Sunk_fm.qxd 10/6/08 8:53 PM Page i 46193 The Sunken Billions The Economic Justification for Fisheries Reform October 2008 AGRICULTURE AND RURAL DEVELOPMENT Sustainable Development Network ADVANCE EDITION THE WORLD BANK FAO Washington, DC Rome Sunk_fm.qxd 10/6/08 8:53 PM Page ii © 2008 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: (202) 473-1000 Internet: www.worldbank.org/rural E-mail: ard@worldbank.org All rights reserved. The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Sunk_fm.qxd 10/6/08 8:53 PM Page iii Contents ACRONYMS AND ABBREVIATIONS vii ABSTRACT ix ACKNOWLEDGMENTS xi EXECUTIVE SUMMARY xiii 1 Global Trends In Fisheries 1 1.1 Introduction 1 1.2 The Deteriorating State of the Marine Fishery Resources 2 1.3 Profile and Trends in Global Fisheries Production 3 1.4 Trade and Fish Consumption 5 1.5 The Economic Performance of World Marine Capture Fisheries 7 1.6 Value of Production and 5lobal Fish Prices 7 1.7 Fishing Costs and Productivity 9 1.8 Fishing Effort and Fishing Fleets 13 1.9 Subsidies and Management Costs 17 2 Estimate of Net Economic Loss in the Global Marine Fishery 21 2.1 Background 21 2.2 Use of the Terms `Net Benefits' and `Economic Rents' 22 2.3 Description of the Aggregate Model 24 2.4 Model Parameters and Data 24 3 Results 31 3.1 Main Results 31 3.2 Evidence from Other Studies 32 3.3 Linkages to the Broader Economy 33 3.4 Sensitivity Analysis and Confidence Intervals 35 4 The Way Forward 37 4.1. Fisheries Reform Makes Economic Sence 37 4.2. Rebuilding Global Fish Capital 38 4.3. Summary: The Way Forward 41 iii Sunk_fm.qxd 10/6/08 8:53 PM Page iv iv Contents 5 Appendices 43 Appendix 1. The Concept of Economic Rent in Fisheries 44 Appendix 2. Model and Model Estimation 46 Appendix 3. Stochastic Specifications and Confidence Intervals 51 Appendix 4. Supplementary Data 56 NOTES 61 REFERENCES 63 List of Figures 1. Reported Global Marine Catch 1950­2006 (million tons) 3 2. Catch of Selected Species Groups in Marine Fisheries (million tons) 4 3. World marine and Inland Capture and Aquaculture Production 1950­2005 4 4. World Capture and Aquaculture Production 1950­2005 5 5. Total Recorded Marine Capture Production by Economic Group--1970­2005 (million tons) 5 6. World Population (billions) and Global Fish Supply (million tons)--1970­2003 6 7. Regional Trends in Annual Fish Supply Per Capita in kg (1961­2003) 7 8. Trends in the Nominal Export Value, Nominal and Real Export Unit Value of Fishery Products 8 9. Trends in U.S. Real Price Indexes for Fish and Seafood Products (1947­2006) 9 10. Real Trends in Crude Oil Price, Vessel Material Costs, and Fish Export Unit Value (Indices, 1998 = 100) 10 11. Trends in Fish, Food, and Fuel Prices 11 12. Global Population Growth (billion) and Trend of Total Number of Capture Fishers (thousand) 12 13. Total Number of Capture Fishers by Region (thousands 1,000) 12 14. Gross Revenue Per Marine and Inland Capture Fisher (Average 1998­2000 in US$) 13 15. Annual Catch (Marine and Inland) Per Capture Fisher (tons)--1970­2000 14 16. Total Number of Undecked Fishing Vessels Per Region 1970­1998 (in thousands) 14 17. Total Number of Decked Fishing Vessels by Region 1970­1998 (in thousands) 15 18. Estimated Number of New Fishing Vessels Built and Total Registered Fleet Size (Vessels Over 100 GT/GRT) 15 19. Fleet Productivity Development (Total Decked Vessels) 16 20. Maximum Sustainable Yield and Maximum Economic Yield 00 21. Comparative Yield-Effort Curves Corresponding to the Logistic (Schaefer) and Fox Biomass Growth Functions. 25 22. Sensitivity Analysis of the Results (a) Logistic and (b) Fox Models 35 23. Density and Distribution Functions for the Estimated Rents Loss for Logistic, Fox and Combined Logistic and Fox Functions 36 24. Economic Rents 44 25. Illustrative Resource Rents in a Resource Extraction Industry 44 26. The Equilibrium Fisheries Model 46 27. Graphical Illustration of the Global Fishery 50 28. Graphical Illustration of Logistic Model Stochastic Simulations 52 Sunk_fm.qxd 10/6/08 8:53 PM Page v Contents v 29. Graphical Illustration of Fox Model Stochastic Simulations 52 30. Graphical Illustration of Combined Logistic and Fox Model Stochastic Simulations 52 31. Distribution of the Estimated Rents Loss 53 32. Simulated Distribution of the MSY 54 33. Simulated Distribution of the XMAX 54 34. Simulated Distribution of Biomass Growth in Base Year, XDOT 54 35. Simulated Distribution of Landings, Y 54 36. Simulated Distribution of Profits, PROF 55 37. Simulated Distribution of Price, p 55 38. Simulated Distribution of Schooling Parameter, b 55 39. Simulated Distribution of Elasticity of Demand, d 55 40. Example of Increasing Wealth in New Zealand's Fisheries 60 List of Tables 1. Estimate of Fisheries Subsidies with Direct Impact on Fishing Capacity Per Year ($ billion--year 2000) 18 2. Empirical Data Used as Model Inputs and Estimation of Model Parameters 25 3. Estimated Capital Cost of Global Fishing Fleet ($ billion) 28 4. Global Fleet Profits Current and Previous (1993) Studies 28 5. Main Results--Point Estimates of Rents 32 6. Estimates of the Economic Losses from Global Marine Fisheries 32 7. Illustrative Rent Losses in Major Fisheries Assessed with the Model Used in This Study 33 8. Confidence Intervals for Rent Loss Estimate 36 9. Summary of Model Coefficients and Variables That Need to be Estimated 47 10. Data for Estimation of Model Coefficients and Variables 48 11. Formulae to Calculate Model Parameters 48 12. Empirical Assumptions for Estimation of Model Coefficients 49 13. Calculated Model Coefficients (implied) 49 14. Empirical Assumptions: Stochastic Specifications 51 15. Estimated Rent Loss: Main Results ($ billion) 53 16. Motorized fishing Fleets in Selected Major Fishing Countries, 2004 56 17. Selected Examples of Relationship Between Estimated MSY and Biomass Carrying Capacity 56 18. Estimation of the Weighted Average Global Schooling Parameter 57 19. Indicative Results of Selected Case Studies on Economic Rents in Fisheries 58 20. Projection of Rent Loss 1974­2007 ($ billion) 59 List of Boxes 1. Stagnating Global Marine Catch 3 2. What Are Subsidies? 18 3. The Framework of Prior Studies 22 4. Net Benefits, Economic Rents, and Overfishing 23 5. Downstream Efficiency Gains in Alaska and Peru 34 Sunk_fm.qxd 10/6/08 2:50 PM Page vi Sunk_fm.qxd 10/6/08 2:50 PM Page vii Acronyms and Abbreviations ARD Agriculture and Rural Development Department, World Bank DEC Development Research Group, World Bank EEZ Exclusive Economic Zones ENV Environment Department, World Bank EU European Union FAO Food and Agriculture Organization of the U.N. FIES Agriculture Information and Statistics Service GAC Governance and Anti-Corruption GDP Gross Domestic Product GRT Gross Registered Tonnage GT Gross Tonnage IIFET International Institute for Fisheries Economics and Trade IMF International Monetary Fund IPCC Intergovernmental Panel on Climate Change IPOA International Plan of Action ITQ Individual Transferable Quota IUU Illegal, Unreported and Unregulated Fishing kg kilogram kW kilo Watt MEY Maximum Economic Yield MSY Maximum Sustainable Yield NMFS National Marine Fisheries Service OECD Organization for Economic Cooperation and Development PoI Plan of Implementation SOFIA The State of World Fisheries and Aquaculture (FAO publication) t Tons (= metric tons) UBC University of British Columbia WSSD World Summit for Sustainable Development WTO World Trade Organization All dollar amounts are U.S. Dollars unless otherwise indicated. vii Sunk_fm.qxd 10/6/08 2:50 PM Page viii Sunk_fm.qxd 10/6/08 2:50 PM Page ix Abstract The Sunken Billions: The Economic Justification for Fisheries Reform This study concludes that marine capture fisheries are an underper- forming global asset. The study shows that the difference between the potential and actual net economic benefits from marine fisheries is in the order of $50 billion per year. Improved governance of marine fisheries could capture a substantial part of this $50 billion annual economic loss. Reform of the fisheries sector could generate consid- erable additional economic growth and alternative livelihoods, both in the marine economy and other sectors. The comprehensive reforms required imply political, social, and economic costs. Long before the fuel price increases of 2008, the economic health of the world's marine fisheries has been in decline. The buildup of redundant fishing fleet capacity, deployment of increasingly power- ful fishing technologies, and increasing pollution and habitat loss have depleted fish stocks worldwide. Despite the increased fishing effort, the global marine catch has been stagnant for over a decade, whereas the natural fish capital--the wealth of the oceans has declined. At the same time, the margin has narrowed between the global costs of catching and the value of the catch. In many cases the catching operations are buoyed up by subsidies, so that the global fishery economy to the point of landing (the harvest subsector), is in deficit. The cumulative economic loss to the global economy over the last three decades is estimated to be in the order of $2 trillion. The study argues that marine fisheries reform can recapture a sub- stantial proportion of the economic losses. Rather than being a net drain on the global economy, sustainable fisheries can create an eco- nomic surplus and be a driver of economic growth. The wealth generated can be the basis for creating alternative livelihood oppor- tunities. The biological sustainability of fish stocks has often occu- pied the center stage of international efforts, for example, the Plan of Implementation of the WSSD makes specific reference to recovery of fish stocks. However, sustainable fisheries are not only a problem of biology and ecology but also one of managing political and economic processes and replacing pernicious incentives with those that foster improved governance and responsible stewardship. Fisheries reform is a long-term process and requires political will founded on a consensus vision built through broad stakeholder dia- logue. Reforms mean reduction in fishing effort and fishing capacity. ix Sunk_fm.qxd 10/6/08 2:50 PM Page x x Abstract Reforms will incur social and economic costs, so tions that, despite technological fixes, become successful reforms will provide for social safety increasingly inefficient; growing poverty in fishery nets and alternative economic opportunities for dependent communities; increased risks of fish affected fishers. Successful reforms will require stock collapses and compromised marine ecosys- strengthening of marine tenure systems, equitable tem. Business as usual means increasing political sharing of benefits from fisheries. Reforms will pressure for subsidies that carry the risk of enhanc- require investment in good governance, including ing redundant fishing effort and fishing capacity, measures to reducing illegal fishing and perni- growing public expenditure on ineffective fishery cious subsidies. management and enforcement; and a sector that, The alternative--business as usual--is a contin- rather than being a net contributor to global ued decline in global fish wealth; harvest opera- wealth, is an increasing drain on society. Sunk_fm.qxd 10/6/08 2:50 PM Page xi Acknowledgments This study was led by Rolf Willmann (Fisheries and Aquaculture Department, FAO) and Kieran Kelleher (Agriculture and Rural Development Department, World Bank). Ragnar Arnason (Univer- sity of Iceland) developed the theory and modeling underpinning the study and undertook the economic rents loss calculations. Nicole Franz (FAO) helped with the statistical analyses. The study was undertaken as part of the "The Rent Drain" activity of the World Bank's PROFISH Partnership. The study would not have been possi- ble without the support of the Ministry of Foreign Affairs, Iceland and Agence Française de Développement, France, through their con- tributions to the initial PROFISH Trust Fund. The authors are grateful for the contributions provided by John Ward (NMFS), Rashid Sumaila (UBC), and Stefania Vannuccini (FAO); and to Ann Shriver (IIFET) and Rebecca Lent (NMFS, moder- ator) for facilitating special sessions of the Biennial Conference of the International Institute for Fisheries Economics and Trade on `The Rent Drain' in Portsmouth, U.K., in 2006 and in Nha Trang, Viet Nam, in 2008. The authors wish to thank the participants in the study design workshops held in Washington and Rome in 2006 for their counsel and advice: Max Agüero, Jan Bojo, Kevin Cleaver, John Dixon, Lidvard Gronnevet, Marea Hatziolos, Eriko Hoshino, Glenn-Marie Lange, Matteo J. Milazzo, Giovanni Ruta, Gert van Santen, Kurt E. Schnier, William E. Schrank, Jon Strand, Laura Tlaiye, John Ward, Ron Zweig; and Serge Garcia, Rognvaldur Hannesson, and John Sutinen. The authors also wish to express their gratitude for the guidance provided by the concept note peer reviewers: Giovanni Ruta (Envi- ronment Department, World Bank), Gert van Santen (consultant), and John Ward (NMFS). The authors are indebted to the insights and encouragement received from commentators and the peer reviewers of the study: Kirk Hamilton (ENV, World Bank), Serge Garcia (consultant), Gordon Munro (University of British Columbia), Carl-Christian Schmidt (OECD), Craig Meisner (DEC, World Bank), Gert van Santen (consultant), and Jon Strand (IMF). The authors acknowledge the mentoring of Francis (Chris) Christy over the years, the valuable exchanges of views with PROFISH team members in the Sustainable Development Network xi Sunk_fm.qxd 10/6/08 2:50 PM Page xii xii Acknowledgments of the World Bank including: Michael Arbuckle, The study was initiated under the guidance of Lidvard Gronnevet, Marea Hatziolos, Eriko Kevin Cleaver and Sushma Ganguly and com- Hoshino, and Oleg Martens; with ARD advisers pleted under the guidance of Juergen Voegele, Chris Delgado, Nwanze Okidegbe, and Cees de Director, and Mark Cackler, Manager, of the Agri- Haan; and the logistic support provided by Regina culture and Rural Development Department of the Vasko, Felicitas Doroteo-Gomez, and Joyce World Bank. Sabaya. Sunk_fm.qxd 10/6/08 2:50 PM Page xiii Executive Summary The contribution of