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INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSE BUY-BACK PROGRAMS

INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSE BUY-BACK PROGRAMS March 22-24, 2004 La Jolla, California Decommissioning Schemes and Capacity Adjustment: A Preliminary Analysis of the French Experience Olivier Guyader, Patrick Berthou and Fabienne Daurès

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INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSE BUY-BACK PROGRAMS

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  1. INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSE BUY-BACK PROGRAMS March 22-24, 2004 La Jolla, California Decommissioning Schemes and Capacity Adjustment: A Preliminary Analysis of the French Experience Olivier Guyader, Patrick Berthou and Fabienne Daurès French Institute for the Sustainable Exploitation of the Sea (IFREMER)

  2. Plan of the presentation • Materials • Description of the decommissioning or buy-outschemes in a E.U. context – evolution of the premiums levels • Who stayed, who left - fishing units and vessel-owners • The preliminary assessment of windfall gains - gainers/losers • Impact on Fishing Capacity • Conclusion - weaknessess and improvements

  3. Materials • Indicators of the fleet size at aggregated levels (1983-1990) - Fleet files with vessels characteristics and vessel-owners information at the end of each year (1990-2003) • Removed vessels under decommissioning schemes (1991-1999) • Premiums levels proposed by the government (1991-2004) • Premiums really received by vessel-owners (1991-1995) • Transaction prices on the second-hand market of around 4000 vessels between 1985 and 2000 (60-70% of the transactions) • Other information on regulations …

  4. Decommissioning or buy-out schemes in a E.U. context • Objective of the schemes: remove permanently vessels from the fishing fleet • scrap the vessels • used for non commercial fishing activities • transfered to non E.U. countries • To fulfil with the French MAGPs intermediate and final objectives Engine power (kW), tonnage (GRT then GT) Fleet segment • MAGP#1 1983-1986  Length • MAGP#2 1987-1991  Length • MAGP#3 1991-1996  Length and gears • MAGP#4 1997-2002  Length, gears and species • 2003-2004  Targeted species • Possibility to revew the fleet: construction and modernization • To enforce gears bans – beam trawl in the Mediterranean sea, driftnet for albacore tuna in the Atlantic area (E.C. Regulation)

  5. Decommissioning schemes • Number of schemes: one per year since 1991 • Duration of each scheme: in general few months • Premiums offered to the vessel-owners laid down by the administration • Budget dedicated to the decommissioning schemes per MAGP periods: ***forecasted budget • Public sources of funding: (70/30 then 50/50)E.U. and member state budgets (including governement, regions, districts contributions) • Cost recovery: very small contribution of the vessel-owner to the so called “social solidarity fund”

  6. Decommissioning schemes • Eligible applicants: main criterions • vessel-owners: • no criterion, except that the fishing firms have put in order debts/credit guarantees/mortgages • Vessels: • physical characteristics: minimum length* • age: more than 10 years old* • activity: prove a minimum fishing activity the last two years (75 days per year)* • Belonging to a specific MAGP fleet segment:trawlers <30 m. in 1998-1999 • Targeting significantly species for which the stocks are in bad state: 30% of the cumulated landings of monkfish, hake, cod, sole, nephrops (2003-2004)

  7. Decommissioning schemes • Application to the decommissioning scheme is not mandatory • Selection of the applicants: order of arrival (budget ceiling not reached) • Premium levels per vessel Premium levels in 1991 for scrapped vessels (governement 30% and Community contribution 70%) • Premium must be settled below E.U. premium ceiling • Uptake ratio for vessels with low GRT/kW index • Decrease of the premium as a function of age (more recently) Values in Constant Euros 2001 • So called « social measures » for the crew members  transitory incomes

  8. Evolution of the premium/kW and per length categories between 1991 and 2003 Based on the premium offered by the government • Premium levels were increased over the period • Gap between the premium offered by the E.C. ceiling premium has been reduced (95% of the Community level in 2003-2004) • incentives to remove the vessel over 12 meters increased after 1996 (to discharge delays of MAGP#3 and fulfil with MAGP#4 segmentation • Regional and district collectives contributed significantly to the premium levels received by the vessel-owners • Their contribution to member state share fall from 38% to 25% between 1991 and the 1992-1996 period • The decline in premium level received over the 1992-1996 period is explained by this reduction and the contribution of the Community bugdet (70% to 50%) • May have reduced the incentives to exit … Premium really received by the vessel-owners

  9. Who stayed, who left ? • Removed vessels between 1991 and 1999* * incomplete data • A minimum of 1690 decommissioned vessels* / 29,000 GRT/ 163,000 kW • 73% of the fleet engine power reduction between 1990 and 1999 • 55% within the first scheme to balance the delay of the MAGP#2, especially small fishing units • Utilization of the Removed vessels Sample of 1357 vessels (1991-1995) • 95% of the vessels were demolished, 2% exported to third countries representing 11% of the total engine power

  10. Removed Vessels/Initial Population as a function of length categories and MAGPs • Removed vessels: 76% were less than 12 meters, especially under MAGP#2 with around 12% of population removed in each length categories. The relative contribution of these categories declined under MAGP#3 and #4 • 22% of the removed vessels were between 12 and 24 meters with a higher and quite stable contribution of the 12-16 m. category (10%) than for the 16-24 meters category (6%). Positive because these vessels were the most efficient in terms of fishing mortality – most of them were trawlers • 2% of the removed vessels within the more than 24 meters category (higher contribution • in terms of engine power and tonnage)

