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Review of the Sea Fish Industry Authority 2005
Decisions of the four UK Fisheries Administrations

Summary

0.1. The role of the SFIA should address the needs of the entire seafood industry chain in the UK while continuing to have regard to the interests of consumers (para 7).

0.2. The Administrations would be prepared to consider bringing salmon and migratory trout within the scope of the SFIA, but only if that sector itself were to wish to be included (para 12).

0.3. There is not a strong case in practice for bringing canned and bottled fish within the scope of the levy (para 14).

0.4. SFIA's intentions for working with regional bodies, recognising particular regional requirements, are welcomed. In doing so there should be clarity regarding the respective roles of SFIA and Seafood Scotland and other regional bodies. The bodies should formalise their relationships appropriately and publicly through Memoranda of Understanding and Service Level Agreements (para 17).

0.5. The Fisheries Administrations endorse the conclusions of the review report that a compulsory levy continues to be justified as the primary funding mechanism for the SFIA (para 21).

0.6. The SFIA should not use levy funds to pursue activities other than those which are in the interests of the industry itself (para 27).

0.7. It would not be right to limit expenditure to those who directly pay levy to the SFIA (para 27).

0.8. It is for the SFIA to make regulations to introduce an ad valorem basis for the levy, should they and the industry consider that the benefits of a change in basis are sufficiently attractive (para 30).

0.9. The Administrations agree the recommendations concerning charges and grants (para 32).

0.10. There is little scope for changing the formal arrangements for making appointments to the Board of the SFIA. The Board should ensure that members are well known within the industry, that they are seen to be approachable by any sector of the industry and that they act corporately in representing the whole industry rather than a particular organisation (para 35).

0.11. The representation of the processing, importing and distributing sector on the Board was increased by one seat in the recent appointment round (para 36).

0.12. Fisheries Administrations consider that the SFIA should adopt the reviewers' recommendation (para 119) that it develop a costed forward work programme for a three-year advance period and put this out to formal consultation with levy payers and others in the supply chain. Ministers will then consider the SFIA's programme proposals as part of the normal corporate planning process.

0.13. The Administrations acknowledge that they may need to revisit questions relating to the existence and application of the compulsory levy when the results of the SFIA's recent change in strategic direction become apparent. The Administrations will therefore keep these issues under consideration. They anticipate that they will arise again in the course of the next review in approximately five years' time.

Purpose of this paper

1. This joint paper by the four UK Fisheries Administrations sets out their decisions on the future of the Sea Fish Industry Authority ( SFIA) in the light of the independent review of the SFIA commissioned by the Fisheries Ministers and subsequent consultation with industry. A Summary of Responses, published alongside this paper, sets out industry views on the Fisheries Administrations' proposed decisions and the Administrations' responses to these.

2. These documents, as well as the review report and all consultation responses, are available on the websites of Defra and SEERAD.

3. All non-Departmental public bodies such as the SFIA are regularly reviewed to ensure that they remain relevant and continue to provide a valuable service.

Structure of the paper

4. This paper follows the structure of the review report. Hence, it begins by addressing issues raised in the report about the role and functions of the SFIA. It then considers issues raised about the statutory levy which is the primary funding mechanism for the body. Thirdly it deals with issues of accountability of the body to its stakeholders. It makes reference to Ministers' decisions in response to the parallel review of the agricultural and horticultural levy bodies (the Radcliffe report). Italic print summarises the relevant element of the SFIA review report.

Role and Functions of SFIA

5. The SFIA was established by the Fisheries Act 1981 to serve the interests of the UK sea fish industry.

Definition of "sea fish industry"

6. The review report emphasises the need for Ministers to define the scope of the "sea fish industry" which the SFIA is to serve (paras 36-42 and 66). It notes the decline in the proportion of domestic landings and the increase in the proportion of levy paid on imported fish since the formation of the SFIA. It asks the Administrations whether the SFIA should concentrate on serving that part of the industry which catches and handles UK caught fish, or whether it should provide a service to the UK seafood industry at large. It notes that the Authority must know what its core remit is if it is to have a sound basis for deciding its programme and priorities.

7. The Fisheries Administrations agree with these findings. They are clear that the SFIA should address the needs of the whole of the seafood industry chain in the UK while continuing to have regard to the interests of consumers. The jointly agreed aim of the Administrations is "a fishing sector that is sustainable and profitable and supports strong local communities…." - and the "fishing sector" for this purpose means all aspects of catching, processing, retail and associated industries that rely on sea fish species caught in the wild or farmed, including shellfish (but see para 13 for salmon and migratory trout). This aim and definition appear in the document "Securing the Benefits", the joint UK response to the Prime Minister's Strategy Unit "Net Benefits" report on the future of the fishing industry in the UK. They also appear in the Sustainable Framework for Scottish Sea Fisheries. The Administrations look to the SFIA to take a lead in promoting the achievement of a sustainable food chain for the seafood industry.

