Fisheries policy in the Faroe Islands: Managing for failure?

Marine Policy 94 (2018) 204–214

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Fisheries policy in the Faroe Islands: Managing for failure? Rannvá Danielsen a b

a,b,⁎

, Sveinn Agnarsson

T

a

School of Business, University of Iceland, Gimli v/Sæmundargata, Reykjavík, Iceland Syntesa, Fyri Oman Brúgv 2, Gøta, Faroe Islands

A R T I C LE I N FO

A B S T R A C T

Keywords: Effort quotas Individual transferable quotas Input controls Overfishing

The Faroe Islands have had five different fisheries management regimes for their demersal home fleet between 1948 and 2018: open access; regulated open access; a licensing system; a brief period of individual transferable quotas (ITQ); and, since 1996, an effort quota system, where the main control component comprises fishing days without total allowable catch (TAC) control. The Faroese cod and haddock stocks are severely overfished, and the fleet is largely unprofitable because of excess capacity and the stocks’ poor state. This paper describes and analyses the main characteristics of the regimes and developments in policy to determine why management has failed. The results are compared with the Faroese pelagic and distant-water fleets, which are managed jointly with other coastal states using TAC and ITQ, to identify inconsistencies in policy and implementation. The conclusion is that the Faroese authorities have 1) persistently believed that fishing can be directed away from overfished stocks but have failed to accomplish this; 2) demonstrated short-sightedness in the management of their demersal fishery; 3) shown an unwillingness to effectively reduce fishing pressure and — by implication – employment in the fisheries sector for the sake of sustainability; and 4) shown that they can manage their fleets sustainably, as demonstrated by the pelagic and distant-water fleets, but have largely been unwilling to regarding the home fleet.

1. Introduction Overfishing is a growing global concern. In 1974, only 10% of global fish stocks were overfished, but in 2013, that number had grown to 31% [1]. Overfishing is caused by fleet overcapacity [2] and an “unwillingness or inability to bear the short-term social and economic costs of reducing fishing” [3]. Thus, the problem is not a lack of appropriate tools but the failure to widely apply these tools [4]. Fishing is the foundation of the Faroese economy. In 2016, the marine fishery accounted for more than 50% of the country's exports, and the value of fish exports amounted to 22% of GDP. The harvesting and processing sectors directly employ 11% of the working population, and the fisheries are the main industry in many communities outside the capital area. In view of the importance of fisheries to the Faroe Islands, sound management of this ocean resource is not only paramount but almost a matter of survival. Yet, the demersal fish stocks in Faroese waters, which historically have been critical for the country's economy, have been consistently overexploited [5,6], and the Faroe Islands have been identified as one of the failing fisheries of Europe due to the poor state of their cod and haddock stocks [7]. By contrast, the pelagic and distant-water fisheries that Faroese vessels partake in and are managed

⁎

Corresponding author at: Syntesa, Fyri Oman Brúgv 2, Gøta, Faroe Islands. E-mail address: [email protected] (R. Danielsen).

https://doi.org/10.1016/j.marpol.2018.05.010 Received 5 April 2018; Received in revised form 6 May 2018; Accepted 6 May 2018 0308-597X/ © 2018 Elsevier Ltd. All rights reserved.

jointly by many nations in the Northeast Atlantic, are conducted in a more sustainable and profitable fashion. The Faroe Islands adopted a reform to its fisheries policy in 2017 that will be implemented in 2018–2019. If the Faroese are to disrupt this pattern of overexploitation, the underlying reasons for their failure to manage their demersal fishery sustainably must be identified. This paper describes and analyses the development of Faroese fisheries policy from 1948 to 2018 and compares the management of the demersal fisheries with those of the pelagic and distant-water fleets. During this period, the Faroese demersal fishery has gone from open access to regulated open access, had a brief period with an individual transferable quota system, and lastly implemented an effort-based system that is still in place in 2018. Finally, the outcomes of the management policies will be investigated by examining the effects on fish stocks. 2. The Faroese fishery and fleet The Faroe Islands are an archipelago in the North Atlantic Ocean, situated between Scotland and Iceland. The Faroe Islands are a constituent country of the Kingdom of Denmark with a home rule government and have formally managed their own fisheries since 1948;

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therefore, they are not subject to Danish fisheries management laws. The Faroe Islands are not subject to the European Union's (EU) Common Fisheries Policy either, because they did not enter the EU with Denmark in 1973. The Faroese Exclusive Economic Zone (EEZ) is very large, spanning an area of 275,000 km2, or almost 200 times larger than the islands themselves. The Faroese fishing fleet can be divided into three segments: the demersal home fleet, the pelagic fleet, and the distant-water fleet. The demersal home fleet mostly operates in the Faroese EEZ. In 2014, the home fleet included seven large trawlers (over 110 Gross Tonnage (GT)), 22 pair trawlers, 15 large longliners (over 110 GT), 30 large coastal vessels (smaller trawlers and longliners), and 320 small coastal vessels (31 commercial and 289 recreational boats, many of which are inactive). The home fleet mainly harvests the demersal species found in Faroese waters; cod (Gadus morhua), saithe (Pollachius virens), haddock (Melanogrammus aeglefinus), and redfish (Sebastes norvegicus), with the choice of species mainly dictated by gear. The demersal home fleet is spread relatively evenly across the islands. The pelagic fleet consists of 14 purse seiners and industrial trawlers, most of which are registered in the north and the island of Eysturoy. The fleet operates mostly in Faroese and EU waters, targeting herring (Clupea harengus), mackerel (Scomber scombrus), and blue whiting (Micromesistius poutassou). Five factory trawlers comprise the distantwater fishing fleet, which are registered in the north, Eysturoy, and the capital area. The factory trawlers operate in the Barents Sea, the North East Atlantic Fisheries Commission (NEAFC) regulatory area, and Greenland, where they target demersal species, predominantly cod, but also shrimp (Pandalus borealis).