  11. The age of the removed fishing units Removed vessels over the 1991-1999 Period per Age Categories Removed Vessels/Initial Population as a Function Age Categories and MAGPs • Similar profiles of exit except for MAGP#4 • 20% of the 20-25 age category removed in 1991 • Average age of the remaining vessels: • 15.1 years in 1991/ 19.0 in 1996 / 20.0 in 1999 • Old removed vessels: 31% were more than 30 years old, 46% between 20 and 30 years • A significant share of the vessels at the end of their life • Average age of exit: • 25.6 years in 1991/ 26.2 in 1996 / 30.0 in 1999

  12. The fleet segments of the removed fishing units Required reductions in engine power (kW) under MAGP#3: 21.2% for the trawlers segment, 16.2% for the dredgers, stabilization for non trawlers using passive gears Number of observations: respectively 404 and 311 for the period 1992-1996 and 1997-1999 • Problems encoutered because there was no link between the MAGPs segments and the decommissioning schemes which did not use segments before 1998 • 39% of the vessels and 33% of the total engine power were removed from the non trawler segment • Failure to reach MAGP#3 objectives at the end of 1996 (delay of 20,000 kW due to the trawlers segment)

  13. The owners of the removed fishing units Vessels-owners/Initial Population as a Function of Age Categories 1991: Distribution of the initial population and the “removed” vessel-owners per age categories • quite homogenous distribution per age categories of the number of removed owners over 30 years old (12% in 1991) • stable rate of exit between 30 and 45 years old, decrease between 45-50 and increase over 50 years old • Average age of exit vs Average age pop. • 1991 45.2 41.2 • 1996 44.9 42.3 • 1999 46.4 42.3 Remaining vessel-owners • 31% of the vessel-owners who decided to remove their fishing unit decided to stay in the fishing industry • Around 45% for the youngest age categories

  14. A preliminary analysis of the windfall gains • Premium > Willingness to receive to scrap their vessel • Cost-effectiveness of the public policy: maximize the capacity reduction with the available budget • Distributional consequences: from tax-payers to fishermen and between fishermen : any explicit reference to this objective in the French decommissioning schemes

  15. Methodology to assess windfall gains: comparison of the premium value received by the vessel-owner to his vessel value on the second hand market (opportunity cost) • Estimation of the vessel price from a Hedonic model • 4000 transactions between 1985 and 2000 • Functional forms tested (Guyader et al. 2003) • It is then possible to give an estimated value for each decommissioned vessel on the basis of its physical characteristics (GRT, age) and the year of decommissioning

  16. Windfall gains: results • Positive windfall gains with relative rents decreasing with vessels size over the 1991-1995 period • Differences between years and vessels length categories

  17. Windfall gains: results Premium and estimated price of a 10 GRT vessel of different age classes (no ageing effect) Evolution of the Atlantic fleet value: a capitalization of an access right implicit value in vessels price • The member state buybacks not only the vessel but also the operation permit

  18. Impact of Decommissioning Schemes on Fishing Capacity Distinguish the impact of buyback schemes from other regulations • Control of entry flows to the fishing fleet : implementation in 1988 of an operation permit (PME) at national level (limited entry system) • Operation permit issued for each new capacity project and a Total allowable operation permits (kW and GT) defined each year by the administration Evolution of the fleet structure per Age categories (1991-1996-2001) • Marked reductions in new buildings in the 90s (less than 800 units) compared to the 80s (around 3000 fishing units)

  19. Control of exit flows by decommisioning schemes + « natural exits » (exportations …) Evolution of the French fleet between1983 and 2003 • Net decrease in fleet size • Around 2680 vessels for 222,000 kW • Decommissioning schemes concerned a least 1690 vessels for 163,000 kW (73% of the engine power reduction) • A success story ? • Contribution of the trawlers was low compared to the other segments (see paper) • Reduction of the fleet size in terms of control variables (kW, GT) • Decrease in the fleet material value (decrease in overcapitalization?) • Increase in real engine power, size of the gears, technical progress of the reamining vessels  fishing mortality ?

  20. Conclusion : • Inconsistencies in the public policy of capacity adjustment – “Danaïdes barrel” • subsidies for dis-investment (89M€) vs subsidies for investment (427M€) forbidden at the end of 2004 • Lack of individual rights allocation to circumvent the “race for fish” growing number of licences systems and individual quota allocations • Better than if nothing has been done • Improvements in French buy-out schemes • Proof of fishing mortality reduction to be elected (historical landings) [2003-2004] • Dedicate budget amounts for targeted segment and differentiate premium levels [2003-2004] • Rules concerning a maximum age of scrapping (avoid to fund old wear and tear vessels) ? • Administrative vs tendering system ? • Reduction of the duration of the schemes to avoid too much distortion in capital markets • Buy-out schemes may be seen as a necessary tool to get rid of redundant capital - vessels with a positive opportunity cost stay in the fishing industry even in the case of ITQ systems • Not a sufficient tool right based systems

  21. Conclusion :

  22. For discussions Evolution of the Total Allowable Operation Permits in Terms of Engine Power (kW) Evolution of the Public Subsidies to French Fleet (in Constant Euros 2002 including E.U. Funding)*

  23. Distribution of the French Fleet per Segment and Vessels Length Categories in 2001

  24. Evolution of the Fleet Size by Size and Segments Between 1991 and 2001

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