Wilton Park Conference 2001 :

The EU Common Fisheries Policy after 2002 : The Scope for Change

"How to maintain Sustainable Fishing without Subsidies ? The Norwegian Experience"

Otto Gregussen, Minister of Fisheries, Norway

Introduction

Ladies and Gentlemen,

Allow me first to commend Wilton Park for hosting this conference. This gives us the opportunity to view problems and challenges facing the future management of the living marine resources in a holistic manner.

As my introduction to this session of the conference I will focus on the challenges we are dealing with when it comes to maintaining sustainable fishing without subsidies. I will approach this issue by focusing on the Norwegian experience.

The fundamental importance of the sea and its resources is reflected in the demography of Norway, and it is obvious that the marine environment provide a great comparative advantage for our fisheries and aquaculture sectors.

Norway has - as a coastal state - both a right and an obligation to manage one of the most productive sea areas of the world. The Norwegian fisheries and aquaculture industry is one of our largest export industry and constitutes the very foundation of economic activities along the Norwegian coast. The growth in exports has continued to rise at the same time as massive reductions in subsidies has found place.

Not only coastal regions benefit from the rich marine resources. It goes without saying that an industry which in 2000 generated export revenues approximating NOK 31 billion in addition to a domestic turnover of NOK 10 billion is of paramount importance to the nation as a whole. Therefore we cannot afford not to manage our fisheries in an ecological and economical sustainable manner.

Our objective is that the marine sector should take advantage of the natural resources available and release the potential additional value of these resources. Such a development requires viable and dynamic coastal communities with a well-functioning infrastructure, and vital business establishments that can make use of the opportunities.

Adequate and sustainable management regimes - not only with regard to resource management but also economic activity - are essential to achieve this goal. To facilitate for this development, the government has also identified marine research as a priority area.

Norwegian fishermen are granted quotas on the basis of the principle of sustainable management and conservation of the living marine resources. Similar principles are applied in the management of the aquaculture industry.

Public control and monitoring procedures are established to make sure that these principles are observed and that all activities are in compliance with regulations drawn up by the government in co-operation with the fisheries organizations.

However, it is also of great importance that the industry is allowed to operate under optimal conditions when it comes to economic activities. This brings us on to the complex discussion of subsidies to the fisheries sector.

THEORETICAL BACKGROUND

Subsidies and transfers from the government have shaped the marine fisheries sector in Norway. For decades the harvesting sector and the fish processing industry experienced a growth in government subsidies that gave a boost to the modernisation and expansion in the fisheries sector. With hindsight it becomes clear that this led to over-investment, which again resulted in overcapacity over time.

An OECD study of subsidies and resources sustainability of OECD countries confirms that subsidies contributed to fishing fleet overcapacity in the case of Norway already in the 1960s.

It has been globally acknowledged in the recent years that overcapacity might lead to increased pressure on the resources in an open access regime. Since overcapacity is enhanced by subsidies, we also have a mechanism linking subsidies with the threat of over-fishing and depletion of fish stocks.

According to FAO’s most recent assessment about half of the global marine resources are fully exploited, while a quarter has some potential for increased fishing while the remaining quarter is overexploited. This implies that there already exists overcapacity in the world’s fishing fleet, or that further catching power cannot be added without threatening the sustainability of many fish stocks.

The economic theory of "the tragedy of the commons" sheds light on why open access fisheries tend to attract excessive amounts of capital and labour that results in fishing efforts beyond maximum sustainable yield (MSY).

This effect is enhanced by subsidies. However, even well managed fisheries will experience market failure due to subsidies, because they have the effect of retarding the exit of capital from the fishing industry even when the industry is financially troubled as a result of overcapacity and declining catches.

An example of this effect is the case of the increased Norwegian support for the fishing industry in the late 70s and early 80s. At the same time as we experienced decline in fish catches and net value, the number of fishing vessels and fleet engine power increased. High levels of government support effectively hid the signals from a fishing fleet in need of capacity adjustment.

It became apparent that it would be unwise to continue to base the subsidy-policy on the theoretical proposition that well-managed fisheries can neutralize the negative impacts of subsidies.

In the context of sustainable fisheries, substantial overcapacity in the fishing fleet represents a pressure on the fishing resources also in other ways, such as political pressure to increase the quotas beyond safe limits and increased probability of illegal catches.

