expenditure option and therefore little change is expected once this option is removed. In relation to the crewing requirements, the key fleet that uses the crewing option to comply with the economic link licence condition is the pelagic fleet but it is not expected that their approach to crewing will change once this option is no longer available. This is due to the manner in which they are owned and crewed, employing friends and family. Consequently, any losses to Scotland incurred from dropping these options is not expected to be material. In the event that these vessels were to change their crew makeup, Seafish’s economic data suggests this cost (i.e. employing non-Scottish resident crew) would not outweigh the benefits of additional Scottish landings. This crewing data has not been included due to it being commercially sensitive.

Also, there may be costs associated with the up- and down-stream sectors in scaling up their operations where applicable. This could be substantial if port infrastructure or new processing sites are involved. However, such fixed-cost investments would carry associated benefits and it would be up to businesses whether to pursue these opportunities – which they would only do if there were net benefits. Production costs are implicitly included within the benefit calculations already, as the calculations assume the same cost structure going forward. Additionally, discussions with industry representatives suggest there is capacity available and thus investment would likely be for productive gains and not strictly necessary as a result of this proposal.

Were prices in Scotland to fall due to increased landings and thus supply into Scotland, this could impact vessels that already meet the new economic link licence condition in addition to further impacting those vessels who would seek to comply with the proposed changes to the economic link condition. This could be due to fish processors decreasing their purchasing prices due to their increased market power, or due to failure in finding export markets that pay similar prices as are currently achieved. Such changes are not anticipated to be significant, due the fact that the pelagic species targeted have worldwide markets where demand remains strong. However, sensitivity analysis has been undertaken to understand what lower prices would mean for the costs and benefits which should give some idea of what this could cost.

There is a risk that the few pelagic processing factories in Scotland, along with a near guaranteed supply, could result in non-competitive behaviour with processors leveraging their new market position to lower prices. The potential effect of this behaviour has not been monetised, beyond the aforementioned sensitivity analysis on the drop in prices in Scotland, but this behaviour is not expected to occur in the long term as there are no major restrictions in new fish processors entering the market if there are supernormal profits available, and in the short term would likely only result in a transfer between fishers and processors rather than overall loss for the economy.

Moreover, there is also the risk of costs emanating from any labour supply issues. Labour shortages could result in production issues lowering prices or, it could result in vessels owners being unable to sell their stock in a timely manner lowering the quality and value of their catch. It could also have a knock on effect on other fish processing industries if pelagic processing factories opt to increase their wages. These labour effects have not been monetised due to the uncertainty of the effect, but also those areas in Scotland with fish processing sites often have lower labour force participation or higher levels of unemployment than the national average, suggesting that there is capacity to increase the workforce and therefore any potential costs from labour shortages could be somewhat mitigated or short-term.

The costs associated with managing vessel compliance with the economic link licence condition are not anticipated to increase significantly under this proposal, and hence have not been modelled.