European Commission. Studies in the Field of the Common Fisheries Policy and Maritime Affairs. Lot 4: Impact Assessment Studies related to the CFP

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1 European Commission Studies in the Field of the Common Fisheries Policy and Maritime Affairs Lot 4: Impact Assessment Studies related to the CFP ANNEX C Detailed and Supportive Information May 2010

2 This report does not necessarily reflect the view of the European Commission and in no way anticipates the Commission s future policy in this area. CONTENTS Appendix 1 Detailed policy specifications... 3 Appendix 2 Detailed and supportive information on ITRs... 6 Appendix 3 Detailed and Supportive Information on Subsidies Appendix 4 Detailed and Supportive Information on Fish Stocks Appendix 5 Detailed and supportive information on regionalisation policy CFP Impact Assessment Phase II 2

3 Appendix 1 Detailed and supportive information on ITRs Appendix 1 Detailed policy specifications Option 1 Option 2 Option 3 Environmental Sustainability Achieve MSY For 26 fully assessed stocks, F reduces year on year over a 4 year period starting 2011, so as to get to Fmsy by 2015, with a -25% constraint on TAC's yearly reduction. 4 year period to be extended if TAC reduction required > 25%/year. For 63 partially or un assessed stocks. Time at which Fmsy will be reached depends of when scientific advise will be available. A third in 2015, one third in 2017, one third in Starting point is F/Fmsy'" % constraint applies. 4 year period to be extended if TAC reduction required> 25%/year. For mixed fisheries, Fmsy to be achieved by most sensitive/most valuable stock. ITR main tool to deal with overcapacity ITRs mandatory for large scale fleet, but voluntary for small scale fleet. Transfers of long term rights and annual fishing authorisations (i.e. selling and leasing). Transfers across EU, regardless nationality. Phasing-in period (4 years) to implement system in MS. Ceiling on concentration of rights, ring fencing between SSF and LSF rights (no transfers from SSF to LSF). Regional level can propose other safeguards which EU level can accept or reject. Policy on discards based on technical measures. Reinforced by transferability of ITR Economic sustainability Subsidies Improved link between policy objectives and public support, strict conditionality, close co-ordination with other EU funds. EFF without fleet subsidies, focus on innovation and environmental objectives. Weight of Axis 4 (sustainable development of coastal communities dependent on fishing) increased. Tax exemption for fuel + social security derogations will in principle remain. Achieve MSY For 26 fully assessed stocks and for 63 partially or unassessed stocks, F reduces year on year over a 4 year period starting 2011, so as to get to Fmsy by 2015, No departure allowed For TAC constraint. For mixed fisheries, Fmsy to be achieved by the least sensitive stock. ITR main tool to deal with overcapacity ITRs mandatory for large scale fleet, but voluntary for small scale fleet. Transfers of long term rights and annual fishing authorisations (i.e. selling and leasing). Transfers across EU, regardless nationality. Phasing-in period (4 years) to implement system in MS. Ceiling on concentration of rights, ring fencing between SSF and LSF rights (no transfers from SSF to LSF). Regional level can propose other safeguards which EU level can accept or reject. Policy on discards based on technical measures and a move to catch quotas. Reinforced by transferability of ITR Subsidies EFF discontinued or phased out. CFP Objectives which might require financing addressed by other EU funds: axis 4 integrated into territorial development strand of regional policy. ESF and other funds to take care of social consequences. Tax exemption for fuel + social security derogations will in principle remain. Achieve MSY For 26 fully assessed stocks, F reduces year on year over a 4 year period starting 2011, so as to get to Fmsy by 2015, with a -15% constraint on TAC's yearly reduction. 4 year period to be extended if TAC reduction required > 21%/year. For 63 partially or un assessed stocks. Time at which Fmsy will be reached depends of when scientific advise will be available. A third in 2015, one third in 2017, one third in Starting point is F/Fmsy'" % constraint applies. 4 year period to be extended if TAC reduction required> 25%/year. For mixed fisheries, Fmsy to be achieved by most sensitive/most valuable stock. ITR main tool to deal with overcapacity ITRs mandatory for large scale fleet, but voluntary for small scale fleet. Transfers of long term rights and annual fishing authorisations (i.e. selling and leasing). Transfers limited to within MS. Longer phasing-in period up to 5 years, to implement the system in MS. MS may implement various safeguards, as long as they are in line with minimum standards laid out in the basic CFP regulation. Policy on discards based on technical measures. Limits on transferability may decrease efficacy of policy Subsidies Improved link between policy objectives and public support, strict conditionality, close co-ordination with other EU funds. EFF without fleet subsidies, focus on innovation and environmental objectives. Weight of Axis 4 (sustainable development of coastal communities dependent on fishing) increased. Furthermore, there would be a small reserve (ca 10% of overall allocation) for exceptional circumstances to provide a CFP Impact Assessment Phase II 3

