Holland, Daniel S.

English

Research Papers in Economics

263
Marine Resource Economics, Volume 14, pages 0738-1360/99 $3.00 + .00
Printed in the U.S.A. All rights reserved Copyright © 2000 Marine Resources Foundation
On Direct and Indirect
Management of Fishing Capacity
DANIEL S. HOLLAND
NMFS, Alaska Fisheries Science Center
The size and power of fishing fleets have grown much faster than production from
capture fisheries over the past two decades. The increase in capacity has contributed
to overexploitation of fisheries and significant economic losses.1 According to the
FAO, 70% of the world’s marine capture fisheries are overexploited, fully exploited,
or recovering (Garcia and Newton 1995). Fishing fleets with excess capacity may be
losing as much as $54 million per year, losses that are sustained by government sub-
sidies (Mace 1997).
The problems associated with excess fishing capacity have spawned recent
policy initiatives, at national and international levels, focused on managing capacity.
The United Nation’s Food and Agriculture Organization (FAO) addresses capacity in
its Code of Conduct for Responsible Fisheries. Article 6.3 declares, “States should
prevent overfishing and excess fishing capacity and should implement management
measures to ensure that fishing effort is commensurate with the productive capacity
of the fishery resources and their sustainable utilization.” Article 7.6.3 adds that,
“where excess fishing capacity exists, mechanisms should be established to reduce
capacity to levels commensurate with the sustainable use of fisheries resources so as
to ensure that fishers operate under economic conditions that promote responsible
fisheries. Such mechanisms should include monitoring the capacity of fishing fleets”
(FAO 1995).
In support of these goals, the FAO convened a group of experts in 1998 to de-
velop definitions of fishing capacity and methods for measuring it. In 1999, the FAO
committee on fisheries approved The International Plan of Action for the Manage-
ment of Fishing Capacity, which urges countries to undertake preliminary assess-
ments of the fishing capacity of all principal fisheries by the end of the year 2000
and to develop national fishery capacity management plans by 2002 (FAO 1999).
The United States is developing a national fishery capacity management plan, and
the National Oceanic and Atmospheric Administration (NOAA) has already adopted
a formal planning objective of reducing the number of overcapitalized fisheries by
15% by the year 2004 (NOAA 1999). A National Marine Fisheries Service (NMFS)
task force on fishing capacity has recommended that initial estimates of fishing ca-
pacity be developed for major federally managed fisheries by 2001.
These initiatives on fishing capacity present an opportunity to focus fishery
management efforts on rationalizing fisheries and increasing their profitability.
Daniel Holland is an industry economist at NOAA, NMFS, Alaska Fisheries Science Center, 7600 Sand
Point Way NE, Seattle, WA 98115, USA; e-mail: Dan.Holland@noaa.gov.
1 For purposes of this discussion, capacity is defined using a technical/engineering definition as opposed
to an economic one. Capacity is the maximum level of catch the eligible group of fishers can realisti-
cally achieve per unit of time given unrestricted use of variable factors of production (e.g., fuel, labor,
materials, etc.), but subject to the current level of fixed capital (e.g., number, size, and power of fishing
vessels).Holland 264
However, if capacity management plans focus on the measurement, control, and re-
moval of excess fishing capacity, but fail to eliminate the incentives for individuals
to increase their capacity, efforts to manage capacity may prove fruitless and even
counterproductive in the long run. Poorly designed capacity management programs
not only waste public and private sector financial resources, but create perverse in-
centives that can lead to further expansion of capacity.
Why Manage Fishing Capacity?
The concern that is explicitly listed as the priority focus of the FAO initiative on
fishing capacity is that excess fishing capacity can lead directly to overfishing. In
many fisheries, managers lack the resources to monitor catch and enforce fishery
closures when quotas are exhausted. If it is not possible or practical to constrain
catch with total quotas, actions to reduce or constrain capacity may serve to protect
the resource from overexploitation.
Quite often, the problems associated with excess fishing capacity are not associ-
ated with an inability to control total catch, but with economic efficiency. As eco-
nomic theory predicts and experience confirms, attempts to restrict catch using total
quotas and limited license regimes are often followed by a race to fish that dissi-
pates resource rents and leaves the fleet with excess capacity (OECD 1997). In addi-
tion to reducing the net economic benefits derived from the fishery, this excess ca-
pacity often creates political pressure to raise the total allowable catch (TAC) above
sustainable levels. A program to reduce fishing capacity may be seen by fishery