the harvest sector of the world's marine fisheries to the global economy is substantially smaller than it could be. The lost economic benefits are estimated to be in the order of $50 billion annually. Over the last three decades this cumulative global loss of potential economic benefits is in the order of $2 trillion. The losses represent the difference between the potential and actual net economic benefits from global marine fisheries. By improved governance of marine fisheries, society could capture a substantial part of this $50 billion annual economic loss. Through comprehensive reform the fisheries sector could be a basis for economic growth and the creation of alternative livelihoods in many countries. At the same time, a nation's nat- ural capital in the form of fish stocks could be greatly increased and the negative impacts of the fisheries on the marine envi- ronment reduced. In economic terms, some 75 percent of the world's marine fish stocks were `underperforming assets' in 1974, the year when FAO initiated its reports on the state of the world's marine fish stocks. By 2004, over 75 percent of the fish stocks were underperforming at an estimated loss of $50 billion to the global economy. The `sunken billions' is a conservative esti- mate of the loss. The estimate excludes consideration of losses to recreational fisheries and to marine tourism. The losses attributable to illegal fishing are not included. The estimate also excludes consideration of economic contribution of dependent activities such as fish processing, distribution and consumption. It excludes the value of biodiversity losses and any compromise to the ocean carbon cycle. This suggests that the losses to the global economy from unsustainable exploita- tion of living marine resources substantially exceed $50 billion per year. For over three decades, the world's marine fish stocks have come under increasing pressure from fishing, from loss of habi- tats, and from pollution. Rising sea temperatures and the increasing acidity of the oceans are placing further stress on already stressed ecosystems. Illegal fishing and unreported catches undermine fishery science while subsidies continue to support unsustainable fishing practices. xiii Sunk_fm.qxd 10/6/08 2:50 PM Page xiv xiv Executive Summary The State of Marine Fish Stocks and Fisheries the purposes of this study, economic rent is con- sidered broadly equivalent to net economic bene- The global marine catch has been stagnant for over fits, which is the term used throughout most of the a decade, while the natural fish capital--the report. The lost benefits or the difference between wealth of the oceans has declined. FAO reports the potential and actual net benefits can be largely that an increasing proportion of the world's attributed to two factors. First, depleted fish stocks marine fish stocks are either fully exploited or mean that there is simply less fish to catch and, overexploited. Most of the world's most valuable therefore, the cost of catching is greater than it fish stocks are either fully exploited or overex- could be. Second, the massive fleet overcapacity, ploited. The 25 percent that remain underexploited often described as `too many fishers chasing too tend to comprise lower-value species, or the fish- few fish' means that the potential benefits are also eries for such stocks are the least profitable. When dissipated through excessive fishing effort. fish stocks are fully exploited in the biological This study estimated the difference between the sense, the associated fisheries are almost invari- potential and actual net economic benefits from ably performing below their economic optimum. global marine fisheries using 2004 as the base year. In some cases, fisheries may be biologically sus- This was done using a model that aggregated the tainable but still operate at an economic loss. For world's highly diverse fisheries into a single fish- example, the total catch may be effectively limited ery. This made it possible to use the available by regulations, but in a world of increasing fuel global fisheries data such as production, value of subsidies, the real cost of harvesting the catch may production, and global fisheries profits as inputs exceed the landed value. The depletion in fish cap- to the model. Some of the global data sets and ital resulting from overexploitation is rarely inputs required for the model are either deficient reflected in the reckoning of a nation's overall cap- or less than robust. Consequently, several further ital and GDP growth. assumptions are required, and in each case the This study and previous studies indicate that the rationale behind the assumption is provided. For current marine catch could be achieved with example, based on available estimates, the maxi- approximately half of the current global fishing mum sustainable (biological) yield from the effort. In other words, there is massive overcapac- world's fisheries was assumed to be 95 million ity in the global fleet. The excess fleets competing tons. To account for the inherent uncertainties in for the limited fish resources result in stagnant pro- the data and the simplification in the model, esti- ductivity and economic inefficiency. In response to mates of the most likely range of lost economic the decline in physical productivity, the global fleet benefits were obtained tested using sensitivity has attempted to maintain profitability by reducing analyses and stochastic simulations. labor costs, lobbying for subsidies, and increased For the base year, 2004, the 95 percent confi- investment in technology. Partly as a result of the dence interval for the lost economic benefits in the poor economic performance, real income levels of global marine fishery was found to be between $26 fishers remain depressed as the costs per unit of billion and $72 billion, with the most likely esti- harvest have increased. Although the recent mate to be in the order of $50 billion. increases in food and fuel price have altered the The estimate of $50 billion--`the sunken bil- fishery economy, over the last decade real landed lions'--is a conservative estimate of the potential fish prices have stagnated, exacerbating the prob- losses, as it does not take account of several impor- lem. The value of the marine capture seafood pro- tant factors. The model does not include the costs duction at the point of harvest is some 20 percent of of fisheries management and does not reflect the the $400 billion global food fish market. The market costs that weak fisheries governance imposes on strength of processors and retailers and the growth the marine environment. The model does not fully of aquaculture, which now accounts for some 50 capture the costs of subsidies, or that an efficient percent of food fish production, have contributed fishery would favour the least cost producers. Nor to downward pressure on producer prices. does the model capture the potential downstream economic benefits of more efficient fisheries. The estimate does not count the benefits from recre- The Estimate of `the Sunken Billions' ational fisheries, from marine tourism, or from In technical terms, this study estimates the loss of healthy coral reefs. The estimate is, however, potential economic rent in the global fishery. For consistent with previous studies and the study Sunk_fm.qxd 10/6/08 2:50 PM Page xv Executive Summary xv provides a replicable and verifiable baseline for manage transition in an equitable manner. Suc- future tracking of the economic health of marine cessful reforms will require strengthening of fisheries. marine tenure systems, equitable sharing of bene- The real cumulative global loss of net benefits fits from fisheries, and curtailing of illegal fishing. from inefficient global fisheries over the 1974 to Successful reforms will require reduction or elimi- 2007 period is estimated at $ 2.2 trillion. In order to nation of pernicious subsidies in the transition to derive the $2.2 trillion value, the estimated loss of sustainability. $50 billion in 2004 was used as a base value to con- Rising food prices and a growing fish food gap struct a time series of losses. The 1974 to 2008 for over 1 billion people dependent on fish as their period was used because FAO produced its first primary source of protein adds to the rationale for `state of the marine fisheries' report in 1974, the fishery reform. Rising fuel prices and the need for first of a series of fourteen such reports. The chang- greater resilience in marine ecosystems in the face ing proportion of global fish stocks reported as of growing pressures from climate change rein- fully, or overexploited in this series was used to forces the arguments for concerted national and build the annual loss estimate. An opportunity cost international actions to rebuild fish wealth. The of capital of 3.5 percent was assumed. heavy carbon footprint of some fisheries and emerging evidence that depletion of marine fish- eries has undermined the ocean carbon cycle adds Capturing the `Sunken Billions' to the justification for fisheries reform. The deple- The depletion of a nation's fish stocks constitutes a tion of global fish stocks cannot, however, be loss of national wealth, or the nation's stock of nat- attributed solely to fishing. Pollution, habitat ural capital. The depletion of global fish stocks destruction, invasive species, and climate change constitutes a loss of global natural capital. Eco- all play a role in this process. nomically healthy marine fisheries can deliver a sustainable flow of economic benefits, a natural The Costs of Reform bounty from good stewardship, rather than consti- tuting a net drain on society and on global wealth. Comprehensive reform of marine fisheries gover- Recovery of the `sunken billions' takes place in nance can capture a substantial proportion of the two main ways. First, a reduction in fishing effort `the sunken billions'. The transition to economi- can rapidly increase productivity, profitability, and cally healthy fisheries will require political will to net economic benefits from a fishery. Second, implement reforms which incur political, social rebuilding fish stocks will lead to increased sus- and economic costs. These are the costs of invest- tainable yields and lower fishing costs. Some fish ing in rebuilding fish stocks, which requires an ini- stock can rebuild rapidly, but the uncertain tial reduction in fishing activity and harvest rates. dynamics of marine ecosystems means that certain The benefits of this investment accrue later when stocks may not be readily rebuilt. One such exam- fish stocks have grown and when fishing fleets ple is the Canadian cod stocks, which, despite a have adjusted. Once recovered, many ocean fish- reduction in fishing effort, have not recovered. eries can generate a substantial economic surplus The crisis in the world's marine fisheries is not and turn a net economic loss to society into a sig- only a fisheries problem, but one of the political nificant driver of economic growth and a basis for economy of reform. Fisheries reform requires alternative livelihood opportunities. However, the broad-based political will founded on a social con- social, economic, and institutional costs of this sensus. Building such a consensus may take time transition must be financed. The allocation of this and may require forging a common vision which cost burden between public and private sectors endures changes of governments. Experience presents challenges both to fiscal policy and man- shows that successful reforms may also require agement practice. champions or crises to catalyze the process. Fish- The most critical reform is to effectively remove eries reform will require reduction in fishing effort the open access condition from marine capture and fleet capacity. Thus, successful reforms should fisheries and institute secure marine tenure and take the time to build consensus among fishers on property rights systems. Reforms in many the transition pathways, make provisions for cre- instances would also involve the reduction, or ating alternative economic opportunities, establish removal of subsidies that create excess fishing social safety nets for affected fishers and generally effort and fishing capacity. . Reduction, or removal Sunk_fm.qxd 10/6/08 2:50 PM Page xvi xvi Executive Summary of subsidies can however cause undesirable eco- implies that planners and decision makers devote nomic and social hardship, especially at a time greater attention to reform of the pernicious incen- when fishers face increasing prices of fuel and tive structures driving fisheries overexploitation. food. Subsidies that create perverse incentives for A clear picture of the economic health of fish- greater investment and fishing effort in over- eries is fundamental to building the economic sus- stressed fisheries tend to reinforce the sector's tainability necessary to conserve and rebuild fish poverty trap, and prevent the creation of surplus stocks. Such a health check needs to take account that can be invested in alternatives, including edu- of subsidies, environmental externalities, and cation and health. The World Bank has suggested, depletion of fish capital, and underpins any coher- that if subsidies are to be used, they should be tem- ent policy debate on fishery reform. porary, as part of a broader strategy to improve fisheries management and enhance productivity. Net Benefits and Tenure Rather than subsidies, the World Bank has empha- sized investment in quality public goods, such as It has long been understood that because the bene- in science, infrastructure, and human capital, in fits from fish harvests are to individuals, but costs good governance of natural resources, and in an of resource reduction are shared, the net benefits improved investment climate. from use of common pool resources, such as fish The alternative to reform--business as usual-- stocks, will tend to be dissipated. In many coun- is a continued decline in global fish wealth, harvest tries, marine fishery resources are considered to operations that become increasingly inefficient and belong to the nation and governments are charged growing