From Iceland — The Crazy World of the Quota System (somewhat) Explained

The Crazy World of the Quota System (somewhat) Explained

Published July 27, 2007

The Crazy World of the Quota System (somewhat) Explained
Haukur S. Magnússon
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My cousin Gummi put it best: “The problem with the quota system is that it’s always been discussed in such an obscure, specialized language that no one really understands how it works, what it’s meant to do and why.”

Raised in the same remote Westfjords fishing village (3,000 strong Ísafjörður, proud capital of our nation’s northwest), Gummi and I both share memories of grimacing in pain and anxiety whenever the subject of Iceland’s fishing regulatory system (sometimes known as “the quota system”) came up – and that happened a lot in our family. It has a way of infuriating people, causing arguments, breaking up families, even instigating the formation of entire political parties.

And perhaps it should. It is an awfully weighty subject; the way Icelanders manage their fish harvesting directly affects all of them, although most choose not to notice nowadays. And those who do notice, those who claim to understand, are usually heavily at odds with one another. Uncovering the simple truths and facts of the matter in order to halfdecently explain the system to an outsider seems a wholly Sisyphean task, as no one really agrees on what they are, or if there even are any.

This is why we decided to ask all of them, at least as many as we could comfortably fit within a spread. We posed several questions pertaining to the Icelandic quota system’s nature, purpose and effect to a small number of people that are in some way or the other connected to it and have voiced opinions on it in the past.

What is the Icelandic Quota System (or ITQ system)?
Benedikt Jóhannesson (BJ), Reykjavík, is a mathematician, publisher and CEO who has, among other things, worked as a statistical and actuarial advisor: “In the late seventies and early eighties, cod fishing went up greatly. Almost every small town invested and had its own trawler and fish processing plant. After all, the vast ocean was there like a chest full of cod. The politicians had a ball, but the specialists at the Icelandic Marine Research Institute (MRI) were not amused. Year after year they recommended that the total fish harvest should be reduced. They reminded the nation of the case of the herring of the sixties. The “silver of the sea” had suddenly vanished without warning in 1967, after years of Klondike- like atmosphere in the north and east.

In 1983, a new temporary system of fishing quotas, setting a total allowable catch (TAC), was introduced by then fisheries minister, Halldór Ásgrímsson. The system was supposed to last only three years. Some members of the parliament were strongly against quota regulation but accepted it as a temporary measure. The quotas issued were based on the catch of each vessel in the previous three years. And then there were exceptions. The system was extended temporarily in the years after 1986, until it was made permanent in 1990.” Einar Kristinn Guðfinnsson (EKG), Bolungarvík, is a veteran Independence Party MP and Iceland’s Minister of Fisheries since 2005:

“The ITQ (Individual Transferable Quotas) system was introduced in 1984 as a response to serious reports about the state of Iceland’s cod stock. Thus, you might say the original purpose was to ensure that our overall fishing didn’t surpass agreed-upon restrictions on the TAC. It has of course evolved since its inception and is now also has the stated purpose of encouraging optimization within the field, reducing costs, etc. This has been achieved by individualizing the quota; it is allotted to individual vessels in accordance with the law.

Today, it’s actually a three part system, consisting of the general ITQ system, where most of the TAC is caught, then there’s a system that caters to the smaller vessels, and finally one that’s aimed at strengthening the smaller regions with so-called “line-concessions” for vessels that meet certain conditions. Those get a 16% discount, as it were, off their quota. To help regions that have for some reason lost their access to fishing quota we also have the “regional quota system”, where part of the TAC is distributed to those in need.”

Þórarinn Ólafsson (ÞÓ), Ísafjörður, is a Bachelor of Science in Fisheries from the University of Akureyri and works at Hraðfrystihúsið Gunnvör (one of the Westfjords’ few still-remaining giant fishing conglomerates) overseeing their ventures into cod farming:

“It is a system built to manage fishing around Iceland.”