8. The Radcliffe Review of Agricultural and Horticultural Levy Bodies (published in October 2005 and available at www.defra.co.uk/corporate/consult/levy-bodies/index.htm) discussed criteria for assessing the case for support of an industry by a levy body. The Fisheries Administrations consider that the rationale for support for the on-shore seafood industry is that much of it remains fragmented and in need of change to address future consumer needs, and so it meets an important criterion for support identified by the Radcliffe review. For example, of the 573 UK processing companies identified in a survey in 2004, 491 (86%) were of small or medium size employing 50 or fewer staff.

9. All but a very few local quayside on-shore companies have taken action to protect themselves against the reduction of UK landings, and now handle a mixture of domestically landed and imported fish. The wide range of companies that meet the criterion for support from levy funds rely therefore on imported as well as on domestically landed fish. This provides a justification for funding work in support of the seafood industry through a levy on both imported and domestic fish.

Extension of role to include salmon and migratory trout

10. The review report argues that a compulsory levy on the sea fish industry may be justified, but to be defensible the burden of levy payments must fall equitably on all who benefit from the services provided. The levy does not apply to salmon and migratory trout or to canned and bottled fish. This, argues the report, gives the salmon industry a competitive advantage over other fish, in that it benefits from SFIA's work to support and promote the industry. The report recommends that the levy should be applied to all businesses in the seafood industry included in the definition of the SFIA's role (para 46-50 and 67-74).

11. The Administrations have considered this argument. In principle the salmon industry may benefit from some elements of the work of the SFIA, such as support for processing activities, and raising consumer awareness of the benefits of eating fish. However it can also be argued that sea-caught fish have benefited from the role of salmon as a key driver in the continued growth and overall popularity of seafood based upon consistency of supply, quality and value for money. Further, salmon prices are determined by major factors such as world supply trends; it is unlikely therefore that the market price of salmon is affected to a great extent by any benefit from the work of the SFIA. Finally, as the report argues elsewhere, the application of the levy should take account of the views of the industry sector concerned. The salmon and trout sector collect a separate, voluntary, levy in support of marketing, which also supports fish quality schemes. Unless their trade marketing infrastructure and the voluntary levy were abandoned, application of the SFIA levy to salmon and trout would represent a significant extra cost. The reviewers concluded from their consultation exercise that the salmon industry is content with its current arrangements for marketing and quality developments.

12. The Administrations conclude that they should retain their current policy, i.e. that they would be prepared to consider proposing the necessary primary legislation to bring salmon and migratory trout within the scope of the SFIA, but only if that industry itself were to seek to be included.

Canned and bottled fish

13. The review report argues that imported canned and bottled fish should also be brought within the scope of the SFIA levy, on the grounds that the present exemption creates a perverse incentive to invest in processing overseas, since fish canned or bottled in the UK does attract a levy (para 47 and 73).

14. The Administrations consider that again there is a balance to be struck. Under the predecessor bodies of the SFIA, a levy on imported bottled and canned fish was provided for, but it appears that it was not implemented, in part because of the administrative complexity and potential cost to the SFIA of doing so. The Administrations conclude that given these costs, there is not a strong case in practice for bringing canned and bottled fish within the scope of the levy.

National/regional structures

15. The review report considered the relationship and demarcation of responsibilities between SFIA and certain other bodies, such as Seafood Scotland ( SFS) and Seafood Cornwall (para 75-87). The reviewers found some uncertainty among their consultees as to the different roles and responsibilities of SFIA and SFS. They recommend that to clarify these roles and responsibilities the two bodies should formalise their relationship in a published memorandum of understanding. Insofar as SFIA seeks to pursue its levy programme through SFS, there should be a formal contract between the two bodies for the provision of services (paras 77-83).

16. The reviewers make the same points in respect of three other regional bodies, arguing that where such bodies exist SFIA should aim to work through them to deliver services in which they have a common interest (paras 84-87).

17. The Fisheries Administrations welcome SFIA's continued intention of working with SFS and other bodies to deliver clear services, recognising that different regions will have particular priorities and requirements. The Administrations agree that the SFIA should clearly communicate this dimension of its activities, and that there should be clarity of the respective roles of SFIA, SFS and regional bodies. The bodies should formalise their relationships appropriately and publicly through Memoranda of Understanding and Service Level Agreements. As we note in our summary of responses, a proposed transfer of funds and functions would be published and consulted upon by SFIA. It will be important that there is complete transparency in the relationship between SFIA and other bodies.