poverty in fishery dependent communi- with stewardship of this public asset. This has in ties. Failure to act implies increased risks of fish some instances undermined the traditional rights stock collapses, increasing political pressure for systems observed by local communities and led to subsidies, and a sector that, rather than being a net a de facto open access condition. The public or com- contributor to global wealth, is an increasing drain mon pool character of marine fish resources is on society. often deeply embedded in law and practice, so strengthening marine fisheries tenure is a complex undertaking and faces political, social, and legal The Biological and Economic Health challenges. It will require good understanding of of Fisheries traditional or de facto fishing rights systems and of The focus on the declining biological health of the the functionality and legitimacy of national fish- world's fisheries has tended to obscure the even eries legislation as a basis for bridging the divide more critical deterioration of the economic health between community and national stewardship of the fisheries, which stems from poor governance functions. and is both a cause and result of the biological It is not the role of this study to be prescriptive overexploitation. Economically healthy fisheries with regard to marine fisheries tenure but to raise are fundamental to achieving accepted goals for awareness of the link between tenure and net ben- the fisheries sector, such as improved livelihoods, efits and to suggest that avoidance of the sensitive food security, increased exports, and the restora- issues of marine use rights is likely to result in a tion of fish stocks--a key objective of the WSSD continued slide towards poverty for many fish- Plan of Implementation. This study makes the eco- ery-dependent communities. Reforms will require nomic case for comprehensive reform of fisheries empowerment of poor fisher communities, estab- governance and complements ecological and con- lishment of secure user and property rights, and servation arguments. investment in collective action by a strengthened Many national and international fishery objec- civil society. In a world of rising fuel and food tives focus on maintaining, or increasing capture prices, any apparent advantage of small-scale fishery production and it is argued that national fisheries also need to be supported by a greater policies would benefit from a greater focus on investment in the management of small-scale maximizing net benefits, and choosing economic fisheries. or social yield as an objective rather than continu- These are among the many reasons why the eco- ing to manage fisheries with maximum sustainable nomic objectives--increasing the net benefits and yield as an objective. Such a socioeconomic focus wealth from fisheries--need to be at the center Sunk_fm.qxd 10/6/08 2:50 PM Page xvii Executive Summary xvii stage of efforts to resolve the crisis in marine fish- 4. Progressively identify a portfolio of reform eries. Public awareness and understanding of the pathways based on a consensus vision for the potential and actual flows of economic benefits can future of a fishery founded on transparency in inform the political economy of reform and help the distribution of benefits and social equity in leaders move towards socially responsible and reforms. The common elements of such path- sustainable fisheries underpinned by sound scien- ways could include: effective stakeholder con- tific advice. sultation processes, sound social and economic justifications for change, and an array of social and technical options, including decentraliza- Recommendations tion and comanagement initiatives to create 1. Use the results of this study to raise awareness more manageable fishery units. A reform among leaders, stakeholders, and the public of process will bend the trusted tools of fisheries the potential economic and social benefits from management to new tasks. Sound scientific improved fisheries governance in contrast to advice, technical measures such as closed sea- the sector's current drain on society in many sons and effective registration of vessels are countries. likely to form synergies with poverty reduction 2. Promote country-level and fishery-level esti- strategies, transitions out of fisheries, social mates of the potential economic and social ben- safety nets, and community comanagement. efits of fisheries reform and assessment of the 5. Review fiscal policies in order to phase out sub- social and political costs of reform as a basis for sidies that enhance fishing effort and fishing national- or fishery-level dialogue. capacity, and redirect public support measures 3. Build a portfolio of experiences in the process of toward strengthening fisheries management fisheries reform with a focus on the political capacities and institutions, avoiding social and economy of reform and the design of the economic hardships in the fisheries reform reform process, including consideration of the process. timing and financing of reform and the struc- 6. In an effort to comply with the call of the World turing of a national dialogue on the reform Summit for Sustainable Development Plan of process. Fisheries reform initiatives should Implementation for restoration of fish stocks, draw on the knowledge and lessons of reforms countries could, on a timely basis, provide to in other sectors, in particular with regard to the their public an assessment of the stateofnational impact on the poor and the effectiveness and fish stocks and take measures to address the equity of adjustment mechanisms. underreporting or misreporting of catches. Sunk_fm.qxd 10/6/08 2:50 PM Page xviii sunk_001-020.qxd 10/6/08 12:28 PM Page 1 1 Global Trends in Fisheries 1.1 INTRODUCTION Economically healthy fisheries are fundamental to achieving accepted goals for the fisheries sector, such as improved livelihoods, exports and food security, and the restoration of fish stocks--a key objective of the WSSD Plan of Implementation (WSSD PoI). Many national and international fishery objectives focus on maintaining or increasing the quantity of capture fishery production while less attention is devoted to the economic health of fisheries. An analysis of key global trends in fisheries--including fish production and consumption, the state of the fish stocks, and employment in the sector--provide the context and build a profile of the economic health of the world's marine fisheries. Estimates of the economic value of global marine fishery production and costs of production are used as inputs to an aggregate economic model to derive a range of estimates of potential economic rents lost, largely as a result of suboptimal governance of the marine fisheries worldwide. Key assumptions underlying the model are described. Purpose and Outcomes of the Study The purpose of this study is to raise the awareness of decision mak- ers with respect to the economic dimensions of the crisis in the world's marine capture fisheries. The target group includes not only fisheries professionals, many of whom grapple with this crisis on a daily basis, but a broader audience of policy and decision makers who can foster reforms in fisheries with a view to rebuilding fish wealth and capital as a basis for economic growth and biologically and economically healthy fisheries. The study shows that, in aggregate, the global marine fisheries in the base year (2004) represent a net economic loss to society and often a poverty trap for dependent communities. The study shows that if marine capture fisheries were organized to move fisheries in the direction of maximizing economic efficiency, then national fish- eries sectors, fishing communities, and society as a whole would reap substantial economic benefits. The political, social, and eco- nomic costs of such reforms are briefly discussed. 1 sunk_001-020.qxd 10/6/08 12:28 PM Page 2 2 The Sunken Billions: The Economic Justification for Fisheries Reform Structure of the Study that, in economic terms, more than 75 percent of the world's fisheries are underperforming or are Part 1 provides an overview of trends in global subject to economic overfishing. In 1974, about fisheries to set the context for the study. 40 percent of the assessed stocks were rated as Part 2 presents the approach and method used underexploited or moderately exploited. By 2005, to build an bioeconomic model of the aggregate this percentage had fallen to 25 percent (FAO 2007a). global fishery. Additional technical details of the Between 1950 and 1970 the recorded catch of model are provided in the Appendices. The study both the demersal (bottom dwelling) and pelagic reviews the main determinants for the economic species (species that live in the upper layers of the performance of global fisheries, such as: the value sea) grew considerably (Figure 2). Since 1970, dem- of fish production, the cost of factors of production ersal fish catches have stabilized around 20 million and productivity trends. The available global data tons, while pelagic catches grew to a peak volume sets are described as a framework for selection of of almost 44 million tons in 1994. Since then, the parameters used in the model. pelagic catches have fluctuated between 36 and 41 Fisheries are shown to benefit from significant million tons. subsidies that often undermine sustainability and Thus, the global fish supply from marine cap- maintain inefficiency. Illegal fishing is recognized ture fisheries increasingly relies on lower value as a governance failure undermining the economic species characterized by large fluctuations in year- and biological health of fisheries. Substantial addi- to-year productivity, concealing the slow degrada- tional work is suggested to remove uncertainties tion of the demersal high-value resources. About with respect to the magnitude of unrecorded 17 percent of the global catch as reported to FAO catches at the global level. by member countries is not reported by species Part 3 presents the results of the analysis, high- group. Thus, the FAO's Fishstat database does not lighting the poor economic health of the world's readily allow assessment of these species composi- marine fisheries and the need for greater attention to tion changes on a global basis. This change in the the improving the economic well-being of fisheries species composition of the catch is commonly and fishers: as a sustainable source of economic referred to as "fishing down marine food webs" growth, as a pathway out of poverty, as a means to (Pauly et al. 1998). The stagnant level of produc- contribute to food security, and in order to build tion is thus maintained by the relatively higher resilience to the impending effects of climate change. growth rate of a higher proportion of smaller fish Part 4 discusses the results and draws on avail- species lower on the food web and a likely able case studies to identify key elements in mov- decrease in the average age of the catch, which ing fisheries toward a more economically rational jointly contribute to maintaining fish biomass. In base without sacrificing fundamental social objec- some fisheries, the targets of fishing have also tives in pursuit of economic efficiency. expanded to cover an entire spectrum of species in Part 5 provides supplementary information in the ecosystem "fishing through the food webs" Appendices. (Essington and Weidenmann 2006). The changing patterns of discards (fish caught 1.2 THE DETERIORATING STATE but dumped unwanted at sea) also suggests that OF THE MARINE FISHERY the global catch now comprises substantial quanti- RESOURCES ties of lower value previously discarded fish, as the amount of fish discarded may have decreased The crisis in marine fisheries has been well docu- by over 10 million tons between 1994 and 2004 mented in biological terms. This study focuses on (Kelleher 2005). For example, the quantity of the economic health of the world's fisheries as a so-called trash fish used for aquaculture feed is complement to the numerous reviews of ecologi- estimated to be 5­7 million tons (Tacon 2006; cal state of the global marine fisheries. Globally, AFPIC 2006). There is also growing evidence that the proportion of fully exploited (Box 1), and either the biomass of large predatory fishes has declined overexploited, depleted, or recovering fish stocks, substantially from pre-industrialized levels in has continued to increase from just above 50 per- many regions (Myers and Worm 2003; Ahrens and cent of all assessed fish stocks in the mid-1970s to Walters 2005), although this may not hold true for about 75 percent in 2005 (FAO 2006). This indicates all fisheries (Siebert et al. 2006). sunk_001-020.qxd 10/6/08 12:28 PM Page 3 Global Trends in Fisheries 3 Box 1 Stagnating Global Marine Catch Figure 1 indicates that the reported global marine catch has stagnated at a level of 80­85 million tons since 1990. This stagnation hides several underlying trends in the composition of the catch as described below. Figure 1 Reported Global Marine Catch 1950­2006 (million tons) 95 85 75 65 tons 55 Million45 35 25 15 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: FAO Fish Stat One half of the marine capture fish stocks monitored by the FAO are designated as fully exploited, producing at, or close to their maximum sustainable yield. Another 25 percent of the marine fish stocks are either overexploited, depleted, or recovering from depletion and are yielding less than their maximum sustainable yield (SOFIA 2006). The remaining 25 percent of the marine capture fish stocks are underexploited or moderately exploited, and although this implies that more could be produced, many of these underexploited stocks are of low-value species, or species for which harvesting may be uneconomical. Global production of seafood from wild stocks is at or close to its long run biological maximum. Climatic variability has always been a signifi- nomic stresses caused by climate change add to the cant determinant of fish stock growth and decline urgency and economic justification for restoring and response to variability is part of the daily busi- the resilience and health of fish stocks (FAO 2008; ness of fishing. However, climate change, as European Commission 2007; Sustainable Fisheries described by the IPCC (IPCC 2007), is placing Livelihoods Project 2007). additional stress on fisheries already stressed by pollution, habitat loss and fishing pressure. Although recent studies on coral reefs (Baird et al. 1.3 PROFILE AND TRENDS 2007) and reviews of impacts in the North Atlantic IN GLOBAL FISHERIES provide important guidance on trends, the impact PRODUCTION of changes in sea temperature and ocean acidity on fish stocks remains largely undetermined in the In 2006, total reported world fishery production1 case of developing countries. Similarly, the impact reached almost 160 million tons (Figure 3), of of sea-level rise and erratic climatic events on the which 53 percent originates from marine capture community and household wealth of coastal fish- fisheries. Over the last twenty years, the continued ing populations remains largely unquantified. growth in world fish production is largely attribut- These added ecological, environmental, and eco- able to aquaculture (Figure 3). sunk_001-020.qxd 10/6/08 12:28 PM Page 4 4 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 2 Catch of Selected Species Groups in Marine Fisheries (million tons) 45 40 35 30 25 20 Millions 15 10 5 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Cephalopods Crustaceans Demersal marine fish Pelagic marine fish Others Source: FAO Fish Stat Figure 3 World Marine and Inland Capture and Aquaculture Production 1950­2005 100 90 80 70 60 tons 50 Million 40 30 20 10 0 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 Inland Marine Aquaculture Source: FAO FishStat China is the largest producing country, con- one-half of total capture fish production since 1990 tributing 49 million tons in 2005, of which 32 mil- (Figure 5). This share has reached more than two- lion tons are from aquaculture (Figure 4). thirds in 2005, a development largely driven by Developing countries have contributed more than Asian aquaculture production. sunk_001-020.qxd 10/6/08 12:28 PM Page 5 Global Trends in Fisheries 5 Figure 4 World Capture and Aquaculture Production 1950­2005 150 120 90 60 30 0 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 Rest of the world-aquaculture China-aquaculture Rest of the world-capture China-capture Source: FAO FishStat Figure 5 Total Recorded Marine Capture Production by Economic Group--1970­2005 (million tons) 90 80 70 60 50 40 30 20 10 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Developed countries or areas Developing countries or areas Total marine capture Source: FAO FishStat 1.4 TRADE AND FISH fish production flows into international trade, CONSUMPTION making fish one of the most traded `agricultural' commodities and accounting for up to 13 percent Rising demand for fish has been a major driver of of global `agricultural' trade. The benefits of increased fishing effort. Spurred by the globaliza- increasing globalization in fish trade have never- tion of markets for fish, some 37 percent of global theless been reduced by growing overexploitation sunk_001-020.qxd 10/6/08 12:28 PM Page 6 6 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 6 World Population (billions) and Global Fish Supply (million tons)--1970­2003 12 10 6.0 (kg) 8 (billions) supply 6 5.0 capita 4 Per opulationP 2 0 4.0 1980 1983 1986 1989 1992 1995 1998 2001 Fish supply from aquaculture Population Fish supply from capture fisheries Source: FAO FishStat; World Bank 2006. as ineffective governance of fisheries allowed the additional economic stress on capture fisheries depletion of fish stocks--the natural capital, or and contributes to trade disputes as farmed fish fish wealth (ICTSD 2006). capture market share from traditional producers. In 2006, total world trade of fish and fishery Rising demand in China and Europe has largely products reached a record value of $86.4 billion driven the increase in average global per capita fish (export value), more than a tenfold increase since consumption (Figure 7). This global increase was 1976, when global fish trade statistics first became particularly pronounced in the 1980s and 1990s, but available. The share of developing countries in has stabilized at around 16 kg/capita per year (FAO total fishery exports was 48 percent by value and 2007b). Per capita consumption of fish in South 57 percent by quantity. Growth in aquaculture America is stabilizing after a peak in 1995. Per capita production has been an important factor for the consumption in Africa and South America remains global expansion of seafood trade. low (Figure 7). In both regions, but especially in sub- The growth in reported global fish production Saharan Africa, low animal protein intake is believed has more than kept pace with population growth to be largely a result of low per capita incomes. Tra- (Figure 6). Based on the reported global fish produc- ditionally, low value fish and fishery products pro- tion, in 2005, the total amount of fish available for vide cheap protein to the poorer populations in these human consumption is estimated to have reached regions as well as in Asia. Africa is the only continent 107 million tons, providing an average global per where per capita fish consumption has been in capita fish supply of 16.5 kg, but with large differ- decline (less than half the global average), and as fish ences across regions and countries as well as within tends to be the lowest priced animal protein this countries (FAO 2007a). These global values, how- raises concern for the nutritional quality of the diet, ever, may not adequately reflect important subsis- particularly in sub-Saharan Africa. Aquaculture pro- tence fish consumption and consumption of duction has responded to the increasing demand in unreported production from small-scale fisheries. Asia. However, despite recent growth, African aqua- Aquaculture products continue to capture an culture has been unable to respond to the nutritional increasing share of global markets for fish. This is needs. The increased demand for aquaculture and driven by technological advances in production, livestock feeds based on trash fish and low value relatively lower production costs (compared species has a potential negative impact on the avail- to capture fisheries) and globalization of fish ability and accessibility of these products for direct trade. The competition from aquaculture places human consumption (AFPIC, 2006). sunk_001-020.qxd 10/6/08 12:28 PM Page 7 Global Trends in Fisheries 7 Figure 7 Regional Trends in Annual Fish Supply Per Capita in kg (1961­2003) 20.0 16.0 12.0 8.0 4.0 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Africa South America Asia Global average Asia excl. China Europe Source: FAO Fishstat; FAO Food Balance Sheets 1.5 THE ECONOMIC average farm gate price for cultured fish was $1,393 PERFORMANCE OF WORLD per ton. The higher unit price for aquaculture prod- ucts is a result of the production of high value species MARINE CAPTURE FISHERIES (for example, shrimp and salmon). The ex-vessel The economic performance of global marine cap- prices are considered to be conservative and close to ture fisheries is determined by the quantity of fish true market prices, being relatively free of taxes, sub- caught, the price of fish, the harvesting costs, and sidies, and other market-distorting influences. the productivity of the fisheries. The following sec- tions summarize the global profile of each of these 1.6.2 Export Prices determinant factors and discuss the issues of subsi- dies and excess capacity in the global fishing fleet. Global fish price data sets are relatively incomplete at the global level: the primary long-term price data series is the fish export unit value derived from the 1.6 VALUE OF PRODUCTION Fishstat trade statistics (Figure 8). The unit value of AND GLOBAL FISH PRICES exports may underestimate the global trend in real In 2004 (the base year for the study), the total nomi- fish prices. On one hand, higher value fish products nal value2 of reported global fish production was tend to be exported. On the other hand, aquaculture estimated as $148 billion, of which capture fisheries has a growing share in world fish trade and prices of was $85 billion and aquaculture was $63 billion. The many cultured species have tended to decline from total estimated value of the reported marine catch of the initial elevated price levels. 85.7 million tons was $78.8 billion3 (FAO 2007a). Because of the changing product composition of exports, the export values are only indicative of the price trends, but nevertheless show several 1.6.1 Ex-vessel Prices interesting features (Figure 8). There was a signif- The nominal average ex-vessel price was $918 per icant decline in fish prices between 1978 and 1985, metric ton for the reported marine catch and $666 per followed by a strong price rise from the mid- ton for the reported inland (freshwater) catch. The 1980s to the early 1990s, a gradual decline until sunk_001-020.qxd 10/6/08 12:28 PM Page 8 8 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 8 Trends in the Nominal Export Value, Nominal and Real* Export Unit Value of Fishery Products 3,000 75 65 2,500 55 2,000 45 US$ 1,500 35 US$/tonne 25 Millions 1,000 15 500 5 0 ­5 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Real export unit value (US$/tonne) Nominal unit value (US$/tonne) Total nominal export value (right axis) Source: FAO FishStat; *The deflator used for real values is the U.S. producer price index for all commodities, base year 1982 (Delgado et al. 2003). Values exclude aquatic plants. 2001 and a recovery in prices during the most web, for example, lobster or grouper. The scarcity of recent years. The real unit value of exports in 2004 some higher-value species has created opportunities was no higher than in the late 1980s. This strongly tofishindeeperwaters,oftenatahighercostperunit suggests that the global price of fish in 2004 was of catch and also at a cost to the relatively unknown not significantly different from that in the late biodiversity of the continental slopes. 1980s. Growth in demand for fish is concentrated in Setting aside numerous supply-driven fluctua- developing countries where populations and per tions, until late 2007, the real prices of many fish capita incomes show strong growth. However, sur- commodities have seen little change since 2004 vey data from China in the period 1980­2000 indi- (Josupeit 2008, Asche and Bjørndal 1999). The cate only slight real fish price increases (Delgado notable exceptions are increased fish meal and oil et al. 2003). Recent studies show substantial prices, which have been driven by higher demand increases in Chinese seafood consumption with for meat and aquaculture products. Tuna prices and increases of over 100 percent in lower income some whitefish prices have also increased, while households to over 150 percent for higher-income supplies from aquaculture have dampened prices families between 1998 and 2005 (Pan Chenjun for some products. Fillet and product yields have 2007). In contrast, while demand continues to grow improved, wastage has been reduced, and supply in the United States and real prices of fresh fish chains shortened, making downstream industry show a long-term increasing trend, the price of the increasingly more efficient and often decreasing traditional frozen products and particularly of margins to producers and intermediaries. canned products has declined during the last thirty Thus, although the unit value of the aggregate years (Figure 9). More recently, weakening U.S. reported catch has remained relatively constant, the dollar exchange rate and consumer spending may higher proportion of relatively lower value `trash be contributing to recent decline in U.S. shrimp fish' and small pelagic species is buoyed up by the imports, a key seafood indicator (Seafood Interna- increasingscarcityvalueofspecieshigheronthefood tional 2008). sunk_001-020.qxd 10/6/08 12:28 PM Page 9 Global Trends in Fisheries 9 Figure 9 Trends in U.S. Real Price Indexes for Fish and Seafood Products (1947­2006) 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 Canned and cured seafood Frozen packaged fish and seafood Fresh packaged fish and seafood Source: Calculated from U.S. Bureau of Labor Statistics 2007. This is an update of Figure 3.2 in Delgado et al. (2003). 1.6.3 Value of `Intangibles' vessels are non-motorized. In general, the major cost factors for most fisheries are: Healthy marine ecosystems generate a range of `intangible'values,whicharedifficulttoestimateasa · labor (30­50 percent of total costs); result of the absence of a robust global data sets and · fuel (10­25 percent); fishing gear (5­15 agreed valuation methods. These values arise from percent); marine biodiversity, the existence value of · fishing gear (5­15 percent); megafauna and the value of environment services · repair and maintenance (5­10 percent); and from natural assets such as healthy reefs (Cesar 2000; · capital cost, such as depreciation and interest UNEP-WCMC 2006; Worm et al. 2006). There may be (5­25 percent). additional potential benefits from ocean carbon The trends in the costs of each of these factors of pro- sequestrationresultingfromhealthyfishstocks(Lutz duction are of relevance, not only for an under- 2008). There is substantial excess capacity in the standing of the historical trends in fisheries, but also global fishing fleet. A global fleet that is `in balance' to provide a basis for future projections, for exam- with the fish stocks can substantially reduce the car- ple, the effect of rising fuel prices. Available cost data bonfootprintoftheindustry.Thebioeconomicmodel must be treated with some caution, as the true cost does not include a valuation of these `intangibles'. data tend to be confounded by taxes and subsidies. 