Critically assess ‘Individual Transferable Quotas’ as a way of managing an Open Access Fishery

Open Access Fisheries have long been susceptible to irrational over-exploitation by fishermen. The nature of such an open and accessible resource coupled with the issue of overfishing has resulted in a growing area of research and academia in sustainable management strategies. Economists became aware of the common property problems of the fishery through H. Scott Gordon in 1954 and have been concerned with effective measures of management ever since1. The economist, Parzival Copes 1986, pin points the problem that fisheries are absent of individual property rights. This, he argued, produces no incentive for fishermen to ‘husband the resource’ and invariably leads to excessive exploitation1. It is this exploitation that is a concern for governments worldwide as populations rise and the demand for such resources increase. This essay will look at one way of managing an Open Access Fishery, a strategy of Individual Transferable Quotas (ITQ), and will assess the effectiveness of such an approach.
An early output-limitation management strategy has been to impose a total allowable catch (TAC) in fisheries to try and prevent exploitation and conserve fish stocks. These limits on the amount that fishermen can harvest each season are aimed at allowing conservation objectives to be met, but in reality they resulted in a racing mentality, a ‘race for fish,’ as soon as the fishing season began, concentrating fishing resources and harvests into the early stages of a season until the TAC had been reached, after which the fishery would be closed. ITQs were devised to alleviate this problem by allocating a portion of the TAC into national, regional and individual quota shares allowing all fishermen with an ITQ a guaranteed share of the TAC for the fishery. As they are also transferable fishermen can buy or sell to increase or decrease, respectively, their quota for any given year, in theory encouraging efficiency, reducing the problems of overcapitalization and those associated with low fish stocks and allowing fishermen more flexibility over the rate and timing of their fishing.
When first assessing the effectiveness of ITQ schemes a fundamental area of concern is highlighted with the initial quota share allocations. The initial allocation of the TAC in an ITQ system is predominantly calculated using historical catch data over a specified qualifying time. For example the 1990 surf clam ITQ program in the United States initially allocated ITQs based on historical catch records from 1986-19893. Fishermen with extensive historic catches during the qualifying period receive larger ITQ shares than fishing vessels with minimal catch during that same period. Problems here arise when efficient fishing vessels are maybe underperforming during the qualifying period or are off the water being repaired. It also provides an incentive to falsify reports and the initial shares of the quota might then be rewarding those that have cheated. The Director-General of Fisheries reported on his experience with the fishery of the Bay of Fundy 1983 that “each and every fisherman will attempt to cheat”1. The ability, however, to acquire more or less of the initial quota shares in theory should remedy early distributional problems. While there is the argument that initial allocation formulas should reflect other factors other than historic catch records, such as compliance with fishery regulations and the use of ‘clean’ fishing techniques the initial allocation is not a process that is carried out often and is one that will become more and more accurate as more schemes are put into place.
As briefly stated earlier, one of the main advantages of an ITQ scheme is that large capitalisation and inefficient investment is not necessary as the ‘race for fish’ associated with other output restricting schemes is eliminated. Fishermen have secure catch shares enabling them to spread their efforts and employ their capital, which would have previously been tied up in competing for a share of the TAC, more productively elsewhere in the economy. This advantage might not materialise, however, for that stock that is naturally subject to seasonal variations. For example, tropical prawn and shrimp stocks are only available to their fisheries as mature individuals for a very short period of time, leaving the only way to effectively fish these species being fast and concentrated1. Under these conditions it would be irrational to impose individual quotas as it would only encourage a ‘racing for fish’ mentality. Also although it may reduce aggregate effort, a system of ITQs may result in fishing efforts concentrating on the higher yield grounds where stocks are denser. Nevertheless this is undoubtedly an issue that already existed before ITQ schemes and whilst individual quotas may alleviate the tendency to race for fish, it is unlikely that it will eradicate the problem entirely.
A large concern with an ITQ scheme is the increased opportunity for a small amount of larger shipping vessels to accumulate a larger share of the TAC. The transferability of individual quotas creates this opportunity and we have seen that in reality the general pattern in ITQ programmes has been fleet consolidation. In the 1990 United States surf clam ITQ program, once ITQs were implemented, fleet size quickly shrank from 128 vessels (1990) to 59 vessels (1992)3. To keep smaller vessels in business a suggestion could be to prohibit larger vessels buying quotas off smaller vessels, for example the 1995 Alaskan halibut and sablefish Individual Fishing Quota (IFQ) program apportioned IFQ shares to different size vessels and restricted transfer to vessels in the same size class3. Although it appears inevitable that ITQ programs will lead to greater wealth concentration, after all economists going back to Gordon (1954) have highlighted the tendency of common property resource exploitation to lead to deficient income levels1, it isn’t necessarily a bad thing. The 1990 US surf clam ITQ program reported that the remaining fishing vessels improved their productivity. If the potential problem of a small amount of large vessels colluding to fix high prices can be avoided, the increased productivity can benefit fishers and consumers. Smaller, less efficient vessels might well be driven out of open access fisheries regardless of an ITQ scheme or not, and at least under an ITQ scheme they can raise some revenue from doing so.
