PROPERTY RIGHTS REARRANGEMENT FOR SCALLOP FISHERY SUSTAINABILITY

Terms of Reference
This paper seeks to review how a property rights rearrangement can ensure scallop fishery is harvested at a sustainable level in New Zealand. An explanation behind the rationale behind the use of individual transferable quota will be given as well as an overview on the subject. An outline of the difficulties that authorities might expect to incur when setting up and managing an individual transferable quota will be undertaken as well as strategies that can be used to avoid or solve these difficulties.
Terms: Self-governance, ITQ, OMS, transaction costs
Executive Summary
This paper addresses the benefits New Zealand can gain through implementation of an ITQ system over the local scallop sector. Following the individual transfer quota system is the most sustainable way forward for fisheries to ensure that future supplies will not be depleted. Strategies can be employed to ensure that sustainable practices are followed, such as rotational harvesting, which gives the fisheries a level of profitability with the least negative effect on all parties.
Introduction
The rationale for application of individual transferable quota (ITQ) for scallops will be reviewed in light of identifying the ITQ system as the better choice for New Zealand to follow when opposed to a regulatory approach. There have been sustainable practices in fishing on a governmental and commercial level for many years. Laws have been enacted in New Zealand that dictates the abilities commercial fisheries have and their responsibilities as well (Arbuckle 2001). ITQs generally increase fishing flexibility, improve profitability, reduce overcapitalization, and may improve sustainability of the resource through increased stewardship incentives. Implementing ITQs also allow for a great degree of flexibility within the industry that has shown to be advantageous to all parties. When compared to the regulatory approach the ITQ system can be seen to offer more benefits as well as a greater degree of latitude for involved parties. In addition to this, the flexibility that the ITQ system enjoys is opposite from the results of a regulatory approach. The global industry standard for fisheries is increasingly becoming ITQ based.
List of figures and tables
Diagram 1 – Diagrammatical representation of the use of property rights in fisheries management.
Diagram 2- Graphical representation of total New Zealand catch of fish 1890 – 2000.

Setting the Scene
Fisheries management involves trade-offs between generally conflicting biological, economic, and social objectives. It is rare to hear of fisheries where the stocks are sustainably harvested, substantial economic rents are being generated, and participants (and ex-participants) consider the system to be equitable and fair. Ensuring that one generation does not deplete the resources of the next necessitates measures are put in place to successfully manage resources into the future. The ITQ management system has been globally employed and is considered best practice for maximizing potential opportunities currently and into the future.
Economics of ITQ
The effects of overfishing and depletion of resources is a well-known problem worldwide. As Dasgupta (1989) stated, the common nature of the waters and their direct effect on the livelihoods of people are of such paramount importance as to not be understated. Dasgupta also rightly noted that all livelihoods people have come in some way from the land or sea and that this makes matters involving maintaining the on-going integrity of the land a primary concern and one which individuals must bear responsibility in as well as corporations. There are both technical and political reasons why uptake of ITQ management systems have been put in place and which operate to the benefit of all.
Technical
Sustainable collection of scallops in New Zealand is linked to economic opportunity for a few reasons: A) The normal method of scallop collection is based on dredging the bottom of the ocean to collect all the scallops in the path. This is not a sustainable method as there is no thought to the future collection or if any scallops will be left. ITQ uses hand collection, which can ensure in the long term that there are scallops left and the supply stocks can be renewed.

B) The economic advantage of sustainable harvesting is that it can go on forever, and;

C) Sustainability, by definition, ensures that there are no environmental limitations created by this activity. This provides a secure basis for the social and economic aspects of the activity.

D) Sustainable harvesting through the ITQ system is a means of delivering inter-generational equity.
Under an ITQ system, each participant receives a share of the TAC, and is free to choose when, where, and how to harvest that share. ITQs (in their purest form) are divisible and transferable. One perceived benefit of ITQs is that they should encourage long-term stewardship of the resource. Fishers may be aware that a resource is being overfished, but have little incentive to reduce fishing pressure unless they reap the benefits. In an open access or competitive fishery, improved catch rates will merely encourage increased effort, dissipating the gains of the origin al fishers. In ITQ fisheries, fishers will reap the benefits of any rebuilding, and their ITQ holdings will be worth far more (Townsend 2008).
Political
The management of fisheries in New Zealand is presently governed under two Acts of Parliament. A new Fisheries Act, which incorporates revised provisions for administering the Quota Management System, was introduced in 1996. The new Act is ultimately designed to replace the old Fisheries Act 1983 and is being phased in as operational capacity (including new computer software applications) is being developed. This process has become long and protracted as steps are being taken to devolve the responsibility for delivery of new quota registry systems to the fishing industry and some five years on most of the provisions of the new Act are not yet in force. Provisions of the new Act that are, however, in effect include sections describing and legislating the Purpose and Principles for fisheries management and use. The stated Purpose of the Act is to “provide for the utilisation of fisheries resources while ensuring sustainability”. The Act also requires that certain environmental and information principles are observed when performing functions under the Act. These requirements include maintaining associated or dependent species, biological diversity and habitat of particular significance for fisheries management as well as ensuring that management decisions are based on the best available information.
A framework for establishing sustainability measures designed to meet the Purpose and Principles of the Act is also specified in the legislation. For most fisheries this involves setting a Total Allowable Catch (TAC) for each fish stock at a prescriptive target level defined in the Act as “at or above a level that can produce the maximum sustainable yield”. The Act, however, also provides for a more flexible regime which allows some fisheries to be exempt from this TAC setting prescription where the Minister is satisfied that the purpose of the Act would be better achieved by an alternate process. Fish stocks that are managed on a rotational or enhanced basis can, by Order of the New Zealand Parliamentary Council, be specified as able to qualify for this exemption.
Diagram 1: Diagraphical representation of the use of property rights in fisheries management