Table 2 Faroese catch in all waters, 1956–1985 (1000 t) [9]. Waters

1956

1965

1975

1985

Faroes Iceland W. Greenland E. Greenland Newfoundland Barents Sea, Svalbard Norwegian Sea North Sea Total

14 18 32 0 0 29 23 0 116

20 9 66 0 16 0 31 3 145

40 15 11 0 10 28 0 178 282

169 8 1 66 4 43 0 74 365

12 nm; however, British vessels retained the right to harvest up to 6 nm on the grounds of historical fishing until 1964 when they were unilaterally forced out [8,9]. In 1977, the Faroese expanded their EEZ to 200 nm [9]. In 1978, the Faroese Parliament passed the Act on Fishing in the Territorial Sea (8/1978), whose management measures focused on controlling fishing effort, including spatial and temporal closures, gear restrictions, minimum landing sizes, and bycatch restrictions. No Total Allowable Catch (TAC) was set for any of the main stocks [10,11]. In 1955, the Faroese government had set up a government-financed ship financing fund with the purpose of financing a complete fleet modernisation. As a direct result, more than 50 new, modern, efficient trawlers and steel longliners entered the fleet in the ensuing years. By 1963, the fleet consisted of 195 vessels [12], which—to a great extent—operated in foreign fishing grounds (Table 2). Fishing opportunities outside Faroese waters began to diminish in the 1970s as other nations expanded their fishing zones (Table 2). The newly modernised Faroese fleet had to return home, leading to rapidly increasing demersal catches in Faroese waters (Fig. 1) and overexploitation of the haddock and cod stocks [13]. The fleet, which now predominantly had to land in the Faroe Islands, struggled financially because of poor landing prices and an overstocked fleet. To alleviate the financial problems and fishing pressure on cod and haddock, the Faroese government founded the Raw Fish Fund. The fund had two purposes: to even out long-term landing prices in the Faroe Islands by subsidising select species, and, by doing so, “direct the fishing effort away from the valuable, traditional and overexploited sorts, cod and haddock, to cheaper, less exploited and perhaps newly discovered sorts” [9]. By the end of the 1970s, experts warned the fleet was 30–40% too large; however, despite this and the problems of overexploitation, the Faroese government expanded its subsidies to the fishing industry. The subsidies programme culminated in the 1980s when the fishing industry received DKK 3.5 billion in subsidies and DKK 180 million in loans. The operation subsidies from the Raw Fish Fund and a fishermen's wage fund amounted to DKK 3 billion, with operators also receiving investment subsidies from the Ship Financing Fund (Table 3). As a result of these subsidies - and investments in infrastructure - the Faroese government accumulated a foreign debt of DKK 7.8 billion throughout the 1980s, equivalent to 119% of the country's GDP [14].

3. Faroese fisheries policy This section describes how the Faroese fleets were managed between 1948 and 2017. Section 3.1 describes how the fishery went from open access to regulated open access. Section 3.2 describes the introduction of the licensing system. Section 3.3 describes the introduction and dismantling of the Individual Transferable Quota (ITQ) system, and Section 3.4 describes the effort quota system, which was introduced in 1996 and remains in place in 2018. Before 1996, all fleet segments were managed in a similar manner, but most of the regulations in the EQ system only applied to the demersal home fleet. Therefore, management of the pelagic and distant-water fleets has since 1996 been ad hoc (Section 3.5). The different management regimes and their main management tools can be found in Table 1. 3.1. From open access to regulated open access (1948–1987) For most of the 20th century, the Faroese territorial sea was only 3 nm [8]; therefore, Faroese authorities had little control over how fish stocks were exploited in the ocean surrounding the Faroes. Many foreign vessels were active in the waters around the Faroes; in particular, British trawlers were believed to harvest intensely, leading to Faroese concerns about overfishing. In 1959, the fishing limit was expanded to

Table 1 Fisheries management regimes in the Faroe Islands and their control measures. Spatial and temporal closures and gear restrictions remained in place until 2018 in the demersal home fleet. Demersal home fleet

All vessels Open access Until 1977

Pelagic and distant-water

Regulated open access 1978–1987

Licensing system 1987–1994

Individual Transferable Quotas 1994–1996

Transferable Effort Quotas 1996–2018

Catch Quotas 1994–2018

Spatial & temporal closures Gear restrictions Minimum landing size Bycatch restrictions

Harvesting licence

TAC Transferable catch quotas Bycatch quotas Harvesting licence Discard ban

No TAC Transferable fishing days

TAC Transferable catch quotas Common pool quotas

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3.3. Individual Transferable Quotas (1994–1996) The cod, haddock, and saithe stocks collapsed in the early 1990s due to a combination of overfishing and poor recruitment [16]. When the stocks collapsed, the Faroese mono-economy did too [15,17]. With the spending spree of the 1980s catching up with the Faroese, the Danish government decided to refinance the foreign debt of the Faroese government, but with several conditions. The Danes demanded a complete restructuring of Faroese fisheries policy [14,18] because it was clear that the fleet had to be rationalised and fish stocks restored [10,14,15]. In 1994, the Commercial Fisheries Act was passed (28/ 1994), which introduced an ITQ system to reduce fishing mortality and rebuild stocks as well as bring about the necessary rationalisation in the sector by enabling consolidation by way of quota transfers [10,19]. The Danish government expected substantial rationalisations in the fishing industry, which in turn would help the Faroese economy stabilise [14]. Very few vessels were profitable at the time of implementation and survived on subsidies. From 1994 to 1998, a large proportion of the fleet was predicted to not meet their financial obligations. Therefore, no recommendation was made regarding the optimal composition of the fleet [19]. Fishing rights were grandfathered to all vessels that had a licence to operate in the year prior to implementation. Fishing rights had no expiry date, but harvesting licences were only issued for one year at a time. Therefore, vessels had no guarantee that their licence to operate would be renewed each year. The fleet was divided into vessel groups based on size and gear, for example, vessel group two consisted of pairtrawlers with larger than 400 horsepower (HP) engines, whereas vessel group three consisted of longliners with larger than 110 GT (see Table 4). Each vessel group received quota shares for the four main stocks under TAC management, for example, pairtrawlers (vessel group two) were allocated 70% of the saithe TAC and longliners (vessel group three) received 23% of the cod TAC (Table 4). For trawlers (vessel group one), pairtrawlers (vessel group two), and longliners (vessel group three), the TAC was shared equally between all vessels in each group and vessels were allocated permanent individual quota shares. The coastal vessels (vessel groups four and five) were allocated common pool quotas, not individual catch quotas; thus, they were not included in the transfer system. Since only trawlers, pairtrawlers, and longliners were included in the transfer system, only these vessel groups were expected to undergo rationalisation. The coastal fleet was most likely exempt because they were owned and operated by individual or small groups of fishermen, whereas most trawlers and longliners were owned by firms [19]. The fleet contained 41 pairtrawlers, 14 trawlers and 19 longliners, and an estimated 109 coastal vessels in full-time operation in 1993; therefore, the coastal fleet was by far the largest in terms of numbers, and there should have been ample room for restructuring. As a barrier for rationalisation, the act stated that “no one” could hold more than 10% of the total quota share. The policy priority was to ensure that stocks were harvested sustainably so they could recover [19]. The Faroese had never used TAC in their domestic fisheries policy but they were now deemed necessary to recover stocks; hence, TAC were introduced for cod, haddock, saithe, and redfish. The scientific advice was to also place the other main