4 Appendix 1 Detailed and supportive information on ITRs Option 1 Option 2 Option 3 response to crisis situation such as the collapse of a fishery. Tax exemption for fuel + social security derogations will in principle remain. Markets and trade Large reform of the CMO interventions: no withdrawal, only one single intervention for temporary storage remains; review of PO and Interbranch organisations' role /missions (in particular in management and control of fishing activities and placing and marketing of fisheries products (i.e. quality, traceability, market analysis, promotion + specific role/mission for aquaculture PO's and lbo's for aquaculture products, trade policy is reinforced in view of adequate supply of the EU market and of ensuring better level playing field conditions. Revision of information to consumers (scope and contents of mandatory and voluntary labelling). Actions in the field of aquaculture beyond scope of CFP Social Sustainability Differentiated regime for SSF in terms of subsidies and ITRs. EFF with some preferences for SSF in terms of aid intensity and the increased weight of Axis 4 which focuses on fishing dependent communities (by nature more dependent on SSF). Access to ITRs voluntary, a number of safeguards protects SSF from too much exposure to market forces (limits on concentration, fishing rights cannot be bought from SSF by LSF, possibility of territorial limitation of transfers) Improve safety legislation (largely beyond scope of CFP) Governance Regionalisation Regional Bodies (proposal and analysis abilities). Regional Bodies will be a forum of dialogue, analysis (including scientific assessment of stocks) and proposition to Commission (TACs, LTMP). Limits set by Lisbon Treaty. EC keeps its initiative right. Intermediate structure between RACs and Commission. Responsibility of the sector in complement to REGBOD Close to a Commission's agency Markets and trade No CMO, no market intervention, no subsidies for marketing & processing of FAP, PO's and lbo's, etc. No market standards of FAP (quality, size, minimum size, etc.) Information to consumers according to the provisions covered by other policies for the "food/foodstuff" (no specificity for FAP). Full liberalisation of trade policy for FAP. Actions in the field of aquaculture beyond scope of CFP No special regime for SSF. ITRs compulsory for LSF and voluntary for SSF with strong safeguards in place to prevent excessive impacts. No special regime for subsidies. Improve safety legislation (largely beyond scope of CFP) Regionalisation Regional Bodies (proposal and analysis abilities). Regional Bodies will be a forum of dialogue, analysis (including scientific assessment of stocks) and proposition to Commission (TACs, LTMP). Limits set by Lisbon Treaty. EC keeps its initiative right. Intermediate structure between RACs and Commission. Responsibility of the sector in complement to REGBOD More independent from Commission Markets and trade Renewal of current CMO; market interventions remain, organisation of the sector and normative structure unchanged (marketing standards, obligatory information to consumers, prices, etc...) but better implementation and control (including traceability). Actions in the field of aquaculture beyond scope of CFP Differentiated regime for the small scale fleets (SSF) in terms of subsidies and ITRs. EFF with strong preferences for SSF in terms of aid intensity and the increased weight of Axis 4 which focuses on fishing dependent communities (by nature more dependent on SSF). Access to ITRs voluntary, a number of strong safeguards protects SSF from too much exposure to market forces (limits on concentration, fishing rights cannot be bought from SSF by LSF, possibility of territorial limitation of transfers Improve safety legislation (largely beyond scope of CFP) Regionalisation No regional body, but reinforce RACs CFP Impact Assessment Phase II 4

5 Appendix 1 Detailed and supportive information on ITRs Option 1 Option 2 Option 3 Control regulation, IUU regulation, DCR already existing Simplification The current action plan for simplification refers to the CMO reform and to technical measures. All new pieces of legislation to keep simplification principle in mind Control regulation, IUU regulation, DCR already existing The current action plan for simplification refers to the CMO reform and to technical measures. All new pieces of legislation to keep simplification principle in mind Control regulation, IUU regulation, DCR already existing The current action plan for simplification refers to the CMO reform and to technical measures. All new pieces of legislation to keep simplification principle in mind CFP Impact Assessment Phase II 5

6 Appendix 2 Detailed and Supportive Information on ITRs Appendix 2 Detailed and supportive information on ITRs Spain The main Spanish fleet under ITR are the 300 fleet operating in NEAFC waters consisting of both hook and seine/trawls metres. The fleet shifted to an ITQ management system after going through five previous stages of rights transferability options. Between 1986 and 1992, subsidies were introduced to decommission vessels. Between the scheme continued, however rights could be accumulated to vessels within the company that purchased another vessel. It was during this period that the Spanish fleet saw its most notable reduction. From there was the possibility to transfer of rights between businesses, and from 2007 this rights based system moved from effort to quota rights (see Figure 1 and CFP Impact Assessment Phase II 6

7 Appendix 2 Detailed and Supportive Information on ITRs Table 1). Figure 1: Evolution of Gran Sole 300 Fleet Prellezo, R.. (2010) La Evolución de la Flota de Altura al Fresco en el Contexto del Marco Legislativo Español. Revista de Investigación Marina 17(3): CFP Impact Assessment Phase II 7

