An economic analysis of restructuring the South African hake quota market.

Abstract

Hake is the most valuable fisheries species in South Africa, with an estimated landed value of R658 million in 1997. Fundamental restructuring of the South African hake fishery is however recommended by the White Paper on Marine Fisheries Policy (1997). This study aims at providing economic solutions to some of these problems of restructuring. Management methods such as imposing upper limits on catches, access restriction (licenses), input restrictions and taxes have been shown to be unsuccessful at maximising economic rent generated by fisheries' resources. Hence the move by leading international fishing nations towards individual transferable quota (ITQ) management. According to the White Paper, South Africa intends pursuing very similar management techniques, to those employed by these leading countries, and it is therefore crucial that policy makers combine international experience with local knowledge and conditions, to draft the best possible fisheries' policy for the country. Factor analysis of data collected from a postal survey of existing South African hake quota holders and rejected hake quota applicants, suggests that distinct differences in attitudes towards restructuring exist amongst respondents. Four factors, representing groups of respondents defined as, (1) applicants, (2) quota holders, (3) small scale respondents (comprising of both applicants and quota holders), and (4) larger, longer established quota holders, sharing similar attitudes towards restructuring, were extracted. Applicants seem concerned with having to compete with established business for quota, opposing any form of payment for quota. Applicants also opted for a rapid change from the status quo, to a free and open system of allocation, where quota is also allocated as a fixed tonnage, as opposed to a proportion of total allowable catch (TAC). Current quota holders on the other hand, seem more concerned with issues of self-utilisation and the effect paying for quota might have on present business operations. Another group of respondents defined as smaller scale respondents (comprising of both quota holders and applicants) demonstrated concern about the present imbalance in the industry, where a few large companies receive the majority of quota. These respondents wish to see a rapid redistribution of quota, and a move towards a freer and open quota market. Analysis also revealed a group defined as larger, longer established quota holders who's primary concern seemed to be possible sudden reductions in quota allocation, and proposed methods of payment for quota. These companies have been receiving large allocations of quota in the past, and are therefore concerned with the impact restructuring might have on employment and international market share and competitiveness. Discriminant analysis revealed that the most important variable discriminating between current quota holders and rejected applicants was grandfathering (issuing quota according to past allocation). The second most influential variable involved new entrants paying a predetermined price for quota, demonstrating applicants' opposition to paying for a resource which current quota holders have been receiving free of charge in the past. Allowing new entrants the right to on-lease quota to established operators, and the issuing of 'paper' quota, were ranked third and fourth respectively. This highlights the opposing views of current quota holders and applicants on the issue of new entrants receiving token allocations of quota, when they are often not in a position to utilise it, and making a windfall gain by on-leasing to established quota holders. A substantial annual rent of approximately R279 million is generated by the South African hake industry, which is presently harvested free of charge by those issued with quota. These rents appear high relative to the landed value of hake of approximately R658 million. This may be evidence of the capital intensive nature of the hake industry, with large quota allocations needed to sustain an economically viable operation. Extraction of these rents through auctioning should be considered, while a portion of the TAC could be set aside for allocation to poorer communities.