Relations with Government

18. The reviewers respond to the request in their terms of reference to consider how best SFIA can work with Government to deliver Administrations' fisheries strategies. They note no enthusiasm from their industry consultees that SFIA should be working closely with Government to pursue policies in Government strategies. They conclude that levy monies should be used primarily to benefit the levy-paying community rather than to purse a wider public agenda. While accepting that there will often be no difference between Government proposals for the industry and the industry's own best interests, SFIA management should look to the industry rather than Government in deciding its priorities (paras 88-91).

19. The request by Fisheries Administrations has caused some misunderstanding within the industry. We do not seek to divert SFIA from its role of working for the industry, and indeed it is for the SFIA Board, itself made up of a majority of industry representatives, to determine SFIA budgets and work programmes in consultation with industry (subject to Ministerial approval of the body's Corporate Plan). However the Administrations worked closely with industry representatives and the SFIA to create the objectives for industry development in Securing the Benefits and the Sustainable Framework for Scottish Sea Fisheries, and there is thus widespread common ground between Ministerial and SFIA objectives. We will continue to work with SFIA and support it in pursuing the best interests of the industry as identified by the Authority in full consultation with the industry.

Levy funding

Criteria for a compulsory levy

20. In considering the case for maintaining the SFIA's compulsory levy, the reviewers use as a test three principles used in Australia and in the review of the UK agricultural levy bodies, namely the existence of market failure; the use of the levy funds for promotion of the interests of businesses who pay the levy; and consent to the levy. They conclude in the light of responses to their consultation exercise that a compulsory levy continues to be justified at least at present (paras 95-96).

21. The Fisheries Administrations endorse the conclusions of the review that a compulsory levy continues to be justified as the primary funding mechanism for the SFIA and note that this is consistent with the Departments' response to the Radcliffe report, in which we confirmed the need for the continuation of statutory levies on Agricultural Levy Bodies.

22. As noted in para 9 above, the Administrations conclude that the existence of the SFIA is justified by the need to address the constraints caused by the fragmentation of much of the seafood industry. The SFIA, with its levy mechanism, provides a practical means for promoting the sustainable development of the seafood chain.

23. The Administrations consider that care is needed in applying a principle that identifies only those businesses which pay the levy directly to the SFIA as the beneficiaries of levy funding. The levy is raised at the point of first hand sale within the UK for practical reasons, and this identifies the businesses which pass the levy to the SFIA. However it is to be expected that these businesses will treat the levy as any other business expense. Thus they will seek to pass this cost, along with others, on to the purchaser of their product, or may take account of the cost when settling the price at which to purchase the product. In many cases it is to be expected that the cost of the levy, along with other costs of production, is ultimately paid by a stage in the food chain other than the first-hand purchaser of the fish, though this is a long-standing area of uncertainty which cannot be completely resolved.

Use of levy

24. The report expresses concern about the potential for the levy to create market distortions, in terms of the relative benefits derived by different sectors when compared to the amount of levy they pay. The reviewers note a widespread perception among levy payers, especially among those paying levy on imported fish, that the benefits which SFIA delivers to them fall short of the amounts of levy they pay (para 48). They suggest that supporting one part of the industry at the expense of another could reinforce inefficient practices at the expense of more efficient ones.

25. The report recommends that the SFIA programme should meet two key principles:

a) activity supported by levy must be justifiable as contributing to the benefit of the levy-paying community, having regard to the interests of consumers, as opposed to the wider public interest (para 51 and 68);

b) levy payers should benefit broadly in proportion to their contribution, taking one year with another. In the view of the reviewers this should not simply be to give money back to the different sectors crudely in proportion to their contribution, but by financing activities which bring benefits to the levy community as a whole. This would include central services supporting the entire industry or sectoral and local activities in which all levy payers have a common interest. The reviewers explain that this can include working with individual parts of the industry or particular geographical areas where there is a wider industry benefit. They give the example that encouraging sustainable practices in the catching sector is likely to bring reputational advantage to the seafood industry as a whole (para 52-3 and 68).

26. They add that expenditure should add more value than would have been achieved across the board had it been spent by individual levy payers (para 54).

27. Fisheries Administrations agree that the SFIA should not seek to use levy funds to pursue activities other than those which are in the interests of the industry itself across the seafood chain. Drawing on the argument at para 24 above it would not be right to limit expenditure to those who pay levy to the SFIA, excluding others who may bear the actual cost; and indeed by their references to benefit to the fishing fleet it seems clear that the reviewers did not wish to propose that course.

28. Administrations note that at para 48 of their report the reviewers compare the proportion of levy raised on home landings (26%) with the proportion they estimate is spent on the UK fishing fleet (40%). There may have been some misunderstanding here. Administrations are advised by SFIA that proportion of levy spend, implied by the 2005-6 budget, which can be attributed to work for the UK fishing fleet is 30% rather than 40%, and comparable therefore with levy on UK landings.

