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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 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)
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
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 …
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)
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”
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)
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
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
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
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)
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
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)
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
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
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
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
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
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)
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 ?
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
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)*
Distribution of the French Fleet per Segment and Vessels Length Categories in 2001
Evolution of the Fleet Size by Size and Segments Between 1991 and 2001