The Norwegian experience shows that the implementation of more adequate management systems has been accompanied by significant reductions in subsidies.

THE SITUATION TODAY (EXPORTS VS SUBSIDIES)

If we take a look at the figures, we can see that the export value of seafood from our capture sector has increased by approximately 10 billion NOK from 1992 until today – almost a doubling. In the same period the yearly transfers have been reduced from 1 billion NOK to an odd 100 million NOK in 2000.

And the subsidies granted today are mainly channelled through schemes established for regional development purposes and are sector neutral.

HOW DID WE GET THERE?

I will try to explain the process of getting to where we are today, and how Norwegian authorities went about to achieve this significant reduction in government support to the fisheries sector.

The background for the history of governmental transfers to the Norwegian fishing industry can be found in the agreement between the Norwegian Fishermen’s association and the Government. This agreement was signed in 1964 and had two goals:

The first goal was to

Secure that fishermen obtained income on the same level as other sectors of the economy,

And the second goal was

To stimulate the efficiency of the industry in a way that would eliminate the need for economical support.

In this context one has to remember that Norwegian Government has put much emphasis on regional policy during the post-war years. The fishing industry, being an industry located in the coastal areas of Norway, was regarded, as an important tool for securing that people would be able to live and have a decent income in the small rural societies of coastal Norway. Decentralised communities were a political aim.

1)Political Awareness, Reduction of Governmental Support

In the 80s it was acknowledged by the Norwegian authorities that further governmental transfers on the same level as before, was contradictory to the promotion of a profitable industry.

It was recognised that governmental transfers to the fleet and the processing industry enhanced the problems with overcapacity by encouraging excessive investment and effort.

Overcapacity was a result of both the total amounts that were allocated, and also to a large extent to the type of support: Between 1964 and 1990, about 80 percent of the transfers were given as price support or cost reducing transfers, while structural schemes accounted for only 11 percent in the same period.

It was also recognised that overcapacity in the fishing fleet represented a misallocation of both capital and work force, which was harmful to the national economy as a whole. The opinion that scarce public funds could be used in more meaningful ways was gaining ground.

2)EFTA/EEA Agreement

Further; in the beginning of the 90s Norway also had to adjust its transferrals and subsidy policy to international agreements and regulations in this field.

Particularly to the EFTA and the EEA agreements. This meant that direct support, as price support and cost-reducing transfers, had to come to an end. This kind of support was as previously mentioned, an important part of the total support to the industry, so the termination of these schemes led to a dramatic reduction of the total transfers.

It should be mentioned in this context, that since the Norwegian authorities and the industry at this point had become aware of the negative effects of subsidies, Norway went further in reducing government support than what we were obliged to according to international agreements.

3)The Process

The process of subsidy reduction was undertaken in a politically peaceful manner. The representatives of the industry accepted that the industry could not expect to receive support in the same manner as before.

Besides the fact that Norwegian fishermen do not have a rebellious history of behaviour, I would like to point at some other reasons why this process went as smoothly as it did:

The fishermen realised that excessive subsidies to the industry were bad publicity for the industry

The income and profits from the fisheries increased in the same period, making it easier to accept a reduction of transfers

The authorities increased their structural efforts, which in the long run also increases the income of those remaining in the industry

4)Cost of Fisheries Management

A major issue in defining a subsidy in the fisheries sector is whether the provision of fisheries infrastructure projects or government fisheries management services without charge to the industry should be included within the scope of the definition of a subsidy.

In 1997 OECD member states spent approximately 4.9 billion dollars on fisheries infrastructure projects and on fisheries services, mainly, research, management and enforcement. This accounts for about 77 percent of their total financial transfers to the fisheries sector.

States hold conflicting views on how the benefits of fisheries management functions, such as research and development, stock assessments, monitoring and surveillance, should be treated. Most countries have regarded such services as benefiting the general public more than the fishing industry; whereas others have considered that they benefit the fishing industry primarily.

Work now being undertaken by OECD on the costs of management services should be helpful in further clarifying the issue.

The theme of cost recovery in Norway was not an issue as long as large subsidies were paid to the industry. It was meaningless to approach this matter as long as the subsidies were on a high level.