8 Appendix 2 Detailed and Supportive Information on ITRs Table 1: Fleet Evolution of Gran Sole 300 Fleet Year Vessels GT KW Crew % Decrease , ,369 4, , ,426 4, % , ,252 3, % , ,478 3, % , ,254 3, % , ,961 3, % , ,353 3, % , ,229 3, % ,327 99,140 2, % ,404 97,306 2, % ,964 95,044 2, % ,264 93,574 2, % The main driver to move the fleet into an ITQ system was to ensure resource and community sustainability whilst also dealing with fleet over-capitalisation 3. Furthermore, there was still the issue of a common resource when rights were only accumulated at company level; this meant that individual vessels had to race to catch quota and were not able to control their supply to meet the needs/demand of the market. Before 2007, coupled with the reduction of quota for Northern hake (through the LTMP), the Spanish fleet were reaching their national TAC months before the end of the season 4. With the older effort-based quotas, initially each vessel was subject to a lower limit of 215 days and an upper limit of 315 days. After 2004, vessels had a lower limit of 50% of their original rights and individual businesses could accumulate a maximum of 30% of the total quota. When the move to the ITQ system took place in 2007, there was still a lower limit that had to be fished to ensure inactive vessels did not accumulate quota, and the legislation entering the fleet into ITQ (APA 3773/2006) specifies that there is still a maximum 30% concentration per company. Furthermore, the possibility to transfer rights between companies has lead to a regional concentration of both vessels and rights. In 1996, Galicia held 53% of vessels and 44.2% of fishing rights, and the Basque region held 47% of vessels and 55.8% of fishing rights. By 2003 concentrations of vessels and rights in Galicia had increased to 74% and 55.9% respectively, with figures for the Basque region falling to 23% and 39.7% 3. While fleet numbers have reduced as a result of the transferrable rights system, this has likely been assisted by decommissioning subsidies. Furthermore, since the movement to a purely ITQ system (2007), there has been little shift in vessel numbers or GT (see Figure 1). The main policy change which reduced vessel numbers for this fleet took place in 1992 when vessels were able to accumulate the rights of those scrapped through the government scheme. 2 OECD (2004) Further Exmination [sic] of Economic Aspects Relating to the Transition to Sustainable Fisheries A Case Study of Spain, France, OECD. 3 MRAG Consortium (2007) An Analysis of Existing Rights Based Management (RBM) Instruments in Member States and on Setting up Best Practices in the EU: Part 2. London, EC MRAG. 4 C. Calvo 2010, pers. comm., 11 April. CFP Impact Assessment Phase II 8

9 Appendix 2 Detailed and Supportive Information on ITRs Profitability of this fleet has increased but is still considered unprofitable (2004: -26%, 2007: - 6.5%) 5. This may be influenced by two factors as the fleet has moved to ITQ it has driven out more inefficient vessels so the overall fleet has become more profitable (both because of less profitable vessels leaving the fishery and because of greater fishing opportunities for remaining vessels). Secondly, a major species targeted by the 300 fleet is Northern Hake which has experienced a recovery to sustainably harvested status since the inception of the 2004 LTMP. This has also allowed an increase to the overall TAC. Norway The move to an ITR system was initially opposed by many stakeholders (both industry and government), and proposals for a full ITQ system were rejected outright in However, the entire Norwegian fleet operates under an IVQ system which over time, unofficially, has evolved into a system similar to an ITQ system (but with certain differences) whereby market-based transactions are occurring. The introduction of this system has been implemented in staggered stages. In 1996, all vessels were able to transfer portions of quota factor to other vessels when they were removed from the fishery (for 13 years if sold out of the fishery and for 18 years if scrapped). For vessels over 28m, there was the introduction of transferability in As one argument for shifting to an ITR system was to increase profitability. Given that 90% of all catch is exported and the large impact this has historically had on employment, until the late 90 s governments were prepared to continually subsidise the fleet to maintain employment, and there was less concern from the government to ensure that the industry itself was profitable. This overcapacity resulted in negative impacts on the financial viability of fleets. Another main driver for an ITR system was the collapse of the herring stocks in 1960s and then the Northeast Arctic cod 1980s. It was this, combined with the cessation of government subsidies, which caused the shift towards an ITQ system. Strong critics of the market orientation have opposed the recent development of moving the regime towards an ITQ-style system, and concentrating the quota rights 6 Fleets based in the southern regions of Norway are more industrialised and efficient than the smaller community fleets in the North. Communities in the North are more dependent on fishing. Safeguards ensure that only 60% of a quota can be transferred from the Northern regions into the Southern industrial fleets, although 95% can be transferred in the opposite direction. Despite this, there has still been a concentration of rights to the South. The initial allocation of rights was to original participants and very quickly fishers realised the possibility of making money from something that was allocated to them for free. This was a major incentive for fleet reduction as people took the opportunity to leave the industry with a substantial profit. One aspect that inhibits this ITR system from becoming a ful ITQ system is that fleets can only trade within their fleet groups. The reasoning for this is so the government can ensure that the national fleet continues to hold a diverse range of vessels 7. 5 Discussed in detail and derived from the Regional Case Studies Impact Assessment Report. Source: Xunta de Galicia (2008) Consellería de Pesca e Asuntos Marítimos. Rexistro de Buques Pesqueiros (internet). Available from URL: (accessed 09/02/2010) 6 Standal, D, Aarset, B (2008) The IVQ regime in Norway: A stable alternative to an ITQ regime?, Marine Policy, Volume 32, Issue 4, p Hannesson, R. (2009) Norway s Experience with ITQs, Norwegian School of Economics and Business Administration, Norway. CFP Impact Assessment Phase II 9

