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Chapter 3 - Fishermen at the Heart of Quota Management

Question 2: Do you agree with our proposals for PO holding licences?

Proposals:

• Keep the link between quotas and individual vessels by continuing to allocate quotas on the basis of the number of Fixed Quota Allocation units held on licences. This system is well established and understood. It helps hold costs down. It allows the Scottish fishing fleet to know where it stands and plan ahead, and it helps keep fishing rights within Scottish fishing communities.
• Allow Scottish Producer Organisations limited access to strictly controlled holding licences that they can use for community quota schemes, or for the benefit of their members and/or the wider community.

Summary of views received:

There was almost overwhelming support to continue to allocate quotas to POs on the basis of FQAs associated with individual licences in their membership. Many noted that the current arrangements are well-established and understood by industry, and that continuing with such arrangements would help provide stability and encourage FQAs to be held by the active fishing industry. Only a handful of responses favoured updating the original reference period on which FQAs were first introduced.

There was a near universal view amongst respondents who commented that PO holding licences assist POs in their quota management function; that they should be retained but possibly limited in number per PO; and that a greater degree of transparency of such holdings (i.e. who retains beneficial interest) was required. There was general agreement amongst those who responded to the proposal to limit the use of PO holding licences to quota units acquired by the PO itself or for community quota schemes. A view was expressed that it was also important for POs to have the ability to hold "company" FQAs on holding licences in circumstances where quota may be maintained for the use of its vessels. It was also suggested that POs should be considered as "communities" in themselves for quota management purposes.

Amongst those who commented, there was near universal support for the principle of retaining the ability of vessel agents/salesmen to hold quota, but in a more transparent and properly regulated manner. There were mixed views regarding creating a quota holding permit for vessel agents/salesmen, and general support that such businesses should be required to demonstrate a genuine link to the active industry, for example, through part ownership of at least five vessels.

There was very little support for a general restriction, or cap, on the amount of quota units which might be held on PO holding licences. However, in terms of the amount which could be held by agents/salesman there was some support for limiting the amount of units along with suggestions that this should in some way be linked to their client/member vessels.

Scottish Government response:

We have given careful consideration to the arguments put forward for re-basing the reference period (either to a more recent period in the past or to a date in the future). Although such proposals have some merit, we consider that rebasing might significantly reduce security and stability of quota holding. We consider that the prudent approach is to continue with the current FQA based arrangements.

We recognise that there may be some risks associated in maintaining PO holding licences. However, we consider that there are compelling reasons (e.g. flexibility for POs) to maintain such arrangements. The Scottish Government has chosen to devolve a significant amount of responsibility to POs for managing quota (proposals to improve PO arrangements are set out in chapter four).

We recognise the important role of vessels agents/salesmen in the fishing industry and are content for such businesses to be able to acquire and hold FQAs. We are concerned that providing such a facility for vessels agents/salesmen to hold FQAs on PO holding licences may however provide an opportunity for non-active interests to also hold FQAs. In order, therefore, to enable these businesses to hold quota, without potentially undermining our management aims, certain safeguards may be required. These safeguards are not intended to constrain vessels agents / salesmen ability to acquire and hold quota for the benefit of their client vessels, but rather discourage others from speculating in fishing quota.

We seek further opinion on the options set out below (particularly from the vessel agents / sales offices). Our current thinking is to: -

• Support the continued allocation of quota to Scottish-recognised POs on the basis of FQAs associated with licences.
• Retain PO holding licences:-
  
  1. Limit the number of holding licences to two per PO. One holding licence will only be for FQAs acquired by the PO itself for use by their active members or in respect of community quota schemes, with the other holding licence specifically for vessel agents/salesmen.
  
  2. Vessel agents/salesmen to have a quota ( FQA) holding permit to hold FQAs on a PO holding licence. In order to qualify, options considered include
  
  • businesses will need to be registered as a seller as defined in "The Registration of Fish Sellers and Buyers and Designation of Auction Sites (Scotland) Regulations 2005", and/or
  
  • ability to demonstrate a direct link to the industry through ownership/partial ownership of at least five Scottish fishing vessels.
  
  • Furthermore, in order to re-affirm this link to Scottish fishing vessels and to ensure the proper use of such a holding permit, we believe there is merit in considering a cap on the FQA holdings on permits (i.e. a sales office can hold no more than 15% of the total FQA holdings held on their clients' vessel licences). Such a limit is not be intended to unduly restrict vessel agents / salesmen, but rather to seek to link quota holdings with the needs of client vessels within the same company.
  
  3. A regular audit of holdings of FQAs on PO holding licences will also be carried out. The structure of such audits will be set out in the Scottish Quota Management Rules.