1.7.1 Fuel Prices and Productivity 1.7 FISHING COSTS AND PRODUCTIVITY The cost of crude oil does not only directly relate to fishing fuel costs but also indirectly affects the cost There is no representative global data set on the of fishing nets and lines and the cost of vessel con- costs of fishing. However, costs and earnings stud- struction and repair. Figure 10 shows an index of ies are available from a number of countries and the real price of crude oil and an index of the real fisheries. Fishing costs vary greatly by type of material costs in U.S. ship-building. For compari- fishery and locality: for example, many smaller son purposes, the index of the real unit value of sunk_001-020.qxd 10/6/08 12:28 PM Page 10 10 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 10 Real Trends in Crude Oil Price, Vessel Material Costs, and Fish Export Unit Value (Indices, 1998 100) 250 230 210 190 170 150 130 110 90 70 50 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Real crude oil price index Real material cost index Real export unit value index Source: FAO FishStat; FAO FIEP; U.S. Department of Energy, Energy Information Administration; http://www.coltoncompany.com/shipbldg/statistics/index.htm--based on data from the US Bureau of Labor Statistics; Deflator used for real values: U.S. producer price index for all commodities, base year 1982 (Delgado et al. 2003) fish exports is also illustrated. It shows that By contrast, non-motorized fisheries--fisheries although until about mid-1980, real unit export that use passive gears (such as traps), that use rela- value rose faster than crude oil and unit material tively less fuel, and fisheries with ready access to costs, since the late 1980s price and cost trends export markets--may have seen an improvement in were fairly similar but with the crude oil price profitability in this period. Technology also has dri- depicting a steeply rising trend since 2000. ven productivity gains. Using sophisticated fish- Since then, fuel subsidies have probably played findingequipment,tunapurseseinersintheWestern an important role in supporting the financial via- IndianOceancannowharvestthreetimestheannual bility of fishing operations in some countries. Such catch of seiners operating in the mid-1980s. New fuel subsidies (mostly foregone taxes) to the fish- designs of trawls reduce the engine power and fuel ing sector by governments globally are estimated consumption by a factor of 33 percent or more to be in the range of $4.2­8.5 billion per year (Richard and Tait 1997). Electronic sale of fish while (Sumaila et al. 2008). vessels are still at sea reduces transaction costs, helps In the absence of productivity gains, Figure 10 preventlossofproductqualityandvalue,andmakes strongly suggests that the economic performance markets more efficient (Jensen 2007). However, as of global marine fisheries is unlikely to have these innovations are adopted and spread through- improved since the early 1990s. Several factors out a fleet, then aggregate productivity falls and the continue to undermine productivity. These include: economic rents generated through the increasing rising oil prices; rising costs of fishing gear and productivity are not maintained. vessels, often compounded by unfavourable There is ample evidence that at the global level exchange rates (for countries which import factors productivity has further deteriorated, especially in of production); an increasing regulatory burden; recent years, as the majority of producers incur and depletion of inshore stocks causing fishers to higher fishing costs while the global catch has travel farther to fishing grounds. remained stagnant. There is considerable variation sunk_001-020.qxd 10/6/08 12:28 PM Page 11 Global Trends in Fisheries 11 Figure 11 Trends in Fish, Food, and Fuel Prices 140 140 130 120 indices 120 100 price 110 80 fish/ US$/barrel 100 60 oodF 90 40 80 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 Food price index Fish export price index Imputed (r2=0.97) Fuel price Sources: FAO FishStat; FAO FIEP; U.S. Department of Energy, Energy Information Administration. The imputed fish price index for 2006 and 2007 was derived from a correlation with the FAO Food Price Index. in fuel consumption across depending not only on 123 million people are estimated to be involved in the different fishing methods and types of fisheries postharvest processing, distribution and market- but also on the fuel efficiency of engines. ing activities. Many countries do not separate cap- At the global level, on average each ton of fish ture fisheries and aquaculture employment data. landed required nearly half a ton of fuel. In value Based on available fisheries labor statistics, glob- terms, production of a ton of fish worth $918 ally, the number of capture fishers accounted for required $282 worth of fuel or 31 percent of the three-quarters of employment in fisheries globally. output value in 2004. There is considerable varia- Although employment in capture fisheries has tion in fuel consumption across different fishing been growing steadily in most low- and middle- methods, types of fisheries, and fuel efficiency of income countries, fisheries employment in most engines. The impact of the recent (2007­2008) dou- industrialized economies has been declining. This bling of fuel prices is briefly addressed in a subse- decline can be attributed to several factors, includ- quent section and the overall trend in fish, food ing the relatively low remuneration in relation to and fuel prices is illustrated in Figure 11. often high-risk and difficult working conditions, growing investment in labor saving onboard equipment (FAO 2007a), and a failure to attract 1.7.2 Trends in Employment, Labor younger workers. The increase in numbers of fish- Productivity, and Fishing Incomes workers in developing countries is not only a During the past three decades, the number of fish- result of increased fish production activities. For ers and fish farmers has grown at a higher rate than some communities, fisheries is a growing a the world's population growth rate (Figure 12). poverty trap and, in the absence of alternatives, a Catching, fish farming, and postharvest process- livelihood of last resort. ing marketing and distribution activities provided Asia has by far the highest share and growth livelihoods to an estimated 41 million people in rate in the numbers of fishers and fish farmers 2004 working, either as part-time or full-time fish- (Figure 13). In this region, the number of fishers workers.4 Applying an assumed ratio of 1:3 for increased threefold over the three decades from direct employment (production) and secondary 1970 to 2000--reflecting both a strong increase in activities (postharvest processing, marketing, part-time and occasional employment in capture distribution), respectively (FAO 2007c), about fisheries and the growth in aquaculture activities. sunk_001-020.qxd 10/6/08 12:28 PM Page 12 12 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 12 Global Population Growth (billion) and Trend of Total Number of Capture Fishers (thousand) 7,000,000 35,000 6,000,000 30,000 5,000,000 25,000 4,000,000 20,000 3,000,000 15,000 2,000,000 10,000 1,000,000 5,000 0 0 1970 1980 1990 2000 Population Fishers Source: FAO Fisheries Circular No 929 (1970; 1990 data), SOFIA 2006 (1990, 2000 data), FAO FIES Figure 13 Total Number of Capture Fishers by Region (thousands 1,000) 3,000 35,000 2,500 30,000 25,000 2,000 20,000 1,500 15,000 1,000 10,000 500 5,000 0 0 1970 1980 1990 2000 1970 1980 1990 2000 Africa North and Central America Asia Rest of the world Total South America Europe Oceania Source: FAO Fisheries Circular No 929 (1970; 1990 data), SOFIA 2006 (1990, 2000, 2004 data) In Africa, growth was more moderate until 1990 The low labor productivity in Africa and Asia is but accelerated sharply since then. a reflection of low fishing incomes in most coun- An indicator of labor productivity is the output tries in these regions. For example, the estimated per person measured either in physical or value average gross revenue per full-time fisher in terms. Figure 14 shows the average output per India's marine fisheries was $3,400 in 2004. The fisher valued at average ex-vessel prices in respective figures for small-scale fishers were 1998­2000. Average output per fisher ranged from $1,870 and $5,490 for fishers on industrial vessels a high of just above $19,000 in Europe to about (Kurien 2007). Average labor productivity is $2,231 in Africa and $1,720 in Asia, about a tenfold higher when only full-time fishers are considered, difference. but labor productivity is still be significantly below sunk_001-020.qxd 10/6/08 12:28 PM Page 13 Global Trends in Fisheries 13 Figure 14 Gross Revenue per Marine and Inland Capture Fisher (average 1998­2000 in US$)5 20,000 15,000 10,000 5,000 0 South Europe North Oceania Africa Asia America and Central America Source: FAO SOFIA 2002, 2006; FAO FishStat labor productivity values in other primary sectors active fishing techniques such as trawling and of the economies. purse-seining, the introduction of increasingly There is both hard and anecdotal evidence of sophisticated fish-finding and navigation equip- low levels of crew remunerations in many of the ment, and the growing use of modern means of world's marine fisheries. For example, Vietnamese communication. Although this technological workers on Taiwanese (Province of China) fishing progress has certainly increased labor productiv- vessels operating in South African waters receive a ity in many fisheries, at the aggregate global level monthly pay of $150 to $180 and working condi- the resource constraint in combination with wide- tions include 16 to 18-hour work days. A signifi- spread open access conditions have prevented an cant share of crews on Thai industrial fishing increase in average labor productivity in the vessels are from Myanmar and Cambodia, two world's capture fisheries. On the contrary, produc- countries with widespread poverty and average tivity has significantly declined, a decline caused incomes some eight times lower than those of by a shrinking resource base and a growing num- Thailand. Based on average country poverty data, ber of fishers. some 5.8 million, or 20 percent of the world's As the number of fishing vessels has also 29 million fishers, may be small-scale fishers that increased significantly over the last several decades earn less than $1 a day (SOFIA 2004). (see below), at the global level the productivity- The strong growth in capture fisheries employ- enhancing investments in capture fisheries have on ment (i.e., fishers operating full time, part time, average yielded little returns and have stymied occasionally, or with unspecified status) has not growth in labor productivity and incomes in the resulted in a commensurate increase in inland and sector. marine capture fisheries production. As shown in Figure 15, the average harvest per capture fisher 1.8 FISHING EFFORT AND has declined by 42 percent from more than 5 tons FISHING FLEETS annually in 1970 to only 3.1 tons in 2000. The significance of this decline in average out- Fishing effort is a composite indicator of fishing put per fisher has to be seen in the context of the activity. It includes the number, type, and power enormous technological developments that have of fishing vessels and the type and amount of taken place in the world's capture fisheries during fishing gear. It captures the contribution of naviga- this period, including large-scale motorization of tion and fish finding equipment, as well as the skill traditional small-scale fisheries, the expansion of of the skipper and fishing crew. Effective effort is sunk_001-020.qxd 10/6/08 12:28 PM Page 14 14 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 15 Annual Catch (Marine and Inland) per Capture Fisher (tons)--1970­2000 5.5 eary 5 per 4.5 fisher per 4 tons 3.5 Metric 3 1970 1980 1990 2000 Source: FAO FishStat; SOFIA 2002, SOFIA 2006, FAO FIES Figure 16 Total Number of Undecked Fishing Vessels Per Region 1970­1998 (in thousands) Undecked Decked 3,000 1,200 2,500 1,000 2,000 800 1,500 600 1,000 400 500 200 0 0 1970 1975 1980 1985 1990 1995 1998 1975 1980 1985 1990 1995 1998 Europe Oceania Oceania Africa South America North America South America North America Africa Asia Europe Asia Source: FAO FIES/SOFIA 1998 difficult to quantify even in a single fishery and cient'. This coefficient is a measure of both the level there is considerable uncertainty about the current of harvesting technology and fishing skill as well as level of global fishing effort. Given the multiple the relative ease of harvesting the fish stock in dimensions of fishing effort, it is understandable terms of its distribution and abundance. This vari- why no global statistics are available. able is captured in the bioeconomic model by the The primary factor influencing fishing effort is schooling parameter discussed in Section 2.4.7. the size of the global fishing fleet as characterized in terms of vessel numbers, tonnage and engine 1.8.1 Development in the Global Fishing Fleet power, and type of fishing gear as described in the following section. The reported global fleet has increased numeri- In biological terms, fishing effort equates fishing cally by of about 75 percent over the past 30 years mortality. The functional relationship is deter- to a total of approximately 4 million decked and mined by a factor known as the `catchability coeffi- undecked units in 2004 (FAO 2007a; Figure 16 and sunk_001-020.qxd 10/6/08 12:28 PM Page 15 Global Trends in Fisheries 15 Figure 17 Total Number of Decked Fishing Vessels by Region 1970­1998 (in thousands) 1,400 1,200 1,000 800 600 400 200 0 1975 1980 1985 1990 1995 1998 Oceania Africa South America North America Europe Asia Source: FAO FIES/SOFIA 1998 Figure 18 Estimated Number of New Fishing Vessels Built and Total Registered Fleet Size (Vessels Over 100 GT/GRT) 1974­85 Oil crisis 2,500 35,000 ) 2,000 30,000 ) ( 25,000 1,500 ( 20,000 ations 1,000 size 15,000 registr 500 10,000 Fleet New 0 5,000 1945 1965 1985 2005 2025 2045 Source: S. Garcia personal communication, based on Lloyds' data. Figure 17). The number of decked (motorized) ves- the change in the measurement of vessel size sels more than doubled in this period and the aver- from gross registered tonnage to gross tonnage age age of the global fleet of large fishing vessels and the reflagging of vessels to flags of has continued to increase. Asia accounts by far for