10 Appendix 2 Detailed and Supportive Information on ITRs Profitability has increased since the introduction of quota transfers. While catch value has fluctuated, but is generally on an upward trend, the main driver for the increase in profitability is the number of vessels and persons employed in the fishery as a result of fleet reduction. It should be noted that this restructuring of the fleet and increase in profitability has occurred with the complete removal of government subsidies (occurring in the 90 s). Stocks fished by Norwegian fleets have also experienced a continued recovery since the implementation of ITRs. After the collapse of the Arctic cod stock in the 80 s there was an initial sharp increase in stock biomass until the early 90 s and then a further decrease until From 2000 onwards, Arctic cod, haddock and Greenland halibut have seen steady increases. When considering all pelagic stocks targeted by the fleet, there has been a continued increase in stock biomass, but when considering each stock individually, there has been a decrease in herring stocks. Estonia All fleet segments in Estonia are on an ITR system. Coastal fleets are on an effort based system (ITE), while all offshore and distant water fleets are quota based (ITQ). IQs were introduced to the entire Estonian fleet in 1999 and 2000, which then moved to an ITR system in Until 2005 there was a system (for both ITQ and ITE) which allocated 90% of rights based on 3-year historic records and then reserved the remaining 10% for auction. Due to instability caused with this system, all rights are now allocated based on 3-year historic acquisitions. This includes quota that has been acquired, sold or given away. Newcomers are allowed to join the fishery if they purchase quota from a current participant 8. The main driver to an ITR system was the emergence of Estonia as an independent state. Whilst part of the USSR, there seemed to be little incentive to move to an ITR system fleets were backed by the government and markets were closed to Western Europe. However, now there has been an acceptance that finding a better economic balance between fishing opportunity and fleet capacity is beneficial to all involved in the fishery. There are no concentration rules for either fleet segment. There were still nearly 900 small scale vessels in operation in 2006, therefore considering the numbers in previous years we can assume there has not been a large level of concentration amongst small fleets. Additionally, small scale and large scale fleets do not interact as they are targeting different areas (coastal zones are sectioned off as a safeguard to small scale fleets) and also the differing ITR systems act as a safeguard for small scale fleets. Due to Estonia s recent accession to the EU, it is difficult to obtain profitability information prior to Between profits have increased in all offshore fleet segments (most notably in trawl and seines 12-24m and 24-40m). The inshore fleet however, has experienced reduced profitability since 2005 (down from 23% ROI to 12%). Qualitative analysis shows that with the dissolution of the Soviet Union, a principal driver of fleets having increased profitability is due to the opening up of western markets 9. Data available from 2004 onwards also indicates a decline in vessel numbers across all fleets (17% - see 8 FAO (2005) Information on Fisheries Management in the Republic of Estonia (internet). Available at URL: (accessed 10/03/10). 9 Hannesson, R. (2009) Norway s Experience with ITQs, Norwegian School of Economics and Business Administration, Norway. CFP Impact Assessment Phase II 10

11 Appendix 2 Detailed and Supportive Information on ITRs Table 2). It cannot be ensured that this is wholly attributable to the implementation of ITQs as during this time there have been EU FIFG and national fleet restructuring subsidies (see Figure 2). CFP Impact Assessment Phase II 11

12 Appendix 2 Detailed and Supportive Information on ITRs Table 2: Estonia Fleet Reduction Year Number of vessels Total GT Average GT Engine power (kw) Average power (kw) ,052 24, , ,046 24, , , , , , , , Source: European Commission (2009) Facts and Figures on the EU Fishing Fleet Estonia (internet). Available at URL: (accessed 19/03/2010). Source: FISHSUBSIDY.ORG (2008) EU Fish Subsidies for Estonia, All Years (internet). Available at URL: (accessed 09/03/2010). Figure 2: Level of Estonian subsidies Limited data are available for the Baltic stocks targeted by the Estonian offshore fleet. Only cod and sprat are deemed to have enough information available for ICES to provide advice. Cod are considered to be overfished when considering F/F msy and sprat to be appropriate. For some stocks ICES have noted that there should be information available shortly, until then it will be difficult to establish the sustainability of Estonia s fleet s current profitability. Denmark The fleet segments managed under an ITR system in Denmark are pelagic trawls 40m+ and demersal trawls 24-40m and 40m+. Pelagic trawls initially moved to ITQs as a test for vessels holding herring quotas in With the success of ITQs for this stock, the management system was extended to all pelagic offshore stocks in between 2006 and ITQs then became permanent for pelagic fleets in In 2007, after ITQs were successfully introduced to pelagic fleets, the demersal fleet trialled VTQs. This trial was also successful and the demersal fleet was then shifted to ITQs in The main driver for Danish fleets to move to ITQs was the fact the entire fleet was in need of renewal and in order to meet market demand (quality of fish) the ITQ system was tested. Tonnage has remained the same but this is due to the fact that as older and less efficient vessels were bought out, larger vessels were purchased to replace them. These new vessels also replaced some vessels which were more than 25 years old. When CFP Impact Assessment Phase II 12

