Urgent Problems with 1996 Fisheries Act

After the work of the last few months, I am now convinced that the 1996 Fisheries Act as it stands is not workable.

This note proposes re-organising the 1996 Act to make it workable. The 1996 Act has all the elements of a workable system, and some which are not required.

We need to remove the idea that everyone must have quota for all species they might possibly catch before they go to sea. The suggested replacement to this notion is that the fisher balance catch taken during the month, with ACE, by the 15th of the following month.

There are some special considerations in fisheries placed on us by the ecological requirements of fisheries management. Whatever civil regime we adopt must be stable from an ecological perspective. The system must be sufficiently flexible to allow people to work in a highly variable reality.

We must also keep in mind the needs of system administrators to have a simple and robust management regime.

Given the enormous amount of effort put into the review of fisheries legislation in this country it would be unfortunate indeed if we came so close yet failed to meet our objectives. We need to prioritise our objectives, then be consistent in their application.

THE PRIORITIES

  1. The overriding consideration has to be one of ecological sustainability. In this I am in full agreement with the current Act.
  2. The next most important consideration has to be the ability to work in a "real world" fishing environment. The 1996 Act doesn’t work - see Appendix 2 for some examples.
  3. The final consideration has to be operational simplicity from the point of view of those charged with oversight and management of the system. The current Act fails badly here too – see Appendix 3.

 

If we take these three principles and apply them consistently, we can produce a workable system from what we already have.

Simplicity defined

Simplicity is achieved when the management system accurately reflects the reality in which it works, if it is either too simplistic, or too complicated, it has severe problems.

The reality we face has many aspects, and the system suggested here will meet all those which cause us major concern at this time.

Ecological sustainability

I believe that we have made a mistake in choosing to focus on Maximum Sustainable Yield on a species by species basis. Maximum Sustainable Yield is a good guide in most cases but that it is a mistake to make it the rule for all cases. Maximum Sustainable Yield (MSY) is essentially an economic tool, not a biological one. MSY as defined in the 1996 Act focuses on species in isolation. [For those who are not clear what MSY is - see appendix 1]

Section 13(b)(ii) when read in conjunction with the definition of MSY appears to allow only the setting of TACcs above MSY, not below.

Maximum sustainable yield is more properly applied to the ecosystem as a whole, over a number of years.

On a species by species basis it is important to maintain sustainability, which does not necessarily equate to Maximum Sustainable Yield and may in fact, be well under, or over, it. It may be the case that, in some of our fisheries, our current capture technologies will take one of the species in the mix to a level well below its maximum sustainable yield while not affecting its long-term sustainability. This new equilibrium could be completely stable in the long term, and pose no threat to the survival of the species.

If MSY is to be used as the primary tool, it must allow species which associate together to be grouped together for the purposes of establishing a group MSY (always assuring sustainability of the individual stocks) before setting individual TACs. This could be achieved simply by adding "or group of associated stocks", after the word "stock" in the definition of MSY in the Act.

Then it becomes clear that this is an economic, and not a biological sustainability, mechanism (with economic factors, such as market value, playing a part in considerations).

Barring indications of emergencies (like recruitment failure) TACs need to be reviewed on a rolling average of several (minimum 3) years.

I estimate that the focus on single species MSY in the 1996 Act could reduce our current take from 650,000 tonnes to under 500,000 tonnes with little or no biological benefit in terms of sustainability. Potential economic and social damage of the 1996 Act's focus on single Species MSY is enormous, for no discernible benefit.

The loss of goodwill such a move will bring between industry and administrators will do incalculable damage to fisheries management.

Flexibility

A large number of factors make fisheries unpredictable. These factors include the weather, the fact that fishers cannot see what they're doing, population migration, and variabilities in the predator prey relationships. With so much unpredictablity and variability in the environment in which they work fishers require degrees of flexibility in the administrative system to allow them to work within it. The degrees of freedom described here do not compromise sustainability issues, and nor do they unnecessarily complicate administrative procedures.

