INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSE BUY-BACK PROGRAMS

INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSEBUY-BACK PROGRAMS

March 22-24, 2004 La Jolla, California

Decommissioning Schemes and Capacity Adjustment:A Preliminary Analysis of the French Experience

Olivier Guyader, Patrick Berthou and Fabienne DaurèsFrench Institute for the Sustainable Exploitation of the Sea (IFREMER)

Plan of the presentation

• Materials

• Description of the decommissioning or buy-out schemes in a E.U. context – evolution of the premiums levels

• Who stayed, who left - fishing units and vessel-owners

• The preliminary assessment of windfall gains - gainers/losers

• Impact on Fishing Capacity

• Conclusion - weaknessess and improvements

Indicators of the fleet size at aggregated levels (1983-1990) - Fleet files with vessels characteristics and vessel-owners information at the end of each year (1990-2003)

Removed vessels under decommissioning schemes (1991-1999)

Premiums levels proposed by the government (1991-2004) Premiums really received by vessel-owners (1991-1995)

Transaction prices on the second-hand market of around 4000 vessels between 1985 and 2000 (60-70% of the transactions)

Other information on regulations …

Materials

Objective of the schemes: remove permanently vessels from the fishing fleet

• scrap the vessels

• used for non commercial fishing activities

• transfered to non E.U. countries

Decommissioning or buy-out schemes in a E.U. context

To fulfil with the French MAGPs intermediate and final objectives

Engine power (kW), tonnage (GRT then GT)

Fleet segment

• MAGP#1 1983-1986 Length

• MAGP#2 1987-1991 Length

• MAGP#3 1991-1996 Length and gears

• MAGP#4 1997-2002 Length, gears and species

• 2003-2004 Targeted species

To enforce gears bans – beam trawl in the Mediterranean sea, driftnet for albacore tuna in the Atlantic area (E.C. Regulation)

Possibility to revew the fleet: construction and

modernization

Duration of each scheme: in general few months

Years 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003-04Cost in M€ (2001) 32 2 5 3 6 7 3 5 6 7 8 5 30***% of the Total Cost 37% 3% 6% 3% 7% 8% 4% 6% 7% 7% 9% 5%

Budget dedicated to the decommissioning schemes per MAGP periods:

***forecasted budget

Number of schemes: one per year since 1991

Decommissioning schemes

Cost recovery: very small contribution of the vessel-owner to the so called “social solidarity fund”

Public sources of funding: (70/30 then 50/50) E.U. and member state budgets (including governement, regions, districts contributions)

Premiums offered to the vessel-owners laid down by the administration

Eligible applicants: main criterions

vessel-owners:

• no criterion, except that the fishing firms have put in order debts/credit guarantees/mortgages

Vessels:

• physical characteristics: minimum length*

• age: more than 10 years old*

• activity: prove a minimum fishing activity the last two years (75 days per year)*

• Belonging to a specific MAGP fleet segment: trawlers <30 m. in 1998-1999

• Targeting significantly species for which the stocks are in bad state: 30% of the cumulated landings of monkfish, hake, cod, sole, nephrops (2003-2004)


Application to the decommissioning scheme is not mandatory

Selection of the applicants: order of arrival (budget ceiling not reached)


Premium levels per vessel

Values in Constant Euros 2001

Premium levels in 1991 for scrapped vessels (governement 30% and Community contribution 70%)

So called « social measures » for the crew members transitory incomes

Premium must be settled below E.U. premium ceiling

Uptake ratio for vessels with low GRT/kW index

Decrease of the premium as a function of age (more recently)

Fixed part in Euros Variable part in Euros Total Premium in kEuros GRT kW Length in m.<= 5 GRT 0 3706 8 2 33 65 - 15 GRT 3706 2965 32 9 119 1015 - 50 GRT 12602 2372 76 27 199 1450 - 100 GRT 57079 1483 143 58 340 19100 - 400 GRT 86730 1186 258 145 508 28>= 400 GRT 205335 890 990 882 2108 60

0

100

200

300

400

500

600

700

< 7 m. 7-9 m. 9-12 m. 12-16 m. 16-24 m. 24-40 m. > 40 m. Average

Vessels Length Categories

Pre

miu

m p

er k

W (

in C

onst

ant

Eur

os 2

001)

1991 1992-1996

Evolution of the premium/kW and per length categories between 1991 and 2003

• Premium levels were increased over the period

• Gap between the premium offered by the E.C. ceiling premium has been reduced (95% of the Community level in 2003-2004)

• incentives to remove the vessel over 12 meters increased after 1996 (to discharge delays of MAGP#3 and fulfil with MAGP#4 segmentation0

100200300400500600700800900

1000110012001300

< 7 m. 7-9 m. 9-12 m. 12-16 m. 16-24 m. 24-40 m. > 40 m.


