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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

5 FUTURE FOR THE SECTOR

5.1 INTRODUCTION

This chapter considers both possible future scenarios for the sector based on observed trends and the potential impacts on these trends of current and future Government and EU ¹ interventions. The chapter also considers a number of potential interventions that could be considered by the government under various scenarios.

5.2 FUTURE OF THE SECTOR

Forecasting the future of the scallop fishery is bedevilled by the uncertainty currently surrounding the EU Directive on permitted levels of algal toxin, compounded by ignorance of the biological and ecological mechanisms in operation.

It may be that the surge in toxin levels which peaked in 1999 was an isolated occurrence and that the apparent decline in the numbers of closures since then is an indication that the problem will fade away and disappear at least for a few years. Alternatively, environmental conditions may have changed so that the toxins will now be a permanent feature of the fishery, albeit at varying levels.

Economic equilibrium appears to be limiting activity in the fishery by imposing the opportunity cost of fishing elsewhere as the minimum acceptable return for vessels. Vessels able to fish in other fisheries are hence doing so. The current decommissioning scheme may serve to remove some capacity from the scallop fleet. This will not correct the impact of the loss of fishing opportunities on employment for the redundant crews but may serve to provide an assisted departure from the industry for the vessel owners. Typically a scalloper has a crew of five, but may have any number from two to eight depending on the size of the vessel. For example, the 24 metre King Explorer launched in May 2001 to prosecute the queenie fishery from the Irish Sea north to the Western Isles, and owned by a large processor, has a crew of six ².

The scallop fishery is specialised. Scallop gear is markedly different from nephrops and whitefish gear and there appears to be a steep learning curve for vessels wishing to switch to the other species. There are further barriers to what at first consideration would be an obvious move. Few species of economic importance other than shellfish can be fished without the necessary licence and quota. Among the shellfish only the fishery for crabs is large and it is by no means certain that there is room for extra capacity. Other "miscellaneous" are not important already because they are scarce. There are virtually none within the compass of most scalloping vessels which by virtue of their size cannot venture far out into the Atlantic.

The premium product for the market is the roe-on white meat, and the offal is used only occasionally (mainly in France and Belgium) for making soup.

If the levels of toxicity were to continue to show the apparent oscillating decline since the 1999 peak, there may come a time when the industry could re-open the market for roe-on premium product.

This, however, is easier said than done. The example of the impact of the North Sea herring fishing moratorium from 1977 to 1983 must not be overlooked. When fishing was permitted on the herring stocks, which had substantially recovered, fishing enterprises found that they had little or no market left in the UK. The distribution channels for the fish had disappeared as those involved had had to find another way of making a living during the closure. In Holland a possibly more serious change occurred. The market for salted herring - a premium product - was destroyed and replaced only by one for frozen herring, considered inferior ³. This could prove analogous to the situation facing Scottish scallops should the industry resort to supplying white meat only while the roe-on product is proscribed.

Given that there are few opportunities for vessels, divers or farmers to diversify, the white-meat only product will be a necessary resort to survive. The potential impact is therefore that the primary producers will experience lower grossings for their product if they are able to remain operational. Remaining operational will be all the more difficult with lower sales revenues. The processing sector will experience similar difficulties in loss of trading links and markets.

If the algal toxin problem simply subsides then the prospects for the fishery appear good. The damage to the grounds caused by excessive activity directed to open areas may not yet have reached an irreversible stage. Farming has been increasing its output and may continue to do so within the constraints of the sites available mainly on the west coast of Scotland.

If the problem persists and a white-meat market does not develop then the fishery, farms, and dependent on-shore activities all face a difficult future.

5.3 POSSIBLE FUTURE SUPPORT TO THE SECTOR

The impression exists that though there have been serious problems for the fishery the worst of the impact may have passed. However, there is currently insufficient evidence to be able to predict either that the problem has passed or that it will re-appear at the 1999 levels or worse. The effect to date has been two-fold; there has been a sharp fall in the numbers of divers, and there has been a loss of income to the other enterprises operating in the fishery and using its product.

The divers who have been lost have already found alternative work or left the locality where they fished. As such their position is irretrievable and they are no longer likely to be offered support. The damage to their communities has already been done and absorbed. To try to recover the previous position would be unrealistic.

The position of the surviving enterprises is less clear and really depends on future events both in the fishery and in government which are impossible to predict.

If the level of problems experienced in 1999 is gradually fading away, then it is possible to argue that they represented a normal business risk and that no further support is needed. If, instead, they continue then an assessment will be needed later in the year or even sometime in the next couple of years to consider the situation. Two factors preclude an assessment at present. It is not clear how severely the fishery will be affected by the introduction of trigger levels. This is because it is unclear whether the algal bloom phenomenon is temporary or permanent.

If a trigger is introduced, the situation may call for more rapid action to assist the communities affected. Industry representatives appear to think that a trigger level of 4.6 micrograms will lead to extensive closures of the fishery. If this is so then the pattern of behaviour noted in 1999 may be expected to continue; namely, demise of the weaker enterprises with the associated loss of employment and population in the sensitive areas, loss of output for the vessels and smaller processors, increased levels of importing to cover the shortfall in supply and a loss of value-added.