Fig. 1. Demersal catch in Faroese waters, 1955–1985 [9].

Table 3 Subsidies for the Faroese fishing fleet initiated in 1980–1990 and the costs thereof in 1990s (nominal values) [15]. Fiscal year/ DKK M

Fleet renewal

80/81 81/82 82/83 83/84 84/85 85 86 87 88 89 90 1980–1990 1990s Total

9 17 35 27 38 55 56 25 58 20 −4 336 − 11 325

Scrapping

62 46 108 166 274

Operation subsidies

Loans (various)

170 194 215 233 394 223 247 230 351 441 380 3078

37 26 5 −5 −3 −4 −3 8 12 94 15 182 − 13 170

3078

Loan security

1042

Total

216 237 255 255 429 274 300 263 421 617 437 3704 142 4889

3.2. Licensing system (1987–1994) In the late 1980s, the government decided to attempt to rein in the fleet. A licensing system with a fixed number of licences was introduced in 1987 to prevent the fleet from expanding. All vessels that had been active in the previous year received a licence and operation without a licence was prohibited [10]. The technical and spatial regulations from the Act on Fishing in the Territorial Sea (8/1978) remained in place but the authorities refrained from introducing TAC. The authorities believed that their step to cap fleet growth would be insufficient; thus, in 1988, the government initiated a vessel scrapping scheme (Table 3). A total of DKK 274 million went to scrapping 22 vessels in 1988 and 33 vessels in 1990. However, the money largely went to vessels that were already failing [15] and might not have been active or would have left the fleet naturally. Therefore, the scheme most likely did not have its desired effect, namely, to reduce pressure on fish stocks. Notably, the scrapping scheme was initiated while fleet renewal subsidies were still being given (see Table 3). Thus, the government was subsiding the entry and exit from industry at the same time.

Table 4 The main vessel groups in the ITQ system and TAC shares. Source: The Commercial Fisheries Act (28/1994).

Cod Haddock Saithe Redfish

1. Trawlers > 400HP

2. Pairtrawlers > 400HP

3. Longliners > 110GRT

4. Large coastal vessels > 20GRT

5. Small coastal vessels < 20GRT

4% 1.75% 13% 89.5%

21% 10.25% 70% 8.5%

23% 28% – 1%

27% 28% 10% 1%

24% 30% 7% –

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species – blue ling (Molva dipterygia), tusk (Brosme brosme), and ling (Molva molva) – under TAC control but the authorities chose to ignore that [19] in a demonstration of resistance to scientific advice. The recovery goals in place for cod and haddock were to restore their biomass to 52,000 and 40,000 t, respectively [20]. Here too there were signs that the government was not committed to rebuilding stocks because there were no recovery goals for saithe or redfish and, in 1994, the saithe TAC was set above the scientific advice [20]. Furthermore, the system was designed to allow for a departure from scientific advice. TAC were set by amendment to the Commercial Fisheries Act, not by executive order; therefore, the Minister of Fisheries had to first draft an amendment to the act with the proposed TAC that would then have three readings in Parliament before being passed. However, before the minister drafted the amendment, they received advice from the Marine Research Institute (MRI), the scientific body in charge of producing advice on stocks, and a stakeholder committee comprised of industry representatives, which would offer input based on their knowledge of the fishery. Thus, the recommended TAC in the draft amendment were not based solely on scientific advice. In addition to this, TAC could be amended when the amendment passed through Parliament. This meant that departure from scientific advice could occur at two stages: in the draft amendment and in Parliament. Presumably, Parliament deliberately designed the system in this manner to maintain control over TAC. The historically small cod and haddock stock sizes meant that individual catch quotas were small and vessels would harvest their quotas quickly. The poor profitably of the fishery meant that many vessels were unable to purchase additional quotas and ideally, given the overcapacity in the fleet, the consequence of that would have been that vessels exited the fishery and sold their catch shares to the most efficient and thus profitable operators. Under these circumstances, the process of rationalisation would have been rapid. But there were fundamental design flaws in the transfer component of the system: quotas could only be temporarily transferred for one year at a time and could not be permanently transferred. If a vessel transferred part or all of its quota share for more than two consecutive years, the quota would return to the vessel group, not the vessel that purchased the quota. This stipulation meant that vessels were unable to permanently acquire larger quota shares, and more importantly, that vessels could not permanently sell their quota shares and exit the fishery with the gains from the sale, which, for example, could be allocated to debt on the vessel. Therefore, there was no incentive to leave the fishery, and if operators had debt on their vessels, which many presumably did, their only option was to continue operations until they could not meet their financial obligations and were forced out. Even if quotas could be permanently sold, harvesting licences were not permanent. If operators’ access to the fishery is uncertain, they are unlikely to invest in permanent quotas because they cannot be certain they will be in the fishery the following year. Designing the ITQ system to prevent rationalisation must have been a deliberate act by the Faroese Parliament. Irrespective of any bailout demands from Denmark, the Faroese maintained autonomy over their legislature as granted by the Home Rule Act (11/1948), and the Commercial Fisheries Act had to pass through Parliament, providing the Faroese with an opportunity to amend the act. The crisis years are poorly documented as Faroese society went into a complete standstill but, presumably, Parliament decided the societal consequences of a fleet rationalisation were too great. The economic crisis meant that nearly 2,000 people had lost their jobs in fishing and processing in the early 1990s [21]. Unemployment was nearly 14% when official records begin in 1995 (Fig. 2), but other sources say unemployment reached 20% [14] and increased to 40% in some fishing communities [22]. As a result of high unemployment, wage reductions (8.5% for public employees), and an increase in direct and indirect taxes [14], the population declined rapidly (Fig. 2). A fleet rationalisation would have further increased unemployment. The crisis

