# Presentation: 458588

## Decommissioning Schemes and Capacity Adjustment:

**INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSE**
**BUY-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 Daurès**
**French Institute for the Sustainable Exploitation of the Sea (IFREMER) **

## Plan of the presentation

**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 **

##  Materials

** ****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**

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

** ****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**

##  Decommissioning schemes

** ****Duration of each scheme: ****in general few months**

** ****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**

##  Decommissioning schemes

** ****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**

##  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 i****n 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)***

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

-  **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 segmentation***

***  ******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 ?

-  **Who stayed, who left ?**

** ****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

** ****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)

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

** ****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)***
***  ***

##  The age of the removed fishing units

** ****The age of the removed fishing units**

*** ******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

** ****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**

*** ******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

##  The owners of the removed fishing units

** ****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**

*** ******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 **

##  A preliminary analysis of the windfall gains

*** ******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: 

** ****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)**

*** ******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

-  **Windfall gains: results**

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

*** ******Differences between years and vessels length categories***

##  Windfall gains: results

-  **Windfall gains: results**

**Premium and estimated price of a 10 GRT vessel of different age classes (no ageing effect)**

**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

**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 ***

**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)***

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

-  **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 :

**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 :

**Conclusion :**

## For discussions

**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**

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

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

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

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