PROFITABILITY IN A RESOURCE-BASED INDUSTRY: EVIDENCE FROM ICELANDIC FISHERIES, 1990–2022

This study examines the long-term profitability of Iceland’s fisheries sector, which has always played a vital role in the country’s economy. Since the 1980s, the industry has been managed under an Individual Transferable Quota (ITQ) system. This rights-based approach limits access to fish stocks by allocating tradable quotas to individual operators. The system was introduced primarily to reduce fleet overcapacity and stop mounting financial losses. While it has clearly transformed the industry, the long-term factors behind profitability under the ITQ regime have not been systematically analyzed at the sector level over an extended period. The purpose of this study is to identify and quantify the main drivers of profitability in Icelandic fisheries from 1990 to 2022. The analysis focuses on how economic conditions, operational efficiency, and institutional change have shaped profitability over time. Profitability is measured as earnings before interest and taxes (EBIT) from both harvesting and processing, plus the fishing fee, expressed as a share of total export revenues. To explore this, the study applies a simple regression-based methodology using annual data over 33 years. Four explanatory variables are included: the real exchange rate of the Icelandic króna, catch efficiency (measured as catch per unit of oil consumed), a real export price index in U.S. dollars, and a linear time trend capturing structural and institutional developments. The model explains 88 percent of the variation in profitability, indicating strong explanatory power. The results show that the real exchange rate has the most significant short-term effect. A stronger króna reduces profits, reflecting the export-oriented nature of the sector. As expected, higher export prices and improved fuel efficiency contribute positively to profitability. However, the most important long-term factor is the positive time trend, which reflects gradual gains from quota consolidation, better management practices, and technological progress—developments reinforced by the ITQ system itself. In conclusion, the findings suggest that the ITQ framework has supported sustained profitability by enabling long-term adaptation and structural reform. Although short-term outcomes remain sensitive to external shocks, the sector has become more resilient and financially stable. These insights may prove useful for other countries seeking to design effective governance systems for natural resource industries.