Pre

miu

m p

er

kW (

in C

on

sta

nt

Eu

ros

20

01

)

1991 1996 1999 2001 2003

• Regional and district collectives contributed significantly to the premium levels received by the vessel-owners

• Their contribution to member state share fall from 38% to 25% between 1991 and the 1992-1996 period

• The decline in premium level received over the 1992-1996 period is explained by this reduction and the contribution of the Community bugdet (70% to 50%)

• May have reduced the incentives to exit …

Based on the premium offered by the government

Premium really received by the vessel-owners

Who stayed, who left ?

Years 1991 1992 1994 1995 1996 1997 1998 1999Decommisionned Vessels 922 25 208 201 21 139 134 38*Average Tonnage (GRT) 13 85 27 20 9 14 24 9Average Engine Power (kW) 74 235 119 115 87 106 154 84% of the Removed Vessels 55% 1% 12% 12% 1% 8% 8% 2%

Removed vessels between 1991 and 1999*

• A minimum of 1690 decommissioned vessels* / 29,000 GRT/ 163,000 kW

• 73% of the fleet engine power reduction between 1990 and 1999

• 55% within the first scheme to balance the delay of the MAGP#2, especially small fishing units

* incomplete data

Removed Vessels Vessels Number Tonnage (GRT) Engine Power (kW)

Demolished Vessels 95% 75% 84%

Exportation 2% 21% 11%

Other non Fishing Activites (Commerce) 1% 2% 2%

Other non Fishing Activites (Yachting) 2% 2% 3%

Total 100% 100% 100%

Utilization of the Removed vessels

• 95% of the vessels were demolished, 2% exported to third countries representing 11% of the total engine power

Sample of 1357 vessels (1991-1995)

0%

2%

4%

6%

8%

10%

12%

14%

16%

<7 m. 7-9 m. 9-12 m. 12-16 m. 16-24 m. 24-40 m. >40 m.


Fre

quen

cy

MAGP#2 MAGP#3 MAGP#4*

Removed Vessels/Initial Population as a function of length categories and MAGPs

• Removed vessels: 76% were less than 12 meters, especially under MAGP#2 with around 12% of population removed in each length categories. The relative contribution of these categories declined under MAGP#3 and #4

• 22% of the removed vessels were between 12 and 24 meters with a higher and quite stable contribution of the 12-16 m. category (10%) than for the 16-24 meters category (6%). Positive because these vessels were the most efficient in terms of fishing mortality – most of them were trawlers

•2% of the removed vessels within the more than 24 meters category (higher contribution

in terms of engine power and tonnage)

•

0%

5%

10%

15%

20%

25%

30%

<10years

10-15years

15-20years

20-25years

25-30years

30-35years

35-40years

>= 40years

Vessels Age Categories

Fre

quen

cy


The age of the removed fishing units

0%

5%

10%

15%

20%

25%

<10years

10-15years

15-20years

20-25years

25-30years

30-35years

35-40years

>= 40years


Fre

quen

cy

Removed Vessels between 1991 and 1999

• Old removed vessels: 31% were more than 30 years old, 46% between 20 and 30 years

• A significant share of the vessels at the end of their life

• Average age of exit:

25.6 years in 1991/ 26.2 in 1996 / 30.0 in 1999

Removed vessels over the 1991-1999 Period per Age Categories

Removed Vessels/Initial Population as a Function Age Categories and MAGPs

• Similar profiles of exit except for MAGP#4

• 20% of the 20-25 age category removed in 1991

•Average age of the remaining vessels:

15.1 years in 1991/ 19.0 in 1996 / 20.0 in 1999

The fleet segments of the removed fishing units

Required reductions in engine power (kW) under MAGP#3: 21.2% for the trawlers segment, 16.2% for the dredgers, stabilization for non trawlers using passive gears

1992-1996 1997-1999 1992-1996 1997-1999 1992-1996 1997-1999Trawlers 37% 37% 70% 55% 62% 56%Dredgers 24% 26% 8% 8% 15% 15%Non Trawlers 39% 37% 22% 37% 33% 29%Total 100% 100% 100% 100% 110% 100%

Number of Vessels Tonnage (GRT) Engine Power (kW)

• Problems encoutered because there was no link between the MAGPs segments and the decommissioning schemes which did not use segments before 1998

• 39% of the vessels and 33% of the total engine power were removed from the non trawler segment

• Failure to reach MAGP#3 objectives at the end of 1996 (delay of 20,000 kW due to the trawlers segment)

Number of observations: respectively 404 and 311 for the period 1992-1996 and 1997-1999

Age categories in years <25 25-30 30-35 35-40 40-45 45-50 50-55 55-60 >= 60 n.a. total

% of the Population 2% 9% 16% 23% 18% 15% 9% 4% 2% 3% 100%

% by Age Category 50% 45% 44% 49% 40% 37% 16% 10% 6% 43% 31%

Vessels-owners/Initial Population as a Function of Age Categories

The owners of the removed fishing units

1991: Distribution of the initial population and the “removed” vessel-owners per age

categories

0%2%

4%6%

8%10%

12%14%

16%18%

<25years

25-30years

30-35years

35-40years

40-45years

45-50years

50-55years

55-60years

>= 60years

n.a.