The 1996 Act requires fishers to have Annual Catch Entitlement (ACE) for all species they might catch before going fishing. That is a completely unrealistic and unworkable expectation, as is demonstrated by the number of "defences" the Act gives for this "Crime".

The 1996 Act focuses on the economic tool of Deemed Values. There are several major flaws in the economic concept of Deemed Values.

The most important flaw in the Deemed Values mechanism is that it compromises sustainability and sends individuals the wrong signals, in that it allows individuals to take a greater value of fish than is justified by their ACE portfolio holdings. Attempts to prevent that in the 1996 Act (retaining 25% of ACE) have added other problems.

The next most important problem with Deemed Values is that economic theory demands setting Deemed Values at a level which removes all economic benefit from the most efficient operator in the industry. This necessitates removing all benefit at the margin, and makes no allowance for method or fixed costs. It also requires that all value is removed from vertically integrated operations (those where the same company owns the catching, processing, and marketing aspects of fishing).

Thus we have a situation where marginal long line "iki" prices are applied against bulk caught fish. This can result in a fisher having to pay many times what she actually received for the fish. Where these marginal prices are both volume and time limited, the effects of the Deemed Values mechanism is grossly distortional on both the capital markets [for Individual Transferable Quota (ITQ)] and on Annual Catch Entitlement (ACE) values. These distortions occur because the Deemed Values mechanism is neither time nor volume limited, and thus a price which may occur for one or two days a year, for a few hundred kilograms, is maintained the whole year for thousands of tonnes. It creates a false market.

The last major flaw is that of having the fisher alone pay the full economic cost of the Deemed Values, while processors and marketeers pay nothing. This introduces distortions that may be exploited by unscrupulous processors and quota holders.

Associated Species Trade Off

Fortunately we already have a mechanism which is both economically and ecologically neutral, but is poorly named. The By Catch Trade Off mechanism should more correctly be known as the Associated Species Trade Off mechanism, the name By Catch Trade Off coming from the old By-Catch/Target distinction, which was never really valid. Most fishers know they are going to take a mix of species, and have a rough idea in what proportions most of the time. They are rarely exactly right, and sometimes completely wrong.

If we adopt the mechanism whereby all fish caught for which no ACE is held is automatically covered by reducing the amount of ACE available for Associated Species by the appropriate Associate Species Trade Off ratios [By Catch Trade Off], then we have balance. This mechanism both reduces the amount of fish coming from the sea, and provides a strong economic incentive to fishers, quota holders, and processors to get their quota portfolios balanced. Failure to do so results in all of them losing money. Processors & marketeers get reduced volumes & value of product (as opposed to increased volumes under a pure Deemed Value mechanism).

Should anyone catch beyond their portfolio in any month, and be unable to balance by the 15th of the month following, two things would happen. Firstly, their permit would be suspended, and no further fishing would be allowed until their portfolio was back in balance. Secondly, they would be charged Deemed Values on any Catch taken beyond their portfolio. Any subsequent fishing without a permit is clearly a criminal action. If the over-catch happens at the end of a year, and they cannot balance by trading in that year, then ACE is taken from their next year’s ACE allocation (it can only involve one month’s fishing maximum) [Deemed value would be returned as soon as the portfolio is re-balanced].

Some further sophistication of the Associate Species Trade Off mechanism is required to make it both fair and workable. The ratios need to ramp (increase) from values where there is a 20 to 50 percent penalty based on port prices (where amounts involved are small or portfolios are already held in optimal ratios), up to full Deemed Values ratios (where excessive use is made of the mechanism). Such ramping will always insure that economic incentives exist to balance portfolios with ACE, while allowing fishers who take reasonable actions to extract reasonable economic value from their portfolio. Considerations in setting the starting point and degree of ramping will be: the stock levels, risks of recruitment failure, port price, market value of the product, and distance of stock from MSY.