convenience. the highest number of vessels, both decked and For large vessels, the Lloyds data base undecked. (http://www.lrfairplay.com/) of vessels provides FAO data on national fishing fleets is primar- a relatively robust global data set for fishing ves- ily derived from administrative records, which sels above 100 GT. However, coverage is incom- may not always be current; for example, national plete. Although FAO fleet statistics show an fishing vessel records may include vessels that increase in global fleet size since the early 1990s, are not currently operational and they frequently the Lloyds Register shows a decline in the number omit large numbers of unregistered small-scale of fishing vessels larger than 100 GT in recent years fishing vessels (FAO 2007a). A further difficulty (Figure 18). This divergence in trends can partly be in maintaining a consistent data set results from explained by the evolution of the Chinese fleet, sunk_001-020.qxd 10/6/08 12:28 PM Page 16 16 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 19 Fleet Productivity Development (Total Decked Vessels) 3,500,000 140 3,000,000 120 2,500,000 100 2,000,000 80 1,500,000 60 1,000,000 40 500,000 20 0 0 1970 1980 1985 1990 1995 2000 2005 Total vessels Capacity index Catch per vessel Catch/capacity index Source: Own calculations; Garcia and Newton; FAO FishStat; FAO FIES which is incompletely listed in the Lloyds Regis- grew at a rate of 4.3 percent per annum. Assuming ter6 because it is domestically insured. For this fleet that this trend has continued, growth in technolog- and for smaller vessels, FAO statistics are used that ical efficiency coupled with growth in the number have been compiled from national data. In 2002, of vessels suggests a steeply rising global fleet China adopted a five-year program to reduce its capacity. The capacity index shown in Figure 19 is commercial fleet by 30,000 vessels by 2000 (7 per- a multiple of the total number of decked vessels cent). However, the numbers of commercial fish- and the technological coefficient.8 The trend line of ing vessels reported to FAO in both 2003 and 2004 the catch/capacity index demonstrates that the are above the number reported as being in opera- global harvesting productivity has on average tion in 2002 (FAO 2007a). declined by a factor of six. The exploitation of a growing number of mar- ginal fish stocks partly explains this decline, but 1.8.2 Development in Fishing Capacity the buildup of fishing overcapacity is clearly a and Fleet Productivity major contributing factor. Thus, the gains from Fishing capacity is the amount of fishing effort that technological progress have generally not been can be produced in a given time by a fishing vessel realized because the limited fish stocks limits call or fleet under full utilization for a given fishery for a concomitant reduction in the number of ves- resource condition (FAO 2000). sels to allow for improved vessel productivity. Both the increase in vessels numbers and in ves- The decline in physical productivity is com- sel technology has enhanced the capacity of the pounded by the decreasing spread between aver- global fleet and facilitated access to an expanding age harvesting costs and average ex-vessel fish range of marine fishery resources and more effi- prices, causing depressed profit margins and rein- cient use of these resources. vestment. Although this has a dampening effect on Fitzpatrick (1996) estimated that the technologi- growth in fleet capacity, depressed fleet reinvest- cal coefficient, a parameter of vessel7 capacity, ment may retard a shift to more energy-efficient sunk_001-020.qxd 10/6/08 12:28 PM Page 17 Global Trends in Fisheries 17 harvesting technologies and a reduction in the car- Food price increases may: bon footprint of the fishing industry. · increase fish prices to more than compensates Many countries have adopted policies to limit for higher harvest costs the growth of national fishing capacity, both to · redirect forage fisheries (fish meal) catches to protect the aquatic resources and to make fishing higher value human food products more economically viable for the harvesting enter- · allow aquaculture products to permanently prises (FAO 2007a). This has proven difficult and capture market share from marine capture costly to implement in many instances, and even fishery products when numbers of vessels have been successfully · stimulate increased fishing effort reduced (Curtis and Squires 2007), the reduction in A number of fuel-intensive fleets ceased to operate fishing effort has been considerably less than pro- in mid-2008; others are benefiting from subsidized portional, as it is the less efficient vessels that tend fuel to stay operational. The past trend to replace to exit the fishery and expansion in technical effi- labor with capital is likely to slow or reverse as ciency counters the reduction in vessel numbers. labor intensive fisheries become relatively more The global fleet has attempted to maintain its viable. Products from less fuel-intensive aquacul- profitability in several ways: by reducing real labor ture may also capture markets. Reduced fishing costs, by fleet modernization and by introduction effort is likely to result in recovery of some fish of fuel-efficient technologies and practices, partic- stocks. Meanwhile, the economic hardship offers ularly in developed countries. Vessels are also an opportunity for measures to bring fishing reported to remain in harbor for increasingly capacity into balance with resources. longer periods of the year, focusing harvesting on peak fishing seasons. 1.9 SUBSIDIES AND The receipt of government financial support has also assisted both vessel operators and crews, for MANAGEMENT COSTS instance, through income compensation for crews. 1.9.1 Subsidies Subsidies in the world's marine fisheries have received growing attention in recent years and are Many subsidies in the fisheries sector are perni- further discussed later. cious as they foster overcapacity and overexploita- tion of fish stocks. By reducing the cost of harvesting, for example, through fuel subsidies or 1.8.3 The Effects of Higher Fuel grants for new fishing vessels, subsidies enable and Food Prices fishing to at previously uneconomic levels. Subsi- The impact of higher fuel and food prices on dies effectively counter the economic incentive to marine capture fisheries is becoming clearer. The cease fishing when it is unprofitable (Box 2). effect depends on the interplay between: (i) the Several direct estimates of subsidies and finan- impact of the fuel price change on the level of fish- cial transfers to the fisheries sector have been made ing effort; (ii) the price elasticity of demand for fish (Millazo 1998; Pricewaterhouse Coopers 2000; in economies in which the cost of the entire food OECD 2000; Sumaila and Pauly 2006), and several basket increases; and (iii) the changes in per capita attempts have been made to classify fisheries sub- GDP that underlie the demand for fish. The out- sidies in relation to their perceived impact on the come of this interplay is likely to be specific to the sustainability of fisheries and on international economy of individual fisheries and the markets trade (e.g., `traffic lights,' as proposed by the for the products of that fishery. United States to WTO Negotiating Group on Rules). Recent discussions also have focused atten- Fuel price increases may: tion on both the social rationale and potential neg- · reduce fishing effort as a result of higher costs ative impacts of subsidies on small-scale fishing · reduce fish supply and drive fish prices (WWF 2007). An updated global estimate of capac- higher ity- enhancing subsidies for both developing and · change fishing patterns to less fuel-intensive developed countries is shown in Table 1. modes Over $10 billion in subsidies that directly · result in higher fuel subsidies impact fishing capacity and foster rent dissipation sunk_001-020.qxd 10/6/08 12:28 PM Page 18 18 The Sunken Billions: The Economic Justification for Fisheries Reform Box 2 What Are Subsidies? There is a wide range of definitions of subsidies. The most precise is probably that of the WTO, which can be summarized as follows: `a financial contribution by the public sector which provides private benefits to the fisheries sector, whether direct or indirect (e.g. foregone tax revenue), or whether in terms of goods, or services, or income or price support, but excluding general infrastructure, or purchases goods.' Common fisheries sector subsidies include grants, concessional credit and insurance, tax exemp- tions, fuel price support (or fuel tax exemption), direct payments to industry, such as vessel buyback schemes, fish price support, and public financing of fisheries access agreements. In addition to the extensive catalogue of public supports, subsidies have variously been considered to include government fisheries extension and scientific research services. Policy changes, such as relaxation of environmental regulations governing fisheries or special work permits for migrant fishworkers (crew) can also reduce costs in the sector and such distortions also have been regarded as a form of subsidy. The justification offered for subsidies ranges from protection of infant industries, through national food security and prevention of fish spoilage to social rationale, such as preservation of traditional livelihoods and poverty reduction. Fuel subsidies are an example of transfer that reduces the cost of fishing. The reduced costs restore profitability and create perverse incentives for continued fishing in the face of declining catches. The result is overfishing, fleet overcapitalization, reduced economic efficiency of the sector, and resource rent dissipation. Source: Authors, Schrank 2003 Table 1 Estimate of Fisheries Subsidies with Direct Impact on Fishing Capacity Per Year ($ billion--year 2000) Subsidy Types Developing countries Developed countries Global total % of global total Fuel 1.3 5.08 6.4 63.5 Surplus fish purchases 0 0.03 0.0 0.3 Vessel construction, renewal 0.6 1.30 1.9 18.9 and modernization Tax exemption programs 0.4 0.34 0.7 7.3 Fishing access agreements 0 1.00 1.0 9.9 Global total 2.3 7.75 10.05 100 Source: Compiled from Milazzo 1998 with updated information from Sumaila and Pauly 2006; Sharp and Sumaila (submitted); and Sumaila 2007. were provided in 2000. Close to 80 percent of the the discussion. Subsidies are not separately distin- total global subsidy is provided by developed guished in the rent drain model. countries. Transfers of public funds and supports to the fisheries sector are directed at a spectrum of 1.9.2 The Costs of Fishery Management goods ranging from the purely public to the purely private. The issue of subsidies is closely linked to Fisheries management incurs cost to both the fish- the policies and principles underlying fiscal ers and the public sector. However these costs are regimes for fisheries which must untangle the web significant ranging from 1 to 14 percent of the of weak property rights prevalent in most fish- value of landings for enforcement (monitoring, eries. The issue of subsidies is further addressed in control, and surveillance) activities alone (Kelleher sunk_001-020.qxd 10/6/08 12:28 PM Page 19 Global Trends in Fisheries 19 2002) and imposing a substantial burden on inter- fishing. By definition, such estimates are not national fisheries management processes (High reflected in FAO's Fishstat. The estimates range Seas Task Force 2006). The generation of scientific from multiples of national Fishstat values in the advice and the process of management also repre- case of some countries that underreport catches sent significant costs (Arnason et al. 2000). from highly dispersed small-scale fisheries to The public costs of fisheries management have deliberate underreporting of 10­20 percent or not been taken into account in the estimate of lost more in managed fisheries where fishers seek to rents. The costs of fisheries management are not circumvent quota restrictions. However, in the included in the global bioeconomic model as rep- absence of a robust basis for adjusting the reported resentative global data is deficient and as the rela- to the estimated real catch, the FAO Fishstat values tionship between expenditures on fisheries remain as the core global data set used in the global management and net benefit from the fishery bioeconomic model. remains unclear. The few studies that have been Illegal fishing can be considered as additional made of fisheries management costs in developing effort which takes place at a lower cost than legiti- countries suggest inadequately low levels of man- mate effort. However, the production from this agement expenditures (Willmann, Boonchuwong, illegal effort may be recorded or included in the and Piumsombun, 2003). estimates of catches, or landings. For example, the catch from use of an illegal type of net may be indis- tinguishable from that of a legal net. Illicit catches affects rent generation, by undermining the gover- 1.9.3 The Costs Associated with Illegal, nance structure of the fishery, by undermining Unreported, and Unregistered market prices for legitimate product, and by impos- Fishing (IUU) ing added manage enforcement costs as indicated The International Plan of Action (IPoA) to combat earlier. IUU fishing (FAO 2001) bundles these three related Illicit catches are frequently unreported--for activities and, as a result, studies have tended to example, fish under a legal size limit, or catch in bundle rather than disaggregate estimates of the excess of quota. The resulting inaccuracies in catch economic impact of these fishing activities. Illegal statistics are an important source of uncertainty and unreported fishing are of particular interest for with respect to scientific advice on fisheries man- the estimate of rents. However, in order to account agement (Pauly et al. 2002, FAO 2002, Kelleher for the economic impacts of illegal and unreported 2002, Pitcher et al. 2002, Corveler 2002), and the fishing, greater knowledge on the scale of both and depletion of many stocks has been attributed a greater understanding