This inevitable consolidation of shipping vessels would then directly impact on employment in commercial fisheries. Theoretically with the decreased stress and lengthened fishing seasons that secure individual quotas bring, jobs would become more stable and permanent in comparison to temporary and seasonal. In the South Australian rock lobster fishery industry reports confirm that fishing activities have become more relaxed as operators choose to harvest their catch in a more leisurely manner4. Secondary effects also include that some fishermen don’t fish on the weekends and don’t go to sea when the weather is bad, making their job safer4. This effect was also shown in a report from the Marine Safety Reserve (July 1995) that noted a substantial decline in injuries per fishing day following the implementation of the 1995 Alaskan halibut and sablefish IFQ program3. Referring back to the previously stated figures that show a decrease in shipping vessels as a result of the 1990 United States surf clam ITQ program, however, the reality of ITQ schemes is that they do lead to fewer vessels, which in turn need fewer crews to man them. Large crews won’t be needed anymore for the start of season frantic ‘race to fish.’ This could pose huge negative externalities as commercial fishing is labour intensive and isolated fishing communities are largely centred on a large amount of their inhabitants working in the trade. Supporters of ITQ programs argue that job losses could happen in overcapitalized open access fisheries regardless of an ITQ scheme being in place or not and the shift from many short-term, seasonal jobs to more stable ones could be better for small communities. There is a larger scale debate here that is beyond the aim of this essay and therefore I won’t go into detail with the argument of whether boom-and-bust economies are better than smaller but more stable ones for coastal fishing communities but problems associated with such a shift in employment can be directly addressed by local governments. The increase in flexibility of fishing operations that ITQ schemes undoubtedly bring could bring to those still employed in the industry a more continuous flow of income. Consumers benefit hugely from a more evenly spread, year round supply of fresh produce and although fishers benefit from an increase in market prices as a result of an ITQ scheme, shown in the 1990 US surf clam program where average surf clam prices rose from $8 per bushel to between $12-$14 per bushel3, consumers can tolerate this as the produce is fresh and not taken from frozen stock piles as a result of an early season ‘race to fish.’
An ITQ program grants those fishing vessels still in business with a certain amount of ownership over their fishery. In theory if fishers felt as if they were ‘owners’ of a fishery they might be more inclined to look after the natural resource, decreasing the urge to over-exploit it. However, as long as the allowable harvest is restricted there will always be a tendency for fishermen to maximising their catches. An ITQ scheme assigns the same opportunity cost for each unit harvested which therefore encourages fishermen to compete for the higher valued stock. This practice may be expected to lead to a waste of fish that reduces the aggregate net revenue obtainable from the fishery1. Although this could result in a great deal of discarding of lesser value stock the evidence on the matter is mixed and it is likely this issue occurs in open access fisheries under TAC schemes, regardless of the introduction of ITQs. High-grading, as this issue is named, has been reported in the Wisconsin lake trout and Ontario walleye ITQ fisheries but the Icelandic multispecies demersal ITQ program doesn’t seem to have experienced significant high-grading and discarding2. Suggestions for ITQ programs to counter such issues include fishermen accounting for total catch rather than retained catch, which would decrease the chance of discarding and stringent checks and structured enforcement or monitoring programmes would also help.
Highly funded monitoring schemes would almost certainly be needed in multispecies fisheries to deal with the issue of by-catches. By-catches are secondary species of fish that are caught in the act of fishing for a primary species of fish. Such fish might not have any market value but huge ecological value to the fishery, or they might have a market value but without a TAC assigned to them in which case could lead to them being intensively fished, or they could have a TAC and be under an ITQ scheme in which case increased monitoring is needed to enforce quotas on not just one species of fish but several. Quota management in multispecies fisheries presents big problems to authorities, for example in the Dutch beamtrawl fishery which takes a mixture of cod, plaice and sole the 500 or so vessels have individual quotas assigned for each of the three species of fish. Catches are landed at numerous fishing ports on a daily basis and the small amount of fisheries inspectors have to attempt to enforce individual vessel quotas, which in this case, inevitably resulted in illegal landings4. Highlighting the fact, again, that an effective system of monitoring and enforcement would be extremely difficult and costly but crucial to the success of any ITQ scheme.
To conclude, ITQs have the potential to improve the commercial fishing industry’s viability and resource sustainability. Applied to multispecies fisheries, however, the benefits are likely to be more difficult to realise than in single species fisheries. The main benefits related to ITQs are those related to the decision making flexibility they afford fishermen and the reduction in aggregated effort that allows greater resource efficiency and some of the criticisms highlighted throughout this essay at ITQ programs can be common to all fishery management. Commercial fishing is very complex and it is clear from my analysis of ITQ schemes that they must not be seen as providing the final or complete solution to fishery management concerns but when used in conjunction with other strategies could present worthwhile benefits to numerous stakeholders.
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Bibliography 1. ‘A critical review of the individual quota as a device in fisheries management’ – Parzival Copes 1986 2. ‘Individual transferable quotas in multispecies fisheries’ – Squires et al 1998 3. Individual Transferable Quotas in fishery management’ – Buck 1995 4. ‘Individual quota management in fisheries – methodologies for determining catch quotas and initial quota allocation’ – 1997 www.foa.org/document/en/details/58886