Select Committee on European Union Twenty-Fifth Report


Long-term and short-term aid to fisheries: buy-outs and resource rentals

A possible model by Professor John Shepherd

In the long term, if profitable fisheries can be achieved, some form of resource rental (such as pro rata charges for effort deployed, or a levy on landings) will be necessary, to reduce what are otherwise likely to be future demands for increases of effort (which would be unsustainable and undesirable, as they would simply restore the fisheries to a state of over-exploitation). The future income stream from such a resource rental could be used to fund both short-term and long-term compensation payments for the reductions of effort needed to achieve rebuilding of the stocks to the levels required. The levels of compensation which would be appropriate need to be determined, and a simple example (not a firm proposal) of how this might be done is outlined below.

  • Significant resource rentals for fishing entitlements would need to be introduced progressively, and this could be done if (and when) the stocks recover to satisfactory levels. Charges at a level of around 10 per cent to 30 per cent of gross earnings may be eventually be needed to moderate demands for increased effort sufficiently, but the eventual level should be assessed as this progressive implementation proceeds. Charges might be applied on either the licensed or on the utilised entitlements (e.g. days at sea), or as a levy on landed value, or in various other ways, and these options need to be evaluated.

  • Compensation for permanent suspension of entitlements (such as permanent effort reductions) needs to allow for the loss of all of the future income stream, and might therefore be set at something like the net present value of the expected future "rent" (operating surplus). For a discount rate of (say) 5 per cent, this would equate to 20 years' worth of the "rent" from a day at sea. If the operating surplus is x per cent of the daily earnings, this would imply compensation levels of around (20/100)x (i.e. 0.2x) of expected daily earnings for a day at sea forgone. If x is (for example) around 10 per cent, this would imply compensation of about twice daily earnings, per day at sea forgone. Where entitlements to fishing activity are removed permanently, the surplus of fishing vessels so created should logically also be decommissioned as soon as possible, with additional compensation where appropriate.

  • Compensation for short-term (transitional) reductions of fishing activity, where it is decided that these are needed to achieve faster and/or more secure stock recovery, would need to be comparable to the expected net operating surplus for the period of the suspension only.

  • For the North Sea in 2003 a 65 per cent reduction of effort is implied by the agreed TACs. A reduction of about 50 per cent is desirable in the long-term, so ideally a permanent buy-back of entitlements at this level would be appropriate, and only the remainder (15 per cent) would be in the form of short-term tie-up schemes, and so eligible for transitional aid.

  • This means that in future the potential for recovery of fishing effort in the North Sea (as distinct from catches and earnings, which will recover by a larger amount if and when the stocks are rebuilt) is probably only from the 35 per cent of former levels agreed for 2003 to about 50 per cent of former levels. This therefore equates to a future 45 per cent increase above the low level of 2003.

  • In bald terms the current agreed TAC for cod in the North Sea, and the longer term perspective, mean that (ideally) 50 per cent of the current capacity should be decommissioned, and a further 15 per cent tied up temporarily. The balance between long-term and short-term reductions may of course be adjusted somewhat, but it is unrealistic to suppose that the emphasis should not be primarily on long-term reductions. These details will of course vary from region to region, and from stock to stock, but the numbers are not untypical.

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