Halldór Hermannsson (HH), Ísafjörður, a retired fishing captain is equally outspoken on the system, although he’s at the other end of the spectrum from HHG. He is also my grandfather whom I love and respect:

“As fish is considered to be a limited resource, we have been managing it with this system since 1984. At first, quota out of the TAC was allotted to vessels according to their average catch in the five preceding years. This was the idea. Those of us who thought it could work back then now consider the whole system a raging mess, and that all of the system’s noble intentions were ruined when they changed it in 1990 to the effect that quota owners could sell their allotted quota for profit, without so much as paying a resource tax off their gains. It spawned tremendous racketeering, people started selling and renting out their quota for a great profit, everything went haywire. This was all done to please hard-line libertarians, and those are no better than hardline communists in my book.

We warned that Iceland’s small towns would shrivel up, and this is what’s happened. It’s a terrible way to treat a nation whose identity is so firmly grounded in fishing. New Zealanders established a similar system around the same time, but they did it right, and humanely. Seven percent of the catch is paid back to the nation in form of a resource tax, and quota can only be rented out with a 2% commission, which is a far cry from the 60–70% commission they charge here.

Also, the system invites so much swindling; those who buy or rent overpriced quota can only ever bring the biggest fish to land, throwing the small, less profitable ones dead in the ocean. This is among the reasons why the system has failed to reach its original purpose: cod stock now is smaller than ever before. I say to hell with it!”

Hannes Hólmsteinn Gissurarson (HHG), Reykjavík, is a Political Science professor at the University of Iceland, well known for his libertarian views and an outspoken supporter of the system in question:

“The ITQ system is a system of individual transferable quotas. The purpose is both to limit access to a limited resource and to ensure that those who run their enterprises most efficiently, do harvest the catch.”

Grímur Atlason (GA), Bolungarvík, is the mayor of small (pop. 900) Westfjords village that’s heavily dependant on the fishing industry, and thus the quota system:

“Iceland’s fish management system was established in 1983 to protect the fish stock and build it up. It wasn’t originally conceived as a system of ownership as much as a system that enabled those best suited to catch the fish to do so. Today, it’s the complete reverse, and has become property based. Quota is now a valuable commodity that’s traded in the marketplace and that has both good and bad aspects. It’s both an established venue for honest, healthy trading that’s important to Iceland’s economy, and also a sort of racket. They’re still trying to use it to manage the fish stock, but with all due respect it’s safe to say that it’s all but collapsed.”

How does it work?
HHG: “Those who are most efficient buy out the others who leave the fishery. This is a good thing since the problem was that too many were harvesting the limited resource.” EKG: “Its original declared purpose was to keep the total catch within certain limits, something we failed to do at first because the system allowed the industry to surpass them. Nowadays, however, the total catch is close to what the government decrees.

It has reduced the cost of fishing, while at the same time putting the industry in more debt. On the other hand, the fishing industry seems more able to deal with that debt than before because the whole process has become much more efficient. In this regard it’s evident that the system has met its purpose; efficiency has gone up and costs have gone down. It has also had some negative effects, and I think the most negative ones can be seen when quota is sold from already weakened fishing villages. So there’s an answer to how it has worked: positively in the economic department, and negatively in regards to regional development outside of Reykjavík. It should be kept in mind, however, that quota transferrals usually happen between the coastline’s fishing villages for the most part. Some of the small towns grow stronger at the cost of others.”

HH: “I can’t see that it’s working at all. They say it encourages the industry to turn out a better product, but that simply stems from the fact that it’s sold on the market today and a better product means a better price. The cod stock has collapsed. Fishing villages are being abandoned. Less people find work in the industry. Are those the desired results?”

BJ: “Each vessel owner is allotted a certain percentage of the quota and if the total catch goes up, they all do. If the total allotted catch goes down the reverse happens. Quota can be transferred between vessels and fishing companies. The vessel owners are buying and selling quotas. In some cases they are temporarily leasing quotas from one company to another. This means that some can start collecting quota while others are pushed out of fishing altogether.”