13 Appendix 2 Detailed and Supportive Information on ITRs managements systems were replaced to an ITR system initial quotas were allocated for free to previous participants. This system has meant that fishers which have exited the fishery have left as quota millionaires. Since the introduction of ITQs in Denmark, there has been a 60% reduction in fleet size for vessels holding herring quotas. Given that TACs have not decreased by the same level, this would also indicate that concentration of quotas must have occurred. Currently concentration rules exist which allow vessels to hold a maximum of 10% of the quota. When fleets were on VTQs there was a concentration rule of four vessels. Table 3: Danish fleet evolution between 2007 and Vessel size (meter) Active vessels 1/ Active vessels 31/ % change < 12 m m m > Special (mussel dredgers etc.) Total The system allows for new entrants to the fishery. Some quota is reserved to encourage entry by a new generation fishers. However, due to high entry costs, the demand for this right is quite low. New entrants are only able to acquire or purchase quota when the following requirements have been met: 1. Danish citizenship or domicile in Denmark for minimum 2 years; 2. Minimum 12 months of employment as a registered fisher with B status; and 3. Minimum 60% of personal gross income in the previous 12 months originates from commercial fishing. Exchange rules for this system have evolved along with the progression to ITQs. When based on VTQs, vessels were allowed to purchase up to 25% of another vessel s quota without needing to acquire the entire vessel. This allowed newcomers access to the fishery without having to purchase an entire vessel for quota. However, once on an ITQ system, vessels are free to transfer quotas independently. The only limitation being that there is a 10% concentration rule. Additionally, this system requires that all quota transfers are reported to the Directorate of Fisheries both volume and value of transfers must be recorded. Generally the outcomes from this trial and then the shift to permanent ITQs has been positive and has achieved the purposes set out by the main drivers to this system. Fleets sizes have decreased by 60% since being moved to the ITQ system. More importantly, this fleet reduction has occurred without government decommissioning subsidies and purely through market forces. Additionally, stocks fished under this system have generally seen a positive improvement. In 2008 the Danish Pelagic Producers Organisation applied to have the North Sea herring, Atlanto-Scandic herring and mackerel certified under MSC this was certified in June, All stocks except for North Sea herring are considered to be harvested sustainably. CFP Impact Assessment Phase II 13

14 Appendix 3 Detailed and Supportive Information on Subsidies Appendix 3 Detailed and Supportive Information on Subsidies Historical FIFG expenditure on axis 1 by vessel size 10 The comparative benefits of supporting small-scale operations over large scale operations are not always clear cut. However given priority axes that explicitly recognise small-scale coastal fishing under FIFG and EFF, and under proposed policy Options within a reformed Common Fisheries Policy, we explore below the extent to which FIFG funding in some Member States upheld this position by investigating whether administrators targeted funding towards small-scale operations and by analysing the proportional funding by vessel length. Support to small-scale fisheries was not explicitly recognised in all Member States under FIFG. Some, such as Spain, specifically allocated funding to measures that supported small scale fisheries. Italy devolved these funding budgets to regional administrations to assist access by the small-scale sector. However, no priority was granted to small scale fisheries companies within the other measures managed directly by the Italian ministry at a national level. Initially Polish small scale fishermen were given no preferential access to funding. Later on, however, groups of small-scale fishermen were entitled to receive aid under an extended list of measures to improve support to this sector. French authorities treated applications by all scales of fishing enterprise on an equal footing, determining that while individually small-scale fisheries were less environmentally damaging they are far more numerous and therefore may also warrant reductions in capacity. In Denmark a specific Small-scale Coastal Fisheries Scheme was introduced under FIFG , with the aim of providing collective groups of fishermen with additional facilities. However this had little uptake due to the limited levels of support and the narrow eligibility criteria. A further scheme was set up in 2004 for broader development projects in coastal fisheries, but again uptake was low. An analysis of the comparative spends on scrapping and construction & modernisation measures between vessels sizes ( 10 Text based on: Cappell, R., T. Huntington and G. Macfadyen (2010). FIFG Shadow Evaluation. Report to the Pew Environment Group. CFP Impact Assessment Phase II 14

15 Appendix 3 Detailed and Supportive Information on Subsidies Figure 3) shows a clear distinction between those Member States where there has been significantly more funding for the scrapping of inshore (under 12m) vessels than their construction or modernisation (Greece, Italy and Poland); those where funding construction & modernisation of inshore vessels exceeds funding for scrapping (Spain, France, Portugal, Germany and Sweden); and those where inshore vessels received very little funding under these measures (the UK and Denmark). CFP Impact Assessment Phase II 15

16 Appendix 3 Detailed and Supportive Information on Subsidies Figure 3: Total FIFG funding ( ) for scrapping and construction & modernisation by vessel length per Member State ( million)* *note chart scales differ CFP Impact Assessment Phase II 16

