EFFECTS OF INDIVIDUAL QUOTA SYSTEMS ON NEW ZEALAND AND BRITISH COLUMBIA FISHERIES

February 1998 EFFECTS OF INDIVIDUAL QUOTA SYSTEMS S133 Ecological Applications, 8(1) Supplement, 1998, pp. S133 S138 1998 by the Ecological Society of America EFFECTS OF INDIVIDUAL QUOTA SYSTEMS ON NEW ZEALAND AND BRITISH COLUMBIA FISHERIES Sea Grant Extension Program, Department of Wildlife, Fish and Conservation Biology, University of California, Davis, California 95616-8751 USA Abstract. With the growing importance of individual transferable quotas (ITQs) in fisheries management, it is critical to document and understand what happens when individual quotas are implemented. In-person interviews with fishing business owners and others were conducted in 1987 and 1995 in New Zealand, where ITQs were implemented in 1986. Similar interviews and mail surveys were completed in 1993 1994 with participants in British Columbia s (Canada) halibut (Hippoglossus stenolepis) fishery, where individual vessel quotas were implemented in 1991. Results indicate (1) an end of the race for fish, (2) industry participants maximization of returns from quota holdings, and (3) strong influence of individual quota system design details on outcomes. Implications of ITQs for sustainable fisheries management are discussed. Key words: British Columbia; fishery management; individual quotas; marine fisheries; New Zealand; race for fish; rights-based fishing; sustainability. INTRODUCTION Problems caused by the common property nature of fishery resources were pointed out by H. S. Gordon in his important (1954) paper. Lack of property rights has motivated fishers to race each other for the fish. This race usually leads to industry overcapitalization and overexploitation of fishery resources. Some resource economists extended Gordon s concepts and have advocated the use of individual transferable quotas (ITQs) to promote economically rational fisheries exploitation (Christy 1973, Moloney and Pearse 1979). Interest in ITQs intensified during the past two decades as fishing power of fleets grew significantly and limited entry licensing often failed to slow the race for fish (Wilen 1988). Individual transferable quotas involve the allocation of a share of the total allowable catch (TAC) to individual operators. ITQs are a quasi-property right that can be a fixed quantity or a percentage of a variable TAC and can be allocated for specified time periods or allocated in perpetuity. The details of ITQ systems vary widely depending on the fishery, economic goals, political realities, and industry structure and history. Major components of ITQs include initial quota allocation methods, degree of transferability, cost recovery or resource rentals, aggregation limits, and setting and adjusting total allowable catches. System details are important because they affect outcomes. For background Manuscript received 20 February 1996; revised 15 November 1996; accepted 15 February 1997. For reprints of this Special Issue, see footnote 1, p. S1. discussion, see Christy (1973), Maloney and Pearse (1979), Grafton (1996). Implementation of ITQ systems in marine fisheries has accelerated since 1986. Experience to date suggests that individual transferable quotas do perform much as economic theory suggests: fishery participants are seeking to maximize profits within the constraint of an ITQ (Boyd and Dewees 1992, Casey et al. 1995, Arnason 1996). The role of individual quotas in sustaining marine fisheries continues to be hotly debated. Examples of major issues include: initial allocation methods, aggregation of quota shares, conservation of fish stocks, commercial/recreational allocation of TACs, and cost recovery by government. This paper summarizes empirical work I have been doing since 1986 in New Zealand s individual transferable quota (ITQ) and British Columbia s halibut (Hippoglossus stenolepis) individual vessel quota (IVQ) systems. The details of these two systems differ considerably, but examining them together provides useful information about this type of fisheries management. The primary objective of each study was to document what happens when individual quota systems are implemented. I summarize my findings, discuss issues raised in both cases, and discuss the relevance of individual transferable quotas to sustainable ecosystem management of marine fisheries. METHODS The New Zealand field work took place over two 9- mo periods in 1986 1987 and 1995. In 1987, I completed in-depth personal interviews with 62 commer- S133

S134 Ecological Applications Special Issue Responses of Auckland, New Zealand, region fishers and fishing company managers to questions about individual transferable quotas in 1987 and 1995. TABLE 1. 