What is its main purpose? Has it been reached?
HHG: “The purpose was to ensure that those who are most efficient at harvesting fish, do so, and that those who are less efficient, leave the fishery and do other things where they may be more efficient. It has more or less been reached, at least in comparison to other nations where the fisheries are loss-making enterprises, dependent on government subsidies.”

HH: “Its main purpose was originally to protect the fish in the ocean, limit the total catch and strengthen the various settlements around the country. It has failed on every count, as is clear now when the total cod quota has been cut down to 130,000 tons compared to an average of 300,000 tons in the past. Of course nature plays a role here, but to claim that the system works is ludicrous.

And now they’re saying that the government doesn’t subsidize fisheries like in the past, as if that’s the great accomplishment and goal! And even that is a lie; the government subsidizes the fisheries and vessel owners by exempting them from paying the resource tax. Hannes Hólmsteinn (HHG) and his cronies, us fishermen despise them, travelling the world saying Iceland has the best fish management system. Our quota system is a bleeding mess and that’s clear to anyone with eyes in their head.”

GA: “At first it was to protect and build up the fish stock, and to strengthen Iceland’s fishing settlements. Today, the latter purpose has all but vanished from the system. It’s more of a control mechanism now, and its success at protecting the fish stock is limited, especially in light of the latest cutbacks. What might be needed is more research on fishing grounds; all the different species and other factors combine to make a complex eco system that we really don’t understand well enough. Also, many fishing villages now have no quota and are slowly turning into ghost towns. So I’d say it’s failed both of its purported purposes. I don’t know if we can ever change it back, as it’s become an intricate part of our economy, but it’s clear that in and of itself, it’s a failure.

ÞÓ: “To keep control of fishing around Iceland, that’s the main purpose. To ensure that fishing is done in as efficient and profitable manner as possible. These goals have been reached for the most part, although one could go into a long tirade counting the pros and cons of the system.”

BJ: “To restrict fishing from a limited resource and try to allocate access in a fair manner. The idea is to build up the fish stock in the future. In view of recent events, when the cod quota was cut down to 130 thousand tons, it is hard to say that the system has achieved its goals. However, one cannot overlook the fact that since the quota system was taken up in 1984, cod fishing has been some 900 thousand tons more than the specialists at the MRI recommended.”

Name some of the effects its had since its inception.
BJ: “The fishing industry is much more efficient than before because of it. In recent months, the Icelandic Króna has become stronger, almost by the day. A few years ago, this would have called for government involvement in some way and cries for the devaluation of the currency. Now, companies are weathering the storm on their own.”

EKG: “It’s safe to say that it’s introduced great efficiency and optimized its processes, reducing waste where possible. It also increased the risk of certain illegal activities such as unreported catches and instances where the smaller fish get thrown away so it doesn’t come off the vessel’s quota. We have been trying to react to those negatives aspects using various means, and continue to do so.”

HH: “Fisheries all around the country have collapsed and now stand empty, people who lost their jobs continue to vacate the smaller towns, etc. Here in Ísafjörður, right beside the world’s richest fishing grounds, there’s barely a semblance left of what was once a bustling economy. We once had nearly two dozen large vessels operating from here, now they’re down to two or three. Those who claim that the quota system is good and benevolent are nothing but liars.”

HHG: “It has transferred the quotas, i.e. the access rights, from the less efficient to the more efficient. It has rationalised the fisheries. It has created a lot of capital, and is one of the explanations for the accumulation of capital abroad.”

Does it affect Icelanders not directly involved with the fishing industry?
ÞÓ: “Yes, in negative and positive ways, especially those living in the smaller fishing villages.”

HHG: “Yes, indirectly, because it is an efficient system. Essentially, the fish stocks which were a common good before, and therefore valueless, as all common goods are, became a private good, and got valuable.”

EKG: “There’s no doubt about that. In fact, the University of Iceland’s Institute of Economic Studies has shown that the fishing industry’s affect on our economy is underestimated. Fewer people are working in the industry now because of technological advancements, but every vessel and fishery creates jobs in the service industry, in marketing, engineering and in the scientific and technological fields, for instance.”

