One has to be very alarmed that the Chairman of the Defra Select Committee – Conservative MP Ann McIntosh – is arguing that fishing quotas should not be traded as an economic commodity. It should be noted that her comments do not relate to recent EU proposals to consider tradable quotas within the Common Fisheries Policy but to inshore fishermen. However, the language is astounding.

We trade land and wheat so why not fish? If fish are not an economic commodity what are they? I guess some people who keep fish for pets (and I have six minnows myself) might regard their pets as something more than an economic commodity but, the cod and the haddock in the sea are economic commodities, a source of protein and – if properly cooked – enjoyment.

It is worth using Ann McIntosh’s comments as a ‘hook’ to explain exactly why tradable quotas are so important. If we treated land like we treat the sea, then there would be a free-for-all as we exhausted the productive capacity of the land. Any self restraint that we show would benefit all those who used the land and, as such, we would invest nothing in conserving the land’s productive capacity. The private ownership of land – in other words the right to exclude others – ensures that the owner has an interest in maximising the long-term productivity of the land. The value of the land at any time (even in the short term) will reflect its long-term productivity.

Because fish were, until recently, regarded as an inexhaustible resource, private ownership was perhaps not regarded as important. There was no need to exclude anyone from the sea. This is clearly no longer the case.

It seems that the most successful systems of fish conservation involve giving those who fish in a given area a share of a quota that is set by those who own the shares. That share is set in perpetuity (or for a very long time) and can be sold to others. For example, if there are 26 firms fishing (A to Z) then A to Z set the total catch each year using a mechanism that they develop between them, and A might have 5 per cent of whatever total catch is set. A will always be able to have 5 per cent, every year, whatever the total catch is. This essentially gives those who fish monopoly ownership of the fishing grounds (they are explicitly allowed to collude to reduce output) and excludes everybody else. Firms A to Z have an incentive to set the total catch each year at the level which is expected to yield the largest long-term value – in other words, they will want to leave plenty of fish in the sea to ensure reproduction. The value of anybody’s quota share at any time is proportionate to the present value of the total catch in all future years.

Allowing the trading of the quotas – as if they were commodities – is essential to the working of the whole system as it ensures that short-term price signals are received by the owners of the quotas as they make their long-term decisions. It is interesting to compare what happens when food prices are expected rise under this system with alternative systems. If food prices rise by 10% this year and are expected to rise by another 10% in each of the next ten years, A to Z would have an incentive not to increase the total catch. Depending on the breeding habits of the fish, they may want to decrease the catch – their decision would also depend to some extent on the relationship between interest rates and the expected rise in food prices. In other words, we are expecting more food scarcity in the future and fishermen respond by leaving more fish in the sea. Without tradable quotas, fishermen will just go out when there is high demand for food and fish as much as possible. After all, there is no point leaving the fish in the sea as somebody else will catch them.

Treating fish (and quotas) as commodities is the only way we can ensure fish and chips for the next generation.