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The Economic Impact of Algal Toxin Closures on Shellfish Dependent Communities on the Scottish Coast and Implications for the Sector's Future Structure

4 ECONOMIC IMPACT OF CLOSURES

4.1 INTRODUCTION

This chapter attempts to provide an indication of the scale of the economic impact of the scallop fishing closures on the scallop sector. In Chapters 2 and 3, data and analysis was presented that provided an indication of a range of facets of the impact of the closure on the sector. These included:

• Changes in the volume and value of scallop landings;

• Changes in landings by District reflecting changing fishing patterns;

• Estimates of fisheries employment dependent on scallops by District;

• Estimates of the number of vessels registered and actively engaged in harvesting scallops;

• Estimates of the impact on balance of payments; and

• Evidence of the impacts from consultations with sector representatives, fishermen, and harvesters/processors.

In addition, there is evidence of changes in vessel profitability and turnover/income that provides an indication of the ways and extent to which the sector is 'coping' in the short term - i.e. two-three year time horizon.

While there is no one simple and quantitative measure that provides conclusive evidence of the impact of the fishing bans, a general picture can be built up from this diverse range of evidence to provide a general picture of the impacts.

Despite the range of evidence, at this stage, the estimated impacts are only indicative. Further data is required to allow a more in-depth estimate. Some of this data is not yet available. It is likely that, if the extent and intensity of the bans continues to reduce, then the long term impacts, at least this time, may not have been as severe as first feared. This is not to deny that people have left the sector and that incomes and in some cases vessel and processor viability were adversely affected.

4.2 MULTIPLIERS USED FOR THE IMPACT ASSESSMENT

Table 4.1 reports the multipliers for Scotland to be used in the impact assessment.

Source: SFIA ¹

Supply-driven multipliers record the impact on the economy of a unit change in supply of a product through the influence of the downstream linkages whereby one sector of the economy sells to another. Supply in the primary producing sectors of an economy creates further supply downstream through the secondary and tertiary sectors by adding value through processing and distribution to the consumer.

Type II multipliers measure not only the direct impact of the supply within the initial industry and the indirect effects in the downstream industries, but also the induced effects caused by the impact on the economic behaviour of households in supplying labour.

The method of input-output analysis used for estimating the multipliers makes two main assumptions. First, that there are constant returns to scale; a given decrease of inputs leads to the same constant decrease in output. Secondly, that the proportions of input factors are fixed over time; there are no substitution effects between inputs arising from changes in their supply or demand.

For estimating supply-driven multipliers it is assumed additionally that the market is capable of absorbing the increased output at each stage of production which creates the downstream effects and that the distribution pattern remains unchanged; where an industry increases its output its customers each take a part of the increase proportionate to their previous purchases.

The values of the multipliers for Scotland are rather low compared to those for the United Kingdom as a whole because the Scottish fleet and processors export (from Scotland) a larger share of their output. This reduces the opportunity for creation of output and employment in the domestic economy. The employment multipliers for the catching sector are higher than those for processors because the catching sector is less labour-intensive than the processing sector. The generally lower values of the multipliers for Scotland compared to the rest of the UK are reinforced by the assumption, used in estimating the multipliers, that the value of sales by the catching sector directly to households was zero. This has been compounded by the use of partially closed models. The impact of these on the values of the multipliers is, nevertheless, minimal.

4.3 ESTIMATES OF EMPLOYMENT IMPACTS

A number of methods were explored to try and estimate the employment impacts attributable to the fishing bans. To do so requires that we have an estimate of the numbers of fishermen in the scallop sector and of changes in these numbers over time.

Estimates of the number of fishermen employed in scallop catching was made in Chapter 2 by assuming that the share of total direct employment attributable to scallops within a District is identical to the species' share of total landings by value. However, such estimates depend on a range of 'heroic' assumptions including that all sectors of the fishing industry have the same output per head ratios; that jobs in the catching sector occur where vessels land rather than where they are based; and that output per head in the scallop sector is the same over time and space. The results of this method basically mirrored changes in landing patterns and did not provide any real indication of employment and employment changes in the sector.

An alternative approach involved relating employment to base rather than landing districts. This required knowledge of the number and size of vessels active in each base district and assuming average crewing levels by size of vessel. This methodology primarily suffered from the limited availability of the required data.

Finally, based on discussions with industry representatives and the survey of fishermen it was felt that more of the impact of the fishing bans would be manifested through changes in earnings rather than changes in employment. This is not to deny that vessels were tied up or sold and that fishermen were unable to remain in the sector. Rather it is likely that a more accurate picture can be built up by investigating changes in turnover and earnings.