In the present situation the question is which division between the authorities and the industry that would reflect the responsibility of the stakeholders in the industry. There are some arguments that support the view that the authorities should not seek full cost recovery from the industry:

The fisheries in Norway are managed in accordance with goals and political priorities that reflect the general economic, societal and environmental goals for the Norwegian society as a whole. It is therefore reasonable that the authorities, on behalf of the society, should pay a major portion of the expenses.

If the industry itself should contribute a great part of the expenses, it would be reasonable to give the industry the right to participate more in making decisions about the use of the money. The focus could therefore be directed towards activities that are of direct benefit to the industry itself, and not necessarily of benefit to the society as a whole.

There is a growing concern about the sustainability of all harvesting from the sea. This will probably be of increasing importance for the consumers of seafood. In this context it will probably be an advantage in the marketing of fish products that the authorities are the main financial contributor to the management of the fish resources.

The increasing awareness of the need for an ecosystem approach to the management of our oceans and living marine resources requires improved knowledge and increased marine research – which it is not obviously logical that the fishing industry should bare the costs of.

Still, in Norway the industry today contributes to its costs in several ways:

From the year 2001, the industry itself will contribute directly to the financing of research and development. It is decided that there will be a levy of 0,3 percent on the value of all seafood exports, including exports from the aquaculture sector. This will be allocated to the industry-oriented research by a board appointed from representatives of the different industry branches.

The Norwegian Seafood Export Council attends to administrative functions, but is mainly acting as a marketing agency. The activities are entirely financed by the industry through statutory fees.

There is also a fee on exports, financing a pension scheme for the fishermen.

The sales organisations, which organizes the first hand sale of fish from the fishermen, is financed by the industry through a self-imposed levy and allocates between 10 and 15 percent of its revenue to enforcement tasks, corresponding to about 15 million NOK per year.

The fishing authorities finance the satellite tracking system. However, the necessary technical equipment needed on each fishing vessel has to be paid for by the vessel owner. This scheme applies to all vessels that are more than 24 meters in length.

There are also fees for registration of vessel in the fishing vessel register and when acquiring a permit to buy a replacement vessel.

As these listing shows, the industry is now contributing in several ways to cover their own costs, instead of being dependent upon subsidies just in order to maintain its activities.

The fisheries industry in Norway by this contributes directly to the running of the sector with an amount substantially higher than the present level of government subsidies and structural funds.

RESOURCE AND CAPACITY MANAGEMENT

It was argued before that the dramatic reductions in subsidies to the fisheries sector would have severe negative effects on the profit in the industry. How has then Norway been able to maintain sustainable fisheries without subsidies?

In the last Norwegian Government White Paper to Parliament "Perspectives on the development of Norwegian Fisheries Sector" no. 51 (1997-98), this policy objective is formulated as such:

"The Fisheries policy shall contribute to establish a sound basis for an economically viable development of the fisheries industry. A sustainable management of the living marine resources is pre-conditional. Through marked orientation and increased value adding, the fisheries sector shall contribute to good employment and living opportunities in the coastal communities."

Thus the main objective for the Norwegian Government fisheries policy is to maximise the societal profits through an economically efficient use of the resources, by seeking the highest possible return rate from the fisheries sector, and also to achieve an socio-economic optimisation with respect to the total gain for the communities at the coast of Norway. This will require adequate resource and capacity management systems:

There is broad backing of these objectives in our political system, from all sides of the political spectre.

1)Sustainable Marine Resource Management

The Norwegian model for sustainable marine resource management rests on certain key principles: sustainable harvesting, multi-species approach, adequate regulations and an efficient control and enforcement scheme.

It is vital that these principles are accepted as legitimate by the fishermen themselves, and that violations are subject to legal sanctions. It is also of utmost importance that these principles form an integral part of the fisheries agreements concluded with the North Atlantic neighbouring countries in the management of shared stocks.

2)Regulations (Input-Output)

Today the Norwegian system of fisheries reflects a well-tested system of policies and instruments for the monitoring and regulation of key stocks based on multi-species management objectives.

Our overall objective is to provide for a sustainable development and a long-term optimal use of the living marine resources. This implies that the catches of any TAC-regulated species must not exceed the agreed quotas based on the best biological advice available.

Norwegian conservation philosophy stipulates that all regulations and corresponding enforcement should be directed towards the fishing activities themselves as a starting point.

