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Quota systems and resource management: Icelandic fishing
by Gísli Pálsson and Agnar Helgason
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Fishing For Others: New Relations Of Production
  With some companies holding more than they are capable or willing to fish and others with less than they actually need, ITQs would appear to be 'inefficiently' distributed. A characteristic market solution to such a problem, perhaps, and one that is increasingly prevalent in the Icelandic ITQ system, is that of leasing. Boat owners have been permitted to lease their ITQs from the onset of the system in 1984. ITQ leasing was originally proposed by administrators as a way for boat owners to fine-tune their operation to meet short-term needs arising from unexpected 'devaluations' of ITQ shares, fluctuations in local, regional and national markets, and by-catch problems (for example, by trading haddock-ITQs for cod-ITQs).
  At first, ITQ leasing does not seem to have been a particularly common practice and it was probably mainly undertaken on a small scale by operators who needed extra ITQs after a particularly successful fishing season or for the purposes outlined above. The lessors in most of these cases were operations actively engaged in using their own ITQs. In time, however, some ITQ holders came to discern that considerable profits could be made through leasing ITQs on a larger scale, particularly with many fishing operations suffering from the 'devaluation' of ITQ-shares resulting from recurrent reductions to the TAC for cod after 1988. The emergence of profit-oriented ITQ-leasing is indicative of a shift in the conceptualization of fishing rights; a shift that coincided with a growing perception within the industry that ITQs were not just use-rights but, in effect, property rights that could be leased to others for profit.
  The original form of leasing, which we have chosen to call 'direct ITQ-leasing', is still practised today for the same reasons as before. For example, it is not uncommon for boats that have finished their cod-ITQs to accidentally catch a few tons of cod while fishing haddock or another demersal species, and if they land the cod, they must get hold of an equivalent amount of cod-ITQs to cover their catch, else they stand to lose their fishing licenses. The price of ITQs leased in this way tends to fluctuate considerably in relation to supply and demand. Thus, at the end of the fishing year when cod-ITQs are scarce, lease prices have been known to rise to 70-80% of the market value of the catch, hardly covering the expenses of fishing and thus making such transactions particularly unattractive. According to many fishermen, this results in considerable amounts of fish being thrown back dead into the sea, especially towards the end of the fishing year when ITQs are scarce and the lease price is inordinately high.
  In the past few years, however, new and more formalized modes of ITQ leasing have begun to emerge. These transactions involve long-term contracts between large ITQ holders and smaller operators, where the former provide the latter with ITQs in return for the catch and a proportion of the proceeds. One such arrangement, habitually referred to as 'fishing for others' (veiða fyrir aðra), is becoming increasingly widespread within the industry, according to fishermen and boat owners we interviewed. Invariably, in such transactions, the supplier of the ITQs is a large vertically-integrated company that controls two or more trawlers and a processing plant. Increasingly, such companies have been sending their trawlers to exploit new opportunities in international waters -- a manoeuvre that enables them to put their ITQs to other uses. This is where the smaller operator comes into the picture. A contract is arranged, whereby the large ITQ holder transfers ITQs to the smaller operator's boat. The latter then fishes the ITQs and delivers the catch to the suppliers' processing plant. In return the smaller operator receives payment, which usually amounts to about 50-60% of the market value of the catch.
  Strictly speaking, then, there is no lease price paid up front for the ITQs. However, the small scale operator is effectively paying a lease price of up to half of the value of the catch. Understandably, the lessee boat owners cannot make the same level of profits when fishing for others in comparison to fishing their own ITQs. In both cases their outlay is identical, but when fishing for others their income is cut by 40-50%. As a result, they try to compensate for their losses by reducing the shares of fishermen. By law, fishermen receive a fixed share of the value of the catch. Before the fishermen's shares are calculated, however, the boat owner is permitted to deduct maintenance costs from the proceeds of the catch. Increasingly, the lessee boat owners have resorted to reckoning the fishermen's shares from the amount left after the lease price has been subtracted from the value of the catch -- that is from the fixed price that is paid by the supplier of the ITQs. The result is that fishermen working for lessee companies may suffer up to 50% wage-cuts, an arrangement that has, not surprisingly, caused much discontent in their ranks.
  The typical lessee operator is an owner of a relatively small vessel that has either finished its own annual supply of ITQs, or the owner of a boat that has virtually no ITQs of its own and is solely operated on leased ITQs. Through ITQ leasing boat owners with small ITQ holdings manage to prolong their fishing operations throughout the year. Moreover, by lowering the shares of their crews, they are just about able to make such practice economically feasible. For the suppliers of ITQs, however, participation in these new relations of production represents a rather lucrative business. By leasing its ITQ shares, a company can free itself from the expenses of actually catching the fish, while still procuring up to half of the market value of the resulting catch. Moreover, it keeps the company's processing facilities well supplied, while allowing its vessels to pursue other assignments in international waters, bringing even more fish to be processed.
  According to our calculations, 74 of the 126 'dwarves' that left the system in 1992 were leasing large proportions of their newly allocated ITQs in 1991. Apparently, these operators did not feel they could sustain their business on the quantity of fishing rights allotted to them, and so instead decided to meet the demand of larger companies for extra ITQs -- first by leasing and then by selling. In contrast, the larger ITQ holders, responding to the same devaluations of ITQ shares that caused such problems for the smaller operators, accumulated ITQ shares, buying them from the smaller operators who were leaving the system. Moreover, it appears that these larger operators also temporarily augmented their ITQ shares by leasing from the 'dwarves' and 'small' ITQ holders in 1991. Over the next two years, however, this situation appears to have reversed dramatically, with the 'giants' being almost the sole suppliers of net leased ITQs while 'dwarves' and 'small' ITQ holders have now become lessees. Significantly, this shift in the directional flow of net leased ITQs would seem to reflect, on the one hand, the distributional changes described earlier and, on the other, the emergence of the new relations of production associated with 'fishing for others'. Interestingly, it is the 'small' ITQ holders that appear to have become the biggest recipients of leased ITQs.
  Evidently, then, the Icelandic fishing industry is undergoing an extensive restructuring process, where large vertically-integrated companies have strengthened their position while smaller operators are being marginalized or forced out of business. It appears that with access to the fishing stocks now mediated by the possession of ITQs, the size of an operator's ITQ share has become the single most important measure of success within the industry. Some of the small operators seem to be persevering, despite the onerous effects of recurrent ITQ share devaluations. Although they do not have recourse to the same sort of financial reserves used by the larger companies to finance their accumulation of ITQs, many of the small-scale boat owners endure by entering into contracts fishing for larger ITQ holders. Such contracts, while quite lucrative for the lessors, result in reduced profits for lessee boat owners and lower wages for their employees. All told, this attests to a growing rift between larger and smaller operators -- effectively, between those who own fishing rights and those who do not.
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Quota systems and resource management: Icelandic fishing,
by Gísli Pálsson and Agnar Helgason.
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