managers as a means of increasing profitability for the remaining fishers and also
alleviating political pressure to relax constraints on catch.
Capacity Reduction Tools
A variety of methods has been used to reduce and control capacity in fisheries.
Many follow or coincide with the implementation of a limited license regime that
either licensed too much capacity initially or failed to constrain its growth. One
method of reducing licenses is to encourage attrition with high license fees. Another
option is a fractional license scheme that requires license holders to combine more
than one existing license to remain in a fishery. While high license fees and frac-
tional licenses have been used in a few fisheries, they are often unpopular because
of the financial burden they place on license holders.
A more popular approach to capacity reduction is a vessel or license buyback
program. These have been widely used both as a means to increase the profitability
of the remaining fishers and to provide economic assistance in times of crisis such
as a stock collapse or major reallocation of catch to another sector (Holland,
Gudmundsson, and Gates 1999). The US West Coast salmon fisheries have gone
through a series of license buybacks over the years. Vessel buyback programs were
recently completed for the New England groundfish fishery and the Alaskan pollock
fishery, and others are on the drawing board. These include programs for the US
West Coast groundfish, Bering Sea crab, and Gulf of Mexico shrimp fisheries
(FFITF 1999). Canada has implemented a succession of license buybacks in the
British Columbia salmon fishery and funded a vessel buyback in its East Coast
groundfish fishery. The European Union has funded a continuing series of vessel de-
commissioning schemes. Other nations that have used vessel or license buyback
programs include Norway, Australia, Japan, and Taiwan.Thalassorama 265
The capacity reduction measures discussed above reduce the number of licensed
vessels and may result in initial reductions in capacity, but incentives for the re-
maining license holders to augment their capacity may actually increase. Even when
regulatable inputs, such as vessel length or horsepower, are constrained, fishers usu-
ally find other ways to increase capacity. In some cases there may be large amounts
of latent capacity in the form of licensed, but less than fully utilized, vessels that
will increase their output if economic conditions in the fishery begin to improve.
Furthermore, public money or subsidized loans made available for such capacity re-
duction programs may create perverse incentives that fuel the capacity build-up in
anticipation of future bailouts.
There are a number of alternatives for managing capacity that work by remov-
ing the incentives that promoted the creation of excess capacity, and should eventu-
ally result in its elimination. Property rights systems, such as individual transferable
quotas (ITQs), territorial use rights (TURFs), community development quotas
(CDQs), or landings taxes designed to capture fishery rents can eliminate the incentives
for the creation or maintenance of excess capacity. Formation of a cooperative may
achieve the same end if it is granted exclusive rights to all or a share of the TAC.2 With
these incentive-adjusting systems, reduction in capacity may occur slowly as capital
decays without replacement, but this in itself is not necessarily a problem.  A more
serious problem is the leakage of capacity into other fisheries. To avoid leakage
problems, it may be prudent to develop comprehensive capacity management plans
that simultaneously address excess capacity in groups of related fisheries.
Incentives for excessive investments in capacity are not limited to a lack of
property rights. The Federal Fisheries Investment Study documents a wide variety of
federal policies and programs that have contributed to excess capacity in US fisher-
ies, including favorable tax treatment and subsidized lending for investments in
fishing vessels (FFITF 1999). Failure to remove these incentives will inhibit the
success of measures designed to reduce capacity.
How Much is Enough?
Excess capacity is a problem in many, but not all, fisheries. Determining which fish-
eries have significant excess capacity and how much should be removed will be
quite complex in many, if not most, cases. The New England groundfish fishery pro-
vides an excellent example of just a few of the difficulties involved in determining
the actual and appropriate levels of fishing capacity. Many vessels licensed in the
New England groundfish fishery also participate in other fisheries such as squid,
mackerel, butterfish, shrimp, and dogfish, and are likely to adjust their level of in-
volvement in the groundfish fishery as regulations and environmental and market
conditions change. How should one allocate a vessel’s capacity among fisheries?
The New England groundfish stocks are currently depleted. If the stocks rebound,
the “appropriate” level of fishing capacity may change. Capacity is typically mea-