of the economics of illegal partly to the inaccuracy of the historical catch data. fishing is required (Sutinen and Kuperan 1995, The parallel markets for illicit fish set a discounted OECD 2006, Sumaila et al. 2004, MRAG 2008). price for fish, not only directly through illicit land- The estimates of unreported fishing, or more ings but also by avoidance of sanitary controls or specifically of underreported or misreported rules of origin regulations, such that normally catches, are of considerable interest for the pur- compliant fishers may be compelled to revert to poses of assessment of economic benefits from illicit practices to remain solvent. sunk_001-020.qxd 10/6/08 12:28 PM Page 20 Sunk_021-030.qxd 10/6/08 12:35 PM Page 21 2 Estimate of Net Economic Loss in the Global Marine Fishery 2.1 BACKGROUND This study draws on previous efforts to develop an economic assess- ment for the world's marine capture fisheries (Christy and Scott 1965; Garcia and Newton 1997; FAO 1993). Christy and Scott suggested that the growth of marine fisheries production would stagnate and suggested that the `maximize sustained yield' objective be replaced by a `maximize rent from the sea' objective. In 1992, FAO estimated the aggregate operating deficit incurred by the world's fishing fleets at 54 billion in 1989, the base year of the study (see Box 3). A second FAO study in 1997 indicated that an economically efficient global capture fishery required a reduction of between 25 percent and 53 percent in the global fishing fleet. Because of the deficit of information on the economic health of the world's fisheries, the recent World Bank report, "Where is the Wealth of Nations," was unable to take specific account of fisheries. In order to address this deficit in the knowledge of the global fishery economy, a workshop was held under the auspices of the World Bank's PROFISH Program (Kelleher and Willmann 2006). The work- shop also recognized the need to highlight the current level of global economic rent loss and to raise awareness on economic objectives of fisheries management. The workshop identified two alternative approaches to the task. One approach is to estimate the rents and rents loss in each of the world's fisheries or a representative sample of them, a major under- taking. An alternative, simpler approach is to regard the global ocean fishery as one aggregate fishery. This has several advantages. The data requirements are immensely reduced. Many of these global fisheries data are readily available and the model manipulation and calculations are a fraction of that required for a study of a high num- ber of individual fisheries. The aggregate approach, regarding the global fisheries as a single fishery is considered the only way to quickly and inexpensively obtain reasonably estimates of the global fisheries rents loss in a transparent and replicable manner. On this basis, the workshop recommended that two independent approaches to the estimation of the loss of economic rents in global 21 Sunk_021-030.qxd 10/6/08 12:35 PM Page 22 22 The Sunken Billions: The Economic Justification for Fisheries Reform Box 3 The Framework of Prior Studies The 1992 FAO study "Marine Fisheries and the Law of the Sea--a Decade of Change" estimated the aggregate operating deficit incurred by the world's fishing fleets at $22 billion for the base year of the study (1989). If the cost of capital cost is added, aggregated deficit was estimated at $54 billion per year, or nearly three quarters of the estimated gross revenue of $70 billion from the global marine fish harvest. The primary causes of these deficits were attributed to the open access management regime that governed most of the world fisheries and rampant subsidization of the global fishing fleet. Building on the 1992 FAO study, Garcia and Newton (1997) examined the trends and future perspective of world fisheries. The authors confirmed the broad conclusions of the 1992 study, the large overcapacity of the global fishing fleet and the need to reform fishery management systems if long term economic and environmental sustainability of the world fishery system was to be achieved. They concluded that even though the world's oceans seemed to be exploited at MSY level, an economically efficient global capture fishery would require either 43 percent reduction of global fishing costs, or a 71 percent global price increase of capture fishery products, or a global capture fleet capacity reduction between 25 percent and 53 percent. Sources: Garcia and Newton 1997; FAO 1993 marine fisheries be prepared. Each estimate would probability distributions for the empirical serve as a cross-check on the other: assumptions and examining the resulting probability distribution of the calculated · The first study would estimate the global rent rents loss. Using stochastic (Monte Carlo) drain (or potential loss of net benefits) simulations, this yields statistical confi- through an aggregate model of the global dence intervals for the rents loss estimate. fishery. This report documents the results of this first approach. · The second companion study would under- 2.2 USE OF THE TERMS take a set of case studies on economic rents in `NET BENEFITS' AND a representative set of fisheries and endeavor `ECONOMIC RENTS' to extrapolate the results of case studies to the global level. This work is still in progress. Economists traditionally use economic rents as a measure of the net economic benefits attributable This study is based on a simple aggregative model to a natural resource. Rents are not equal to for the global fishery. However, it improves on the profits--the difference is fixed costs and so- previous FAO studies mentioned above in at least called intramarginal profits. However, rents and three important ways. profits are usually similar and may sometimes (i) the concept of fisheries rents and rents loss be identical. The economic performance of the is made explicit. global marine fisheries may be measured as the (ii) the theoretical and empirical assumptions difference between maximum rents obtainable and the way the conclusions are derived are from the fisheries and the actual rents currently clearly and systematically specified allow- obtained. ing verification, improvement and updating. This estimate of the loss of fisheries rents in (iii) the study systematically accounts for the global marine capture fisheries focuses on the uncertainty of the empirical assumptions. harvesting sector, that is, the fishery up to the This is done in two ways: First, by a stan- point of first sale. An economically efficient fish- dard sensitivity analysis of the calculated ery up to the point of first sale will also drive rents loss to the basic empirical assump- additional downstream efficiencies, for example, tions for the global fishery. This provides in fish processing. This is because to be efficient, upper and lower bounds on the rents loss the harvesting sector will adjust the quantity, estimates. Second, by assuming reasonable quality, and timing of landings to the demand Sunk_021-030.qxd 10/6/08 12:35 PM Page 23 Estimate of Net Economic Loss in the Global Marine Fishery 23 from downstream sectors. Estimates of rents these terms are used interchangeably in the text. In from such potential downstream efficiency gains the pure economic sense, however, they are not are not captured in the model presented here equivalent. Box 4 and Appendix 1 describe these but are briefly addressed in the subsequent concepts in more technical detail. discussion. As already mentioned, this study estimates this In this study, the concepts "net benefits" and loss of potential economic benefits, or rent dissipa- "economic rents" and "rents" are equivalent and tion at an aggregate global level. The global level Box 4 Net Benefits, Economic Rents, and Overfishing The resource rent is a measure of the net economic benefits from the harvest of wild fish stocks . Different fisheries generate different levels of resource rent. For example, a fishery for a high-value species in coastal waters (which has a low cost of harvesting) will generate more rent (or profits to fishers) than a fishery for a low-value species harvested at high cost in deep water. As more fishers join a profitable fishery they add to the aggregate costs of catching the limited quantity of fish available. As a result, the aggregate net benefits or economic rent decreases, or becomes dissipated among the fishers in the form of higher costs and lower returns for their fishing operations or fishing effort. The rents may even become negative when public financial transfers or subsidies are provided to support an economically unhealthy fishery. As more fishers make greater efforts (for example fish longer hours, or invest in more fishing gear) to maintain their previous profits or catch levels, fishers tend to deplete the fish stock capital which sustains the productivity of the fishery. This further reduces the potential net benefits. As soon as the level of fishing effort moves above the point of MEY a situation of economic overfishing exists. Such economic overfishing can exist even if the fish stock itself remains healthy, or biologically sustainable. This is illustrated in Figure 20. Figure 20 Maximum Sustainable Yield and Maximum Economic Yield Catch at MSY Negative rents Catch at MEY Positive rents Cost curve yield/ MEY Catch/yield curve Catch Fishing effort at Fishing effort at maximum maximum economic yeild sustainable yeild Fishing effort Economists traditionally measure the net economic benefits from a natural resource such as a fish stock by economic rents. Rents are not equal to profits, but are usually similar and may sometimes be identical. Thus, the inefficiency of fisheries may be measured as the difference between maximum rents obtainable from the fisheries and the actual rents currently obtained. Source: Authors Sunk_021-030.qxd 10/6/08 8:20 PM Page 24 24 The Sunken Billions: The Economic Justification for Fisheries Reform of rent dissipation is an excellent (inverse) metric base year. In this study, sustainable (or long-run) both of the economic and biological health of the rents are identical to profits so that maximum sus- global fishery. The economic objective is to maxi- tainable rents are obtained at the fishing effort mize the net economic benefits (sustainable rents) level corresponding to the maximum economic flowing from the fishery. In general, where the bio- yield (MEY) (Figure 20). The rent loss estimate mass, or size of the fish stock is maximized, the assumes that the existing biological overfishing is economic rents from the fishery are most likely to entirely reversible in the long run. Finally, the esti- be maximized (Grafton et al., 2007). Economically mate does not take account of the costs of restoring healthy fisheries therefore require biologically the global fishery to economic health. healthy fish stocks while biologically healthy fish Treating the diverse global fisheries as a single stocks do not necessarily mean economically aggregate fishery allows for a model with a man- healthy fisheries. . ageable number of parameters. A set of available observations on the global fisheries are used to 2.3 DESCRIPTION OF THE estimate the parameters. The procedure of fitting AGGREGATE MODEL the basic model is detailed in Appendix 2. The model's simplifications and uncertainty with Based on Arnason 2007, an aggregate model of the respect to global fisheries parameters are partially global fisheries is specified to estimate rent loss for offset by sensitivity analysis of the results and sto- the global marine fishery. This model is detailed in chastic simulations to establish reasonable upper Appendix 2. The model entails several gross and lower bounds and confidence limits for the abstractions from the real world. In particular, the global fisheries rents loss. It is anticipated that the model assumes that global fisheries can be mod- model will be further tuned and cross-checked using eled as a single fish stock with an aggregate bio- a series of case studies currently in preparation. mass growth function. Similarly, the global fishing industry is represented by an aggregate fisheries 2.3.1 Schaefer and Fox Models profit function, composed of an aggregate harvest- ing function, relating the harvest to fishing effort The population dynamics of the exploitable aggre- and biomass, and an aggregate cost function relat- gate biomass (the global fishery) are modeled ing fishing effort to fisheries costs. through (i) a logistic or Schaefer-type model and Fisheries and the rents they generate are (ii) a Fox model. The main difference between dynamic and rarely in equilibrium. This implies these two biomass growth function is that the Fox that there are several approaches to calculate rents model assumes that the biomass is much more losses. This study compares maximum sustainable resilient to increasing fishing effort, in other rents to the actual rents in the base year (2004). The words, the harvest will not decline proportionately difference is taken to represent the rents loss in the as fishing effort increases (Figure 21). Figure 21 Comparative Yield-Effort Curves Corresponding to the Logistic (Schaefer) and Fox Biomass Growth Functions value Fox catch/ Schaefer/logistic Catch Fishing effort Source: FAO Fish Stat Sunk_021-030.qxd 10/6/08 12:35 PM Page 25 Estimate of Net Economic Loss in the Global Marine Fishery 25 Table 2 Empirical Data Used as Model Inputs and Estimation of Model Parameters Model input values Units of measurement (i) Biological data Maximum sustainable yield 95 Million metric tons Global biomass carrying capacity 453 Million metric tons Biomass growth in 2004 2 Million metric tons (ii) Fishing industry data Landings in 2004 85.7 Million metric tons Value of landings in 2004 78.8 Billion US$ Fisheries profits in 2004 5 Billion US$ (iii) Parameter assumptions Schooling parameter 0.70 No units Fixed cost ratio in 2004 0 No units Elasticity of demand with respect to biomass 0.2 No units Sources: see following sections This is consistent with the experience from the from other years, or a series of years is used where global fishery