By
Robin Johnson2
Common property resources are in the news. Differences of opinion have emerged on the conduct of NZ fisheries quota management system. Have different fishers had different treatment under the system? Is litigation inevitable? What is a fair way to allocate quota in a common resource without prior history?
The NZ quota scheme is supposed to be a world leader in over-coming the problems of over-fishing a common resource such as a fishery. In theory, conservation of the stock is improved by allocating property rights in the fish resource to the users of the resource. The theory is that ownership will enhance a sense of conservation to preserve future returns, and that a better match is achieved between fishing investment and available fish. Such a system has to be introduced by Government as nations received sovereignty and sovereign rights over marine resources under the 1982 UN Convention on the Law of the Sea.
When introducing and species or stock to the quota management system, a number of administrative problems have to be addressed so as to make the management of the scheme workable. Among these problems are: assessment of the real stocks of the resource (fish) available; seasonal and locational features of the particular fishery; the probability of inadvertent by-catch of other species; the allocation of rights to prospective right-holders and ensuring compliance with the law.
The allocation of rights to the fishery has traditionally been based on historic catch of the species or stock concerned. In the absence of any other rule, this grandfather rule has been adopted on a wide basis. Once adopted as a rule, it then becomes necessary to specify what period of catch is relevant and fair in a particular fishery. Quota not allocated is held by government which it may proceed to tender out
This paper discusses what the theory of property rights might suggest for common resources such as fisheries, outlines the legislative basis of the system, and then goes on to discuss the ongoing management of the allocated property rights (quotas) and what can be achieved.
There is no proper theory of property rights as such but rather a series of observations that describe how property rights can be made to work. Property rights relate to the customary acceptance that one person has established an ‘ownership’ in something that another has not. Dragun (1989) refers to ‘the social pattern of rights and duties established through custom, convention or the law’. Once established, the ‘owner’ of a resource, say, has by agreement some prior rights over the use of that resource and over the access of others to it. Furthermore, the establishment of the right facilitates exchange, and the right itself has a value. Markets work best when exchangeable resources are backed up by adequate property rights (ownership).
Scott (1989) identifies 6 descriptors of property rights that qualify their usefulness in exchange: duration; flexibility; exclusivity; quality; transferability; and divisibility. Duration conveys the idea a contract for a certain period of time, which may, for example, encourage investment in harvesting; Flexibility conveys the idea of discretion to adapt to change; Exclusivity conveys the idea of freedom from interference (legal or otherwise); Quality refers to legal protection and security; Transferability refers to the ability to sell the right or sub-contract the right; and Divisibility to an ability to subdivide or aggregate rights. Scott uses these descriptors to identify what might be called ‘strong’ and ‘weak’ systems of property rights as in, say, leasehold tenure of land. Using scores, he assesses each attribute in turn to arrive at a common measure of ‘strongness’.
An alternative formulation to Scott´s characteristics can be developed through the concept of attenuation (Quiggin 1986). Any limitation on the way property rights may be used constitutes attenuation. The ideal, unattenuated state, is approximated by private chattel ownership where the owner has completely free rights of use, exclusion of all others to any use, and complete alienation. The attenuation of property rights, in this view, will always reduce their value to the owner, and place restrictions of some sort on his flexibility of action. Attenuation is usually associated with government action such as regulatory limits on the freedom of action of an owner (in terms of use or sale for example). On the other hand, the key features of non-attenuated rights are complete specification, complete exclusivity, and full transferability (Dragun 1989).
Scott notes that in terms of common property resources in fish stocks that duration affects investment in harvesting methods, exclusivity affects freedom of action within any laid down control system, transferability affects ability to transfer rights to others, and divisibility the right to share or have joint arrangements. Understood here rather than made obvious is the assumption that government action is required to provide a regulatory framework within which a common property is converted to a set of private property rights.
Finally it is possible to define an efficient set of property rights (Hide 1987). If one takes into account all the costs of negotiating rights, the costs of policing, the costs of establishment, and the costs of litigation, (transaction costs), then the set of property rights that minimises these costs is an efficient set. The Torrens system of land registration is often quoted in this context as it provides very high security at low cost and hence is regarded as an efficient system of property rights (Johnson 1992). Poor design of a property rights system that leads to excessive litigation raises the transaction costs of a property rights system as a whole and causes a serious loss of economic efficiency. The very granting of a property right in a communal fishery is contentious and hence may contribute considerably to economic inefficiency.
There is another piece of folk lore that says that quota holders should be involved in the subsequent management of the resource. I can?t find a reference to it at the moment. But it suggests that post-quota management of the rights and the resource will be best served by some kind of consultative model and/or sharing of management responsibility.