Vessel Skipper-Owner Age Categories

Fre

quen

cy

Initial population Removed Population

0%

5%

10%

15%

20%

25%

30%

<25years

25-30years

30-35years

35-40years

40-45years

45-50years

50-55years

55-60years

>= 60years

n.a.

Skipper Owner Age Categories

Fre

quen

cy


quite homogenous distribution per age categories of the number of removed owners over 30 years old (12% in 1991)

stable rate of exit between 30 and 45 years old, decrease between 45-50 and increase over 50 years old

Average age of exit vs Average age pop.

1991 45.2 41.2

1996 44.9 42.3

1999 46.4 42.3

31% of the vessel-owners who decided to remove their fishing unit decided to stay in the fishing industry

Around 45% for the youngest age categories

Remaining vessel-owners

• Cost-effectiveness of the public policy: maximize the capacity reduction with the available budget

• Distributional consequences: from tax-payers to fishermen and between fishermen : any explicit reference to this objective in the French decommissioning schemes

Premium > Willingness to receive to scrap their vessel

A preliminary analysis of the windfall gains

Methodology to assess windfall gains:

comparison of the premium value received by the vessel-owner to his vessel value on the second hand market (opportunity cost)

Estimation of the vessel price from a Hedonic model

• 4000 transactions between 1985 and 2000

• Functional forms tested (Guyader et al. 2003)

),.,,,,,.,,,( ktkitkitkittkitkitkitkitkitkit uLOCCHGEFLEETREGIONYEARHULLCLASSAGEGRTkWLfP

• It is then possible to give an estimated value for each decommissioned vessel on the basis of its physical characteristics (GRT, age) and the year of decommissioning

Windfall gains: results

• Positive windfall gains with relative rents decreasing with vessels size over the 1991-1995 period

Years Difference in %1991 24%1992 -3%1994 12%1995 7%Total 19%

Years Indicators in Million Euros 2002 < 7 m. 7-9 m. 9-12 m. 12-16 m. 16-24 m. Total*Premiums value 3.4 7.6 8.8 9.3 9.1 38.2

1991-1995 Vessels market value 2.4 6.0 7.2 7.7 8.9 32.2Difference in % 40% 26% 22% 21% 3% 19%

• Differences between years and vessels length categories

1991

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

< 7 m. 7-9 m. 9-12 m. 12-16 m. 16-24 m.


In M

illio

n E

uros

200

2

Premiums value Vessels market value 1995

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

< 7 m. 7-9 m. 9-12 m. 12-16 m. 16-24 m.


In M

illio

ns E

uros

200

2

Premiums value Vessels market value

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Valu

e o

f in

veste

d c

apita

l

(consta

nt billio

ns €

: base 2

000)

Residual value of vessels Access right value

Windfall gains: results

Premium and estimated price of a 10 GRT vessel of different age classes

(no ageing effect)

0

10

20

30

40

50

60

70

80

90

100

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Ves

sel p

rice

in C

onst

ant

KE

uros

10 grt ]18-20 years] 10 grt ]14-16 years]

10 grt ]10-12 years] 2001 premium for 10 grt

Evolution of the Atlantic fleet value: a capitalization of an access right implicit value in vessels price

The member state buybacks not only the vessel but also the operation permit

Impact of Decommissioning Schemes on Fishing Capacity

Control of entry flows to the fishing fleet : implementation in 1988 of an operation permit (PME) at national level (limited entry system)

• Operation permit issued for each new capacity project and a Total allowable operation permits (kW and GT) defined each year by the administration

0

200

400

600

800

1000

1200

1400

1600

1800

<= 5 years

5-10years

10-15years

15-20years

20-25years

25-30years

30-35years

35-40years

> 40years

n.a.


Num

ber

of V

esse

ls

1991 1996 2001

Distinguish the impact of buyback schemes from other regulations

Evolution of the fleet structure per Age categories (1991-1996-2001)

Marked reductions in new buildings in the 90s (less than 800 units) compared to the 80s (around 3000 fishing units)

0

2000

4000

6000

8000

10000

12000

14000

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Num

ber

of V

esse

ls

90

95

100

105

110

115

120

125

130

135

140

Inde

x kW

and

grt

- B

ase

100:

2003

Vessels Number Engine Power (kW) Tonnage (grt)

Control of exit flows by decommisioning schemes + « natural exits » (exportations …)

Evolution of the French fleet between1983 and 2003

Net decrease in fleet size

Around 2680 vessels for 222,000 kW

Decommissioning schemes concerned a least 1690 vessels for 163,000 kW (73% of the engine power reduction)

A success story ?

