Environmental Economics and Policy, Resource /Energy Economics and Policy,

Wang, Stanley D.H.

English

Research Papers in Economics

Maiint Resource Economics. Volunx 10. 93~9§ O738-I}6(V93 S3 00 + 00
Primed in the USA. All righu reserved. Copyright C I»3 Marine Rewurcw Foundation
Thalassorama
The Surf Clam ITQ Management: An Evaluation
The U.S. surf clam offshore fishery was the first fishery managed with limited
entry and individual transferable quota (ITQ) systems under the Magnuson Fish-
ery Conservation and Management Act. A vessel limited entry system was im-
plemented for a period from 1977 to 1990 and an individual transferable quota
system from 1990 to present.
In 1977, the surf clam offshore fishery was brought under federal management
because of over-exploitation and nature disaster. The surf clam biomass had
declined to a historic low after a period of high exploitation in early 197O's and
new capital and vessels yet continued to enter into the fishery in spite of the low
biomass. This over-exploitation condition was aggravated by an anoxic habitat
condition off the New Jersey coast which was estimated to have destroyed 25% of
the New Jersey offshore fishery in the summer of 1976 and to have ruined almost
70% of the fishery by the fall of that year.
The 1977 federal surf clam management system established a vessel limited
entry program consisting of a vessel moratorium program, an annual fishery catch
quota, a limitation of vessel fishing hours, catch logbooks and vessel permits.
Other measures such as minimum clam size were added in later years. Under the
vessel moratorium, only vessels that directed their fishing on surf clams between
November 1976 and November 1977, were allowed to fish for surf clams with
provisions to qualify surf clam vessels that were then under construction. The
fishery quota was established and set within a range between 1.8 and 2.9 million
bushels for the Mid-Atlantic area and between 0.025 and 0.100 million bushels for
the New England area. Allowable fishing time was specified to maximize fishing
seasons. However, the allowable fishing time was steadily shortened due to con-
tinuous increases in the fishing power.
When it was first instituted in 1977, the vessel moratorium program under the
limited entry system was authorized only for one year with an intent that the
program would be replaced with an alternative one such as a stock certificate
program. However, the moratorium program was extended to 1990 while an al-
ternative program was under development. During that time, the allowable fishing
time had been reduced substantially to a historic low: A surf clam vessel was only
permitted to fish six hours every other week by 1990. The low allowable fishing
time led to low capacity utilization of fishing vessels and resulted in low economic
efficiency of fishing firms. Under the moratorium, the administration of the fishing
This is an excerpt derived from a NMFS unpublished paper entitled "The Performance of
U.S. Atlantic Surf Clam and Ocean Quahog Fisheries under Limited Entry and Individual
Transferable Quota Systems" by Stanley D. Wang and Vuong H. Tang, Northeast Re-
gional Office, January 1994.
9394 Thalassorama
time on the basis of individual vessels was also an administration burden for the
federal government. Consequently, the federal government, the Mid-Atlantic
Fishery Management Council and the surf clam fishing industry were unsatisfied
with the vessel moratorium program. Finally, the vessel moratorium program and
the entire limited entry system were replaced with an individual transferable quota
system in October 1990.
Since October 1990, the fishery has been managed under an individual trans-
ferable quota (ITQ) system. Initial ITQ shares of the fishery quota were issued to
vessel owners based on a formula of vessel historical catches (80%) and vessel
sizes (20%). The ITQ shares can be subsequently traded or leased to any person
or entity with neither preconditions of vessel ownership nor limits on the amount
of ITQ shares owned by an entity. Vessel operators may fish any time with ITQ
certificates. In addition, former effort control measures as well as minimum clam
size regulations have been eliminated.
Substantial capital savings have accrued to the surf clam offshore fishery
under the ITQ system. The surf clam oifshore fleet shrank from 128 vessels to 59
vessels (Figure I) within two years of the implementation of the ITQ system in
1990. This represents a 54% reduction in fleet and a historical low since 1980.
Total gross tonnage of the surf clam fleet shrank by 52%. For example, a com-
parison between the 1986 peak level of capitalization under the limited entry
system and the 1992 level under the ITQ system reveals that the capital savings
under the ITQ system amounted to 85 vessels totaling 9,950 gross tons and about
320 crew members. This means that more capital and labor become available for
employment in the other industries to benefit the U.S. economy. However, some
economic and social dislocation has been created in the process.
The ITQ system allowed for the consolidation of crew and retirement of ves-
# Vessels; 100 Gross Tons; # Crewmen
550 -
450
350 -
250
150
1980 1981 1982 1983 1984 1986 1986 1987 1988 1989 1990 1991 1992
Year
"•" # Vessels —^— Gross Tons —^^ # Crewmen
Figure 1. The Offshore Surf Clam Fleet (# Vessels, Gross Tons, # Crewmen)5. Wang 95
sels and has also resulted in a substantial increase in the capacity utilization of
fishing vessels remaining in the fleet. For example, the surf clam fishing hours per
vessel increased by one and a half times from 154 hours in 1990 under the limited
entry system to 380 hours in 1992 under the ITQ system. (Figure 2)
The ITQ system also improved vessel productivity to record levels as the fleet