BJ: “Yes, of course. One part of the economy can never be separated from the rest. However, nowadays the fishing industry is no longer in the news every day. Twenty years ago the government was much more involved on a day-to-day basis, and a reduction in the cod quota would have been a major blow to the economy. People in every sector could have expected a reduction in their real wages. Now the change mostly affects inhabitants of fishing villages, not everybody.”

GA: “It does, a lot. The recent cutbacks will affect our entire nation, however indirectly; our total export value will decrease by 20 billions per year. On a smaller scale, in towns where fishing is the main industry, it affects everyone from the storeowner to the cleaning lady. And those drinking beer at Sirkús tonight, it will affect them, too.

Alienation is getting to be a big problem in Icelandic society; people don’t think that the fishing industry affects anyone but a few desolate souls in the countryside and maybe some immigrants. They even fail to see anything outside of Reykjavík as a part of Iceland. People get outraged when the government decides to build a tunnel to Bolungarvík, for instance, not realizing that the townspeople contributed over 300 million ISK in taxes last year. It’s bad PR on our behalf, basically.”

Is it here to stay?
EKG: “Everything indicates that it’s not likely to change in principle in the foreseeable future. It is clear that the industry needs stability, more than anything. Uncertainty can have very bad effects. It also seems to me that the system is less disputed than often before.”

BJ: “The quota system is far from perfect, just as any other known regulation system, and this needs to be constantly kept in mind. One can argue that under certain conditions, the likelihood of small fish being thrown away increases. Hence, this calls for efficient control and enforcement system. I see no other system that would be more efficient. The Faeroe Isles tried a different system and are now facing a fishing crisis.”

GA: “Discontinuing it now would be hard, as a lot of honest, hard working people have invested a lot of their capital in the system. But we could change some of its tenets, and bring a greater emphasis on eco-friendly fishing, the smaller vessels that use less oil and don’t damage the ocean floor. That would become a great commodity in the long run.”

HH: “They’ve all but nailed it down. The banks have pawned all the fish in the ocean, a lot of ill-gotten money is at stake, so escaping this foul system will take years. At the same time, its clear that this course is leading us to squalor, yet the government refuses to reconsider even the worst aspects of it. We are currently firmly entrenched in the clutches of capital. My only hope is that we’ll someday have the good fortune to join the European Union so that us outside of Reykjavík will stand a fair chance once again, but that isn’t likely to happen anytime soon.”

HHG: “Yes, and in other countries too. There is no other way of efficiently limiting access to a limited good.”

Should it be used to influence Iceland’s regional development?
ÞÓ: “No.”

HH: “That was the idea, but it’s never been put to action. You can’t restrain the free enterprise. It could have been done and it should have been done, we suggested that the quota should be tied to specific regions, and that places in need of quota could access it from the state. But the government doesn’t interfere now, out of fear of angering the free trade apostles.”

HHG: “The fish stocks should be harvested from the places from which it is most efficient to harvest it. This is not something that the planners would know. This emerges through market transactions. The highest bidders are the most efficient ones, in the long run.”

EKG: “Yes, it should, using some of the means I mentioned earlier. We decided to take a considerable part of the quota and allot it to smaller vessels that belong to smaller communities, that was a political decision to use the system to influence and help development in those places. The same thing applies to the line concessions and the regional quotas we distribute every year.”

BJ: “I don’t know what you mean by this question. However, society will always adjust to the system that is used. This means that if fishing and fish processing is now done more efficiently than before, this will influence people. Fewer people are needed to do the same amount of work and it is done better than before. It should be mentioned that fish processing is now done mostly by workers originating from foreign countries. This started in the 1990s and may have been the beginning of the drift of Icelanders away from fish processing.”

GA: “It’s a tough subject, but yes. The industry should be kept where it’s most logical to keep it – Bolungarvík has been bustling fishing station for the last thousand years, and that’s no co-incidence. It simply makes more sense to catch the fish and process it where it has a potential for self-sustainability and access to it is easiest. Harvesting fish from Reykjavík, or even Ísafjörður, doesn’t make much sense.”

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