17 Appendix 3 Detailed and Supportive Information on Subsidies In Spain the high levels of funding towards construction & modernisation compared to funding for scrapping are clearly evident across all vessel sizes. This difference becomes most pronounced in the large vessel category (>24m) with four times as much funding going towards construction & modernisation than to scrapping. Levels of funding for construction and modernisation are only similar at a similar level to scrapping for the small scale vessels. For France and Portugal the funding for scrapping is relatively similar to funding for construction and modernisation, although construction and modernisation funding is far higher than funding for scrapping in the largest vessel category (>24m). The >24m vessel category dominates construction and modernisation funding for Spain, Portugal and Germany. In France, Italy, the UK and Denmark, the largest amounts of funding are found for the scrapping of medium-sized (12-24m) vessels. In contrast to Italy, the UK and Denmark, France spent almost as much on construction & modernisation of 12-24m vessels as it did on scrapping. When construction and modernisation is considered, the largest vessel category does dominate spend with Spain, Portugal, and Germany all allocating over 60% of their total funding for construction and modernisation to vessels over 24m in length. Figure 4 Total FIFG funding for scrapping and construction & modernisation in different vessel sizes for top 10 Member States ( million) When comparing the type of funding across the various fleet sizes in all ten Member States, more than twice as much funding went to scrapping small inshore vessels than on construction and modernisation (Figure 4). For vessels over 12m in length the reverse is true, with more spent on construction and modernisation than scrapping. Historical FIFG expenditure of funds between the many or the few This section considers how extensively FIFG funds were distributed across the fleet, through identifying the proportion of the total fleet receiving funding. When we then consider the proportion of Member State fleets in receipt of construction/modernisation grants alone we see clear differences between Member States (Figure 5). For the top ten Member States on average 14% of the fleet received some form of FIFG funding. The greatest proportion of the fleet funded through FIFG was in Poland with a third of vessels funded, followed by Spain and France where each had a quarter of the fishing fleet receiving FIFG funding. The Member States with the smallest proportion of the fleet receiving funding were the UK (5%), Portugal (5%) and Germany (6%). CFP Impact Assessment Phase II 17

18 Appendix 3 Detailed and Supportive Information on Subsidies For Germany and the UK the proportion of the fleet in receipt of construction and modernisation funding was similar to the overall proportion receiving any form of funding. Denmark, Spain, France and Sweden show a higher proportion of the fleet supported for construction and modernisation as vessels received more than one funding award. Elsewhere the scrapping of Italian, Greek, Portuguese and particularly Polish vessels mean that the fleet coverage for total funding is noticeably higher than for construction and modernisation measures alone. Poland entered the programme late and received no funding for construction and spent 80% of its FIFG on scrapping. Therefore the proportion of its fleet funded for all measures (including scrapping) is significant higher in relation to that funded under the modernisation measure. Greece also shows a large disparity as it spent 71 % of funding on scrapping vessels. The difference between Member States in terms of the proportion of the fleet in receipt of funding could be as a result of a more targeted allocation of funding by Member State administrations, but review of the OPs of six of these Member States shows no specific targeting of fleet segments. Instead, therefore this simply points to an inequitable allocation of funding (with some operators in receipt of more than one funding award). Assuming the majority of vessel owners were making some investment over the seven years of the programme, large sections of the fleet were unwilling or unable to apply for funding. Figure 5: Proportion of fleet receiving funding of any kind of FIFG fleet support (purple) and proportion receiving funds for construction or modernisation (red) FIFG funding in fisheries dependent regions Below we explore how FIFG funding was geographically distributed within Member States in relation to the relative dependency of a region on fisheries. The scale used is the EC NUTS 2 region e.g. Galicia in Spain; Calabria in Italy; & Bretagne in France. The dependency of a region on fishing can be determined by considering the contribution of fishing businesses 11 to economic production (GVA) or employment in a region 12. The only two Member States in 11 This includes individual owner/operators and fishing companies 12 The number of NUTS 2 regions identified as having >0.1% employment dependent on fishing per Member State were: Spain, 10; Italy, 11; France, 13; Portugal 7; Greece, 11, UK, 10; Germany, 5, Poland, 3; Sweden, 4. CFP Impact Assessment Phase II 18

19 Appendix 3 Detailed and Supportive Information on Subsidies the sample that have NUTS 2 regions with 2% or more of the region s income dependent on fishing are Greece (Voreio Aigaio & Ionia Nisia) and the UK (Highlands & Islands). The comparative benefits of spend in fisheries-dependent areas over spend elsewhere are not always clear, as it depends on the exact nature of the funding (e.g. to support the sector or to help it diversify) and a view as to whether maintaining fishing dependent communities is a good thing or not. A comparison of FIFG spend by Member State in relation to fisheries dependency mainly reflects the differing structures of the fisheries sector and comparative importance of fishing as a whole. For Denmark and Poland no NUTS 2 area has 1% or more of income attributed to fisheries and therefore these Member States do not feature in Figure 6. However, it should be noted that the Danish authorities took socio-economic characteristics of particular regions into account by adopting a temporary strategic focus on aiding low growth municipalities in Jutland. Figure 6: Proportion of total FIFG funding to Member States' 5 most fishing-dependent regions* Source: Analysis of EC FIFG database and Salz & Macfadyen, 2007 *Fisheries-dependent regions identified per MS: ES 10, IT 11, FR 9, PT 7, GR 13, UK 10, DE 5, DK 0, PL 0, SE 3 Germany and Sweden show high levels of FIFG spend in regions that show an identifiable level of fisheries-dependency (0.5% to 1% of employment), reflecting the structure of the sector in these Member States, which is concentrated in a few locations. In Portugal, Italy, Spain and the UK half or more of FIFG funding is allocated to the 5 regions identified as being most fisheries-dependent. It is only when the prevalence of particular measures in certain regions is identified that some patterns emerge. For example in France, scrapping was mainly funded on the Atlantic coast compared to the Mediterranean. In Spain, where FIFG funding was administered under regional sub-programmes, the mid-term FIFG evaluation noted that the Asturias and Valencia regions made a significant reduction in regional fleet capacities through scrapping schemes. The other Spanish regions, particularly Galicia, focused on fleet construction and modernisation, which would result in fishing capacity increases for these regions. CFP Impact Assessment Phase II 19