The Quota Management System (QMS) was introduced in 1986 following colaboration between the Government and the fishing industry (Ministry of Fisheries handout)3. The system was initially based on a permit basis and quota was determined with reference to `commitment and dependence? (Barratt 2003). The 1996 legislation changed the criteria to one of catch history. Background to the legislation can be found in NZ Year Books, the Ministry of Fisheries website, and recently, in a publication from the OECD on the state of fisheries in member countries (OECD, 2002). Most of the following comes from the latter source. Purpose comes first:
‘The Fisheries Act 1996 provides the overarching framework for fisheries management. The purpose of the Act is to provide for the utilisation of New Zealand?s fisheries resources while ensuring they are maintained at a sustainable level and any adverse effects on the environment are avoided, remedied or mitigated. The Act provides for the fishing interests of all fishing groups, be they commercial, recreational or customary Maori. It thereby reflects the Government?s intention to manage fisheries for the benefit of all New Zealanders within a framework ensuring sustainability of the resource for current and future generations’.
‘The Fisheries Act 1996 consolidates the range of modifications to the Quota Management System (QMS) and other fisheries management procedures which have been made since 1986, and to implement the results of recent reviews of fisheries legislation. Its intention is to facilitate the activity of fishing while having regard to the sustainability of harvest and the effects of fishing on the environment. The Act builds on the existing framework of the QMS while introducing a number of measures intended to resolve current and likely future difficulties associated with fisheries management’.
‘The Ministry of Fisheries, created in 1995, provides policy advice and enforces management systems to ensure that the use of New Zealand´s fisheries resources are in compliance with the Fisheries Act 1996. More specifically, the Ministry of Fisheries:
‘The primary focus of fisheries management in New Zealand will be introduction of new species into the QMS. The Ministry of Fisheries plans to introduce up to 50 new species into the QMS over the next three years’ (OECD 2002).
‘The QMS provides for the management of commercial fisheries on the basis of Individual Transferable Quota (ITQ). Most commercial fishing is managed under the quota management system. At its heart are two types of catch limits: the total allowable catch (TAC) and the total allowable commercial catch (TACC). The Minister first sets the TAC. From this the Minister quantifies the TACC for a particular fishing year, making allowance for recreational and Maori customary non-commercial fishing interests and all other sources of fishing. This includes the quantity required for research and an estimate of the amount taken illegally each year. Based on this allowance and the available scientific data the Minister decides what the TAC should be. Before setting or varying a TACC the Minister must consult with all interested parties, including representatives of Maori, commercial, recreational and environmental interests. A number of components of the QMS are reviewed annually, including the TACC, Government levies, deemed values4 and conversion factors’ (OECD 2002).
‘The TAC represents the assessment of the total amount of fish that can be sustainably removed from a stock in any one year. It encompasses all extraction from the sea by all users. Except in limited cases5 it must be set by the Minister of Fisheries with reference to the maximum sustainable yield (MSY) or the greatest yield that can be achieved over time while maintaining the stock´s productive capacity. The stock might be fished down to MSY or rebuilt to a level that can produce MSY.’
Other sustainability measures include controls to avoid or mitigate bycatch of protected species such as albatross or Hooker sea lions. Technical measures, such as area closures and gear restrictions, are also used.
‘The Annual Catch Entitlement (ACE) represents the amount of a particular species a fisher can physically catch in a particular fishing year. Each person?s ACE is equal to his or her share of the TACC as determined by their quota holding. It is an offence to take fish in excess of ACE. For all stocks, the commercial fisher must balance the catch with ACE or satisfy a demand for the deemed values of the fish. A commercial fisher will be liable for deemed values for any catch in excess of ACE held on a monthly basis. A deemed value demand may be satisfied by acquiring ACE, entering into a by-catch trade-off, or paying the amount demanded. If the TACC is exceeded in any given year, up to 25 per cent of ACEs generated in the following fishing year will be withheld by the Crown and not be available for fishing.’
‘Deemed values are set for each quota management stock. Deemed values are set at a level to provide the incentive for every commercial fisher to acquire or maintain enough ACE in respect of each fishing year that is consistent with the catch of that stock taken by the fisher.’