also caused political turmoil and led to three exchanges in the prime minister's seat from 1993 to 1994, adding to the instability. A report from 1996 confirms these suspicions: the Faroese Parliament did not want transferable quotas and tied vessels and quotas together [23]. Immediately after the introduction of the ITQ system, the demersal stocks made an unexpected and rapid recovery, particularly the cod stock, and TAC soon became very restrictive [20]. The potential problems of matching catch with quotas in a mixed fishery are well known, and when vessels are unable to move to a different fishery, as was the case in the demersal fishery in Faroe Islands, the problems can usually be alleviated by having a flexible transfer and quota system [24]. In the Faroese case, however, quotas could not be transferred permanently, which would have allowed vessels to exit the fishery and increased quota concentration; additionally, if vessels leased quotas for more than two consecutive years, they lost them. The system therefore incentivised vessels to retain their quotas and reduced flexibility considerably. Due to the increase in stock sizes and difficulties acquiring additional quotas, vessels were opting to catch in excess of their quotas, which led to discarding and misreporting of catches. To appease the continuous complaints thereof, Parliament increased TAC five times between 1994 and 1996, and when problems persisted, the system was abandoned [20]. The inflexible design made the ITQ system ill-suited for sudden changes in stock sizes. Faroese politicians and industry had been sceptical of the ITQ system to begin with [16,25], and when it began posing problems, they did not hesitate to abandon it. 3.4. Effort quota system (1996–2018) In 1996, the ITQ system was replaced with the effort quota (EQ) system. The main control component in the EQ system was fishing days (effort quotas), which are a common management tool (e.g. in the EU's Common Fisheries Policy) but usually used in combination with a TAC to maintain control over catch limits [26,27]. That was not the case in the Faroe Islands. The sudden and unexpected growth of the stocks had bred a certain distrust in stock assessments, which were believed to be inaccurate and unreliable, and Faroese authorities wanted to reduce dependence on them. Instead of catch limits, the Faroese authorities were going to manage towards long-term fishing mortalities, which were set to 0.45 for cod, haddock, and saithe [23]. The authorities believed that although vessels were free to target any species, they would target the most abundant species because it was more cost-effective, and if fishing days were set appropriately, the system would naturally ensure that overharvested stocks recovered [23,28]. With this, the idea that effort can be directed away from overharvested stocks made its way into Faroese fisheries policy again, the premise being that fishing days were set appropriately. The new system was implemented by amendment to the Commercial Fisheries Act; thus, many features of the ITQ system remained in place, such as the spatial and technical regulations. Fishing licences were now made permanent and grandfathered to all vessels in the fleet at the beginning of 1995. A fishing day was defined as 24 h at sea. Fishing days were allocated to vessel groups, which remained the same as in the ITQ system (Table 4), and distributed evenly between all vessels in each group. Pairtrawlers (vessel groups two), longliners (vessel group three), and now also the large coastal vessels (vessel group four) were allocated individual EQs. Small coastal vessels (vessel group five) were still only allocated a common quota, now of fishing days. Trawlers (vessel group one) were only managed with area closures and bycatch quotas until 2010, when vessel groups one and two merged and trawlers joined the EQ system. To separate active and passive gears, the Faroese EEZ was divided into an inner fishing zone (depth < 200 m) and an outer fishing zone (depth > 200 m). Trawling was generally banned in the inner zone, which was reserved for hook and line. To encourage fishing in deeper 207

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Fig. 2. Unemployment and population in the Faroe Islands, 1990-2017 [21]. Data on unemployment does not begin until 1995.

the limit was 20% of fishing days. For coastal vessels using trawl, the limit was 30% of fishing days. For trawlers, the limit was 30% harvesting licences, and when they joined the EQ system in 2010, their limit changed to 20% of fishing days. In the pelagic fleet, the limit was 25–35% of harvesting licences, depending on the type of vessel. In the distant-water fleet, the limit was 35% of the quota share in cod equivalents (the relative value of cod compared to other species). The biggest barrier to rationalisation was the low utilisation of fishing days. None of the five vessel groups or their subgroups utilised 100% of their fishing days between 1996 and 2015 (Table 5). The highest average utilisation in the time period was 90% (pairtrawlers) and the lowest was 53% (coastal longliners). Transfers will only occur if there is a demand for fishing days, but if fishing days are not fully utilised, there will be little demand. Without transfers, the fleet will not undergo rationalisation. Furthermore, when the utilisation of fishing days was anything but 100%, there were no effective limitations on the fleet because vessels could easily acquire fishing days from vessels that had not utilised theirs. Although individual vessels might have been restricted by their EQs, fishing days had no binding effect on the vessel groups as a whole. The authorities attempted to overcome this problem in 2002 by banning vessels with a utilisation less than 60% from transferring. This action removed many inactive fishing days from of the transfer system while vessels retained their fishing days. Utilisation remained less than 100%, and effort quotas still had no binding effect on the vessel groups. In addition, two out of three vessel groups were allocated enough fishing days in 2016 for every vessel to harvest 365 days per year, which occurs due to the inner and outer fishing zone system. As mentioned in Section 3.4, each day spent in the inner fishing zone equalled three days in the outer fishing zone. If vessels chose to harvest only in the outer fishing zone, pairtrawlers had access to 520 fishing days on average per vessel in 2016, longliners had 390 fishing days on average per vessel, and trawlers had 352 fishing days per vessel on average [32]. Naturally, fishing days had consolidated; however, with free transferability between vessels in each vessel group, all vessels could—in theory—harvest every day of the year in 2016.

waters to protect juveniles, fishing days were by default allocated to the inner zone, but if utilised in the outer zone, the deduction from a vessel's individual EQ was lower: each day spent in the inner fishing zone equalled three days in the outer fishing zone [16,20]. Vessel groups were expected to target the same species as they did under the ITQ system, that is, the trawlers targeted predominantly redfish, the pairtrawlers saithe, and the longliners and coastal fleet targeted cod and haddock (Table 4).