1987 1995 Number who own quota (N 62) 49 34 Positive ITQ effects (% of interviewees mentioning) Conserves fish stocks Provides asset/security Reduces effort Improved quality 53 42 23 0 50 27 13 19 ITQ problems (% of interviewees mentioning) Highgrading 66 Enforcement 40 Company control 26 Resource allocation conflicts 6 Complexity 0 Number who agree with statement (%) New Zealand fishing industry better off ITQ compatible with beliefs ITQs conserve stocks Fishing safer with ITQs My economic situation improved More secure about retirement Difficult for young to enter 58 56 56 39 48 73 95 25 21 46 33 35 76 73 68 50 45 64 98 cial fishermen and fishing company managers from an unstratified random sample chosen from the Ministry of Agriculture and Fisheries list of Auckland Region provisional quota owners. This included both people who stayed in the fishery and those who sold out. During 1995, I was able to re-interview 52 of the 62 case study participants to obtain longitudinal data (Table 1). For details on the 1987 interviews, see Dewees (1989) and Boyd and Dewees (1992). To gain a broader perspective on the effects of New Zealand s ITQ system in 1995, I conducted an additional 40 interviews throughout New Zealand with fishing company managers, individual fishers, Maori-owned fishing business staff, Ministry of Fisheries staff, and leaders from environmental and recreational organizations. In addition, I was able to gather some Ministry of Fisheries data to look at national changes over time (Annala 1996, New Zealand Ministry of Fisheries 1995; Table 2). The field work in British Columbia, Canada, was conducted over a 6-mo period in 1993 1994. We completed in-depth interviews with 12 of the 14 primary halibut processors, and we surveyed all 435 licensed halibut fishers by mail (31% return). Copies of all survey instruments are available from the author. RESULTS AND DISCUSSION New Zealand New Zealand implemented ITQs for most of its commercial fisheries in 1986. This followed (1) a 1982 moratorium on new fishery entrants in 1982, (2) implementation of enterprise allocations in deep water fish such as orange roughy (Hoplostethus atlanticus) in 1983, and (3) a general perception in the management agency and industry of a crisis due to overfishing and overcapitalization. In addition, New Zealand was beginning a major economic change from governmentsubsidized or government-owned businesses toward privatization, removal of subsidies, reliance on market forces, and recovery of costs (Boyd and Dewees 1992). The coinciding perceptions of fishing crisis and a government economic policy favoring privatization facilitated a rapid and major transition to ITQs. New Zealand implemented a system nearly identical to that described by Moloney and Pearse (1979) in their pioneering argument for the benefits of ITQs. See Dewees (1989) and Boyd and Dewees (1992) for a detailed description of the system and its early modifications. Basics of the New Zealand system include: 1) Allocations were made to fishing vessel owners based on 1982 1984 catch histories. 2) Ten fishery management areas (FMAs) have been set up and TACs established for species within these FMAs. 3) Government used buyback and across-the-board cuts to reduce the historical catches to meet TAC levels at a cost of $45 000 000 in New Zealand currency (in 1986, $1.00 in New Zealand currency was valued at $0.55 in U.S. currency). 4) The government would enter the market to buy back or auction off quota to adjust TACs. By April 1990, the government switched to a proportional ITQ system to remove the need for it to enter the market. 5) Aggregation maximums were set at 20% of TAC TABLE 2. Changes in New Zealand fishing industry from 1986 to 1995. Characteristics 1986 1987 1994 1995 Fishing industry employment (no. individuals) Quota owners nationally (no.) Quota owners Auckland region (no.) Holdings of top three quota owners (%) Holdings of top ten quota owners (%) Fishing vessels (no.) Seafood exports (in 1986 New Zealand dollars) Resource rentals/cost recovery Species groups under ITQs (no.) 7900 1356 902 28 67 2331 $657 000 000 $25 000 000 25 Compiled from Annala (1996) and New Zealand Ministry of Fisheries (1995). 9838 1733 855 44 68 2768 $896 000 000 $37 000 000 32

February 1998 EFFECTS OF INDIVIDUAL QUOTA SYSTEMS S135 (in each FMA for each species) for inshore species and 35% for deep water fisheries. When rock lobster came into the ITQ system in 1990, a 10% limit was set for that species. 6) A low initial resource rental was charged ($3/10 3 kg). This rental was later raised on a species-by-species basis. Resource rentals were then frozen after the government switched to proportional quotas in 1990 and the resource rental funds were used to compensate industry for cuts in total allowable commercial catches (TACC) during a transitional period ending in 1994. In 1994, resource rentals were terminated and the government started collecting fees to recover the costs of research, management, and conservation (including non-itq species). Data from the 1987 and 1995 interviews are presented in Table 1. See Dewees (1989) and Boyd and Dewees (1992) for details of the 1987 interviews. Numerically, this sample was dominated by small-scale individual quota owners. Five of the six vertically integrated companies in the 1995 interviews had very positive responses to the ITQ system. These companies stated that their firms relatively secure fish supplies resulting from the ITQ system enabled them to do longterm planning and value-added product development. The small-scale quota owners interviewed had mixed feelings. Many of these operators depend on the extremely valuable snapper (Pagurus auratus) fishery in the Auckland region, which has undergone significant declines in TAC since 1986. Currently the Minister of Fisheries is attempting to reallocate 40% of the commercial catch to the recreational sector in the Auckland region. Participants in the snapper fishery perceived of holding snapper quota as very risky because of likely future cuts and reallocation of TACs. Cuts could significantly reduce the value of their individual quota