Iceland has a long history as a fishing nation and catches 1% of the total marine capture production globally [79
]. Fishing was based on rules of open access, and in the 1970s, Icelanders invested heavily in the sector [81
]. However, the unlimited resource utilization meant conditions of important stocks, such as cod, worsened, and the Marine and Freshwater Research Institute (MFRI) published a so-called ‘black report’ in 1975 warning of the state of the cod stock, even predicting its collapse [81
], sparking actions to limit catches. It became apparent in the early 1980s that those actions had not contributed to sustainable levels of the fish stocks [81
] and that the system was economically wasteful [83
]. As described by an interviewee with experience as a fisherman, the Icelandic fisheries were not sustainable at the time. “In the system as it was, it was tremendously difficult to catch fish. You needed to sail a long way. The cost of oil, for example, for fishing, was a huge part of the total cost. Because you needed to search for the fish”. The aim of the fishing trip was also to catch as much fish as possible. Consensus was building around the premise that access to the resource needed to be restricted to prevent collapse of fishing stocks and a system based on a distribution of individual quotas was initiated for some species in 1984 [81
]. Quotas were allocated to vessels based on the three previous years’ catch history in that fishery [83
], known as grandfathering.
3.3.1. The Icelandic ITQ System
By the late 1980s, the debate on the fisheries management system was under growing influence of fisheries economics, with the discourse moving away from ecological protection toward that of economic efficiency [84
]. Then, in 1990, a comprehensive law was passed in Iceland that introduced an Individual Transferable Quota (ITQ) system [81
]. The main features of the ITQ system are that a percentage of the fish available for harvesting is divided into quota shares, held by private actors, and those shares are tradable. The goals of this system are to limit efforts to catch fish and fishery overcapitalization [85
]. It is based on the notion that turning the catch quota into a market commodity and establishing private property rights for fish that have not been caught yet will ensure that fish stock harvesting levels harmonize with the long-term sustainability of the stock [86
]. The Icelandic transition to an ITQ system can therefore be described as a market-based approach to tackle the economic and ecological challenges facing the sector [87
The Ministry of Fisheries and Agriculture sets an annual total allowable catch (TAC) in tons for how much can be harvested of each marine species, based on stock assessment recommendations from the Marine and Freshwater Research Institute [83
]. Valid fishing licenses are needed for entry [81
], and the quota shares for each species translate into a share of the TAC, which is calculated by multiplying the share percentage with the TAC, giving the size of the annual catch entitlement for each vessel [83
]. Quotas can be separated from the vessel, and the vessel owner can transfer them to other vessel owners as an independent commodity [86
]. There is, however, an upper limit to how large of a quota share can be owned by a private actor [88
The benefits the system brought to Iceland were those of reduced average harvesting costs [81
] and increased economic efficiency [83
]. In general, the Icelandic ITQ system is viewed positively when evaluating the economic and biological successes of it [89
]. Nevertheless, stakeholders have been reluctant to accept the system, and the political discontent of it relates to the initial allocation of quota, based on grandfathering [81
]. The ones reaping the benefits of the current system are large quota owners, while fishermen and fishing communities did not do so to the same extent, and it has brought about substantial redistribution of wealth [86
]. Due to the transferable nature of the quota between vessels, it was no longer tied to a community. Indeed, the quota was often sold off from rural coastal communities, which meant outmigration due to a decline in job opportunities and a subsequent decline in local commercial activity [90
3.3.2. Consolidation of Companies in the Fisheries Sector
Open-access fishing can lead to a situation where too many boats go after too few fish, but since the goal of introducing ITQs in fisheries is to increase economic efficiency while ensuring sustainable stock levels, it is natural that the rules of the game lead to less but more efficient players through consolidation [91
]. The consolidation of quota holdings in the Icelandic fisheries sector has occurred, but according to Agnarsson et al. [88
], it has led to a decline both in the number of harvesting companies as well as vessels. Furthermore, from 2001 to 2014, the 25 largest companies in the sector increased their quota shares from 39% to 74% of the regular quotas [88
]. However, even as there is a decline in absolute numbers of companies and vessels, those that remain continue to grow and accumulate more quota and processing capacity, resulting in a vertical integration in the value chain of large companies in the sector [90
]. According to Palsson and Helgason, changes in the distribution of ITQs indicate growing inequalities between large and small-scale players in the fisheries sector [82
]. We explore what drives the consolidation in the Icelandic fisheries sector in Figure 6
Profit plays a central role and in reinforcing loop R1, an increase in profit means companies have more ability to buy up smaller companies in the sector. That translates into smaller companies being bought up in the sector, which are not limited to only those that have vessels out at sea. The companies could, for example, own land-based processing plants or be export-oriented fish product businesses. This translates into further consolidation of companies in the sector, as well as contributing to the vertical integration in the sector, as demonstrated by reinforcing Loop R2. Increased consolidation means that the size of companies in the fisheries sector becomes larger. That as well as further integration translates into an improvement in the ability of companies to maximize their economic efficiency, ultimately leading to increased profits. Access to capital was identified as an important variable, represented in Loop R3, which harmonizes with Palsson and Helgason [82
], but access to capital from the Icelandic banking system played a vital role for larger players to accumulate ITQ shares. As access to capital grows, companies have increased their ability to buy more quota, and as more quota is bought, the size of the companies’ share of ITQs grows. A bigger size of ITQ shares means companies have more access to capital since banks consider the companies to be more valuable. In reinforcing Loop R4, we demonstrate that as attaining quota shares goes up with more profit, companies have increased their chance of having quota for diverse species, translating into having a quota for fish species they catch to a larger degree, which increases the ability to maximize economic efficiency, coming back to increase profit.