3.4.1. Transferability and utilisation of fishing days Fishing days were initially transferable for up to five years at a time. In 1998, this duration was extended to 10 years. In 2002, fishing days could be transferred permanently with no expiry clause or leased for one year at a time, thus for the first time allowing the fleet to rationalise. Notably, these fishing days were not freely transferable. Vessels in different groups did not have the same harvesting capacity; thus, fishing days could only be permanently transferred within vessel groups, in which vessels were presumed to have the same harvesting capacity. This stipulation had the additional effect of keeping rationalisation within vessel groups and thereby preventing consolidation across the entire fleet. However, in the last three months of the fishing year, fishing days could be transferred between vessel groups for that fishing year only. This system of transfer has two problems. Firstly, when fishing days were transferred from, for example, a coastal trawler to pairtrawlers, the average daily catch became higher than expected when fishing days were allocated. Secondly, target species varied between vessel groups (Table 4); therefore, when fishing days were transferred from, for example, a coastal trawler, which targeted cod and haddock, to pairtrawlers, which predominantly targeted saithe, the harvesting pressure on saithe increased. These two phenomena skewed the harvesting pressure on stocks and meant that there was insufficient control over harvesting pressure on stocks under the EQ system. There have been attempts to address these issues, for example, in 2011, the provisions for transfer were amended so the relative quantity of fishing days was determined based on which vessel groups were involved in the transfer.1 Without free transferability, which is not possible under an EQ system due to the aforementioned reasons, and with the late introduction of permanent transfers, the fleet was unlikely to undergo dramatic rationalisation. A consolidation clause was nonetheless in place. Under the ITQ system, “no one” could hold more than 10% of the total quota share (28/1994, §13) and this remained in place in the EQ system. The authorities, however, recognised that the wording “no one” represented a loophole; hence, in 2007, the phrasing was amended to “closely related persons” to prevent families from acquiring a large part of harvesting rights (67/2007, §7a). The phrasing was also amended to reflect that the system no longer dealt with quota shares and placed limits on fishing days. For pairtrawlers, longliners, and coastal vessels, 1

3.4.2. The role of scientific advice Understanding why the political system did not address the problem of low utilisation is difficult. There are several explanations. Fishing days were set the same way as TAC in the ITQ system, namely, the minister took advice from the MRI and the Fishing Days Committee, a committee comprised of industry stakeholders, and based on this, drafted a bill amendment, which then had to undergo three readings in Parliament, during which it could be amended. Therefore, the departure from scientific advice could occur at two stages, just as in the ITQ system — firstly in the advisory stage and secondly in the legislative stage. From the beginning, it was evident that departure from scientific advice would occur. The first time fishing days were allocated, the advised allocation for the small coastal fleet, for example, was 13,000 fishing days. This number was based on average daily catch from 1985

Executive order no. 3 from 12 January 2011 on the transfer of fishing days.

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Table 5 Utilisation of fishing days in vessel groups, 1996–2015 [29–31].

1996–1997 1997–1998 1998–1999 1999–2000 2000–2001 2001–2002 2002–2003 2003–2004 2004–2005 2005–2006 2006–2007 2007–2008 2008–2009 2009–2010 2010–2011 2011–2012 2012–2013 2013–2014 2014–2015 Average

1. Trawlers

2. Pairtrawlers

3. Longliners

4A. Coastal longliners

4B. Coastal vessels

83% 66% 60% 24% 58%

98% 92% 91% 95% 96% 92% 80% 90% 86% 81% 93% 89% 90% 96% 91% 89% 84% 78% 84% 90%

100% 92% 91% 85% 94% 93% 92% 82% 93% 87% 85% 75% 72% 80% 72% 90% 46% 55% 74% 82%

47% 60% 55% 53% 67% 65% 64% 75% 70% 71% 57% 40% 42% 48% 34% 27% 52% 31% 44% 53%

79% 80% 75% 86% 91% 91% 92% 95% 84% 83% 56% 53% 61% 71% 58% 46% 49% 41% 53% 71%

5. Small coastal vessels

96% 93% 92% 90% 93% 90% 85% 80% 64% 52% 84%

87% 74% 58% 59% 106% 99% 104% 84% 67% 69% 56% 41% 39% 56% 56% 47% 40% 45% 51% 65%

common claim that nothing had been done to reduce fishing pressure [36]. But why wilfully ignore scientific advice when fish stocks were depleted? In this context, the political system and stakeholders have often argued that it is not only fishing mortality, and by extension fishing days, that affects the size of fish stocks but that nature plays a role too, referring especially to recruitment, and that sometimes nature plays along and sometimes it does not, using the sudden growth of the cod stock in the 1990s as an example thereof [36]. The implication is that adjusting fishing days is pointless because nature will have its way irrespectively. The political system would also go to great lengths to avoid reducing fishing pressure. For example, a member of the Parliamentary Committee on Industry once argued that additional research was required on multispecies interactions in order to determine which other predators affect fish stock size so that these could potentially be eliminated instead of reducing fishing pressure [37]. Realistically, the political system's unwillingness to listen to scientific advice had little to do with its trust in science, or lack thereof. The occasional mistaken stock assessment, such as in the early 1990s when stocks recovered unexpectedly, served as an excuse to follow an unsustainable policy. The reality was that politicians were not willing to reduce fishing days because of concerns for the societal consequences it might have, especially job loss. The fleet struggled to turn a profit for most of the two decades after fishing days were introduced [38], and by limiting fishing days and forcing vessels to purchase extra fishing days, the political system would be forcing a fleet rationalisation, which meant job losses in the fishing industry and fishing communities [36,37]. These job losses naturally happened anyway due to stock decline [38], but that was due to ‘nature’, not policy. Lastly, there was no management plan in place for the fishery [5]. A management plan for the three Faroese stocks was developed in 2011 [33] but was never adopted [5]. This failure to implement the plan enabled the political system to ignore scientific advice, even when stocks declined.