Question 3: Do you agree with our proposals to ensure that those holding quota have as close a link as possible with the active industry in Scotland, including any particular views on the proposals set out?

Proposals:

• Require the holders of Fixed Quota Allocation units who are not active in the fishing industry to relinquish their Fixed Quota Allocation holdings to active fishermen within six months of the establishment of a Scottish system.
• Require Scottish quota-holders to show that at least 70% of their business income over three years is derived from catching and marketing fish, as a way to help keep quotas linked to those most active within the industry.

Summary of views received:

There was near universal support for the principle that quota should be held as close to the active industry as possible and that it should not be used as a speculative asset. Views on how best to achieve these aims were however mixed.

Some remained to be convinced that the problem of quota held by non-active fishing interests was significant and merited any action - mainly those who held quota on this basis or directly benefited from it. Others thought that this issue still needed to be urgently addressed. Some respondents also expressed concern about what might happen in the future and the need to put in place arrangements to establish a secure system for the long term.

There was also a commonly held view that the proposed six month deadline to relinquish FQA was unrealistic and could risk creating undesirable consequences (e.g. a glut on the market; resulting in lower prices and concentration of holdings by those few currently able to afford to purchase such units). There was general support for the period to be extended (up to ten years in the view of some respondents) alongside arrangements to ensure that such FQAs go to the active fleet.

While the underlying aim was recognised, concern was expressed about what appeared to be the arbitrary nature of the proposed 70% income threshold to be used in defining the "active" industry. It was felt that the desired outcome could be achieved by other means. There were also suggestions that the proposal would be unduly burdensome in administrative terms.

Scottish Government response:

The Scottish Government is pleased that there was general support for the principle that quota should be held as close to the producers as possible, that fishing rights should be retained in fishing communities and that quota should not be used as a speculative asset.

We recognise that our proposals were going to prove controversial in some quarters, particularly from non-active interests holding FQAs and those who benefit from these holdings in the current management system. We also recognise that the amount of quota held outwith the active industry has reduced in recent years. Having carefully considered the arguments put forward, we remain convinced that there are compelling reasons to put in place the proposed management measures if we are to meet our management aims not only now but in future.

However, having carefully considered the responses received and views expressed, we are proposing amendments to our original proposals and would seek your views on these: -

• We intend to drop the proposal that, over a three year period, at least 70% of the business income of Scottish quota/licence holders should be derived from catching and marketing fish. On reflection, we consider that such a criterion would not be fully reflective of the active industry, would not sufficiently take account of differing business structures and might be unnecessarily difficult to assess and operate in practice.
• As an alternative, we propose to identify the "active industry" through arrangements which will define who can hold FQA units. The active quota holders will be those who have a Scottish fishing licence/entitlement, Community quota schemes, vessel agents/salesmen, and units held by POs on behalf of their active members on Scottish recognised PO holding licences.
• All other quota holders will be deemed to be non-active interests. Such holders will be given a period of 18 months from the establishment of a Scottish quota management system to notify the Scottish Government of their intention to dispose of those units, and for these arrangements to be given practical effect. The Scottish Government will consider an extended period to complete the identified transaction(s). For example, we could envisage a case where two parties enter into a lease arrangement (with a view to acquiring FQA on a permanent basis) as a method of disposing quota over a longer period of time.

Question 4: Do you agree with our proposed quota incentive scheme?

Proposals:

• Introduce an incentive scheme for key fish stocks to improve the accessibility of quota for those who can fish it. This scheme aims to incentives POs to utilise their quota allocation, while taking account of the relevant economic, social and environmental factors.

Summary of views received:

Mixed views were expressed about this proposal, which is designed to ensure that, where necessary and expedient, under-utilised quota is made available to those who can fish it. A number of issues were raised at the consultation meetings and by some respondents which suggested a mis-understanding of the intent of the quota incentive scheme and how it would be applied in practice. Issues raised included:-

• A scheme where future allocations are dependent on current catches may incentivise misreporting.
• Leased or transferred quota must be considered as "used".
• This was the old reallocation scheme with all its disadvantages in another guise.
• It would not properly take account of market conditions.
• There could be unintended upward pressure on effort or untimely quota consumption.

Scottish Government response:

Fish quota is an asset of national importance, providing access to fish stocks and generating considerable social and economic benefits to many of our coastal communities. It is critical that we have systems in place that make best use of the available resource, to help encourage sustainable rural economies and economic growth. We recognise that the market in FQA units and quota is well developed. However, markets also have their distortions and failures and Government intervention may be required. A transparent quota trading system should help facilitate an efficient market, with quota resting with those groups that can fish it. If the market is not working as intended (for example, if a PO, with 'spare quota' is not willing to make it available to other POs or will only do so at an unreasonable cost), then there is merit in Government maintaining the means to intervene.