20 Appendix 3 Detailed and Supportive Information on Subsidies Justification for excluding subsidies from the EIAA model The impacts of changes in subsidies policy, as reflected in changes to EFF funding, have not been assessed through inclusion within the EIAA model. The reasons for excluding the impacts of changes to EFF funds in the model are numerous, and are discussed below. Some illustrative quantitative assessment has however been provided in the discussion on how subsidies might impact on costs and earnings structures and related economic indicators (see next section of this Annex). Reasons for excluding subsidies from the EIAA model are: 1. Longer-term and indirect impacts of changes/reductions to Axis 1 would be experienced through stock recovery on the assumption that current subsidies policy is contributing to overcapacity, and are already dealt with in the model through the assumptions about the impacts of ITRs on fleet capacity. 2. Axis 1 comprises a range of measures/actions, but only some can be assumed to have a direct and short term impact on line items in the AER data. These are: temporary cessation (impacts on income); hygiene and product quality (impacts on value of landings through increase in average price), and fuel efficiency including new engines (impacts on reduced repair and maintenance costs, and potentially on fuel costs). Taking these items in turn Temporary cessation. The EIAA model is based on landed values not income, making its inclusion problematic Hygiene and product quality. Determining the scale of impact of funds on fish prices, would be very problematic and we have little empirical basis for any assumptions Modernisation. Assessing the extent of impacts for those modernisation items with perceived direct impacts on economic indicators requires assessment of the balance of funding within this measure to these specific actions, as not all actions will have a measurable impact on economic indicators. Such data are not available under the FIFG database, nor under the data available for EFF (for EFF the proportion of total axis 1 funding comprising modernisation as opposed to scrapping, temporary cessation is not known), let alone the specific actions within modernisation). In addition, determining the scale of impact of funds on repair and maintenance costs, would be very problematic and we have little empirical basis for any assumptions. 3. In addition, planned annual Axis 1 funding under EFF only appears significant as % of landed values for the following countries, most of which are not that significant in terms of overall contributions to total EU landed values (for all others Member States annual axis funds represent less than 7% of landed values): Belgium 70% Estonia 120% Lithuania 18% Latvia 24% Poland 210% Romania 119% Slovenia 24% Other points arguing for an exclusion of subsidies within the EIAA model include: 4. Trying to relate the impacts of subsidies through FIFG/EFF Axes 2-5 on changes in economic performance of the catching sector would be extremely difficult, although it is acknowledged that some indirect impacts may occur as discussed and assessed below. CFP Impact Assessment Phase II 20

21 Appendix 3 Detailed and Supportive Information on Subsidies But determining the extent of such changes with any real confidence, and indeed whether they occur at all is not possible. 5. Comparison of current EFF with proposed policy reform also suggests that many of the measures/actions under current axes 2-5 could potentially be re-packaged under the new proposed axis (e.g. smart green fisheries, territorial development), suggesting that resulting changes might not be that significant. 6. With respect to Art 25/modernisation it is arguable that subsidies also mean that owners spend money on items when they would not otherwise do so. This means that fixed costs in the AER data might be higher than would otherwise have been the case without public sector support. It is not possible to know whether monies received by individual owners through FIFG/EFF are actually included in the costs and earnings data for each fleet segment. It is quite likely that owners do not include monies received for modernisation in their costs/earnings data, but do include the fixed costs that result. This means that a reduction of subsidies could mean lower fixed costs and improved economic indicators. 7. The uptake of subsidies is not even throughout any fleet segment, and in many cases only a few vessels/owners benefit for considerable proportions of total funding allocated to that fleet segment. Thus the impacts of subsidies on AER data are very unclear because it is not possible to know if those vessels receiving subsidies are included in the samples used to generate the fleet segment data in different Member States. This fact could skew the data considerably in some cases. 8. With respect to the recently available 2008 AER data, analysis shows that subsidies contributed 6.7% to total income when averaged across all fleet segments. In addition to the inability of the EIAA model to deal with changes to income (as opposed to landed values), it seems likely that such levels may relate strongly to special direct payments during 2008 as a result of the fuel crisis and not necessarily through FIFG/EFF funding13. Proposed policy reform to EFF may therefore have little impact on such subsidies, especially for Option 3 where an emergency fund is envisaged, so the 2008 AER subsidy data is not necessarily very useful in drawing conclusions about changes to EFF under different policy options. Illustrative quantitative assessment of how subsidies can affect costs and earnings profiles, and economic indicators, under different policy options Subsidies provided under EFF may have an impact on the costs and earnings profiles of different fleet segments that are the recipient of funding. Direct impacts can be expected to take place through current Axis 1 measures such as direct payments such as temporary cessation (impacts on income); hygiene and product quality (impacts on value of landings through increases in average price), and fuel efficiency including new engines (impacts on reduced repair and maintenance costs, and potentially on fuel costs). However other forms of funding can also have an impact on costs and earning profiles. Examples include: Support for the processing sector may result in increased demand for product from the catching sector and therefore higher prices paid by processors Harbour and port funding to reduce congestion, may reduce repair and maintenance costs with more quay wall space reducing the need for vessels to tier/up when 13 Article 24 1 vii of EFF could we assume be used for temp cessation support for fuel crisis, but only 6 months CFP Impact Assessment Phase II 21