to 1994 with a goal of achieving a long-term fishing mortality of 0.45 for the three main stocks [23]. Ultimately, the coastal fleet was allocated 22,000 fishing days, 9,000 fishing days more than recommended. The allocation exceeded the recommendation by 69%. Although fishing days were continually reduced for the next 22 years, allocations continued to exceed the advice, and utilisation remained less than 100% [30,31]. Stocks naturally became depleted, but not even in 2008–2010, when ICES recommended zero cod catch, were fishing days sufficiently reduced to force full utilisation, meaning that effort remained essentially unrestricted [5,6] (Table 5). It later became clear that the fishing mortality goal of 0.45 was too high and the recommended long-term goal was amended to 0.32, 0.25, and 0.28 for cod, haddock, and saithe, respectively [33]. The EQ system itself also does not align with scientific advice because ICES recommends a maximum catch, which is not particularly useful in a system without TAC and whose main control mechanism is fishing days, especially when the relationship between fishing days and fishing mortality is not entirely obvious. ICES states it is not in a position to advise on a level of fishing effort that corresponds to target fishing mortality and catch [5,6,34], which clearly indicates that the relationship is unclear. The Faroese MRI, however, must advise on a number of fishing days according to provisions in the Commercial Fisheries Act, and for this purpose, has to assume a linear relationship between fishing days and fishing mortality.2 This assumption is certainly open to debate as this linear relationship will vary depending on fish stock abundance as well as vessel groups and gear. The literature and data from the period 1994–2018 show that the authorities were apparently unwilling to follow scientific advice. This attitude was implicit in the Commercial Fisheries Act, which gave the same weight to stakeholder advice as scientific advice, and in the EQ system, which was designed to not rely on annual stock assessments. The unwillingness to follow scientific advice was also explicitly stated on several occasions. The Fishing Days Committee stated that it did not believe that the demersal stocks in Faroese waters were negatively affected by the EQ system, even after serious stock declines, because fishing days had been reduced [35]. The committee did not account for low utilisation of fishing days in their argument. The Parliamentary Committee on Industry, which reports on fisheries policy amendments, made the same point on reductions in fishing days and uncritically equated this with a reduction in fishing pressure, also ignoring utilisation. The Parliamentary Committee on Industry also disputed a

2

4T. Coastal trawlers

3.4.3. Determining capacity and controlling effort Due to technological creep, vessels continually increase their harvesting capacity; thus, in a system based on controlling effort, the capacity of the fleet must be continuously monitored and adjusted to be biologically successful [39,40]. There was no clear definition of harvesting capacity in the EQ system; therefore, monitoring was not possible, which also caused problems in regards to transfer of fishing days (see Section 3.4.1) and new vessel entries (Section 3.4.4).

Petur Steingrund, head of stock assessments at the Faroese MRI, pers. com., 2018.

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capacity limits. In 1994, management of all fleet segments was joined under the same act with the Commercial Fisheries Act (28/1994). Most stipulations in the Commercial Fisheries Act only applied to the demersal home fleet, which meant that the government could — to a large extent — regulate these fisheries ad hoc, as they were before 1994. The rules on entry were the same for all vessels until 1994, that is, the number of harvesting licences could not exceed that of 1993 and vessels that entered the fleet had to have the same capacity as the vessel exiting the fleet. This entry system was relaxed in regards to the pelagic and distantwater fleets in 1997; thus, exceptions could be made to the ‘one-in, oneout’ policy, effectively giving the government discretionary powers in the matter. The pelagic and distant-water fleets also had wider consolidation provisions. For the home fleet, no single owner could hold more than 20–30% of fishing days. The limit for factory trawlers was 35% of the total quota in cod equivalents. The limit for the pelagic fleet was 25-35% of harvesting licences, depending on the vessel type. These allowances permitted the distant-water and pelagic fleets to rationalise, become more efficient, reduce costs, increase revenue, and scale up their operations to a much greater extent than the home fleet. In practice, the management approach to these two fleets was very different than to that of the demersal home fleet. The main difference was that these two segments did not suffer from the same overcapacity problems as the home fleet in the 1980s and 1990s. About 50% of the vessels that had operated in the distant-water and pelagic fleets prior to 1977 exited the fleet after they lost access to foreign fishing grounds [13], and data suggests the fleet never expanded again [52]. Therefore, the authorities never had to make difficult decisions regarding rationalisation of the fleet. Instead, authorities have primarily allowed new vessels to enter when increased access to resources justified doing so; for example, when herring and mackerel began increasing in Faroese waters in 2008, more pelagic vessels began entering the fleet [52]. These two segments have largely operated under a combination of ITQ and common pool quotas [53]. This arrangement has ensured relatively sustainable utilisation of the resource (Section 4) and given vessels the freedom to organise operations as efficiently as possible because there was no need to control the effort from the authorities’ side by reducing efficiency. The outcome is that these two fleet segments are highly profitable [43], so much so that the Faroese government began auctioning harvesting rights to mackerel in 2011, and later other pelagic quotas and quotas in the Barents Sea, where the distant-water fleet operates [53]. These auctions were — to some extent — a response to criticism of political quota allocations and accusations of nepotism due to a lack of transparency in the allocation process but also a source of revenue and an experiment to determine if auctions were a satisfactory method of allocation [53].