Self-governance of commercial fisheries by industry members is increasing in New Zealand and some other nations. Fisheries research literature has argued that self-governance can lead to improved fisheries management (Tietenberg & Lewis 2009). In New Zealand, this primarily involves the ceding of some elements of management to self-governing bodies made up of Individual Transferable Quota (ITQ) holders within a fishery. This means that ITQ-holders, who have the most to gain from sound management of fish stocks, now assume a greater role in the collection and analysis of fish stock data, consultation with other stakeholders, etc. that have traditionally been undertaken solely by central government agencies (Field 2008). Implementation of ITQ Concept
New Zealand has made the most comprehensive commitment to individual transferable quotas (ITQs) under its quota management system (QMS) than any other nation in the world. All major fisheries are under the QMS (Gilpin 2001). A recurring issue for the QMS has been the appropriate role for the quota rights owners in management. In several instances, New Zealand delegated important aspects of management to industry or to sectors within the industry (Field 2008). The economic benefits of ITQs are widely appreciated. ITQs are a straight-forward application of cap-and-trade regulation to fisheries. ITQs clearly provide a highly efficient regulatory solution to the static problem of efficient harvest of a fixed quota (usually a government-set “total allowable catch”, or TAC). TQ right holders receive all future benefits of harvests (assuming rights are permanent, as they are in New Zealand) (Asafu-Adjaye 2005). The self-interest of these rights holders is to maximize the present value of the stream of benefits from harvests, which is identical to the social interest (setting aside for the moment the issue of third-party environmental externalities from fishing).
This reflects the general advantage of private ownership of productive assets: owners have self-interest in making decisions that maximize the social benefits from those assets. Private owners who self-govern might improve on government management in a number of ways. First, private owners could devise rules to manage the various avenues of rent dissipation. Second, private decision-making can solve many issues of implementation and enforcement more efficiently than government (Ntsime 2004). The industry better understands how regulations affect operations and the private incentives that are created by such regulations. The industry may be able to detect violations more easily and may have sanctioning options that are not available to the government. Third, a number of efficiencies in administration and in research may be available to the industry (Harris 2006).

Strategies and Recommendations
This study identified that the self-governance component in the management of the Bluff oyster fishery is developing gradually and could be regarded as a successful case in the catch sector. The New Zealand government’s intention of devolving fisheries management responsibility to the users has certainly played an important role in such development. Equally important is the unique nature and features of the Bluff oyster fishery. The challenging fishing conditions in the Strait create a natural barrier to entry; the sedentary nature of the oysters returns management benefits to the investors; the limited number of users makes the efficiency gain attainable.
Lowering transaction costs is the key in determining the success of industry self-governance, and there are three main measures to achieve that. First, clearly defined requirements and approval processes for a plan could significantly improve the vertical communication between the management agency and the stakeholders. Additionally, the de facto position of the commercial group entails unanimous decision-making, and can only be improved by the support of the government. Finally, a predetermined outcome sharing rule, such as equal sharing or ITQ, lowers players’ incentive to cheat since the allocation of benefits is certain. The management of fisheries is a dynamic problem. The task of determining an optimal time-path of harvests and stock sizes is seriously complicated by the inherent environmental fluctuations and the limited availability of information. When property rights are complete, a resource owner has appropriate incentives to manage this complicated resource. Management is fundamentally about risk management, an economic issue. Risk management involves assessing the value of alternative uncertain distributions of possible outcomes. It requires strategic assessment of the benefits of acquiring information through research to reduce uncertainty against the costs of that information. Operating sustainability is the best safeguard against risk that the fisheries industry can employ.
One strategy that could be employed in this situation is based around the fact that it takes approximately four years for oysters to become mature, so harvesting should be undertaken by rotating of fishing beds on an annual basis. Another strategy would be to refine fishing methods to minimise the harvesting effects on the seabed. As well as this, initiating the re-examination of oyster stock enhancement and breeding programs will help in terms of long range strategy. Conducting research on research vessels (“fishery-independent platforms”), the historic approach of government scientists, may be much more expensive than generating the same information concurrently with fishing activities. Information can also be incorporated from markets, such as changes in prices and costs, into the decision-making process. Optimal management depends not only upon biological considerations, but also upon economic considerations. Markets are dynamic; prices vary. Catch level should be adjusted over time to maximize the net present value of landings. To ensure the on-going success of implemented strategies it is advisable to seeds juvenile scallops, close off newly seeded areas to allow growth, conduct stock assessments and research, set an annual quota within a nominal maximum quota established by the Ministry, and monitors bio toxins and seafood safety.

REFERENCES

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Tietenberg, T., & Lewis, L. (2009). Environmental and natural resource economics (8th ed.). Boston, MA: Pearson Addison Wesley.
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