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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)
Decommissioning schemes
Application to the decommissioning scheme is not mandatory
Selection of the applicants: order of arrival (budget ceiling not reached)
Decommissioning schemes
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.
Vessels Length Categories
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.
Vessels Length Categories
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
MAGP#2 MAGP#3 MAGP#4*
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
Vessels Age Categories
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
MAGP#2 MAGP#3 MAGP#4*
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.
Vessels Length Categories
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.
Vessels Length Categories
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.
Vessels Age Categories
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
)
Bait and Purse-seiners Non Trawlers Trawlers
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
)
Bait and Purse-seiners Non Trawlers Trawlers
0
500
1000
1500
2000
2500
3000
3500
4000
<12 m. 12-24 m. 24-40 m. >=40 m.
Vessels Length Categories
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.
Vessels Length Categories
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.
Vessels Length Categories
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