sured using historical data, but, even if the size and physical characteristics of the
fleet remain constant, capacity will change with changes in technology, prices of in-
puts, distribution of fish stocks, etc. There is a variety of vessel sizes and gear types.
2 A cooperative of pollock factory trawlers with exclusive rights to a fixed share of the Bering Sea pol-
lock TAC allocated catch shares to its members on the basis of catch histories and allowed vessels to
slow down production without fear of losing catch share. Two companies with multiple vessels chose to
leave some of their eligible vessels in port and consolidate operations with their remaining fleet.Holland 266
If a capacity reduction program is to be used to pare down the fleet to an economi-
cally efficient level, a great deal of economic data on fishing operations may be re-
quired to determine the optimal size and structure of the industry. However, suffi-
cient data are not available for the New England groundfish fleets and the vast ma-
jority of other fisheries. In most cases it will, at best, be possible to determine what
the fleet could catch, but it will not be possible to determine what it will catch or
what a particular subset of the fleet could catch if operating “optimally.”
Limits on the ability to measure capacity and determine optimal levels will
make it difficult to determine how much, if any, capacity should be removed from a
given fishery. Changing economic, environmental, and technological conditions may
require regular adjustments to capacity. However, if the proper market incentives are
created, fleets should adjust toward the correct level of capacity automatically, mak-
ing measurement and direct management of capacity unnecessary.
Conclusions
Excess capacity is a severe and costly problem that has led both to overfishing and
reduction in the net benefits derived from fishery resources. However, fishery man-
agers should be made aware that excess capacity is only a symptom of an underlying
failure of the management system, and attempts to reduce or control capacity will
likely be offset by expansion of uncontrolled inputs. Failure to address the causes of
excess capacity will ensure that managers will face the same problems again sooner
or later.
The ability of fishery managers to directly manage fishing capacity is limited by
difficulties of accurately measuring capacity and forecasting what capacity will be
after capacity reduction measures are implemented. Capacity reduction programs
may achieve little reduction at considerable expense if significant latent effort ex-
ists. Assessments of fishing capacity being undertaken as a first step in developing
capacity management plans should go beyond providing a quantification of the level
of excess capacity. These assessments should attempt to identify the root causes of
excess capacity and suggest methods of removing them. When possible, fishery
managers should try to remove the incentives that have led or will lead to the cre-
ation of excess capacity, rather than focusing solely on direct capacity management.
Effective management of fishing capacity will also require comprehensive multi-
fishery plans so that excess capacity is not simply shuffled from one fishery to the
next.
References
Federal Fisheries Investment Task Force (FFITF). 1999. Federal Fisheries Investment Task
Force Report to Congress, July.
Food and Agriculture Organization (FAO). 1995. Code of Conduct for Responsible Fisheries.
44p., Rome. http://www.fao.org/fi/agreem/codecond/ficonde.asp.
_. 1999. The International Plan of Action for the Management of Fishing Capacity. Inter-
national plans of action adopted by the 23rd session of the FAO Committee on Fisheries,
Rome, Italy, 15–19 February. http://www.fao.org/fi/ipa/capace.asp.
Garcia, S.M., and C. Newton. 1995. Current Situation, Trends and Prospects in World Cap-
ture Fisheries. FAO, unpublished.
Holland, D., E. Gudmundsson, and J. Gates. 1999. Do Fishing Vessel Buyback Programs
Work: A Survey of the Evidence. Marine Policy 23(1):47–69.Thalassorama 267
Mace, P. 1997. Developing and Sustaining World Fishery Resources: The State of Science
and Management. Paper delivered to the World Fisheries Congress, Brisbane, unpub-
lished.
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Organization for Economic Co-operation and Development (OECD). 1997. Towards Sustain-
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Code of Conduct for Responsible Fisheries. 44p.,

Current Situation, Trends and Prospects in World Capture Fisheries.

Do Fishing Vessel Buyback Programs Work: A Survey of the Evidence.

Federal Fisheries Investment Task Force (FFITF).

National Oceanographic and Atmospheric Administration (NOAA).

Organization for Economic Co-operation and Development (OECD).

The International Plan of Action for the Management of Fishing Capacity. International plans of action adopted by the 23rd session of the FAO Committee on Fisheries,

ON DIRECT AND INDIRECT MANAGEMENT OF FISHING CAPACITY

ON DIRECT AND INDIRECT MANAGEMENT OF FISHING CAPACITY

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