In 1996, harvesting capacity was defined as a vessel's average daily fishing mortality [23]. This definition was changed in 2006, when a stipulation stated that harvesting capacity could be defined as average daily fishing mortality but that the dimensions of the vessel should also be considered, and in the case of trawlers, the dimensions and the engine size. This definition had already proven difficult to follow in practice when it was added in 2006. In 2003, four pairs of trawlers (eight trawlers) were replaced with three pairs (six trawlers) using tonnage and engine power to determine capacity; however, it was unclear which mathematical formula to apply in the conversion calculation and the new vessels had an annual catch twice that of the old vessels [41]. The effort of the longliners was also found to have increased due to technological creep [42]. These examples demonstrate the difficulty of controlling effort in an input control system and that the Faroese authorities allowed capacity and effort to increase. A report from 2008 found that no assessment of fleet capacity had taken place, and that data collection was lax [28]. This is consistent with the lack of official data on average daily fishing mortality, vessel dimensions, and engine sizes on Statistics Faroe Islands. 3.4.4. Entry to fishery Vessels that were active in 1995, the year prior to implementation of the EQ system, were allocated harvesting licences. In the ITQ system, harvesting licences were valid for one year, but in the EQ system there was no limit to their temporal validity. New operators could predominantly enter the fishery by purchasing a vessel with a harvesting licence or purchasing the harvesting licensing from a vessel that was being permanently decommissioned, upon the condition that the new vessel had a similar harvesting capacity. This system of entry created a market for harvesting licences in which (often old) vessels were sold for much more than the value of the vessel because the harvesting licence, which had no effective expiry date, was valuable [43,44]. A few such sales occurred in the early 2000s, and the perception was that the sellers had become wealthy on licences they had been given for free to a resource that belonged to the Faroese people [45,46]. Parliament responded in 2007 by annulling harvesting licensing, effective from 1 January 2018, after which point all licence holders would lose their harvesting rights. Thus, the reform of 2017 was not prompted by a perceived failure of the system but rather a discontent with the perceived societal inequality it created, a critique often associated with ITQ systems [47]. 3.5. Pelagic and distant-water fleets Faroese vessels have a long history of fishing on foreign fishing grounds [13]. Until the 1970s, the main fishing grounds for Faroese vessels were around Iceland, Greenland, Newfoundland, Norway, the Barents Sea, and the North Sea [13]. Many of these fishing grounds became off limits in 1977 with the introduction of EEZs [48], and many vessels were forced to return to Faroese waters (Section 3.1). Faroese vessels have since regained access to many of these fishing grounds through international negotiations, and the distant-water and pelagic fleets have continued to operate in these areas [29]. These fisheries have been managed through bilateral and multilateral agreements as well as regional fisheries management organisations, such as the NEAFC and Northwest Atlantic Fisheries Organisation [49]. In most cases, management was based on TAC, which were distributed among the countries taking part in the fishery according to allocation keys or negotiations. Some countries have on occasion set unilateral quotas for the pelagic stocks in the North-East Atlantic, including the Faroe Islands [50,51]. These fisheries were first managed according to the Act on Regulating Faroese Fishing Outside the EEZ from 1978 (143/1978), which simply said that the government could implement regulations on any fishery negotiated with other countries, such as minimum size, spatial and temporal closures, gear types and restrictions, TAC, and

4. State of the stocks The Faroese demersal catch has declined substantially between 2004 and 2018, and the scientific advice on catch for these stocks has generally been exceeded in the last two decades; this is especially applicable for cod. Annual cod fishing mortality has been as high as 0.81, but usually ranged from 0.5 to 0.7, and only occasionally less than 0.4 since 1996 [5]. Not even when ICES advised no cod catch at all was the advice followed (Fig. 3). The cod stock is severely overfished and in danger of not replenishing [5]. The initial long-term average fishing mortality of 0.45 that the EQ system aimed for proved far too high, and ICES now recommends a cod fishing mortality of 0.22, well below the current fishing mortality of 0.44 [5]. The cod catch has been at a historical low since 2004, on occasion even lower than during the collapse in the 1990s [5]. The haddock catch has also declined substantially, with annual catches of approximately 3,000 t in recent years. The haddock stock is also severely overfished and in danger of not being 210

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Fig. 3. Demersal stocks: ICES advice and catch, 1987–2016 (Unit: Tonnes) [5,6,34].

last few years and the stock is overfished, but fishing mortality is according to ICES advice and ICES notes that it might be relevant to consider other harvesting strategies, indicating that the problem is unrelated to management [55].

able to replenish, and fishing mortality remains too high. ICES recommends a maximum fishing mortality of 0.165, but the fishing mortality is 0.28 [6]. The saithe stock has fared somewhat better than the other two. The saithe stock is not overfished but catch is only half of what it has been and fishing mortality is too high [34]. The pelagic stocks, which have been under TAC control, have fared much better. Catch has generally followed scientific advice, and the outcome is much larger and stable stocks, which translates into stable catches (Fig. 4). The mackerel catch is the largest on record, and although fishing mortality is too high, the stock is not overfished [50]. The blue whiting catch is among the largest it has been, and although fishing mortality is too high, the stock is not overfished [54]. Herring is not doing as well as the others. Catch has declined considerably in the

5. Discussion and conclusions Management of the Faroese demersal stock, excluding the brief period of ITQs, has been based on the hypothesis that effort can be directed away from overharvested stocks to more abundant stocks. This hypothesis is implicit in the use of area closures and technical regulations, and explicitly mentioned in connection with the Raw Fish Fund and in the design of the EQ system, where it was believed that vessels

Fig. 4. Pelagic stocks: ICES advice and catch, 1987–2016 (Unit: Tonnes) [50,54,55]. 211