While we recognise that it may not always be necessary, desirable or, indeed, possible to catch all of a particular quota each year, the quota incentive scheme (as described in the consultation document) is aimed at ensuring that quota which is not being caught by the group which holds it is made available to those groups which could make use of the quota. This approach is intended to be as light-touch a measure as possible.

Comparisons with the reallocation arrangements currently enshrined in the quota management rules are inappropriate. The current reallocation arrangements have tended to be instigated part way through the quota year and have been seen by some (donor) groups as having the effect of "rewarding" ineffective quota management by recipient groups. Some argue that thresholds to determine donors and recipients have, in the past, been arbitrary. The Scottish Government understands these concerns and, for these reasons, allied to our aims of aligning quota with the active industry and reducing costs of acquiring quota, we have proposed these alternative arrangements.

In practice, the new quota incentive scheme would be used exceptionally and only when a number of factors (e.g. economic environment; market; overall uptake; general ability of POs to acquire in-year quota) have been taken into account and, of course, not before full consultation with Scottish POs. Unless it is clear from routine contact that, despite proper management of their quota allocations, some POs have genuinely struggled to acquire additional quota from other "under fishing" POs in the preceding year, it is unlikely that these arrangements would be applied. On the other hand, if, over time, it is evident that a particular PO regularly under fishes its quota allocation for a given stock, we would explore with that PO the reasons behind this. One outcome of this exercise might be that some of the FQA units attributed to that PO for allocation purposes could be re-distributed to other Scottish POs on firstly a temporary in year basis and, ultimately, where problems persisted, on a permanent basis.

We propose that the main characteristics of the scheme should be :-

• In order to determine donor and beneficiary groups, assessment of groups' percentage uptake of quota at the year end will not be made on a year-to-year basis but on the preceding three years. It is envisaged that the scheme will start in 2011, using the years 2008, 2009 and 2010 as the initial reference period.
• Assessment of "use" of quota means quota which is caught, leased, swapped, or otherwise transferred between groups (i.e. the more quota is utilised in these ways, the higher a donor group's end-year uptake is likely to be as well as enabling those groups which have the capacity to catch more quota)
• The proposed tolerance level (10% was the example in Annex D of the consultation document) will not be applied since there is no objective basis for such a measure.
• Quota Incentives will only apply at a PO level, and to key quota stocks of commercial importance to the Scottish fishing industry (see Annex A for list of key stocks by ICES area).
• Regular checks will be carried out to ensure that quota that is leased and swapped by POs is being utilised, and not simply being moved around by PO groups to try and circumnavigate the scheme.
• Proposals to re-distribute quota under this scheme will be the subject of full consultation between the Scottish Government and Scottish POs (taking account of any extenuating factors brought to our attention by POs).

Question 5: Do you agree with our proposal to enhance quota holder flexibility by permitting FQA transfers from an 'active' licence?

Proposals :

• Allow active licence-holders to transfer their Fixed Quota Allocation units without the need for a formal licence transaction. This change would help quota holders align their fishing opportunities better with quota holdings, with associated benefits.

Summary of views received:

There was universal support for this proposal and the perceived benefits which would flow from the removal of this restriction. Some caution was however expressed that the recipient licences of such units should only be "active". In supporting this proposal, one respondent noted that the ability of quota holders to effect immediate FQA transfers from one licence to another in order to bring greater certainty when acquiring units, would improve transparency of the transaction and reduce legal costs. There was also some concern expressed regarding the potential risks in further freeing up the trade in quota.

Scottish Government response:

We recognise the overwhelming support for this proposal and the benefits which would flow from the removal of this restriction. This proposal, in isolation, would undoubtedly free up the trade in quota, and it could, therefore, be viewed as a further move in the undesirable direction of Individual Transferable Quotas ( ITQs). The Scottish Government does not support the privatisation of fishing rights. The current restriction on the transfer of FQA units from an "active" licence will only be removed when the proposed package of quota and licensing arrangements are in place, and a Scottish system fully established.

Question 6: Do you agree that we should modernise the current arrangements for quota administration and exchange through an internet-based management system?

Proposals:

• Modernise the current quota management arrangements by moving to an internet based system for transfers.

Summary of views received:

The general view was that an internet based system would provide greater transparency regarding FQA transfers, reduce costs and improve overall efficiency. A view expressed was that this system should be allied to the proposed register of quota holders. It was also deemed valuable to have transparency about quota leasing prices so the market rate for leasing specific stocks could be judged by those seeking to engage in transactions. It was also suggested that the proposal to modernise the arrangements for transfer of FQAs and quotas, should be extended to licensing.