has reduced its excess capital and fishing capacity. The 1992 surf clam catch per
vessel under the ITQ system was 47,656 bushels, an increase of 96% from the 1990
catch level under the limited entry system (Figure 3). Average catch per gross ton
under the ITQ system exhibits an increase as well. As a result, the ITQ system
should lower fishing costs and improve earnings of the surf clam fleet.
The ex-vessel price of surf clams declined as the landings of surf clams moved
upward during the period from 1980 to 1992 (Figure 4). The 1992 ex-vessel price
under the ITQ system was the lowest for the period. The surf clam price continued
to decline during the period from 1987 to 1992 even with the drastic decline in the
landings in 1987. This continual price decline is partially attributable to increasing
substitution by consumers of ocean quahogs for surf clams and may be also
associated with high buyer concentration in the ex-vessel market. However, of
the total price decline during 1980-92, more than 90 percent occurred prior to
introduction of ITQs. Thus, irrespective of what one believes about market power
and concentration in the surf clam fishery, the data suggest that price declines were
not caused by ITQs.
A few number of buyers have predominated the surf clam market. The market
shares of large surf clam buyers declined steadily during the late period (1985-
1990) under the limited entry system, but increased to a high level under the ITQ
system (Figure 5). The 1992 market share of the three largest buyers was approx-
1000
Fishing Hours per Vessels
100
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Year
^ Surf Clam Hours —•— Quahog Hours —^^ Total Hours
Figure 2. Fishing Hours Per Vessels: The Offshore Surf Clam Fleet96 Thalassorama
Thousands
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Year
—"— Surf Clam/Vessel —•— Ouahog/Vessel
Figure 3. Landings per Vessels: The U.S. Offshore Surf Clam Fleet
Million Pounds; Cents/Lb (1980 dollars)
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Year
^^ Landing —^^ Ex-Vessel Price
Figure 4. Surf Clam Landing and Price Surf Clam Ex-Vessel Market: 1980 Dollar80
S. Wang 97
percent
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Year
—^ Surf Clam
Figure 5. Surf Clam Buyer Concentration The Three Largest Buyers' Share
imately 75%, a historic high since 1986, indicating the surf clam ex-vessel market
became more concentrated under the ITQ system.
Under the ITQ system, the ownership of ITQ shares has replaced the owner-
ship of surf clam vessels as a way to secure the supply of surf clams as raw
materials. Prior to the ITQ system, only surf clam vessels under the limited entry
program were allowed to fish surf clams in the Mid-Atlantic area, the predominant
surf clam area. As a result, integrated clam processors owned and operated surf
clam vessels to secure the supply of surf clams.
However, any U.S. registered vessels are allowed to fish surf clams under the
ITQ system as long as they fish with surf clam ITQ certificates. Therefore, the
ownership of ITQ shares becomes the key element. In fact, some of the integrated
processors have abandoned their vessel operations and focused on securing the
ownership of the ITQ shares. It is not surprising, therefore, that the number of
unique ITQ owners has declined since the implementation of the ITQ system in
October 1990. The initial surf clam ITQ shares were allocated among 67 vessel
owners.^ By March 1992, the number of the ITQ owners had declined 50 unique
owners. From October 1990 to March 1992, there was a slight increase in the
concentration of ITQ ownership. For example, three largest owners' ITQ shares
rose from 51.3% to 58.1% during this period.
Based on a NMFS interview with some industry members in February 1992,
the surf clam ITQs were traded for about $20.00 a bushel and leased for about
^ In October 1990, 161 vessels received the original ITQ shares, and of these vessels, 154
vessels had surf clam ITQs and 117 owned ocean quahog ITQs. However, the number of
unique owners is smaller than the number of eligible vessels due to multi-vessel ownership.98 Thalassorama
$4.00 per bushel annually. Accordingly, the offshore surf clam resource with a
quota of 2.85 million bushels was evaluated at approximately $57 million in 1992.
The 1992 rental value of the surf clam ITQ shares as the resource rent was
estimated to about $11.4 million and captured by the industry.
In summary, the limited entry system consisting of a vessel permit moratorium
and a fishery quota was not sufficient to deal with the issues of over-capitalization
and its associated inefficiency in the offshore surf clam fisheries. Under the lim-
ited entry program, while the fishery quota was relatively stable, fishing capital
increased continually because vessel sizes were increased, new and efficient fish-
ing gears were adopted, and fishing labor was intensively employed. The ITQ
management system made it possible for the fishing firms to use market mecha-
nisms and forces in their business operation. The result is that the fishing industry
has reduced the capital utilization and achieved economic efficiency. Within two
years of the implementation of the ITQ system, the fishing fleet reduced its size
by 54% and fishing firms, on average, rose vessel capacity utilization and pro-
ductivity to a record level. Further, the surf clam resource rent created under the
ITQ system amounted to $11.4 million for the original vessel owners in 1992.
Excess capital and labor under the ITQ system transferred to other fisheries and
sectors of the economy through market mechanisms.
Stanley Wang
National Marine Fisheries Service
Northeast Region
Gloucester, Massachusetts, USA

The Surf Clam ITQ Management: An Evaluation

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