As fisheries worldwide continue to collapse, governments are increasingly turning to market-based mechanisms to ensure their conservation. One such approach is the use of so-called Individual transferable quotas (ITQs). Since New Zealand has experimented with quota systems more than any other country, the Ecosystem Marketplace considers what the Kiwis have learned about the pluses and minuses of this market-based approach to fishery management.
As fisheries worldwide continue to collapse, governments are increasingly turning to market-based mechanisms to ensure their conservation. One such approach is the use of so-called Individual transferable quotas (ITQs). Since New Zealand has experimented with quota systems more than any other country, the Ecosystem Marketplace considers what the Kiwis have learned about the pluses and minuses of this market-based approach to fishery management. In the classic children's book "One fish, two fish, red fish, blue fish," sorting out the species in Dr. Seuss' whimsical ocean is child's play. Some fish, Seuss says, are black, some are blue; others old and still others are new. In the real world, interdependent fishing stocks, a fluctuating ocean environment, and the trouble with fish not respecting any watery boundaries makes divvying up — and even identifying — the ocean's resources much more complex. When it comes to turning fisheries into a sustainable market, the problem magnifies. Fish are far too slippery to parcel out like land, fisheries cover enormous areas of water, and the combination is extremely hard to monitor. "From an academic's perspective, fisheries are the worst example of common pool resources out there," says Tracy Yandle, an environmental policy professor at Emory University. In the last three decades, several countries have turned to transferable quotas to manage their commercial fisheries. This system sets a maximum total allowable commercial catch, then gives fractions of the right to catch fish to members of the fishing industry. The quotas can then, depending on the individual quota management system, be bought, sold, traded, and leased on the open market. The quotas themselves — commonly known as individual transferable quotas (ITQs), or individual fishing quotas (IFQs) — are a form of property right, giving each fisherman the right to catch a designated portion of the total catch in perpetuity. In structure, then, fisheries quota markets resemble sulfur dioxide and other cap-and-trade systems — with the ocean's greater uncertainty thrown into the mix. The response to quota management systems, which have emerged in force in the last three decades, has been similar to the situation of a fisherman casting out a net — when the net comes back in, not all of the fish may be ones he intended to catch. While many quota systems have resulted in observable economic gains, some concerns have been raised about the system's ability to maintain sustainable fisheries and fishing livelihoods. Of all the world's coastal nations, New Zealand has implemented the most extensive quota management system with nearly 100 species, often with multiple fisheries for each one, under the quota system's umbrella.
Leading the pack
Lord of the Rings fans might see New Zealand as a land of gorgeous, snowcapped peaks and expanses of amber-grained valleys, but, in fact, the country gets much of its identity from the ocean. "You can't go any more than 93 miles from the sea," says Daryl Sykes, executive officer and research program manager of the New Zealand Rock Lobster Industry Council. The oceans used to be the last lands of lawlessness, where pirates sailed the high seas — and fisherman threw out their nets for whatever would come. Over the years, countries from the New World seekers, Spain and Portugal, to the Truman-era United States have tried to create control over their surrounding waters. New Zealand's journey toward a quota market began in 1977, when the country declared a 200-mile exclusive economic zone for its fisheries, allowing the country to develop its own deepwater fishing fleet in waters previously fished by the Soviet Union, Japan, and Korea. In 1983, total allowable commercial catches were introduced to the new deepwater fisheries. Three years later, the country set more extensive quotas, covering 17 inshore and 9 offshore species. The initial move to a market-based system was driven by two aims — increasing economic sustainability and preventing overfishing.
The Economic Upside
On some levels, the quota management system has risen to the challenge. New Zealand's seafood industry now contributes more than $NZ1.2 billion each year — up from $NZ200 million three decades ago — and is the island nation's fourth-largest export industry. A thirty-three species study of the quota management system found that quota prices increased along with rising fish prices over a 15-year period. Fisheries stocks that experienced an early reduction in total allowable catch had quota sales rise by 9% annually, while prices for quota leasing — allowing another fisherman to use quota temporarily while the owner retains the long-term rights — rose at an average annual rate of 4%. Economist Suzi Kerr, a co-author of the study, says that streamlining the fishing fleet, as well as making fishing itself more efficient, may drive increased profitability. "By creating property rights, you can get rid of excess fleet capacity," she says. If fishermen see that their fishing costs are rising above their profits, they can use quota sales to exit the fleet with security. When New Zealand turned to a quota management system, the initial quotas were distributed, free of charge, to fishermen based on the historical distribution of the catch. "Part of the bargain is, you get them for free in exchange for reducing the catch," says Richard Newell, a senior fellow at the Washington, D.C.-based institute Resources for the Future and co-author of the study. Many of the gratis quotas have seen significant increase in value – in the rock lobster fisheries, quota prices have increased from an average of $26,000 per metric ton in 1990-1991 to an estimated $220,000 per metric ton a decade later. Kerr, director of the Wellington, New Zealand-based economic and public policy research institute Motu, says that from an economic point of view, the system is definitely working. On the conservation side, she says, "If we didn't have a quota system, we'd be much worse off. We haven't got the problems of other places in the world. We actually have some stocks doing better, when that's not the situation elsewhere." Along the way, several changes have altered the quota management system. Initially, the total allowable catch was distributed in fixed annual tonnages. In order to reduce the total catch from the fishery, the government had to buy back quota on the open market — a prospect, the government realized, that would run in the tens of millions of dollars. Starting with the 1990 fishing season, quota shares were designated as a percentage of the total allowable catch — still rendered in metric tons, but fluctuating annually as the total allowable catch changed. This shifted the operating costs for the quota system from the government to the fishing industry. In addition, the original leasing system was changed into a system called annual catch entitlements — a process which involved legal and administrative changes that could make the market more efficient.