The question then arises as to the objectives of any support. Where the industry faces what is judged to be temporary difficulty, the objective will be to tide the industry over, maintaining its size and location and preserving the contribution it makes to local communities. Where the industry faces a new and permanent situation the objective will be to allow enterprises to diversify in order to create as little disruption as possible to local communities, if such an objective can be met with economically and politically tenable support.

One response to the closures has been generally observed. It is the concentration of fishing in newly re-opened areas. This has led to a congestion externality causing conflict of use between divers and scalloping vessels and potential damage to the future of the fishery by over-fishing. A solution to the conflict of use might be to reserve certain areas, say those within the three-mile limit, to divers and smaller vessels but such a measure would need to be carefully constructed. Too many divers or small vessels could cause as much of a problem of over-intensive fishing as larger vessels.

Given the current EU and UK fishery management system, an alternative would be to set a Fixed Quota Allocation. There would be some benefit in that these would limit fishing to what had been done in the past. At present FQAs could be set at levels which were not restrictive. However, since French vessels also prosecute the fishery and the agreement of the Council of Ministers would be needed, the problems in instituting such a measure appear insurmountable.

Farmers, like the smallest vessels, are unable to move location when toxins strike. However, the problem they face is of cash flow. Their production remains intact but its use is simply delayed. It might be possible to construct soft-loans as a temporary measure, if these could be made to correspond to EU rules, but great care would be needed to develop a system that correctly evaluated the length of closures. If these were underestimated the system would collapse.

Small Processors face an uncertain future particularly if they specialise in scallops. There is little that can be offered directly to assist. They would benefit most by seeing a continuing healthy local production of the raw material.

Larger Processors can continue to source scallops from imports if need be though there will continue to be a loss of value-added in so far as they are forced to do so. They also have the opportunity to concentrate on their other products though the contribution of scallops to their sales should not be dismissed as insignificant.

5.4 FUTURE SCENARIOS FOR THE SECTOR

To examine the potential future impact of algal toxins on those dependent on the scallop fishery, several scenarios are developed below which correspond to the presence of different levels of toxin in the shellfish.

Given the uncertainty surrounding future interpretation of EU Regulations and the potential for different management of the responses determining what levels of toxin could be described as high, medium or low is impossible.

A better way is to allow the impact on the fishery to define conditions since the impact of management measures may then be interpreted by the effect they have on the fishery and the final impact calculated from that point. Thus four potential levels of impact are envisaged:

1. Closure of the fishery

2. White meat-only fishery

3. Roe-on fishery

4. Whole shellfish fishery

These may be seen to correspond with the presence of high (1), medium (2), low (3) and negligible (4) levels of algal toxin.

A further question arises as to the nature of the problem. The levels of toxin present have potentially different impacts depending on whether the poisoning is permanent or temporary.

The impact of various frequencies and variabilities of the toxins threatens to impose an infinite number of scenarios. To constrain the analysis to a practical level we have assumed that closure of the fishery (1) and an open wholefish fishery (4) may be either a permanent or temporary, but that the roe-off and roe-on fisheries are only temporary in their nature. The potential impact for each of the sectors, their probable response, and the options for government are set out for each scenario below in Tables A to F.

It is assumed that a temporary wholefish fishery is the obverse of the temporary closures, roe-on and roe-off fisheries and hence no separate scenarios are developed for that situation. Similarly, there is no progression by stages from the wholefish fishery to temporary closures via roe-on and roe-off fisheries. Discussion of the impact of a permanently open wholefish fishery is deemed unnecessary for obvious reasons.

5.5 CONCLUSIONS - OPTIONS FOR GOVERNMENT

From the scenarios presented in Tables A to F it is clear that the options for government are often repeated. In essence they reduce to assisting the industry reach a soft landing in the face of an inevitable situation. It is not the business of this report to consider the normative aspects of closure measures but only to analyse their potential impact.

The options include offering retraining for those who lose their jobs, and this can probably be achieved under existing schemes since the numbers involved are relatively low and very widespread.

For the vessel owners, whatever the size of vessel, decommissioning grants would be an immediate help. Other options might include funding to assist in converting a vessel to other uses, though the availability of other uses is very limited. The Scottish Executive expects 11 dredgers with a scallop entitlement to take advantage of the current round of decommissioning, subject to the owners' final decision.

For the farmers, assistance with converting to other products may be necessary and assistance with cashflow problems through soft loans may be beneficial, subject to their being permitted by the EU as part of regional aid. Otherwise compensation for the lost capital investment may be appropriate.

There is little that can be done to help the processing sector apart from some assistance with finding markets for white meat only product if that becomes necessary.

Grants to assist start-ups in businesses outside the fish production sector would help some re-direct their efforts, and a contribution through the EU PESCA initiative or other EU sources may be available.

For most of these the liability of the government would be relatively small and finite. Only with a situation of continuing temporary closures might the government's liability be indeterminate.

1. See Annex 1: "A Brief Guide to the Proposed Tiered System Sampling Regime for Testing Amnesic Shellfish Poisoning (ASP) Levels in King Scallops", Food Standards Agency Scotland.

2. Fishing News, 18 ^th May 2001, pg 10

3. Smit W. (1988) 'The Dutch Herring Fishery: A Case Study of the Effects of Stock Management on the Structure of the Industry and its Market', Proceedings of the 4th Biennial Conference of the International Institute of Fisheries Economics and Trade, DIFER, Esbjerg, pp 757-761.

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