SEAFOODNEWS.COM by John Sackton — Dec 17, 2013 — Behind this unsexy headline is an important fact. Researchers contracted by the New England Fisheries Management Council have found no evidence of any excessive market power based on ownership of quota shares in the New England multispecies groundfish fishery.
The council contracted an economic analysis of the Northeast multispecies (groundfish) fishery with the economic consulting firm Compass Lexecon. The purpose is to provide the NEFMC with an analysis that would help determine whether there are excessive shares of fishery access privileges in the multispecies fishery, and if so, what form those excessive shares take.
The draft report was published this week for comment, and will be presented to the Council in January.
In their executive summary, the report says In particular, imbalances between ACE holdings and availability of species sometimes create a situation in which a species has a low catch limit and may not be itself commercially viable for harvest, but cannot be avoided by fishermen harvesting other species (what some in the fishery call “choke stocks”). A large holder of ACE for a choke stock could potentially engage in the exercise of market power in either the output market for fish or in the markets for ACE trading. This would be inconsistent with the principles of fairness embodied in National Standard 4, and could affect investment in new vessels and gear that would ultimately be to the detriment of the long-term efficiency of the fishery.
Compass Lexecon says the standard for determining market power and concentration is something called the Herfindahl-Hirshman Index – HHI. Markets with scores below 1500 are considered unconcentrated; between 1500 and 2500 are moderately concentrated, and over 2500 are high concentrated. This is also the methodology used by the US. Federal Trade Commission in evaluating mergers.
The first issue they address is whether the flow of other seafood into the New England market means that the local fishery cannot be concentrated. They reject this argument, finding that there are times – especially in respect to the fresh local market – that local species do have a specific market that is not subject to as much substitution at particular times.
Among the nine species with Annual Catch Entitlement landing data, they find landings have been unconcentrated. Cod for example, has a score of 188 to 280 – suggesting a highly competitive market. Only winter flounder had a moderate concentration with a score of over 1600 for two years.
The group then looked at trading in quota shares (ACE). They found that trading was unconcentrated for all species, never exceeding 700. “We observe no time trend in concentration.”
Their conclusion is that there is no evidence of market power being exercised by quota holders. in respect to landings.
However they do say that “ It is reasonable, however, for the NEFMC to attempt to maintain unconcentrated ACE distribution by species and by “stock,” which means aiming to keep the HHI below approximately 1,500 for each stock. As discussed below, this target can be achieved without interfering with economies of scale.
They then go on to recommend a cap of 15.5% for PSC – which is a measurement of the percent of harvest rights an individual permit holder has for a particular stock.
Looking beyond the fourth goal of Amendment 18, we do not find any evidence that an excessive-share cap is an effective means to achieve progress on any of the other goals, without sacrificing the efficiency benefits that motivated the adoption of PSC allocation and ACE trading rules. Instead, we note that the PSC allocation and ACE trading can co-exist with other regulations, and that NEFMC should address the other goals of Amendment 18 through these other regulations.
The report will be discussed at the January New England Fisheries Council meeting.
This story originally appeared on Seafood.com, a subscription site. It is reprinted with permission.