Topic Area: Fisheries:
Geographic Area: British Columbia:
Focal Question: Are Individual Vessel Quotas Effective As Policy Tools?
Source:
Casey, K.E., C.M. Dewees, et al. 1995. "The Effects of Individual Vessel Quotas In the British Columbia Halibut Fishery.Ó Marine Resource Economics, v.10(3) pp. 211-30

Reviewer: Dana Cease, Colby College Ô97

The British Columbia Halibut Fishery is one of the oldest fisheries on the west coast of North America, with the greatest concentrations of halibut found in the northern regions of British Columbia and Alaska. Most of the halibut is caught with longline gear and a small percentage with trolling line. Fishermen generally switch between several different species during the season, most heavily relying on the salmon fishery. Thus, the halibut fishery is looked upon as a supplemental fishery.

Prior to the Individual Vessel Quota (IVQ) system that was implemented in 1990, British Columbia operated under a limited entry program with a total of 435 licensed vessels. Conversely, the U.S. used an open-access program which, of course, created a much larger U.S. fleet of around 4000 vessels.

These programs were regulated by both the U.S. and Canadian governments in their respective territorial waters, and by the International Pacific Halibut Commission (IPHC) which monitors both waterways. The IPHC is responsible for setting the total allowable catch (TAC), the season length, minimum and maximum size limits, and limits on harvest limits.

Due to the enormous competition from the U.S. fleet, licensed vessels in the British Columbian limited entry program were forced to increase capacity with larger crews, electronic gear, more efficient circle hooks, and automatic baiters. This promoted a frantic pace of derby fishing, which became known as the Òrace for fishÓ. So by 1990 the British Columbia fishing season was reduced to 6 days from a 60 day season in 1982.

The race for fish became increasingly inefficient and dangerous, as fishermen stayed on the water for up to 24 hours a day causing an increase in vessel sinkings, injuries, and deaths. Budget cuts also reduced the ability of the Department of Fisheries and Oceans (DFO) to effectively monitor and enforce regulations.

Finally the DFO decided to form the Halibut Advisory Board (HAB) to discuss alternative management strategies. So in November 1990, the Minister of Fisheries announced a trial period of two years in which to test a new Individual Vessel Quota program. The difference between the well known Individual Transferable Quota (ITQ) program and the IVQ program is that ITQÕs are fully transferable and divisible by the owner of the quota, while the IVQÕs are partially transferable and are tied to the licensed vessel.

With the start of the IVQ system, the IPHC decided that the halibut fishery would remain open for the full eight month season from March to October. The Commission also defined an initial allocation quota, of which 70% was based on the vesselÕs historical catch and the remaining 30% was based on the length of the vessel. The license entry fees, which were required in the old system, were required in the new IQ system as well. They served as a further barrier to entry.

Enforcement of the new regulations of the IVQ system was funded by the industry, through a small tax per pound of halibut caught. These tax revenues were used to pay Halibut Fishery Officers(HFOÕs) who monitored sailings and landings in order to validate the harvest claims of the active vessels. Stiff fines were imposed as well as a potential loss of quota for violations of restrictions. This loss of quota sanction was indeed quite effective, especially during the first two trial years of the individual quota system, because the quotas were non-transferable. Any fisherman who lost quota was unable to fish for the rest of that year.

In 1993, limited transferability was allowed so that quota transfers were limited to annual leasing only, and each vessel was allowed a maximum of four quota shares.

There were four especially unique and interesting aspects of the British Columbian Halibut Fishery. The first was that the fishery was in dire straits and had very little chance of long-run success. This was in part due to the high financial and physical risk as well as the low valued frozen halibut which generated little revenue for small harvesters. But the worst indication was that the halibut population had become so decimated that it was nearly unrecoverable. The second aspect which was extremely helpful, was that the IVQ program was a pilot program that was operated literally right next to an open-access fishery for the same product. Economists and policy makers alike enjoyed the ease of comparison between the IVQ program in British Columbia and the open-access program in the Alaskan halibut fishery. The third aspect which was previously unheard of was that the IVQ system was virtually self-designed by the industry with minimal outside assistance from the government or NGOÕs. Finally, the industry showed remarkable restraint and intelligence with their slow approach on transferability. Instead of immediately allowing quota shares to become fully transferable and divisible, the IVQ program tried to capture total efficiency by experimenting with different levels of transferability.

The authors, Casey, Dewees, et al., gathered results from a survey that they had personally conducted and also supplementary data from the Canadian Department of Fisheries. They found that as expected, there was a larger distribution of British Columbian vessel landings throughout the season, which consequently spread out the supply of halibut in the market. This in turn created a larger market for fresh halibut, thereby increasing ex-vessel prices for halibut.

This immediate transition from the frozen halibut market to the fresh market for halibut increased the price premiums that fishermen in the British Columbian fishery enjoyed relative to their Alaskan counterparts. According to the authorsÕ data, over 90% of the British Columbian halibut was committed to the fresh market, while almost all of the Alaskan halibut was processed in the frozen market. In fact, the authors calculated that in 1991-93, the premium that the fishermen in the British Columbian fishery carried over their Alaskan counterparts increased to 70% from a 15% premium in 1988-90. Thus, the authors conclude that Òthere was evidence of an ex-vessel price gain associated with the individual vessel quotas of about 55%.Ó(Casey, et al., 1995)

Another result of the transition from frozen halibut to fresh halibut was the changing structure of the processing plant industry. Increasing numbers of small processing plants have sprung up due to the reduced barriers to entry and the lower capitalization costs. Fresh halibut processors tend to be more labor intensive than large frozen processors, but donÕt need the enormous storage facilities and freezing equipment that pervade the frozen processor industry.

Casey, Dewees, et al. found that 44% of vessel owners reduced crew sizes due to the new IVQ system, most likely to promote efficiency and order. Those left unemployed were most likely reemployed in the increasing numbers of labor intensive fresh halibut processing plants mentioned above.

The authors also make the differentiation that the structural adjustments taking place in the quota share system are not only based on the price increases, but also on the new rents created by Òthe additional values associated with cost savings, increased security, flexibility, and control and planning capabilities generated by the more secure property rights.Ó(Casey, et al., 1995)

There are two major future concerns for British Columbia Halibut Fishery; possible changes in transferability restrictions and the introduction of IVQÕs into the Alaskan Halibut Fishery. The current quota restrictions of four maximum quota shares per vessel make it impossible for fishermen to make halibut fishing their sole source of income. In other words, ÒHalibut fishing is still a supplemental fishery to salmon.Ó(Casey, et al., 1995) The other concern of British Columbian fishermen is that with the entrance of the Alaskan fishery into an IVQ system, they will have no choice but to enter into direct competition with the Alaskans in the fresh halibut market. This will lead to lower ex-vessel prices for fresh halibut and lower revenues for British Columbian fishermen. However, the British Columbians will still have a cost advantage over their Alaskan counterparts due to their lower transportation costs.

Overall, the implementation of the individual vessel quotas in the British Columbian halibut fishery was a success. Not only did it save the halibut population from disaster, but it increased revenues for fishermen and changed the structure of the halibut fishery for the better. It has shown to be an effective control for overcapitalization and overfishing. The success of the British Columbian halibut fishery has given us hope that sustainable management within fisheries can actually promote economic gain.