Carryforward of ACE

One further mechanism is required to make the system stable. To encourage people to work within the system, and not to push the boundaries, there must be a carryforward mechanism for unused ACE. Having a carryforward mechanism allows people to work well within the boundaries of the system without suffering any economic penalty. There is no biological cost to such a carryforward mechanism if it is limited to 20% of ACE holdings. The 1986 legislation provided for under and over fish rights [each to 10%] which is mathematically equivalent to a 20 percent carryforward. In the 11 years they have been operating these mechanisms have caused no biological problems.

The major driver behind the design of the Annual Catch Entitlement (ACE) system was to simplify the administration of these carryforward rights [ironically ACE was adopted while the carryforward rights were dropped in the 1996 Act].

Administrative simplicity

The ACE system as described above is far simpler than the current system of Individual Transferable Quota, leases, FAAQs (authority to Fish Against Another’s Quota), CAAQs (authority to record Catch Against Another’s Quota), Deemed Values, and surrendered Catch.

The ACE system as described above is as simple as it can be given the complexity of the environment in which it must work, and in terms of modern computer systems is in fact very simple.

Productivity Gains

Two areas hold potential for major productivity gains if managed effectively. These areas are:

  1. The use of computers by fishers and fish processors to record and electronically submit all transactions (thus removing the costs of transcription and those of transcription errors) [including Catch data, catch effort data, and ACE trading to Mfish, and return of Monthly Balance and Trade confirmation information];
  2. Competition in the supply of goods and services required.

If not managed well either of these areas could be expensive and disastrous.

The potential for gain in each area relies on focusing on the grassroots needs of the industry, and in the adoption of simple open standards and systems. Large and expensive consulting organisations have a vested interest in recommending large and expensive solutions.

The systems outlined in this paper are not complex by today's standards. They are simple. They were designed by a computer systems designer, fisheries scientist, computer programmer, ex-fishermen, ex-fishmonger, and Fishing Industry Association councillor (me), following 30 years of consultation with industry, government, academic and environmental groups. Note that I didn’t invent any of the ideas, only they way in which they are put together.

Please contact me if you have any questions about any of this (027 4 424 281 or 03 391 6797; e-mail: ted@fishnet.co.nz; fax 07 8673181).

I am deeply involved in attempts to make the 1996 Act workable, but do not believe it is in its current form, or with any minor tinkering. The amendments suggested here would make it workable, from all perspectives. These amendments may appear less than ideal from certain theoretical standpoints, but they will produce an efficient workable system if adopted in total. The ones who are suffering most now, and will suffer even more under the 1996 Act are the small fishers. There is no need for this.

Ted Howard

Managing Director, Solution-Multipliers Ltd


Appendix 1 – Maximum Sustainable Yield (MSY)

MSY is, on one level, a very simple idea – it is the maximum amount of fish that can be extracted from the ocean on a continuous basis.

How it relates to other factors is a little more interesting.

One way of thinking about MSY is in terms of energy movements in a system.

In most marine ecosystems (as in most land based systems), the source of energy is the Sun (some systems around volcanic vents actually make use of chemical energy released from the earth, but the amounts involved are tiny compared to what the Sun provides).

Plants capture some of the sunlight falling on the earth, and turn it into plant matter. Animals cannot use solar energy directly as plants do, so must rely on stored energy in plants or other animals as their food supply.

Any system, at any time, is a balance between energy going in, and energy going out. If more energy is going in, than is being taken out (or released), then biomass (the amount of living material) will be increasing. If more energy is being released than is being captured, then biomass will be decreasing. In some very rare instances these figures exactly balance and things are in a stable equilibrium (this is the exception rather than the rule).

Most living systems follow cycles, and go from a phase of increasing biomass, through a period of near stability to a phase of decreasing biomass, to another period of near stability, and on and on. These cycles range from days to months for some very small organisms, to cycles of years, decades or millennia for larger organisms. For living systems as a whole these cycles can be vast (witness coal deposits and oil reserves).