‘Restrictions are placed on the amount of quota that can be held by any one person, including their associates:’
|
Aggregation limit |
Species |
|
45 per cent |
Alfonsino, barracouta, blue warehou, gemfish, hake, hoki, jack mackerel, ling, orange roughy, oreos, packhorse rock lobster, red cod, silver warehou and squid |
|
10 per cent |
spiny rock lobster for any Quota Management Area |
|
20 per cent |
Paua for any Quota Management Area |
|
20 per cent |
Bluenose |
|
35 per cent |
all other species |
‘The Minister of Fisheries may set a catch limit or quota for any fishery outside the QMS, either as a competitive TACC or by allocating the TACC as Individual Quota (IQ). IQ can only be fished by permit holders allocated IQ. IQ are not transferable and cannot be leased or fished on behalf of another IQ holder in the same manner as ITQ.’
‘A commercial fisher is required to have an appropriate fishing permit before going fishing. For QMS species there is also a minimum quota holding requirement. Permits are not transferable. There is currently a moratorium on the issue of new permits for non-quota management stocks (there is, however, an exemption for tuna). This measure is considered necessary to control the expansion of effort in these fisheries until they can be moved to the QMS. Special permits can be issued for research, education and other approved purposes. Quota may only be held by New Zealanders or New Zealand controlled companies. Permission must be granted by the Minister responsible for Fisheries for an overseas person to own fishing quota in New Zealand.
Foreign owned fishing vessels may be used in New Zealand waters if they are either:
‘Concerns with the flexibility in the fisheries management regime led to an independent review of the operation of the quota management system [the Hartfelt Report]. This review resulted in the enactment of amendments to the Fisheries Act 1996 in 1999. The Fisheries Act 1996 fully entered into force on 1 October 2001. The main legislative changes include:
‘In fisheries where there is commercial and recreational fishing activity, concerns regarding allocation have arisen. In the case of one snapper fishery, commercial fishers have opposed reductions in the TACC because they consider that any improvements in the health of the fishery as a result of such TACC reductions will be captured by the recreational fishers who do not have an enforceable overall catch limit. The commercial fishing industry is therefore seeking Government consideration of how to effectively restrict the overall effort of recreational fishers and move to improve the interface between recreational rights and those of commercial ITQ holders.’
The Government is in the process of developing a recreational fisheries policy that will seek to provide recreational fishers with a better specification of their recreational fishing rights.
‘Following the comprehensive settlement of Maori fisheries claims against the Crown in 1992, and the passing of the Treaty of Waitangi (Fisheries Claims) Settlement Act 1992, Maori have become the biggest player in New Zealand´s commercial fishing industry, controlling well over half of all commercial fishing quota. Maori commercial fishing assets are currently managed by a central commission that has overseen a significant increase in the asset base since the 1992 settlement. The commission is currently in the process of finalising a model for allocating the settlement assets to Maori, largely on a tribal basis. The commission currently leases its quota holdings to tribes on an annual basis and at discounted rates.’
‘Production from aquaculture activity has grown since its beginnings in the early 1970s. Aquaculture is based primaarrily on the farming of greenshell mussels but also includes other farmed species such as pacific oyster, abalone and salmon. Techniques are being developed to enable a variety of new species, like dredge oysters, sea urchin, scallops, seaweed, snapper and sponges to be farmed.’
‘The government has recently completed a review of the legislative framework under which aquaculture activity currently operates and has agreed to introduce new legislation in the near future. The intent of the new legislation is to support the contribution that the sustainable development of aquaculture can make to the economy, by integrating the planning process, streamlining the allocation process for new marine farms, and allowing greater benefit to be realised from the commercial use of coastal water space.’
‘However, some important constraints have been placed on the reform process. These include that the reforms should not place the 1992 settlement of Maori customary and commercial fisheries claims at risk by creating a new grievance. Neither should the reform undermine the management regime that the government has established for fisheries, which is based on a system of individual fishing rights.’
‘The reform package agreed to by government will provide regional councils with greater powers to manage and control the staged development of aquaculture, by requiring new marine farm developments to take place within clearly defined areas. This approach should focus marine farm development into prescribed areas, as opposed to the current somewhat open-ended zoning approach whereby councils have limited control over the amount or location of water space that can be applied for, for new marine farm development.’
‘In addition, the new legislation will streamline the application and environmental assessment process for new marine farms. Regional councils will be required to consider the impact that marine farming has on the aquatic environment including carrying capacity, and the sustainability of fisheries resources when they are providing for aquaculture under regional coastal plans. This will go a long way towards improving the integration that is currently lacking between coastal planning, aquaculture development and fisheries management. It will also maintain a planning framework whereby the needs of the aquaculture industry, such as receiving an appropriate level of protection from inappropriate land use or land-based discharges can be considered in an integrated manner.’