Along with overall economic success for the fisheries industry, the quota system has had its share of failures. The tale of one particular fish, the orange roughy, illustrates the declines that can result if the crucial total allowable catch is set incorrectly. Little was known about orange roughy's life history when the Ministry of Fisheries ushered the new deepwater fishery into the quota system in the 1980s. It's now thought that orange roughy are extremely long-lived — with lifespans that can top 100 years — and mature, on average, at the age of 30. As a result, fish need to stay in the water for decades in order to reach reproductive age and maintain population levels. But because the fish's longevity was initially a mystery, the total allowable catch was set at 58,920 metric tons in 1986. By 2000, the catch shrunk to 15,641 metric tons. Two roughy fisheries have collapsed, and most are now at 10% of their original populations, says Barry Weeber, senior conservation researcher at the Royal Forest and Bird Protection Society of New Zealand. The problem, Kerr and others say, isn't the system itself, it's how the total allowable catch is set. "There's no reason that it shouldn't have worked for orange roughy," Kerr says. But uncertainty about the stock levels, along with time between when the problem was recognized and when the TACC was reduced, slowed the process. In the case of the orange roughy, economic concerns may also have motivated the industry to be resistant to change when severe cuts were first proposed. "Some people have said the stocks collapsed because the industry has no interest in them not collapsing," Kerr says. Some would argue that the industry would be better served, economically, by fishing as much as they can and then moving on to another fishery. The key for fisheries under the ITQ system is setting the total allowable catch correctly, a process that can be extremely difficult because of scientific uncertainty and debate about the goals of a specific ITQ program. Simply keeping track of the number of fish in the water can be nearly impossible. "One fisherman told me that stock assessment is like counting sheep from a helicopter on a cloudy day," Yandle says. Currently, the total allowable catch is set to maximum sustainable yield — a level that supports the largest possible annual catch. Kerr and colleagues are looking at a proposal to set the TAC for an economic maximum yield, which in many cases would suggest that the TAC be set lower than it would under the current system.
Too (many) fish?
Setting the total allowable catch correctly isn't the only concern when managing a quota system. Whenever you set a trap, drop a line, or drag a net, there's always the possibility that you'll reel back in something other than you intended to catch. This unintended catch, called bycatch, is an enormous fisheries problem — a 2003 Pew Oceans Committee report estimated that 25% of caught fish are thrown back overboard. New Zealand's quota system, with its large umbrella covering many species, has a way to address bycatch. If fishermen notice they have a certain amount of bycatch, they can buy quota for these species as well. But not all agree that quotas are the best way of addressing bycatch, or catch in general. Economist Parzival Copes, at British Columbia's Simon Fraser University, has been concerned with several fishing practices that can result from a quota system since the systems were implemented. One of Copes' concerns: the practice of high grading, or dumping less valuable fish to get the most value for the quota. "As a fisherman told me," Copes says, "you throw away the 60-cent fish and keep the dollar fish." And in many fisheries, that spells disaster. When looking at quota fisheries in Iceland, Copes found that the mortality of discarded fish is extremely high, in many fisheries nearly 100%. Unrecorded fish mortality can affect the stock that year and create a cycle of setting total allowable catches on incorrect data. A possible solution to the problem of high grading would be to recast the quota shares in terms of value, instead of quantity. Putting a monetary amount — the right to bring in $1000 worth of a certain species, for example — instead of a number, could make any caught fish worthwhile. In practice, however, value-based quota could prove difficult to monitor, Copes says. Cheating in fisheries isn't specifically a problem of the tradable quota system. In other fisheries management strategies, where input — type and amount of gear, for example — is monitored, fishers could fudge about the kind of traps they're setting. "Any time you're regulating, there's going to be some kind of cheating," Yandle says. In theory, a quota-based market system would make fishermen more interested in the value of their catch, and more likely to try to preserve its value and discourage cheating. In practice, however, cheating often needs to be fairly severe before this happens. One method of addressing problems in New Zealand is the installation of GPS devices on larger commercial boats. That way, fisheries managers can make sure boats are fishing in the location and at the time they report.