22 Appendix 3 Detailed and Supportive Information on Subsidies moored, and increase fishing or leisure time 14 if vessels have to spend less time exiting and entering harbours Harbour and port funding for new facilities may reduce costs e.g. a new slipway in a harbour might reduce the need for vessels to steam many miles (with associated impacts on fuel use and lost fishing time) to alternative slipways, or Shore-based improvements at landing sites may improve fish handling and hygiene during offloading and during storage (e.g. provision of more ice, chill/cold stores, etc), leading to increased prices paid to the catching sector 15. Measures aimed at market promotion e.g. eat fish campaigns, product developments, niche marketing, etc can result in increases in prices Direct payments as a result of health measures e.g. payments to mollusc farmers Collective actions under Article 37 e.g. to improve transparency in markets, to improve quality, to improve skills, may result in higher prices for fish Support for improved sustainability (through more effective subsidies policy that does not serve to main overcapacity) may contribute to Marine Stewardship Council certification, with the potential for increased prices being paid for eco-labelled products 16 The tables below show firstly the costs and earnings profiles, and economic indicators, for the most important fleet segment in each of Spain, France, the UK and Italy in 2007 (Table 4). The second table (Table 5) shows how the economic indicators change when individual income/cost items potentially affected by EFF support, are altered. The third table (Table 6) provides some illustration of how these individual changes might work together under Options 1, 2 and 3 (impacts under Option 1 and 3 would essentially be the same). Under Options 1 and 3, support for items such as vessel modernisation and temporary cessation would stop (with direct negative impacts on economic indicators), but support would be more focussed than under the current EFF on innovation and territorial developments (intended to increase prices and value-added). Options 1 and 3 might be expected to result in net positive impacts on economic indicators compared to the status quo on the assumption that the positive impacts on prices would outweigh the negative impacts of the abolition of some subsidies currently reducing repair and maintenance costs and contributing to direct income. Under Option 2, all EFF support would cease, thus preventing the potential for EFF support to contribute to increases in the value of landings through the use of positive subsidies. The analysis suggests that in terms of the impacts on economic indicators, Options 1 and 3 would be preferable to Option 2, while Option 2 might result in economic performance roughly similar to the status quo option. While the assumptions made about the scale of changes to variables resulting from changes to EFF support can certainly be questioned along with the absolute changes that result in the indicators, we have confidence that the conclusion drawn from the analysis vis a vis Option 1 and 3 being preferable to Option 2, is valid. 14 While saved time may not necessarily result in increased fishing time, especially in quota managed fisheries, it is standard practice in cost benefit analyses of proposed harbour investments to value leisure time at 30% of average earnings. So while harbour developments resulting tin time savings might not result in changes directly to fleet costs and earnings, they may result in benefits to crew 15 Estimates of price increases typically used in cost benefit analyses of proposed harbour investments range from around 1-3%, with a maximum of around 5%. 16 Estimates of price increases from MSC certification are thought to vary widely but are not well backed up by empirical evidence. However price increases on average of around 5% may be normal. CFP Impact Assessment Phase II 22

23 Appendix 3 Detailed and Supportive Information on Subsidies Table 4: AER costs and earning data and economic indicators for some selected fleet segments, AER data on fleet costs and earnings Spanish Demersal trawl and demersal seiner 24m - 40m French Demersal trawl and demersal seiner 12m - 24m British Pelagic trawls and seiners over 40m Italian Demersal trawl and demersal seiner 12m - 24m VALUE OF LANDINGS (meur) Other income (meur) TOTAL INCOME (meur) TOTAL COSTS (meur) FUELCOST (meur) CREWCOST (meur) VARCOST (meur) REPCOST (meur) FIXEDCOST (meur) CAPCOST (meur) VALUE ADDED (meur) CASHFLOW (meur) PROFIT (LOSS) (meur) INVESTMENT (meur) Base Case Indicators for GVA ratio of revenue to break-even revenue Net profit margin -9.7% 3.9% 11.8% 12.5% 10. Return on investment -3.8% 3.5% 2.2% 22.7% Note: Spanish DTS value of landings data not included in AER data. Figure estimated based on relative value of landings and other income from Galician data for bottom trawlers analysed during the course of this impact assessment Table 5: Economic indicators under changed operating conditions as a result of individual changes to variables potentially impacted by EFF support Indicators with changes in income and cost items that could result from changes in subsidies Spanish Demersal trawl and demersal seiner 24m - 40m French Demersal trawl and demersal seiner 12m - 24m British Pelagic trawls and seiners over 40m Italian Demersal trawl and demersal seiner 12m - 24m A. 10% increase in prices (more relative focus on marketing measures, value-added, improved hygiene/fish quality, product innovation, certification) 7. GVA Ratio of revenue to break-even revenue Net profit margin 0.2% 12.2% 19.7% 20.5% 10. Return on investment 0.1% 12.0% 4.0% 40.9% B. 5% increase in prices (more relative focus on marketing measures, value-added, improved hygiene/fish quality, product innovation, certification) 7. GVA Ratio of revenue to break-even revenue Net profit margin -4.5% 8.2% 15.9% 16.7% CFP Impact Assessment Phase II 23