Rationalising levy collection

29. The review report recommends that the basis of the levy should be changed from a weight basis to an ad valorem basis, on the grounds that this would be fairer and significantly easier and cheaper to administer (para 100). There should be no assumption that the overall SFIA budget would continue to rise in line with price inflation (para 101).

30. As the report notes, the statutory process for determining the basis of the levy is for the SFIA to make regulations, after consultation with stakeholders. These regulations are then subject to confirmation by an order by Ministers, itself subject to Parliamentary process. The Fisheries Administrations consider that it is therefore for the SFIA to make regulations to introduce an ad valorem basis for the levy, should they and the industry consider that the benefits of a change in basis are sufficiently attractive.

Charges and grants

31. The report recommends that SFIA should continue to judge how far it should seek to impose charges on the industry for the services it provides (para 105). It should be free to engage in activities not funded by levy if they complement core activities and it should aim fully to recover the costs through charging (para 69 and 105). The Authority should aim to take full advantage of government grants, but be careful to avoid using levy income as match funding to attract grant where the activities to be financed are not central to levy payers' interests (para 106).

32. The Fisheries Administrations agree these recommendations.

Accountability to the industry

33. The reviewers express concern that the SFIA is not sufficiently accountable to the industry. As a result the overall level of expenditure is relatively free from regular scrutiny; there is no rigorous external scrutiny of the programme against industry objectives; and there is a danger government priorities may be given precedence over industry ones. The reviewers argue that arrangements are needed to ensure that the SFIA is much more responsive to its levy payers while reserving the ultimate authority of Ministers (paras 55-8). They identify options and recommend that Administrations explore them further with the industry with a view to deciding what arrangements should be put in place (para 115).

Board appointments

34. The reviewers found a wish within the industry for more influence over appointments to the Board and greater transparency, and concern that the catching sector is over-represented. They concluded that there was no fully satisfactory way to meet all concerns for representation and that the current system for Board appointments should continue unchanged. However they considered that the representation on the Board of five members with a base in the catching sector was undesirable, because it called into question the balance of membership of the Board.

35. The Fisheries Administrations agree with the reviewers that there is little scope for changing the arrangements for appointments. The Board membership must be limited to a reasonable number. All appointments are advertised, and the processes are managed under the Government rules for public appointments which are designed to ensure fairness and transparency. The Administrations consider, however, that more could be done to explain the process at the time of advertising vacancies. Further, the SFIA Board should make additional efforts to ensure that members are well known within the industry, that they are seen to be approachable by any sector of the industry and that they act corporately in representing the whole industry rather than a particular organisation or sector.

36. The Administrations are pleased to note that action was taken in the recent round of Board appointments to increase the representation of the processing, importing and distribution sectors by one seat.

Options for increased accountability

37. The Administrations note the industry's support for increased formal consultation on the part of the SFIA. They note that the SFIA has already consulted industry on its new strategic direction. They consider that it should continue with this more consultative approach by adopting the reviewers' recommendation (para 119) that it develop a costed forward work programme for a three-year advance period and put this out to formal consultation with levy payers and others in the supply chain. Ministers will then consider the SFIA's programme proposals as part of the normal corporate planning process.

38. The Administrations note that Ministers decided in their response to Rosemary Radcliffe's Review of the Agricultural and Horticultural Levy Bodies that levy payers would have the right to trigger a vote on whether a particular levy and/or "SectorCo" (a new body responsible for service delivery) should be abolished or new ones established. In the case of that review, the proposal for levy ballots was generally popular with respondents, attracting 70% approval. On the other hand, no respondents in our own consultation favoured the idea of levy ballots for the SFIA.

39. The Administrations also note that in three of the five levy bodies covered in the Radcliffe Review, the levy is raised not only on primary production but further up the supply chain as well. A wide range of industry members would therefore be eligible to vote in a levy ballot. In the seafood industry, as both the review and our draft response noted, the levy is paid at first point of sale but can effectively be passed up or down the supply chain. It would appear to be a serious disadvantage that only those who actually pay the levy could participate in a ballot of levy payers, while other parts of the sea fish supply chain would be left out of the process. The lack of interest in levy ballots shown by consultation respondents has heightened this concern. The Administrations have therefore decided that levy ballots are not an appropriate way to improve the accountability of the SFIA at this stage. The Administrations would be prepared to reconsider this question in the course of the next review of the SFIA if industry views on the matter were to change.

40. In line with our policy of openness, copies of the responses we received (with the exception of confidential responses) are publicly available through:

41. If you have any comments about the conduct of this consultation exercise please contact:

or email consultation.coordinator@defra.gsi.gov.uk

42. To discuss any of these issues with SFIA, please contact:

Tel: 0131 524 8649

Department for Environment, Food and Rural Affairs
Scottish Executive Environment and Rural Affairs Department
Department for Agriculture and Rural Development for Northern Ireland
Welsh Assembly Government

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