When we look at the current models of MSY used in fisheries management, they almost always make a number of simplifying assumptions (which are valid and necessary in short term modelling, but invalidate longer term results). These simplifying assumptions often assume independence from other stocks in terms of pressure on food supplies, and independence from other predator pressure (other than man). For a large number of reasons, these assumptions work quite well in most cases, at least for periods of up to a decade or so.

With these simplifying assumptions in place, the picture is quite easy.

Without the presence of man, the fish-stock is assumed to be in static balance with the environment. All of the food energy eaten by the fish is used to support fish. There are as many fish in the sea as it can possibly support (many of them skinny and hungry).

Then man comes along, and catches a fish. The food (energy) that fish would have eaten is then available for other fish. There is one less fish in the sea, but the rest grow a little bit faster and/or fatter.

As the pressure from man increase, and we take more and more fish a number of things happen.

Initially, we are "mining" the existing biomass. In other words, the fish we are taking have grown in an environment without fishermen, and form part of the large mass of fish that was present before fishermen arrived. During this phase, catch rates are often good, though many fish are old and skinny. It is important to keep in mind that these high catch rates are not stable. The amount of fish which can be taken from a virgin stock without causing a reduction in the stock biomass is zero. All catches reduce the total biomass, and change the equilibrium. It isn’t until most of the biomass of fish has been taken away that we get to a stage where we can take large amounts of fish without further reducing the amount of fish in the sea. The trick is in identifying that point, and the amounts involved.

As we continue to increase the amount of fish we catch, more food is available, and the remaining fish grow faster. Catch rates are slightly lower, but the fish are in good condition. There are fewer older fish, but the younger fish are growing faster and maturing earlier. A lot of things are happening together during this phase.

As the mass of fish reduces then (up to a point) the amount of fish that can be taken sustainably also increases. That point is the MSY. The point at which man is extracting the maximum amount of energy (mass/fish) possible, and the population of fish is stable. [Always keeping in mind the simplifying assumptions made at the start of this exercise.]

Fishing beyond this point doesn’t necessarily pose any great threat to sustainability, just to productivity. For most fish species there are many stable and sustainable points below the MSY, just as there are above it. There is always a slight increase in the risk of recruitment failure and recruitment overfishing, but that starts with the first fish caught.

The use of MSY as a management tool is based upon economic rather than sustainability criteria. Part of the economic argument relates to effects on future generations, the rest is highly doubtful, and unnecessarily restricts management options (at very high cost).

Because the young fish are growing faster they are maturing more quickly. This has two effects, early maturing fish bring more eggs into the fishery, but the number of old fish is reduced (taking eggs out). This reliance on younger fish for the majority of the eggs makes the population more vulnerable to recruitment failure of any one or two years. (Recruitment failure is when too few mature fish are available to ensure enough eggs.)

At this point, a graph is useful in understanding what scientists talk about. The one below shows a possible distribution of yield against biomass for a hypothetical fishery.


Note that it is possible to have sustainable yields well below the maximum. In some few cases this may be highly desirable.

Risk does increase as the stock biomass is lowered, (the fish you catch might have been destined to be the only male of it’s type to survive a meteor impact and breed) - but we are in the business of risk assessment and management. To live is to risk dying.


Appendix 2 – Problems with Real Fisheries

Must have ACE for all Species

The major problem with real world fisheries is the notion that a fisher can at all times, predict ahead of time exactly what they are going to Catch.

To make a fisher criminal for not having Annual Catch Entitlement before catching fish, one must accept the notion that a fisher can always, on every occasion, predict exactly what they can catch. As an ex-fishermen I know this to be ludicrous.

In fisheries we have a legacy of thinking about control in terms of criminal behaviour. This way of thinking comes from the past. Our history is one of a colonial power where fisheries were the property of the landed gentry. Nowhere else in New Zealand law do we make people contingent criminals when going about their ordinary business. Not even police officers have the powers of fishery officers.