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short-sightedness in the management of their fishery since 1948. The fishery followed the traditional pattern of development from the 1950s, where many new vessels entered the Faroese fleet, harvesting capacity increased, and new fishing grounds were explored [60]. At the same time as Faroese vessels were exploring foreign fishing grounds, the Faroese authorities were trying to expel foreign vessels from their fishing grounds. That they did not predict that Faroese vessels might lose access to foreign fishing grounds when most countries expanded their EEZ to 200 nm in 1977 was somewhat short-sighted, at least in hindsight. It had already become apparent in 1975 that the cod and haddock stocks were overfished and suddenly a large and modern fleet was targeting these stocks, presenting a large overcapacity. In another display of short-sightedness, the Faroese authorities continued to subsidise vessel purchases and renewals, further increasing capacity and pressure on stocks. In the 1980s, when overcapacity and small catches led to poor profits and losses, the authorities solved the problem by subsidising vessel operations. Subsidies of this type are common [61] and are often provided to alleviate the economic and social consequences of an overharvested fishery; however, they unfortunately can also have the effect of keeping unprofitable vessels in operation, thereby maintaining pressure on stocks [62]. At the same time as the government was funding operations, they were subsidising further fleet renewals and lending capital to industry. Many countries subsidised their fishing industry in the same manner as the Faroe Islands [63]—but continuing to subsidise a fleet expansion while simultaneously financing operations is unmitigated short-sightedness. Other fishing nations have had problems of overfishing and overcapacity but have overcome their problems differently than the Faroe Islands. Like the Faroe Islands, Iceland focused on gaining control of their waters up until the 1970s, but then their attention shifted to aspects of sustainability and profitability [64]. Iceland responded to crises by introducing measures similar to those used in the Faroe Islands. The herring crisis of the 1960s prompted a regulation on minimum landing sizes. A cap on vessels was introduced in the capelin fishery in the 1980s. The cod crisis of the mid 1970s led to ‘codless’ days and a ban on capacity increases. The Icelanders realised the importance of a TAC but kept overshooting; thus, in 1984, a partial ITQ system was introduced and by 1990 the majority of Icelandic stocks were under ITQ management [64]. Their fleet has since rationalised [65,66], and considerable consolidation of quotas has taken place [67], naturally resulting in a decline in employment; however, catch and export value have increased [66]. Unlike the Faroese, the Icelanders made difficult decisions and—as far as stocks and profitability is concerned—it paid off, although the ITQ system is not without its critics [47,68–70]. The decisions made by the Faroese political system in the 1990s, however irresponsible in today's light, might have made sense at the time. A properly implemented ITQ system would have caused fleet rationalisations and reduced employment in the fishing industry, which was already high, especially in fishing communities. Preserving as many jobs as possible made political sense. The economy recovered within a few years but Faroese authorities continued to use an employment-maximising strategy in their demersal fisheries policy [71], even when unemployment was at a record-low and there was no longer any societal justification for this approach. Arguably, there is justification for managing the resource sustainably and rationally to increase the resource rent for the greater good of society. Instead, Faroese authorities have actively prevented rationalisation from occurring by maintaining vessel groups and removing incentives to rationalise. Notably, reliance on the fishing industry, that is, fishing and processing, for employment has never been lower. These sectors only employ about half the people they did in the early 1990s [21], demonstrating that societal reliance on the fishing industry for employment is no longer an argument in favour of an employment-maximising strategy. Therefore, there is no better time to restructure the fleet. There is much to be gained from improving management. On a

would naturally target the most abundant stocks because it is more costeffective [23,28]. This is naturally true. A large stock returns a high catch per unit of effort (CPUE); however, as stocks decline, so does CPUE, that is, fishermen must increase effort to catch the same amount of fish, increasing cost in the process [56,57]. Therefore, it is reasonable to assume that fishermen will automatically target the most abundant stocks. However, the hypothesis ignores the effect of price on fisherman behaviour: “If a fishery resource is commercially valuable and is open to unrestricted exploitation”—a point we will return to—“the resource will certainly be subject to excessive depletion from society's point of view” [40]; indeed, that is what happened in the Faroe Islands. The demersal stocks are overexploited and profitability in the fleet is poor. These are undesirable outcomes for the Faroese society, which relies so heavily on the fishing industry, and the effective moratorium on cod and haddock since 2004 and 2009 respectively proves that the management hypothesis was false. These findings are consistent with case studies which have found that one of key attributes of successful fisheries management is strong fishing pressure limits [58]. Returning to the point of unrestricted exploitation, clearly, the Faroese fishery has been unrestricted: the average utilisation of fishing days ranged between 53% and 90% for the various vessel groups from 1996 to 2015. If utilisation is anything less than 100% and vessels can trade fishing days within vessel groups, it is theoretically possible that every fishing vessel has been able to acquire sufficient fishing days to operate entirely unrestricted, especially in the final three months of the fishing year, when trade is allowed between vessel groups. A consolidation of fishing days may mean that some individual vessels are restricted in their fishery but when utilisation is so low most can presumably alleviate this problem by acquiring more fishing days. Comparing the size and profits of the demersal home fleet to the pelagic and distant-water fleet, it is intuitively clear that the demersal home fleet is far too large. Using data from 2010, the Faroese Economic Council stated that the optimal fleet size would be only one-third of the vessels in the fleet [43]. Thus, the fundamental problem of overcapacity, which goes back to the 1970s and 1980s, has never been addressed, and the authorities have actively prevented the fleet from rationalising by setting barriers in the form of vessel groups and removed incentives by allocating far too many fishing days. With this, the Faroese authorities have committed a common mistake: “If the authorities [should introduce restrictions] but do nothing to restrict the number of fishermen and vessels competing for the limited harvests, then excess capacity is almost certain to emerge in the fishery” [40]. The outcome of this phenomenon, Munro and Scott say, is rent dissipation through ‘crowding’ [40]. Successful management with the use of input controls, such as fishing days, area closures, and technical regulations, was always unlikely because vessels will always find ways to increase effort by adjusting unregulated variables [59]. In the case of the Faroe Islands, regulations on capacity were unclear, which made enforcement difficult and further exasperated the problem of controlling effort. If there is little to no control over effort, the only method of preventing overfishing is to close the fishery when landings reach a TAC, which inevitably leads to shorter and shorter fishing seasons as fleet capacity increases, as demonstrated by the Canadian-American Pacific halibut fishery [40]. But without TAC and without season limits, as the case has been in the Faroes, the fishery is essentially open access. The lack of TAC also makes the EQ system incompatible with scientific advice because an ever-increasing fleet capacity and varying CPUE depending on stock sizes means that the relationship between fishing days and fishing mortality is unclear. This situation is presumably why ICES is unable to advise on a fishing effort that corresponds with the advised catch. If the EQ system was combined with a TAC, after which the fishery was closed, the odds of sustainable utilisation would be much higher, although the issue of profitability would be a different matter. The Faroese authorities have shown many but varying degrees of 212

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global scale, the annual lost economic benefits from overfishing are an estimated US$50 billion. Improved governance could help capture some of those billions [72]. However, the Faroese authorities do not seem to have learnt any lessons from the failures of the EQ system. A fishery reform was passed in the Faroese Parliament in December 2017, but the EQ system will remain in place for the coastal fleet, whereas longliners, trawlers and pairtrawlers will be under ITQ management and subject to TAC control. It is unclear how authorities plan for the cod and haddock stocks to recover, given that the coastal fleet is responsible for a large proportion of cod and haddock landings [29]. Further research, and time, will determine how the new system will fare, both biologically and economically.

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