Recent publicity demonstrates that the entry of a common resource into a property rights system is a considerable strain. Introducing a system of fishing quotas does not seem to satisfy a lot of the participants and prospective participants in the system. It is said that fishers have a natural inclination for litigation and are easily slighted. But it is probably more accurate to say that they have a well developed understanding of how their economic activity is affected by the introduction of property rights. The value of these rights is likely to be strongly connected with the difficulties in allocation, especially when fishers´ current activities and expectations do not reconcile with their likely allocations.
First and foremost there appears to be most dissatisfaction about the allocation of quota for newly developed fisheries but very little for fin fish. The legislation specifies the catch years on which quota will be based (the best consecutive 12 months between 1 October 1990 and 30 September 1992). Furthermore, there was a permit moratorium restricting new entrants access to non-QMS species. For species being introduced into the QMS now, some fishers that have developed larger catch shares in the intervening years will not be reflected in quota allocations determined under the law.
For example, in the scampi fishery, where the QMS is about to be introduced, there is intense competition and positioning going on (The Independent 26 February 2003). The Simunovich company had developed the fishery from the late 80s and have the largest share of the catch under the existing permit system. According to the Dominion-Post (11th February 2003) permits were given to 8 applicants in 1993, and 40 other scampi fishers were declined permits. Ministry officials state that ‘[Existing] scampi fishers are lobbying us to get an advantage over their competitors [at the present time]’. The law requires that the best 12 month rule is applied when this takes place.
Secondly, there are the groups left out of the permit/quota process because of a lack of fishing history in the relevant period. The 1996 Act appears to be a little rigid on this score and could have been a little more flexible. A crab fisher from the Horowhenua coast was a recent example. Could the legislators in 1996 have been a little more flexible? Certainly there are some members of the current select committee who have been focussing on the potential for unfairness in the system (The Independent March 25, 2003).
Thirdly, there appears to be dissatisfaction about catch inspection and compliance. Such a system needs to have high integrity if the permit/quota allocations are to be enforced. Complaints are made about one´s competitors frequently and investigations reach no sound conclusions. This appears to be a lot of sour grapes, and includes accusations of corruption in the Minustry of Fisheries, and complaints to the primary production select committee. The committee has not been able to isolate why some investigations were terminated (Independent 26th February 2003).
Fourthly, delays in introducing the QMS disadvantages some participants. Maori have complained that delays in getting access to the scampi fishery over the 1990s had created a ‘loss’ for them of $15m. (The Independent, 5 March, 2003). If early access to the scampi fishery through the QMS were not possible in the short to longer term, then other avenues for Maori access had to be provided?(Robin Hapi, Treaty of Waitangi Fisheries Commission).
Other new fisheries exhibit similar problems. New fisheries for geoduck (a longnecked clam), whelks and cockles have been the subject of litigation between fishers and the Ministry (The Independent, April 9 2003). At dispute was the prospective loss of access for the developer when the QMS was introduced for geoduck and whelks. The developer (Westhaven Shellfish Ltd) appealed to the courts and at last count was waiting for a High Court decision on its application for a fishing permit in 1992. In the case of cockles, the courts found the Ministry´s decision making [for the same company] to have been illegal, unfair, unreasonable and apparently motivated by bias.
Given this history, the New Zealand Seafood Industry Council has suggested that the management of the QMS be broadened. The industry needed greater input into the control of the 55 fisheries covered by the system, plus others still outside the system like scampi. They recommend that the plan drawn up by Tony Hartfelt be implemented [See ‘Recent Changes’ above]. This would involve ‘... a fundamental re-alignment of the roles of government and fisheries stakeholders and the implementation of transparent consultation and decision-making processes’.(The Independent 5th March 2003).
The Ministry does not appear to have fared well in the courts. Appeals must be based on process not the application of the law. In the scampi case, complaints were laid about the process of issuing permits between 1987 and 1990 (Dominion-Post February 11, 2003). The CEO acknowledged before the select committee that there were inconsistent decisions and delays in allocating scampi catch permits more than a decade ago. The reason given was that officials in different regions in three separate regional offices applied different criteria. Another official said that inconsistencies in allocations began to be addressed in October 1990, but some fishers did not get permits till 6 months after others, which disadvantaged them [presumably in terms of their catch record]. Surely these problems in process could have been anticipated?
Clearly the management of a property rights system involving a wild resource is a gigantic task for anybody. The legislation cannot anticipate all the problems that will arise. The situation is not helped by the litigaceousness of the fishing community, but the primary problem is all the detail of allocating quota and maintaining the integrity of the management system.