holdings. Data on national changes since 1986 1987 are found in Table 2. Several factors have influenced these changes. There has been a continued trend toward New Zealandization of the fishery industry with more New Zealand harvesting and processing. Processing employment has grown as vertically integrated companies and others continue to expand processing of value-added products. Seven more species groups have been added to the quota management system since 1986. In addition, non-itq fisheries such as tuna and scampi (Metanephrops challengeri) have grown dramatically. According to a recent report, New Zealand catches have increased 40% since 1986 (New Zealand Ministry of Fisheries 1995). Vertically integrated companies landed two-thirds of the fish before ITQs, and by 1989, the top 10 companies held 82% of the quota (Bevin et al. 1990). In recent years, several large companies have left the fishing industry and their holdings flowed to other companies, including those involved with settlement of Maori claims, reducing the holdings of the 10 largest vertically integrated companies to 68%. Revenue generated for government has been quite variable: first, due to disputes about what is reasonable profit and, second, compromises due to the settlement of Maori claims. Resource rentals ended in 1994 and have been replaced by cost recovery, which generated 80% of the cost of research, management, and enforcement in 1994 1995 (Annala 1996). There has been considerable change in the New Zealand fisheries since 1986. Maori fishery claims related to the Treaty of Waitangi have led to settlements that have increased Maori quota assets from near 0 to 40% of New Zealand s fishery quota. Most of these assets are currently held in the Treaty of Waitangi Fisheries Commission (TOWFC). This includes the quota that is leased out by TOWFC to Maori iwi (tribes) at a discount from market price and quota owned by companies such as Sealord Products (50% Maori owned). The tribes are using a variety of strategies to utilize this quota including: (1) leasing to established fishing businesses, (2) leasing to Maori fishers, and (3) forming Maori-owned fishing businesses to manage quota assets. The primary issue now is how, and if, the Maori quota will be permanently allocated to the tribes. The involvement and influence of recreational groups and environmental organizations on New Zealand fishery management has increased. The recreational fishery and support industries such as charterboats have grown as the New Zealand economy has improved since 1986. Recreational interests have formed organizations and they now participate in fishery policy negotiations. Environmental organizations have also become very active and have filed several suits against the Minister of Fisheries. Participation by noncommercial stakeholders now significantly influences the setting of total allowable catches and total allowable commercial catches. For example, in the valuable inshore snapper fishery, the Ministry of Fisheries has to balance a premium commercial fishery, an expanding recreational fishery, and Maori traditional customary take with concerns about sustaining and rebuilding stocks. Recent decisions by the Fisheries Minister to reallocate 40% of the Auckland region snapper to recreational catch has caused great concern among ITQ owners. Major comprehensive fisheries legislation was passed by Parliament in 1996 and it includes several significant changes. One change is the separation of each quota owner s ITQ into permanent ITQ and an annual catch entitlement (ACE). The ITQ is the perpetual property right, which is registered, secure, and can be used for collateral. Every year, the ITQ owned generates an annual catch entitlement in kilograms that becomes the authority to cover catch in each fishing year. Other changes include establishing a formal pro-

S136 Ecological Applications Special Issue cess for conflict resolution, issuing 20% of ITQ for fisheries brought under the quota management system in the future to Maori, and declaring intent to include all commercial species under the ITQ system. Several conservation measures were included. The ability to carry forward this year s overages as a debit against next year s catch entitlement was abolished. Undercatches of 20% can be carried forward into the next year. A more precautionary approach to setting TACs was adopted. This reflects the growing worldwide concern about sustainability of fisheries resources and growing influence of the noncommercial fishery stakeholders in New Zealand. One legislative change that had already occurred in 1995 was the separation of fishery policy into the Ministry of Fisheries and fisheries stock assessment into a Crown Research Institute. This appears to be leading to more privatization of fisheries research, with consulting firms and government researchers competing for research funds. British Columbia halibut fishery British Columbia (Canada) implemented individual vessel quotas in their Pacific halibut fishery in 1991. For a complete description of that fishery and more details of our study than can be presented here, see Bell 1981, Turris 1994, Casey et al. 1995. This longline fishery had evolved into a derby fishery despite implementation of limited entry in 1979 (435 vessels). The season declined from 60 d in 1982 to 6 d in 1990, even with a larger harvest quota. After considerable government industry consultation, an individual quota system was implemented: 1) An 8-mo season was established. 