The basic legal starting point is that it is prohibited to fish "illegal" fish, that is fish below the required minimum size, and that there is established a ban on discarding which applies to all economically interesting species. Moreover, every catch of an individual species is registered and counted against the quota for that particular species.

Participation in Norwegian commercial fisheries is restricted and regulated by a body of legislative and administrative instruments. The restrictions on fishing effort can be divided into terms on the entry into the fishery and limitations relating to the use fishing gear, which form the input regulations, and to quantitative restrictions like different kind of quotas that refers to output regulations.

There has also been established a number of different structure regulations, with the purpose to reduce the fishing capacity in a number of vessels groups.

The Norwegian input control relates both to which vessels who are allowed to join the different fisheries, and to which people who are allowed to own fishing vessels.

To meet the challenge the unbalance between resource and fleet capacity represents, a number of different input control systems have been established. Norway has implemented two basic models, licences and permits, regulating the number of vessels that can join the different fisheries.

The difference between these two is basically that licences are granted for an unlimited time-span, while the fishing permits it is limited to one year at a time.

Outputs are regulated through annual regulations on the sharing of the Norwegian TAC on all regulated stocks amongst the different groups and amongst the participating vessels.

Through the regulations also the division of quotas on the level of each and one of the fishing vessels is set. For some fisheries the group quotas are divided equally amongst the vessels, while for other fisheries the vessel-quotas are differentiated by vessel-length, tonnage or other technical criteria.

3)Structure Regulations

Closed Access Regime

The development of the Norwegian fisheries, from open access, from the start off when everyone, who fulfilled the requirements of being a fisherman, would get a permit to fish with his boat, into limited access in addition to different vessel quota systems, has naturally developed a notion of rights within the fishing community.

Although, in principle the Norwegian fisheries are open, closed access on stock basis is implemented to such an extent that there are small possibilities of being a professional fisherman living only on unregulated stocks, as more than 90% of the catch value comes from access-regulated fisheries.

The exclusivity to be one of the chosen to participate, and the exclusivity of being granted your annual portion of the TAC – which is then repeated annually and annually – into perpetuity, clearly gives the industry and the individual fishermen the notion of a right.

Unit Quota System

To meet the challenge of resource and capacity management, Norway also has established a quota transfer system (the unit quota system) for some groups, with the main purpose of reducing the number of vessels and thus increases the income of each vessel. This system was first introduced in Norway in 1984 in the cod trawler fleet. The scheme was reintroduced in 1990 when it also included other groups, and then again in 1996/1997. The unit quota system was introduced on a permanent basis for some groups from early 2000.

The unit quota system gives the possibility for a vessel-owner to buy another vessel, take that vessel out of Norwegian fisheries, and fish both quotas with the remaining vessel for 13 or 18 years. 13 years if the vessel is taken out of Norwegian fisheries, and 18 years if the vessel is physically destroyed – the latter to contribute to the reduction of worldwide over-capacity.

So far the unit quota system only has been implemented for the offshore fishing fleet and for vessels longer than 28 meters using traditional gear. We have recently passed a bill through Parliament that allow us to introduce restructuring schemes of the same models also for the smaller coastal vessels.

Decommissioning

Norway also uses decommissioning schemes as an instrument to reduce the fishing fleet. Under the present scheme a grant is given to vessel owners to withdraw licenses or access-permits, and the vessel is taken permanently out of fishing and are physically destructed.

Previously the focus was on modernisation, but now the focus has changed to reduction of the fleet capacity. Grants for constructing new vessels are no longer given.

281 vessels have been scrapped in the period from 1990 to 1999. The main groups that use this scheme to day are coastal vessels in arctic cod fishery and shrimp-trawlers in the North Sea.

Under ideal circumstances, programs to reduce capacity by retiring vessels or licenses could make a major contribution to capacity reduction. A recent study based on case studies submitted by OECD member states found that transfers aimed at capacity reduction, "combined with appropriate management measures, can reduce pressures on fish stocks."

However, experience with such subsidies in a number of countries shows that it is extremely difficult to design a decommissioning scheme that will stem the continued growth of fishing capacity as long as the overall incentive structure in the sector continues to encourage the "race for fish".

These programs may temporarily remove vessel capacity from the fleet, but those who remain in the industry will still be motivated to make additional investment in greater total effort or more efficient gear, and will have additional resources with which to do so. Decommissioning grants also have the disadvantage that they may retard normal exit from fishing.