It is long past time that ordinary fishers making an honest attempt to work within the system were able to do so within a civil legal mechanism, and we reserved criminal law for those who work completely outside the rules.

The 1996 Act does provide some partial defences for the crime of taking fish without ACE. Three defences are available.

Subsequent acquisition of ACE provides a full defence.

Payment of Deemed Values demand in cash, or

payment of Deemed Values in kind via By Catch Trade Off of Associated Species.

Either of the last two mechanisms does not provide a full defence. In either case if any stock in their portfolio is over-fished at the end of that year, then (under section 70) in the subsequent year they are placed in a regime where they must have all stocks in credit at all times, and no defences are available.

In practice, this means that Deemed Values and By Catch Trade Off as formulated in the 1996 Act are of no practical long-term value to fishers facing the uncertainties of fishing on the daily basis. All they provide is an opportunity to keep fishing until the end of the year, in the hope that ACE does come on the market (which it will in most, but not all, cases).

Ministry of Fisheries officials have agreed to look at making the change of regimes optional rather than mandatory, but are unwilling to discuss details of how much flexibility will be allowed at this time. Their current stance on any flexibility mechanisms is very hard line, and they adopt the economic theory that sufficiently harsh penalties will make the market work.

The reality is that harsher penalties simply make people less willing to risk putting their ACE on the market, when the vagaries of fishing may place them in a similar state at a later date.

A criminal regime which makes most people criminals most of the time is not good law.

Sample size

Another aspect to the inequities involved here is that provided by sampling statistics. The science of statistics demonstrates that the smaller the sample taken from a population the less likely that sample is to have the same distribution as the parent population. What this means in fisheries is that smaller quota holders will have far greater difficulty in matching their Catch to their ACE portfolio than will larger quota holders. Flexibility that is merely of market advantage to larger quota holders, is the stuff of survival to smaller quota holders.

Real fisheries have a large element of uncertainty. Any system that denies that uncertainty on principal must fail. In this regard the 1996 Act, and the advice offered by ministry officials, is, and has been, fundamentally flawed.

Use of MSY as necessary target in setting TACs

Setting of Total Allowable Catches (TACs), and Total Allowable Commercial Catches (TACCs) is another case in point. Under the 1996 Act Maximum Sustainable Yield (MSY) must be used in all cases as a minimum. This is clearly insane. MSY is not a measure of sustainability, it is a productivity measure, and should never be used in isolation.

If two species are caught in association, and the MSY for one is, say, 7,000 tonnes, but setting the TACC at this level constrains another stock (which could be harvested at 200,000 tonnes) to a level of 100,000 tonnes, then that is what must happen, there is no discretion available in the 1996 Act.

If the first stock was allowed to be fished down to a lower biomass, such that sustainability was not threatened, but the total sustainable catch was lowered to 5,000 tonnes (over time), then the second species could be fished to its maximum. The 2,000 tonnes/year of one stock is sacrificed for a 100,000 tonne per year harvest of an associated stock. Sustainability is not an issue in either case. Simple common sense demands the latter, the 1996 Fisheries Act demands the former. It must change.


Appendix 3 – Failure to Simplify

Real time versus Delayed Balancing

Part of the simplicity in the original ACE concept was that of getting away from a real-time system and moving to one which balanced "Catch to a date" with "ACE held at a later date", a civil mechanism. It was portrayed as simply balancing two buckets – ACE in one, Catch in the other. What we have in the 1996 Act is a return to a real-time, criminal system, with all of its attendant complexities.

The crimes are "false reporting" and "fishing without a permit" – both variants of fraud which require heavy penalty.

Everything hinges on section 69 entitled "Catch must be covered by Annual Catch Entitlement", which then goes on to say "no person and shall take for sale any fish ... except under the authority of an Annual Catch Entitlement".

The title of section 69 could be kept intact, the content requires change. Something like "Catch for a period must be covered by Annual Catch Entitlement held 15 days after the period, either by Annual Catch Entitlement relating to the same fish stock, or by Annual Catch Entitlement for an Associated Species at the appropriate ratio".

Logical Flaw

Section 69 clearly implies a real-time balancing system (as in the 1996 Act). This is got around by the use of the term "reported catch" in section 76. The term "reported catch" is not explicitly defined, and ministry officials are busy trying to define this in such a way as to produce a system which can, at least, be tolerated by industry.

This approach has already thrown a number of areas where regulation will be required to clarify intent, and as this concept was never contemplated by industry, there will no doubt be many more areas of conflict that will require regulation.

Far from bringing simplification, the 1996 Act has added whole new layers of complexity. To bring simplicity we must move from real-time balancing (which is practically impossible {always was, and always will be}), to a form of delayed balancing. Which gives flexibility that the uncertainties of fishing require.

MSY as only target for TACs

The above example of simplifying beyond the capability of reality, leading to administrative complexity, is mirrored in the MSY example of appendix 2. In the case of MSY, managers have attempted to reduce the number of decisions they need to make below the minimum necessary for effective management, and in so doing added huge costs. Single species MSY is a good yardstick in most cases, but not all.

Deemed Values and sustainability

The mechanism used by the 1996 Act to overcome this basic flaw with Deemed Values is to withhold up to 25 percent of ACE off all fishers if the TACC is over-fished. This is the old school, principal of punish the whole class. It is not acceptable.

The Deemed Values and By Catch Trade Off mechanisms in the 1996 Act both require a lot of effort and paperwork, the replacement mechanisms suggested here are fully automatic.

Under the mechanisms in this paper anyone who works outside their portfolio stops fishing. If the TACC is over-caught, then that would be a major factor in increasing the penalty rates on the Associate Species Trade Off. Managers would also need to revisit the Yield balances between species (in the TAC setting process), as something is obviously out of balance (if with all this economic pressure, the TACC is still exceeded one a three year rolling average).

The big advantage of this mechanism over the Deemed Values mechanism is that it affects everyone (from fisher to marketeer) by limiting the total catch. People can always make more money by trading ACE, than by using the Associate Species Trade Off (ASTO). But ASTO is there if the ACE market isn't working at that time. Simply having ASTO there will be enough, in most circumstances, to ensure that it is not used.

Having the ability to carryforward means that it is still worthwhile trading at the end of the year to re-balance, so that someone can catch the fish in the next year. Without carryforward, the signals are all wrong – whatever the system used.

Carryforward Removed

Carryforward of unused ACE is an essential element of the design of the ACE system.

Economic theory necessitates that it be there, and operation flexibility also requires its presence.

From the economic viewpoint, without a carryforward provision, the value of ACE can vary hugely as the end of year approaches. Attempts to capture the last few tonnes or (Kgs) have a huge risk associated with them. The risk of making a chance catch will make conservative operators hold onto their ACE until the last few days. Under the current Act, to not balance for all species at the end of year is to risk the viability of one’s business (by being forced into a strict ACE before fishing regime). No small economic return is worth that risk, so the ACE market will be nearly non existent until the end of year. Some might use this lever to force competitors out of business, by forgoing the short term reward of revenue from ACE for the longer term gain of buying out a competitor who is forced out by operation of a law which is not well matched to reality.

Focus would shift from the business of fishing to working the angles of a poorly designed piece of legislation.

With carryforward, the existing framework becomes almost workable, but still has the failings described. Carryforward in the environment described here, promotes and open ACE market, as no one can be "held to ransom", beyond the premium set in the associated species trade off ratios (typically 30%). Such a low premium is hardly worth souring long term business relationships, so cooperation and working within the system are both encouraged. This system will certainly upset a few who have taken positions based upon making much of such premiums – look for them to squeal loudest.