2) Each licensed vessel received a share of the TAC based (70%) on catch history (1986 1989) and the rest on vessel characteristics. 3) A self-funded monitoring and enforcement program was established. 4) During the first two years the shares were nontransferable. In 1993, limited transferability was allowed. Each vessel s initial allocation was divided into two equal shares and quota owners could lease out or lease in up to two shares (maximum aggregation of four shares). The limits on transferability grew out of concerns about aggregation of quota shares. This gradual transition to transferability also allowed fishery participants time to adjust to the new system and think through their participation decisions. Major findings of our interviews and mail survey field work are summarized in the following list and in Table 3. 1) The low volume of halibut landed throughout the year allowed processors to sell 94% of the product fresh compared to 42% before IVQs. 2) There was evidence of a 55% ex-vessel price gain Pacific halibut fishers responses regarding attributes of British Columbia s individual vessel quotas (IVQs) in 1994. TABLE 3. Statement IVQs conserve halibut resources IVQs make fishing safer I am better off under IVQs I feel more secure about my retirement Difficult for young to enter Agree or strongly agree (%) 80 72 80 84 77 All values are different from 50% (binomial chi square test [P 0.05]. associated with IVQs compared to the adjacent Alaska open-access derby fishing. 3) Interviewees felt, and Department of Fisheries and Oceans data confirm (E. B. Economics 1993), that there was a transfer of market share from large traditional processing firms to smaller firms specializing in halibut. The number of firms processing halibut increased from 57 to 69 and the locations of landings became less concentrated. These changes may be due to the reduced need for large freezing capacity to handle the glut of landings in the previous derby fishery. 4) Seventy percent of the quota owners fished their entire allocation. Seventeen percent leased additional shares and 13% leased out one or both of their shares. 5) No fishers increased their crew number and 44% reduced crew (usually by one person). Among those who reduced crew size, 59% increased remuneration to their crew. Those reporting maintaining the same crew size either kept crew remuneration the same (76%) or decreased it. We estimated that there was a 32% reduction in the number of crew in the fishery, but those crew still in the fishery seem to be better off. 6) On average, the initial quota allocation of those leasing quota in 1993 was significantly higher than those leasing out quota to other halibut vessel owners. The unique characteristic of the British Columbia halibut IVQ has been the gradual relaxation of transferability. There was great concern about aggregation, so the industry and government restricted transferability. Future issues in the fishery will revolve around the market effects of the 1995 implementation of individual quotas in the much larger Alaska halibut fishery and future relaxation of the transferability restriction in the British Columbia fishery. Implications for sustainable fisheries management There appears to be three generalizable outcomes across ITQ systems. 1) The race for fish ends because each quota owner is assured access to a portion of the total allowable catch. This race (in terms of effort and technology) for fish is a characteristic of many fully or overexploited fisheries. 2) Industry participants will seek to maximize the

February 1998 EFFECTS OF INDIVIDUAL QUOTA SYSTEMS S137 return from their quota holdings. This can take the form of value-added products, innovative marketing, quality improvements, market timing, and in some cases highgrading (discard of lower valued catch). 3) Pre-ITQ industry structure and the design details of each ITQ system strongly influence outcomes. These details include initial allocation methods, aggregation limits, transferability, and cost recovery. Before 1986, vertically integrated companies in New Zealand landed 67% of the fish (Bevin 1990). With relatively high aggregation limits (10 35%), full transferability/leasing, government economic policy encouraging export, and market forces, vertically integrated companies continue to land the majority of fish. In contrast, the north Pacific halibut fishery was made up primarily of small-scale quota owners. The Canadian and Alaskan halibut IQ programs have low aggregation limits and some restrictions on transferability and leasing. There has been some consolidation, but the fishing industry still consists primarily of small-scale owner-operators. In terms of sustainability, ITQs appear to provide some stability on the important economic regulation side of fisheries management. However, they must be linked to good stock assessment work and well-defined objective methodologies for setting total allowable catches (Sissenwine and Mace 1992). In New Zealand, the Fisheries Minister (a member of Parliament) sets the TACs using advice from the Ministry of Fisheries, the fishing industry, and other stakeholders. In the long run, it might be better to base the TAC decisions on management plans rather than on the judgement of an elected official. Allocation of the TAC between user groups needs to be addressed before ITQ implementation, and there should be some flexibility if unexpected changes occur. In the Auckland area snapper fishery, both the recreational landings and political influence of anglers have increased significantly since 1986. In 1995, the Minister decided to reduce the total allowable commercial catch (TACC) by 40% (Anonymous 1997). The owners of snapper quota felt that the decision to reallocate TAC to the recreational industry was political. The issue is now in court. The other allocation issue that New Zealand had to face after ITQ implementation was the allocation of quota to Maori based on the Treaty of Waitangi. This has been a long and difficult process. Currently most of the Maori fishery assets are held by the Treaty of Waitangi Fisheries Commission and leased out to tribes in a process somewhat analogous to Alaska s community development quotas (Ginter 1995). Probably the most important part of ITQ implementation involves the stakeholders deciding what they want the fishery to look like. Methods of initial quota allocation, aggregation limits, and transferability are the key issues that will affect outcomes. For example, if the goal is to sustain communities, some quota could be allocated to the community rather than to individuals. If the goal includes local management and enhancement of sedentary shellfish resources, smaller management areas with self-regulated access to the shellfish beds (with recreational, subsistence participation) may be appropriate. If a goal was to encourage development of an offshore resource, aggregation limits could be set high enough to encourage long-term investment in product development and fishing technology. Cost recovery, rather than resource rentals, is a major factor in both the New Zealand and British Columbia cases. In both cases, the industry has become intensely interested in how its funds are used for management and research. The quota owners appear willing to pay reasonable costs. The primary issue in this situation appears to be who controls how the funds are spent and how the costs are calculated. These two cases of ITQ implementation are very different, but the majority of the participants and managers in both cases think their fisheries are better off. The decade of New Zealand experience has shown that ITQs change fishing industry behavior significantly and create some economic stability. As world experience with ITQs grows, managers, industry, and communities are learning how to address issues that arise with this very different management technique. ITQs, linked with good population assessment and TAC setting, can be a useful sustainable fisheries management tool. Recent papers on the Nova Scotia sea scallop fishery (Brander and Burke 1995) and Pacific halibut (Casey et al. 1995), species that are subject to both open access and individual quota management, provide a snapshot of the different outcomes under different management regimes. LITERATURE CITED Annala, J. H. 1996. New Zealand s ITQ system: have the first eight years been a success or failure? Reviews in Fish Biology and Fisheries 6:43 62. Anonymous. 1997. The snapper one case. Seafood New Zealand 5(s):29 31. Arnason, R. 1996. On the ITQ fisheries management system in Iceland. Reviews in Fish Biology and Fisheries 6:63 90. Bell, F. H. 1981. The Pacific halibut: the resource and the fishery. Northwest, Anchorage, Alaska, USA. Bevin, G., P. Maloney, P. Roberts, and N. Redzwan. 1990. Economic review of the New Zealand fishing industry 1988 89. New Zealand Fishing Industry Board, Wellington, New Zealand. Boyd, R. O., and C. M. Dewees. 1992. 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S138 Ecological Applications Special Issue for domestic management. Occasional Paper 19, University of Rhode Island, Law of Sea Institute, Kingston, Rhode Island, USA. Dewees, C. M. 1989. Assessment of the implementation of individual transferable quotas in New Zealand s inshore fishery. North American Journal of Fisheries Management 9:131 139. E. B. Economics. 1993. Evaluation study of individual quota management in the halibut fishery. Internal audit and evaluation branch publication, Canadian Department of Fisheries and Oceans, Vancouver, British Columbia, Canada. Ginter, J. C. 1995. The Alaskan community development quota fisheries management program. Ocean and Coastal Management 28:147 163. Gordon, H. S. 1954. The economic theory of a commonproperty resource: the fishery. Journal of Political Economy 62:124 142. Grafton, R. Q. 1996. Individual transferable quotas: theory and practice. Reviews in Fish Biology and Fisheries 6:5 20. Moloney, D. G., and P. H. Pearse. 1979. Quantitative rights as an instrument for regulation of commercial fisheries. Journal of the Fisheries Research Board of Canada 36:859 866. New Zealand Ministry of Fisheries. 1995. Country report New Zealand. Organization for Economic Cooperation and Development Committee for Fisheries, Wellington, New Zealand Sissenwine, M. P., and P. M. Mace. 1992. ITQs in New Zealand: the era of fixed quota in perpetuity. Fishery Bulletin 90:147 160. Turris, B. R. 1994. Canada s Pacific Halibut fishery: a case study of an individual quota fishery in K. L. Gimbel, editor. Limiting access to marine fisheries: keeping the focus on conservation. Center for Marine Conservation, Washington, D.C., USA. Wilen, J. E. 1988. Limited entry licensing: a retrospective assessment. Marine Resource Economics 5:313 324.