THE NORWEGIAN SPRING SPAWNING HERRING STORY

I will tell a story about our most successful management effort the last century. The Norwegian Spring Spawning Herring stock is to day the largest single stock in the North East Atlantic with a spawning stock size above 6 million tons. The stock is according to the International Concil for the Exploration of the Seas – ICES – managed well within the precautionary levels. As one of the few in the area.

The Norwegian purse seine fleet consist of slightly less than one hundred modern vessels, which is the most profitable segment of the Norwegian fishing fleet.

But it has not always been like this.

Due to rapid technological development in fishing technology, the introduction of the power-block, and no effort control, the purse seine fishing on the spring spawning herring increased dramatically in the late fifties early sixties, and at the end of the sixties the stock was for all practical purposes extinct.

The remains of the earlier so abundant fish stock were within Norwegian waters and took refuge in the fjords. Fishing was banned except from traditional gillnet fishing with strict limitations. With great losses for the purse seine fleet. It remained like this for more than 20 years.

At the same it came apparent that the purse seine fleet was too large, and in 1979 the first decommission scheme for this fleet group was introduced. Over the period from 1979 to 1990 it was used 465 million kroner and 92 purse seiners was removed from Norwegian fishing, thus contributing, together with other structuring means, to the reduction of the purse seine fleet from more than three hundred in the late sixties to less than one hundred today.

In the late eighties the herring stock showed some signs of recovery – but the general ban on commercial fishing was kept in force, and only in the mid nineties the stock was opened for fishing on a commercial scale. And to day, the Norwegian Spring Spawning Stock is again the largest fish stock in the North East Atlantic, with distribution over the whole area, managed jointly amongst a number of coastal states in a comprehensive management regime.

And the herring is again one of the most important sources of income to our purse seine fleet – the most successful and profitable segment of the Norwegian fishing industry. It is almost a fairytale.

THE FUTURE CHALLENGE (AIM)

In order to trigger the potential value added in the fisheries and aquaculture industries, we must be aware of the challenges that lie ahead when it comes to capacity and resource management.

1)Additional Structural Measures

The problem of overcapacity is still present in the fishing fleet, and needs to be addressed in an appropriate manner in the future. Norway has - as previously mentioned - introduced structural measures for several vessel groups. In addition, work is now being undertaken to establish structure arrangements also for the coastal fleet.

2)Research and development

Since Norway’s economy is heavily dependent on the income to be drawn from the exploitation of the living marine resources, prudent management of fish stocks is decisive to safeguard the future of our fishing industry.

Nature itself will always play a significant role in the determination of fishing possibilities, but despite the whims of nature, it is firmly believed that it is both possible and necessary to pursue a policy of sustainable management and conservation of the living marine resources.

Thus maintaining and rebuilding stocks to levels that can give predictable and sustainable yields forms a basis fundament of the Norwegian fishery policy. The challenge is to achieve an optimal resource management based on reliable advice from the advisory bodies.

3)Economic rent

With a closed-access regime and adequate structural measures for the fishing fleet as a whole - i.e. the coastal fleet as well as the larger vessels - it is possible to form the foundation of a profitable and self-financing fleet that in the future will be capable of supplying revenue to the state through actual profit and the possibility to extract economic rent.

As we can see from this diagram, this is the future aim for the Norwegian fishing fleet. From being an overly subsidised industry, the fishing fleet has become self-financing, and we believe that in the future, it will be an important source of revenue for the state and the Norwegian society as a whole.

The issue has already been raised in the debate in Norway, and the industry has taken a positive and constructive attitude, linking the potential introduction of a resource rent scheme with the introduction property rights and of guaranteed quota factors to each of the different fleet segments.

CONCLUSIONS

To conclude. Ladies and gentlemen, the Norwegian experience shows that it has been possible, with some luck, with some help from God and the nature, but also with a lot of determination and political will by my predecessors, to transform a not profitable fishing sector to a modern, profitable and sustainable industry which to a larger and larger extent is becoming a backbone of our national economy.

I will answer the title of my introduction "How to maintain sustainable fishing without subsidies" with one simple answer which sums up my presentation here today: "It is not possible to maintain a sustainable fishing with subsidies."

Thank you very much for your attention.