The case of the vanishing fisherman
While New Zealand's rock lobster fisheries have been succeeding in economic terms, the attitude behind fishing may be changing as fishermen leave the market. "Until 1999 or 2000, I knew nearly every fisherman by first or second name," says Sykes, who fished rock lobsters for 20 years before moving to the industry council. "Now, they see that quota shares have a value. They're thinking this is as good at it gets," he says. The rock lobster fishing population has started to shift from owner-operators, who are out on the water and have first hand experience with the health of the catch, to a more transient fishing population, which may lease quotas while the quota holders stay ashore. "You've created the whole notion of absentee landlords," Sykes says, a situation which can result in unanticipated changes in fishing behavior. There have been a few incidents where rock lobsters have been caught and kept in the water. Fisherman then hauled in the lobster when the price soars. Meanwhile, if the catch is destroyed by storms or accident, the lobsters don't count against a person's quota, as they were never officially taken. To understand how many fishers are leaving the industry, economist James Stewart and colleague Peter Callagher, both at UNITEC Institute of Technology in Auckland, have examined how quota ownership and quota leasing changed between 1986 and 2000. During this time period, they found, quota ownership became more concentrated for each of the 15 species they studied. Increasing concentration could have several effects on both social structure and environmental sustainability. New Zealand's more diversified economy offers more options for people leaving the fishing industry, but in Iceland, where fisheries contribute 70% of exports and employ 12% of the working population, severe layoffs in fisheries since quota markets have been implemented have prompted great concern. When small fishers exit the market, the fishing fleet also tends toward larger boats which fish more intensively, having a potentially greater effect on stock levels and on sensitive areas such as coral reefs. However, Stewart says, if fewer fishermen own quota, each has more incentive to preserve the fishery for the future, and more power to convince other quota holders when fishing needs to be controlled. In New Zealand's narrowly-held hoki fishery, for example, the industry has been receptive to decreases in total allowable catch, Stewart says. "The ITQ changed the structure of the industry," Stewart says, "and it has an ongoing affect on the industry's structure."
From the variations within fisheries not only in New Zealand, but elsewhere, it seems that market-based system needs to be tailored to the specific fishery, not used as a blanket solution to any aquatic problem. "IFQs don't solve all the problems of the ocean," says Newell, the Resources for the Future economist. Variations on the tradable quota strategy are in the works. The Washington, D.C.-based conservation group Environmental Defense is working with a cooperative quota system structure, where a group of fishermen receive quota shares in a New England longline cod fishery. In California, fishermen may someday apply to a state-managed revolving loan fund to implement a management structure of their choice, with the ultimate goal of downsizing fisheries. And in the quota market hotspot of New Zealand, rock lobster fisheries and others have started to transform into co-management systems, in which commercial stakeholder groups increase their participation in fisheries management. (for more on the quota system in the US, click here) In the end, the problem of regulating fisheries will likely come down to several answers, not just one. With creativity in combining a host of management tools to insure fisheries' profitability and long-term sustainability, perhaps the world's oceans could one day recover enough to merit the Seussical conclusion: "Say! what a lot of fish there are!" Cameron Walker is a freelance writer based in Oregon. Her work has appeared in a number of publications, including National Geographic Online, and Outside Magazine. She may be reached at firstname.lastname@example.org.
Sidebar: This side of the pond
One of the primary benefits of tradable quotas is the elimination of the race to fish. In many systems, where the fishing season has been narrowed to just a short window of time, fishermen push off from harbors in any kind of weather, regardless of the value of the catch. The Alaskan halibut, the largest of all flatfish, has been fished commercially since 1888. By the mid-1980s, the pressure on the halibut population had been so great that the season for commercial fishing had been reduced to 48 hours or less each year. Boats rushed out to catch as many fish as they could, no matter the seagoing conditions or the value of the caught fish. The fish came back in whether they were valuable or not. "They stacked up on the docks like cordwood," says David Festa, director of the Oceans Program for Environmental Defense. Far from being a prized catch shipped straight to white-tableclothed restaurants, "the product they ended up selling was frozen fish protein." In 1995, the derby-style halibut race became an ITQ fishery, opening the season to ten months of the year, with a limit that year of 37 million pounds divided among the quota owners. The halibut has become, at certain times of year, a gourmet meal, and the price of fish has risen while the stock has started to recover, Festa says. This year, the total allowable commercial catch has been set at more than 70 million pounds. After the halibut ITQ fishery was introduced, there was a moratorium on developing new ITQ programs until 2002. Since the moratorium lifted, Environmental Defense has been working on several pilot programs to use market-based strategies in fisheries, including the Gulf Coast red snapper fishery and the Texas shrimp fishery. The red snapper, known as the most profitable — and most threatened — reef fish in the Gulf area, has plans to have an IFQ system on the water for the 2006 fishing season. In Texas, while the shrimp fishery isn't especially threatened, it has significant impacts on the ecosystem. The gear used can tear up the bottom, and bycatch — including juvenile snapper and sea turtles — can be a problem. "The shrimp business needs to find a way to be more profitable so they can adopt new technology," Festa says. Fishing shrimp for value, instead of for quantity, could bring about increasing profits as in the New Zealand rock lobster fishery, where selling live fish directly to the Asian markets has improved both the quality of the fish and efficiency for the fishermen. While there will always be people who want to maximize short-term gains, Festa says, quota's long-term value provides an incentive for fishers to protect their stock — through fishing for value, not quantity, and supporting research and monitoring so they have the best information about stock levels.
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