Contribution of the trawlers was low compared to the other segments (see paper)

Reduction of the fleet size in terms of control variables (kW, GT)

Decrease in the fleet material value (decrease in overcapitalization?)

Increase in real engine power, size of the gears, technical progress of the reamining vessels fishing mortality ?

Conclusion :

Inconsistencies in the public policy of capacity adjustment – “Danaïdes barrel”

subsidies for dis-investment (89M€) vs subsidies for investment (427M€) forbidden at the end of 2004

Lack of individual rights allocation to circumvent the “race for fish” growing number of licences systems and individual quota allocations

Better than if nothing has been done

Improvements in French buy-out schemes

Proof of fishing mortality reduction to be elected (historical landings) [2003-2004] Dedicate budget amounts for targeted segment and differentiate premium levels [2003-2004] Rules concerning a maximum age of scrapping (avoid to fund old wear and tear vessels) ? Administrative vs tendering system ? Reduction of the duration of the schemes to avoid too much distortion in capital markets

Buy-out schemes may be seen as a necessary tool to get rid of redundant capital - vessels with a positive opportunity cost stay in the fishing industry even in the case of ITQ systems

Not a sufficient tool right based systems

Conclusion :

Years 1993 1994 1995 1996 1997 1999Less than 25 m. 21,700 22,000 15,600 4,150 10,900 22,868More than 25 m. 6,300 9,500 10,400 4,100 4,417Total 28,000 31,500 26,000 15,000 27,285

Years 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003-04Investment-Modernization 59 48 53 28 20 37 29 25 33 26 35 34Production Changes and Market Support 11 13 13 23 24 11 13 8 9 10 9 11Reduction of the Production 32 2 5 3 6 7 3 5 6 7 8 5 30***Others** 5 4 10 12 8 18 22 17 16 65 27 27Total 107 67 80 66 59 74 68 56 62 106 78 78

Evolution of the Total Allowable Operation Permits in Terms of Engine Power (kW)

Evolution of the Public Subsidies to French Fleet (in Constant Euros 2002 including E.U. Funding)*

For discussions

Segment POP < 7 m. 7-9 m. 9-12 m. 12-16 m. 16-24 m. 24-40 m. > 40 m. Total% of the Vessels

% of total kW

% of total GRT

Coastal Vessels <12 m. 653 780 662 2095 36% 18% 7%Trawlers <30 m. 10 127 524 344 501 68 1574 27% 40% 35%Trawlers >=30 m. 45 26 71 1% 8% 18%Non Trawlers 12-25 m. 138 108 2 248 4% 7% 6%Non Trawlers > 25 m. 9 1 10 0% 1% 1%Pelagic Trawlers > 50 m. 3 3 0% 1% 1%Coastal vessels* 835 442 218 31 5 1531 27% 10% 3%Trawlers* 2 9 75 55 141 2% 4% 5%Purse Seiners* 1 2 11 25 4 43 1% 3% 3%Bait boats 5 5 0% 0% 1%Tropical Purse Seiners 28 28 0% 8% 19%Total 1498 1349 1408 523 700 209 62 5749 100% 100% 100%% of Vessels 26% 23% 24% 9% 12% 4% 1% 100%Vessel Engine Power (kW) (%) 6% 11% 19% 12% 27% 12% 15% 100%Vessels Tonnage (GRT) (%) 2% 4% 8% 9% 26% 18% 33% 100%

Distribution of the French Fleet per Segment and Vessels Length Categories in 2001

0

300

600

900

1200

1500

1800

2100

2400

2700

3000

3300

1991 1996 2001

Nu

mb

er

of V

ess

els

Bait and Purse-seiners Non Trawlers Trawlers

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

110000

120000

1991 1996 2001

Atla

ntic

Fle

et T

on

na

ge

(G

RT

)


0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

550000

600000

1991 1996 2001

Atla

ntic

Fle

et E

ngin

e P

ower

(kW

)


0

500

1000

1500

2000

2500

3000

3500

4000

<12 m. 12-24 m. 24-40 m. >=40 m.


Ve

sse

ls N

um

be

r

1991 1996 2001

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

<12 m. 12-24 m. 24-40 m. >=40 m.


Atla

ntic

Fle

et E

ng

ine

Po

we

r (k

W)

1991 1996 2001

0

10000

20000

30000

40000

50000

60000

70000

<12 m. 12-24 m. 24-40 m. >=40 m.


Atla

ntic

Fle

et T

on

na

ge

(G

RT

)

1991 1996 2001

Evolution of the Fleet Size by Size and Segments Between 1991 and 2001

Documents

INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSE BUY-BACK PROGRAMS