Recent problems appear to be all to do with introducing the QMS to new fisheries and fishers and not so much with the traditional fin fish industry. However from the introduction of the system in 1986, there was considerable litigation about quotas and fishing permits. Recent history indicates that poor design and anticipation adds a lot to transaction costs and hence lowers economic efficiency.7
The aim of transferable quotas has been achieved and better economic decisions should result from establishing a price for quota in relation to fishing investment I do not see that sharing the responsibility for management would help address any of the allocation concerns. Once fishery management has settled after the allocation of quota, shared management may offer prospects for generating rents off the fishery (through better decisions by stakeholders). Sharing management is seen as a way for fishers to improve returns from a fishery (e.g., by coming up with fisheries plans) over and above that which central government bureaucrats can come up with. Entry to the fishery would require the acquisition of quota, and this would be an upfront cost for any new participant (in a similar manner to buying a farm if you want to be a farmer)
For newly developed fisheries, there needs to be some way of recognising previous effort in developing the fishery other than by a catch record in a fixed period as set by the current legislation. Would a dual system of giving it to the highest bidder be all that unfair? Who would then keep the rents? There is already provision for new fishers or existing fishers to buy quota.
Maintaining the integrity of the system is important if fisheries are to generate returns to the economy. Maintaining integrity depends a lot on how quota rights are treated. Protection and respect of these created rights by the Government will have positive effects. Uncompensated attenuation of quota rights and their poor protection will have detrimental effects. The outcomes of the Government´s review of Oceans Policy will provide a good signal of how it views the future of these fishers´ quota rights (The Bite, Autumn 2003).
Dragun, A.K. (1989), Property Rights and Institutional Design, Workshop on Economics of Institutional Change, Australian Agricultural Economics Society, Lincoln University.
Hide, R.P. (1987), Property Rights and Natural Resource Policy, Studies in Resource Management No 3, Lincoln University.
Johnson R.W.M. (1992), Resource Management, Sustainability and Property Rights in New Zealand, Australian Journal of Agricultural Economics 36, No 2 August.
OECD (2002), OECD Fisheries: NZ Country Chapter, Paris.
Quiggin, J (1986), Common Property, Private Property and Regulation: the Case of Dryland Salinity, Australian Journal of Agricultural Economics 30, 103-117.
Scott,A. (1989), Evolution of Individual Transferable Quota as a Distinct Class of Property Right, in The Economics of Fishery Management in the Pacific Islands Region, edited by Campbell, Menz and Waugh, ACIAR Bulletin No 26, Australian Centre for International Research, Canberra.
Sharp, B. (1997), From regulated access to transferable harvesting rights: policy insights from New Zealand, Marine Policy 21(6), 501-517.
1) Paper prepared for Annual Conference of New Zealand Agricultural and Resource Economics Society, Blenheim July 4-5, 2003.
2) Consulting Economist Wellington.
3) Prior to 1986, policy had been directed to opening up the opportunities created by the Law of the Sea Agreement. Assistance was provided to NZ fishers to expand fishing and processing. Access was regulated by input controls such as fishing permits and net size restrictions. In August 1984, the Minister announced that a policy structured around TACs, transferable quota, a buy-back scheme and industry planning would be introduced. The initial allocation of quota, to those choosing to remain in the industry, was to be based on the average of any two years of fishing that ended on 31 September 1982, 1983, or 1984. (Sharp 1997).
4) Where catches of quota species are taken in excess of quota held, the Ministry of Fisheries invoices the quota holder for that amount of catch.
5) The exceptions are stocks whose biological characteristics mean MSY cannot be estimated (e.g. squid), enhanced stocks, and international stocks where New Zealand?s catch limit is determined as part of an international agreement)
6) Eric Barratt (Sanfords) says that the previous legislation was a bureaucratic nightmare and gave rise to a constant raft of uncertainty and dispute if anyone was unsatisfied with their allocation. Quota appeals quickly became a significantly unsuccessful, costly and inefficient attempt to address fairness and resulted in numerous court cases and appeals (NBR March 14, 2003). The then select committee had noted that `it is imperative that the qualifying years be in the past to prevent the disastrous effects of allowing people to fish to obtain catch history?.
7) The CEO says that ‘inquiries into management of New Zealand´s scampi fisheries have required a massive effort on the part of the Ministry of Fisheries. Supporting the two inquiries has meant that up to 30 Ministry staff have been required to collate, interpret and present information on events that occurred up to 15 years ago. I see the consequential diversion of staff from their ‘normal’ responsibilities as necessary, given the success of our fisheries management regime to New Zealand society’. (Sea Bite, Autumn 2003)