In Figure 7
, we have introduced an additional structure to the CLD in Figure 6
, where we explore the dynamics driving the perceived risk of corruption in the system and the vulnerabilities of smaller actors.
Loop R7 on the left side demonstrates how an increase in profit translates into more investments in technological advancements, which lead to more technological development in the sector. This enhances the efficiency in catching fish, reducing the cost involved and increasing profit. Interviewees generally discussed the technological advancements in the sector positively as they had brought the Icelandic fishing industry to the forefront of technological advancement on a global level. We proceed to reinforcing Loop R5 on the bottom of Figure 7
and begin with the variable of efficiency in catching fish. As it goes up, the cost of fishing goes down, serving to increase the profit involved in the operation. It means companies can buy more quota and increase their share size in the ITQ, further enabling them to have a quota for diverse species. That ultimately serves to enhance the efficiency of catching fish, as one cannot control which species end up in the fishing net.
Reinforcing Loop R8 demonstrates that the transferability of quota shares is meant to decrease the risk of high-grading, discarding, and other forms of cheating by ensuring flexibility as the quota can be transferred between vessels, depending on how much of each species are caught in the fishing net. When a company has a large individual transferable quota, it has a quota for more diverse species, increasing the probability of having a quota for the fish species it catches, resulting in less probability of discarding by-catch, high-grading, and bypassing the catch to be weighed on the harbor. When dead fish smaller in size in the catch are thrown back into the sea to have only larger and more valuable ones that count toward the quota, that is labeled as high-grading. Reduction in high-grading and discarding of by-catch serves to improve conditions of the fish stocks. Improved stock conditions lead to more economic efficiency in catching fish, more profit, and ultimately an increase in the size of the company share of ITQ. Therefore, if one vessel catches fish it does not have a quota for, the company that owns the vessel can opt for transferring quota shares to that vessel if they have an unused quota on other vessels, benefitting from economies of scale. The other option would be for the vessel to lease some of the quota from other companies, if they have run out of the quota shares entitled to them for that species. The system as described here contains no balancing loops.
The aforementioned loops can act as virtuous reinforcing cycles for those companies that have, for one reason or another, a competitive edge and are able to maximize their economic efficiency. However, for those companies that have been disadvantaged by the current fisheries management system, they can act as vicious reinforcing cycles. If a player in the system does not have quota for diverse species, they will not have a quota for the fish species they catch to the same extent as players who do. Their ability to maximize economic efficiency decreases as a result, with less profit and decreased ability to buy quota, negatively impacting their ability to increase the size of their ITQ share and having a quota for the species they catch. Not having a quota for caught fish species could therefore increase the risk of cheating, such as high-grading and discarding of by-catch. As described by a current/former fisherman: “There is nothing comical about being out at sea and needing to discard the entire catch, you know. There are only two options in a situation like that. Either discard the catch or bypass it away from being weighed at the harbor. And that is exactly what is happening. And at a big scale”. The individual further described how the flexibility to transfer quota in the system was the main positive feature of it, but only if you had enough quota in a diverse set of species. Those positive features were mainly enjoyed by larger companies, but smaller players that perhaps only held quota in one species were left with one legal option: to lease quota for the catch. The leasing price could be higher than what was economically feasible for them, increasing the risk of opting for cheating to survive financially. The dilemma was already identified by Eythorsson in 1996, suggesting that when the lease price for cod rose steeply in 1994 and 1995, reports of cod discarding increased [86
]. The lease price increased by a factor of 2–3 from 1992 to 2008, but it can rise when demand exceeds the supply of quota [81
Lastly, reinforcing Loop R6 represents how considering their growing size, interviewees had widespread perceptions that companies in the fishing sector had an increasing ability to lobby for their interests and influence the regulatory framework. We label this as a perceived risk of regulatory capture, ultimately serving to increase their profits and allow them to grow larger. There was a common perception among interviewees that quota owners were powerful actors that not only had influence in their local communities but also on decision making in the sector. To provide a few examples, a current/former academic claimed that the solidarity between large quota owners and their power to resist changes to the system should not be underestimated, and that they “own a big part of the political parties. They pay high amounts of money to political party funds. Apparently, they have their own MPs. To look after their interests in the parliament and elsewhere. There is a great deal of corruption there as well”. Additionally, as described by a current/former public official: “And then we have the association of quota owners. Throughout the years they have gotten away with controlling of legislation and regulations and, there has been no change thereof”. A current/former member of parliament stated that for a long time, people did not consider corruption to exist in Iceland, but that, in recent years, it has increasingly been accepted that it does.