Security and commercial confidentiality for the internet system were concerns expressed by some respondents, along with suggestions that access should be restricted to POs, their respective members, and the Scottish Government. In other words, there should be no public access to the system.

Scottish Government response:

The Scottish Government acknowledges that the current paper-based system requires updating. An internet based system will improve transparency, reduce bureaucracy in processing transfers, and improve the management information those managing quota have at their disposal.

Work will be carried out during the course of this year to develop an internet based trading system for both in-year quota (tonnes) and permanent ( FQA) transfers. The system will comprise two parts:

1. A secure, password protected, site which would give POs the ability to trade in-year quota and permanent ( FQA) transfers.

2. A 'Register of Scottish Quota Holders' and FQA units held. We have considered the comments received regarding this proposal and recognise the concerns expressed over data protection and rights of access though as a register of a national asset it should be as open as possible and we are giving serious consideration as to how this can be best achieved. These issues will be discussed and addressed through the joint Scottish Government/industry PO reform and implementation Group in 2009 (see chapter four).

A complete internet based trading system will be in place in January 2010. It is hoped that other UK Fisheries Administrations will wish to work jointly in delivering such a platform.

Question 7: Do you agree that Scottish POs and quota holders should continue to exchange in-year quota and FQAs with POs/vessel owners elsewhere in the UK?

Proposals:

• Continue to permit in-year quota transactions/leasing and Fixed Quota Allocation ( FQA) transfers between Scotland and other areas in the UK.

Summary of views received:

The continuation of quota transfers throughout the UK was generally supported. This view was also expressed at many of the stakeholder meetings held around the coast. There were some who, while recognising the benefits of in-year quota and FQA transfers across the UK, were mindful of the overarching need to retain quota in fishing communities for the benefit of future generations, and supported the creation of a "ring-fence" arrangement with regard to the permanent sale of FQAs from Scotland. Concerns were expressed that once quota left a community it was very unlikely to return; a continued link between quota and Scotland was proposed as a measure to discourage such sales. By contrast, concern was expressed by some that attaching an economic link criteria to Scottish FQA units could possibly hamper the current transfers that take place.

Scottish Government response:

The Scottish Government recognises the benefits brought to Scottish fishing communities of quota trading with the rest of the UK. However, as other Fisheries Administrations have yet to consult their respective stakeholders on quota reform, it is difficult to know what type of system Scotland will be interacting with. Whilst our priority is clearly to look after our own fishing communities, we do not seek to put in place arrangements which may be to the detriment of other fishing communities in the UK.

We have carefully considered the views expressed and are clear that the benefits of trading FQA units in a UK system must be balanced with the clear long term economic and social benefits of retaining fishing rights in Scotland. We note the concern expressed that attaching economic link criteria to Scottish FQA units could impact on their value and restrict markets. Equally, and additionally we recognise the call from many to do what we can to keep quota in Scotland for future generations of Scottish fishermen and fishing communities. Many highlighted the concern that quota is essential for the sustainability of fishing communities, and once quota leaves a community it is unlikely that it, or the vessels fishing it, will return.

Following careful consideration, our current intention therefore is to:-

• Continue to allow quota holders to transfer their in-year quota from Scotland to elsewhere in the UK
• Place conditions on FQA transfers out of Scotland. Further details are provided in chapter five.

International Quota Swaps

Proposals:

• Where an IQS is "brokered" by Scottish PO (whether as a "package" or not), only Scottish POs would be invited to bid.
• Only in-year increases in UK quota would initially be divided into a "Scottish" and "Rest of the UK" ( RUK) quota on the basis of the "Scottish" FQA share of the stock in question. Thereafter, the "Scottish" quota would normally be distributed to POs on the basis of their FQA share of the "Scottish" quota. In-year reductions in UK quota would be treated similarly.
• Where an IQS is over-subscribed under a Scottish system, there may be circumstances where consideration of bids and, by implication, distribution of the incoming stock could be made on a basis other than, as at present, groups' final allocation of the incoming stock.

Summary of views received:

Only a few of the respondents made reference to the proposals in relation to International Quota Swaps ( IQSs), with most generally agreeing to the proposal that, where IQS deals are brokered by a Scottish PO, then only Scottish POs should be invited to bid. A view was also expressed that when an IQS is brokered by a Scottish PO, then only that PO should be the sole beneficiary. A concern was also expressed about how DEFRA would carry out their international obligations on behalf of the whole UK.

Scottish Government response:

The Scottish Government will consult later this year in relation to the content of the new Scottish Quota Management Rules. It is our intention to analyse the role of IQSs and issues arising. Primarily, we propose that where an IQS is "brokered" by a Scottish PO (whether as a package or not) only Scottish POs would be invited to bid. This work will be taken forward in discussion with other Fisheries Administrations.

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