Topic: New Zealand Fishery
Policy: Individual Transferable Quota (New Zealand ITQ System)
Group Members: Deron Hong (75627117), Yan Chen (47529086)
Introduction
Policy’s political origin and its goals:
New Zealand first started implementing this policy in the early 1986. This was the year that Individual Transferable Quota was created. The initial goal of creating this policy in fish industry is to ensure the amounts of fish catches in New Zealand to be kept in a sustainable level for long term to avoid species distinction. And the Total Allowable Catch in New Zealand is identified at a level that satisfied the Maximum Sustainable Yield (MSY).
1)
-Sectors covered and exempted:
· In 1998, there are only 30 species covered in this policy scheme; until 2010, the types of species covered have already reached to 100 under this policy.
· Each species has its own amount of quota, and the amount of quota can only be traded within the same fish stock. The quotas could not be traded across stocks or years
· Also, the New Zealand government also sets up the area that are covered under this policy in Economic Exclusive Zone geographically, and these areas covered depend on the population of fish
· Only New Zealand citizens or New Zealand-owned companies are allowed to purchase and trade these permits. Foreigners are allowed to purchase but it is in a very restricted and limited condition
· Many small fishers are excluded from this policy from the time it started implementing
-How does the policy implement over time:
The total amount of quota is originally allocated to fishers every year according to their catch level, and this amount is fixed perpetuity. The Ministry of Fishery identifies the amounts of Total Allowable Catch based on the evaluation on the biology, environmental, social and economic factors in that year, so that the total amount of allowable catch will vary in different years. How could government give them fixed amount every year and still achieve different level of total allowable catch? The government puts itself in an open market situation, so that if it does not want fishers to catch as much as last year, it will purchase the permits back from fishers. This acts as a subsidy on helping firms in New Zealand to reduce the amount of fish catches. Also, fisherman can purchase permits which identify the year of holding. The more years the permit is valid, the more expensive the permits. It depends on the applicant’s decision and the application fee that he is paying. The more years indicated in the permit, the fisher spends less in the future. However, it faces price fluctuation of the permits that they are holding. This also works the same as carbon emission trading since if fishers catch within the quota stated in the permits, then they do not have to pay extra. If they want to catch more, they have to buy permits from other firms.
-Evaluation of the cost-effectiveness of the policy:
1. Small fishers always sell the permits to large quota holders, such as Maori (indigenous New Zealanders), a major fishing industry player in New Zealand. This will increase the price of the permits because Maori easily collects large amounts of permits and becomes an oligopoly in the fishing permit industry. Thus, Cost-effectiveness is hard to achieve since when permits are largely held by these oligopolies, the amounts of permits available in the market will decrease and market price will increase. This price will be higher than the cost-effectiveness level and deadweight loss will be created.
2. Since the permits can only be traded and held by New Zealanders or New Zealand-owned companies, they could not be traded with outside of the world. Thus, if the permits are over held by New Zealanders, supply of permits increases and price of permits will increase. Therefore, government will have to decrease its supply of permits. As we mentioned before, when government tries to decrease the amount of permits in the market, it will have to increase its funding to purchase the permits back. This could be a solution to achieve cost-effectiveness; however, the taxpayers might have to suffer from paying more tax.
2) Discuss distribution of permits in the mechanism.
Most of the permits are distributed to large New Zealand-owned companies because of the allocation of permits depending on their historical catch levels, so the companies with bigger catches every year will get bigger quotas. However, the fishing permits do not allocate to artisanal fishers (artisanal fishers is a term to define a group of fishers who are small-scale low technology fishers),fishing community and most of the small fishers from the beginning of this ITQ system, since they do not have a lobby group. In addition, Maori holds one-third of the permits in New Zealand fishing under this policy, which are collected from fishers who hold permits. By implementing this policy, the ITQ system could be more administratively manageable since the permits from small fishers are mostly collected by Maori, so that the government does not have to deal with a large number of small number of trades in the permit market. However, this method of distribution creates a perverse incentive. Since most of the permits are held by large New Zealand-owned companies and Maori, these companies and Maori act as oligopoly in New Zealand fishing industry, and the oligopolies will set a price for fishing permits that is higher than the competitive market. If artisanal and the small fishers who do not hold permits want to catch, they will have to buy from these oligopolies. Therefore, the small fishers will become poorer since this policy increases the cost of purchasing permits for them. It becomes harder for them to survive. Nevertheless, the oligopoly becomes more powerful since they earn more from selling permits at a higher than competitive market price.
3) Discuss any administrative challenges.
Although ITQ system in New Zealand does not have the challenge of large number of small number of trades in the permit market, there are other administrative challenges:
1. It is very difficult to calculate the accurate number of fish and to determine the level of Total Allowable Catch each year since the population of fish in a certain region could vary in different time due to the fish flows. They might overestimate the population of fish since one species of fish could flow quickly to another region within Economic Exclusive Zone. If the scientists do not count the amount of fish in different regions at the same time, the amount of fish for a certain species could be double counted. Also, as we mentioned before, different quotas are set to different species. It is very hard to calculate the amount of fish and its rate of reproduce.
2. Quota prices are very hard to set for every individual species. It is not only because the number of each species are hard to count, but also because the quota prices in interrelated species are affecting each other’s prices. It will be hard to set a price to reach its cost-effectiveness level and without deadweight loss, especially within the oligopoly environment in fishing industry in New Zealand.
Resources:
http://motu-www.motu.org.nz/wpapers/03_02.pdf
http://www.teara.govt.nz/en/fishing-industry/7
http://fs.fish.govt.nz/Page.aspx?pk=81&tk=248
http://en.wikipedia.org/wiki/Artisan_fishing