4.4 ESTIMATES OF INCOME IMPACTS

In this section the impact on incomes associated with the harvesting bans are estimated based on more general data regarding vessel earnings. The Sea Fish Industry Authority has recently completed a review of its Costs and Earnings Survey, last published in the Fishermen's Handbook 1997/98. The data on scallops vessels is not strictly comparable with the earlier period as the new survey now divides the UK fleet into vessels on the West Coast of Scotland and those in the South West of England.

Although there are differences between the two regions, in general they are not too great and allow some comparison of the averages for a vessel. Average vessel earnings are down from 389,000 for the UK fleet in 1998/9 to 280,000 for the Scottish West Coast vessels in 2000/1 or a reduction of around 28% per vessel.

Table 4.2 below, estimates the impact of a range of reductions in earnings based on the value of landings by Scottish vessels into the UK in 1998 and 1999. The value of landings fell by around 11% over this period from 19.2m to 16.2m. This data is used to estimate the total income impact, although this will only relate to reduced income from lower prices. Based on the information from the survey of fishermen two further reductions of 15% and 30% are also estimated ². These provide an indication of the potential impact within Scotland of the reduction in earnings of Scottish vessels.

^{(1) Income multiplier 1.44 (Table 4.1).}

First, the reduction in earnings over the period is likely to be caused by a number of factors including reduced earnings arising from bans on harvesting scallops. Thus the estimates are likely to overestimate the income impact.

Second, a range of estimated impacts have been calculated. The lowest estimate is based on the actual reduction in the value of scallops landed by Scottish vessels into the UK. The other estimates reflect the range of income reductions identified in the survey of fishermen.

The loss in direct income is therefore estimated as being in the range 2.1m - 5.8m. Applying the Scottish income multiplier for fishing results in an estimated reduction in direct, indirect and induced income in the range of 3.0m - 8.4m.

4.5 CONCLUSIONS

Reviewing all of the evidence for the nature and scale of the impact of the scallop fishing bans associated with algal toxins the following conclusions can be drawn:

• There has been a significant impact in terms of reductions in the value of scallops landed in Scotland as a result of the fishing bans. The total value of landings into the UK by Scottish vessels fell by 11% between 1998 and 1999.

• The negative impact was primarily focused on West coast ports, with increases of landings at East coast ports in 1999 compared to 2000. This does not imply a reduction in fishing employment on the West coast although it will imply some local output impacts as stores, fuel etc are bought at East coast ports.

• While there appears to be evidence that the number of registered vessels over 10m that were landing king scallops in 1999 were some 8.6% down on 1998 ( Table 3.2), other evidence ( Table 3.3) points to similar numbers of vessels fishing for scallops over 1998 and 1999. Furthermore there is little evidence of vessels being sold and removed from scallop fishing as a result of the bans. However, more recently, evidence from fishermen themselves suggests that a number of vessels have been decommissioned or sold.

• Average vessel earnings are down from 389,000 for the UK fleet in 1998/9 to 280,000 for the Scottish West Coast vessels in 2000/1 or some 28% per vessel. At the same time, fuel costs have risen from 7.6% of earnings to 12.5%. As a result, owners' expenses are now 65,000 compared to 47,000 three years ago. This has meant a decline in profitability from 40% of earnings before depreciation and interest, an unsustainable and perhaps exceptional figure, to about 20%. When depreciation and interest are taken into account this suggests that the West of Scotland fleet is currently just breaking even.

• Based on an income multiplier analysis, it is estimated that direct, indirect and induced income fell by 3.0m - 8.4m.

• Estimates suggest that currently there are around 150-200 scallop divers operating in Scotland compared to 300 a few years ago. There is anecdotal evidence that divers are the first to leave the industry with a scaling down in some diving operations evident.

• The reaction of processors to the closures has been mixed. Some smaller processors have been forced to close as their supplies have stopped. For many, scallops only account for a relatively small part of their output and they have relied on other products, especially crabs, to keep them going. Larger processors have been able to source supplies from elsewhere, especially the south-west of England and the largest processors have maintained production, if at lower levels, by importing supplies particularly from France.

• It has also been estimated (based on Table 3.7) that the Scottish balance of payments deteriorated by about 5m in 1999 as a result of the problems to supply caused by algal toxins. In addition, a further loss in the region of 2.5m is likely for 2000.

On balance therefore, it would appear that the Scottish scallop sector has survived the catching bans imposed because of the presence of algal toxins. There is some evidence that the number of divers has reduced. It is also likely that vessels have been operating on reduced profits and incomes which is possible in the short term but not sustainable in the long term.

1. Greig G (2000) Multiplier Values for the Fishing and Fish Processing Industries in the United Kingdom and in Scotland - An input-output analysis, SFIA, Edinburgh.

2. The higher percentage reduction estimated from the survey of fishermen will include allowances for increased costs of fuel, effort and retaining crew and will thus reflect income net of costs.

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