Icelandic fisheries: Profitability, resource rent, rent taxation and development

Abstract

In 1990, Iceland introduced a uniform individual transferable quota system (ITQ) to manage almost all of the nation’s fisheries. The development of Iceland’s fisheries under this management system were examined in the five articles this thesis consists of. The emphasis was on profitability, resource rent and rent taxation. The fishing industry has been going through a sea change in the past three decades. It has adapted well to lower catches. The number of vessels and factories, as well as employment, has reduced. The industry is now focusing more on producing for a higher paying consumer market. Quotas have been consolidated and capitalised in the balance sheet of the industry, hence, increasing its debt level. All these developments have been caused or aided by the ITQ system, leading to increased profitability in Icelandic fisheries, both in fishing and especially in the processing component. Since 2008, the Icelandic fishing industry has been producing significant resource rent. It took the industry almost two decades to start producing rent consistently. Reduced catches caused this delay. When catches started to increase, at the same time as the Icelandic krona fell in value, resource rent was introduced and has been significant for the past decade. The fishing fee was introduced in 2004. Its main purpose is to tax the resource rent the fishing industry is producing. The fee was low in the beginning, but it was increased considerably in 2012 and subsequently became a significant expense for the industry. Setting the fee was a difficult process where problems that cropped up were solved gradually. Three stakeholders have received the resource rent created in Iceland’s fisheries. The government’s share was around 20%. It received its portion through the fishing fee and revenues from higher corporate taxes caused by rent creation. Those who have sold their fishing rights have received around 40% of the rent. A similar portion, around 40% of the rent, has been acquired by the companies that operate in the industry. Iceland’s coastal fisheries started in 2009. These fisheries managed very differently, being classic open access fisheries with a derby style management, where the fishers race to fish. The findings of this research are that, as anticipated, the coastal fisheries are not profitable. However, contrary to expectations, the rate of accidents involving injuries was lower in coastal fisheries than in other ITQ-managed Icelandic fisheries. As expected, however, the rate of minor incidents, mostly mechanical failures, was much higher in coastal fisheries than other Icelandic fisheries.