----- The Voice of Ireland's Fishing Industry and Maritime Community - Published Monthly, Established 1989 -----

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January 2018 Issue - Vol 30 No.08

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Francis O'Donnell
Chief Executive, Irish Fishermens Producers Organisation

Incapacity to Buy Capacity

The Chief Executive of the Irish Fish Producers’ Organisation discusses current difficulties in the purchase of fishing capacity.

Dec 2017 Issue Vol 30 No. 07

I Joined the IFPO just over six years ago. At that time members were making changes to vessels, upgrading and in many cases signing contracts for new vessels. The whitefish fleet has seen a few profitable years of late due to low fuel prices and reasonable fish quotas. As little as three years ago buying capacity (Kilowatts and tonnage) was possible if one had the financial resources available to them. The unfortunate fact is that regardless of how deep one’s pockets are now, polyvalent general capacity is as scarce as cod in the Sahara.

We all hear of the market, how it drives our economy, its reaction to political stability or instability. The weakening of sterling against the Euro is very evident at present, a double-edged sword. For Irish companies importing form the UK this is good, but for those exporting produce not good at all. In very simplistic terms the market is a faceless entity, as such made up of venture capitalists, ‘vulture funds’ and investors at all levels playing the odds in the Stock Market. The market now says that Irish fishing capacity is a very worthwhile commodity, or is this a false signal artificially driven by the banks themselves or agents working on their behalf?

Fishing capacity is a commodity, a very worthwhile one at that. Fishing opportunities are not infinite and all Member States are controlled to some degree or other by fleet capacity ceilings in the various segments. This restricts new entrants and gives some insulation to those that have skin in the game. If the flood gates opened tomorrow and everyone could buy capacity, eventually fishing opportunities would be so meagre as to render them useless. To some degree this sounds ok.

In my opinion a fundamental change in the demand for fishing capacity could have a very significant negative impact on our industry.

The value of capacity relates to its track record, the question is always asked: “Does it have pelagic entitlement, has it Via and VIIa track record?” I have trawled through old log sheets for members as late as this year to discover that they suddenly met the criteria to obtain track record in Via for example. This allows the vessel extra scope and fishing opportunities. Simply, it elevates the value of the vessel’s capacity. I have also done an extensive search this week for 30 tonnes of Polyvalent general capacity and cannot get my hands on it. It is out there but no one is selling. This surprises me as the capacity review just completed allows for 10% flexibility, i.e., one can mix 10% polyvalent general capacity with tier one or two mackerel capacity not now subject to the 100% rule. People had bought up spare capacity with the view that other segments would be in a position to avail of it up to and as far as 30%. It was a calculated risk that didn’t pay off. However, the price of capacity still remains at prices never seen before and one asks why?

In the past capacity brokers charged a set fee for capacity transfers. That ranged from 200 to 500 Euro regardless of the capacity amount. Now the buyer has a new problem - the agent who is gazumping the price so that he or she can make a killing on the transaction. This is a particular problem when trying to buy capacity that may be in Receivership and being sold by the bank. The bank appoints an agent who trades each buyer off against the next, similar to an estate agent — “If you don’t give me a certain price today I know another that will give me a higher price”. And so the value skyrockets, the bank and the agent in particular, making a killing while the buyer has paid double its worth and the associated auction having inadvertently signalled to the market that the commodity is now worth three times what it was worth three years ago. Some of these deals are done in a closed market, with just a few being offered the capacity. This is, of course illegal, if someone’s capacity is in Receivership as the vessel owner or company is entitled by law to get the best price for it on the open market to pay off his or her creditors.

Banks need to remember two things, recoup outstanding loans and find a balance so that reinvestment is made back into the fishing industry. Not fixing a transaction fee and allowing agents a percentage of the final agreed price for selling capacity is short-term thinking and restricting reinvestment. The current model will cause the industry to contract and it is a problem that I presume I will be revisiting next year.