that even though many of the most data for 2004 is deficient. valuable demersal fish stocks have become depleted, the aggregate global harvest continued to increase and has not contracted significantly in 2.4.1 Global Maximum Sustainable Yield spite of ever increasing fishing effort. (MSY) and Carrying Capacity The shape of the yield-effort curve is given prin- The global MSY is assumed to be higher that the cipally by the carrying capacity, or pristine state of reported marine catch in the base year (85.7 mil- the fish stock(s), the maximum sustainable yield lion tons, FAO Fishstat) plus estimated discards and the parameters of the harvesting (catch pro- (7.3 million tons) which gives a total of 93 million duction) function. Of these parameters, estimates tons. A value of 95 million tons is used in the of the maximum sustainable yield are more robust model. This value is higher than the 93 million tons than estimates of the other two parameters, as given earlier but lower than 101 million tons, the comprehensive global marine fish catch statistics are sum of the maximum reported catch for each available for over 50 years and harvest trends have species group in the past (FAO Fishstat). It is also been relatively stable for nearly two decades in in the same range as that suggested by Gulland in the range of 79 to 88 million tons. 1971 (100 million metric tons) and lower than a maximum of 115 million metric tons suggested by 2.4 MODEL PARAMETERS Christy and Scott 1965. AND DATA This estimate of the global MSY refers to con- ventional fisheries only. For example, Antarctic As noted earlier, this study assumes that global krill is the subject of increasing attention as new fisheries can be modeled as a single fish stock. harvesting technologies develop and markets for Recovery of lost rent also assumes that biological Omega 3 fish oils expand. A major expansion of overfishing is reversible. The basic data used to this fishery could substantially raise the global estimate model parameters and parameter MSY. assumptions are listed in Table 2. The sources for Since the 1990s, reported marine catches have the data and justification for assumptions are pro- fluctuated between 79 and 86 million metric tons vided in the following sections. Further details and without an apparent trend. Given the estimate of the theoretical relationships are further explained the MSY, this suggests that the current global fish- in Appendix 2. The year 2004 is taken as the base ery is now located to the right of the MSY (see year for the model as several robust data sets are figure in Box 4). This means that current global fish available for that period. However, adjusted data stocks are smaller than those corresponding to Sunk_021-030.qxd 10/6/08 12:35 PM Page 26 26 The Sunken Billions: The Economic Justification for Fisheries Reform MSY. This is in accordance with the general belief underreporting vary widely from 1.2 to 1.8 times that the global fishery is biologically overfished. the catch reported to FAO in relatively well- The carrying capacity corresponding to the managed fisheries, to several times the reported equilibrium MEY is assessed as 453 million tons. catch in countries with extensive and isolated This is based on the average relationship between small-scale fisheries, or with high levels of illegal the known carrying capacity and the MSY for a fishing (Oceanic Development 2001; Kelleher number of fisheries (see Appendix 4). 2002; MRAG 2008; Zeller and Pauly 2004; Pauly 2005; Watson and Pauly 2001). However, in the absence of a robust basis for adjusting the 2.4.2 Biomass Growth in the Base Year reported to the estimated real catch, the FAO Aggregate reported catches from the global marine Fishstat values remain as the core data set for this fisheries have been relatively stable, fluctuating study. between about 79 and 86 million metric tons since the 1990s. This is consistent with the aggregate 2.4.4 Value of Landings in the Base Year global biomass being approximately constant. During this period, in response to fishing pressure, The value of landings in 2004 is discussed exten- climatic factors and other influences, some stocks sively in Section 1.6. Based on published produc- have declined markedly, for example, demersal tion value data and other information, it is stocks such as cod and hake in parts of the Atlantic. estimated that this value was $78.8 billion (FAO Other stocks have increased, such as some pelagics 2007a). This corresponds to an average landed in the North Atlantic, while other large stocks have price of $0.918 per kg. remained largely unchanged (FAO 2005a). Over- all, it appears unlikely that in the base year, 2004, 2.4.5 Harvesting Costs there was a significant net increase or decline in As indicated in Section 2, the estimate of harvest- global stocks of commercial marine species. How- ing costs must be treated with due caution because ever, because in 2004, global reported catches were of the weak and incomplete data on the world's close to the upper bound of annual global catches fishing fleets. The data sets used (for details, see since the 1990s and reported catches in 2005 were Appendix 4) include: lower, it is conservatively assumed, that in 2004, global marine commercial biomass growth was (i) a robust set of fleet and productivity data negative, or 2 million metric tons. for twenty-one major fishing nations9 that contribute about 40 percent to global marine capture production (Appendix 4). 2.4.3 Volume of Landings in the Base Year These data are biased towards industrial and Reported and Real Marine fisheries but is considered to be representa- Fisheries Catches tive of industrial fisheries; In accordance with official FAO statistics (FAO (ii) detailed costs data available for the Euro- Fishstat) the global catch in the base year (2004) is pean fleets (EU 25), which contribute taken to be 85.7 metric tons. Acknowledging the about 6 percent to the global marine catch deficiencies of the FAO Fishstat records, FAO has (Appendix 4); and repeatedly called for more comprehensive and (iii) a recent set of costs and earnings data for accurate reporting of fish catches (FAO 2001). The India's industrial and small-scale fisheries level of acknowledged mis- and underreporting (Kurien 2007). These fisheries contribute of catch has been addressed with varying degrees about 2.5 percent to global marine fish har- of success by different authors. The reasons for vest. This data set has been taken to repre- misreporting vary widely from deliberate under- sent tropical developing countries fisheries. reporting of quota species and deficiencies in Cost of Fuel transmission of information to FAO, to wide- spread underestimates of small-scale fisheries Fuel consumption and costs are estimated on the production and possible substantial overesti- basis of the vessel and engine horse-power data of mates of fish production in the case of China and the fleets, as shown in Appendix 4. An average possibly in other countries. The estimates of vessel activity rate of 2,000 hours per annum is Sunk_021-030.qxd 10/6/08 12:35 PM Page 27 Estimate of Net Economic Loss in the Global Marine Fishery 27 assumed and an average world market diesel price landed (Kurien 2007). Assuming that small-scale of $548 per ton in 2005 is used.10 Fuel consumption fisheries contribute about 25 percent12 to the global and costs are raised to the global level on a pro rata marine catch and that cost structure of the basis of the contribution of these fleets to global remaining 75 percent of fisheries are is accurately catches. The result is an estimated global annual represented by these fleets as referenced in (i), the fuel consumption of 41 million tons valued at $22.5 global estimate for these other operating costs is billion.11 This decrease in the fuel consumption of $28.1 billion. the global fishing fleet compared to the previous This estimate is consistent with the comprehen- estimate (46.7 million tons valued at $14 billion in sive costs and earnings data compiled for the Euro- 1989 prices [FAO 1993]), reflects the facts that the pean fleet (Salz 2006). However, it is substantially number of larger fishing vessels above 100 GT in lower than the cost of comparable items indicated the Lloyds database has remained relatively con- in the FAO 1993 study (a total of $55.9 billion-- stant and that there has been a reduction in ton- maintenance and repair $30.2 billion, supplies and nage from about 15 million GT in 1992 to 12.6 gear $18.5 billion and insurance $7.2 billion). million GT in 2004. Fuel efficiency has also The higher FAO 1993 estimates can be largely improved in some fleets and closed seasons may explained by the fact that they were based on per- have reduced fishing time. centages of the vessel replacement costs and derived on the basis of vessels normally insured Cost of Labor and subject to regular surveys (FAO, 1993). Many The 1993 FAO study based its labor cost estimate fishing vessels do not fall in this category, espe- on a total number of employed crew of 12.98 mil- cially small-scale fishing vessels both in developed lion and an average annual crew income of $1,749, and in developing countries. leading to an estimated total labor cost of $22.7 billion. The growth in the numbers of fishers, Cost of Capital including part-time and occasional fishers, since The estimate is based on the comprehensive costs 1992 suggests that total labor cost of the global and earnings data set available for the European fishing fleet has increased. However, labor pro- fishing fleet. A capital value per unit of vessel ductivity in terms of catch per fisher and catch power (kW) was applied to the fleets of 21 fishing value per fisher has decreased. Working hours nations in the EU (see Appendix 4). This value was have increased and safety at sea has deterirorated raised to the global total by dividing by the ratio of (ILO 2000), making fishing the profession with the the contribution of these fleets to the world marine highest labor mortality rate. However, the deteri- fish harvest, resulting in a value of $127 billion for oration in working conditions is not necessarily total fleet investment.13 reflected in labor costs. It is concluded that real per Total capital costs were conservatively calcu- capita crew remuneration has declined and that lated at 8.3% of the capital value of the fleet. This global labor cost has remained at a relatively con- resulted in total capital costs of $10.5 billion. stant nominal level of $22.7 billion per year. Depreciation of this capital was conservatively cal- culated at 4.3% per annum resulting in global fish- Costs of Other Factors of Production ing fleet depreciation of $5.4 billion. Interest costs Total operating costs exclusive of fuel and labor were calculated at 4% which is an estimate based costs of that fleet (see Appendix 4) amounted to on secure long term US dollar investment such as $292,000 per 1,000 kW engine power. Applying 30-year US treasury bonds. Total estimated capital this value to the fleets of the 21 fishing nations costs are summarized in Table 3. For comparison listed in Table ###11 (see Appendix 4) gives purposes, total capital costs according to the FAO annual operating costs of $13.97 billion (exclusive 1993 study are also listed. of fuel and labor). As these fleets contribute about The higher estimate of the total capital invested 40 percent to world harvest, the estimated global in the fleet 1993 FAO study is because the estimate total would be $34.9 billion. However, these oper- was based on the replacement value. The total ating costs are lower in small-scale fisheries in replacement cost of vessels over 100 GRT was esti- developing countries. In India, the operating mated at $228 billion and the total replacement costs (excluding fuel and labor) in small-scale cost of vessels under 100 GRT at $90 billion (FAO, marine fisheries are on average $90 per ton of fish 1993). However, this method was applied in the Sunk_021-030.qxd 10/6/08 12:35 PM Page 28 28 The Sunken Billions: The Economic Justification for Fisheries Reform Table 3 Estimated Capital Cost of Global Fishing Fleet ($ billion) 1993 FAO study Current estimate Total fleet investment 319.0 127.0 Depreciation N.A. 5.4 Interest N.A. 5.1 Total cost of capital 31.9 10.5 Source: own calculations absence of both knowledge about the age structure information is often distorted by subsidies or of the fleet and the market prices of vessels at the taxes. Although based on limited samples, never- time. theless, there are indications that a substantial numbers of fisheries are unprofitable or experience declining profitability (Lery et al. 1999; Tietze et al. 2.4.6 Profitability 2001; Tietze et al. 2005; Watson and Seidel 2003; The world's fishing fleet is estimated to have had Hoshino and Matsuda 2008). an operating profit of $5.5 billion in 2004. However Fishing that operates at a real economic loss is the fleet incurred an additional cost of capital esti- unlikely to continue without subsidies or forms of mated at $10.5 billion. Consequently the global vertical integration which captures downstream fisheries profitability is estimated to be negative in value. This further narrows the possible range of the of the order of $5 billion (a deficit of five billion values for global fleet and fishing profits. In addi- US dollars) in 2004, the base year (Table 4). These tion, the "tragedy of the commons" suggests that estimates are net of financial subsidies, that is, sub- where forms of open access persist (which is the sidies have already been subtracted. case in many of the world's fisheries), profits will It should be noted that profit estimates for the be dissipated. The value of landings and costs global fishing fleet suffers from a scarcity of reli- of many factors of production are often known. able fleet cost and earnings data. Fisheries cost and This again narrows the range for the estimate of earnings or profitability data are not systemati- profits. cally collected by many countries and this data is particularly deficient for small-scale, artisanal, and 2.4.7 Schooling Parameter subsistence fishing. Even when such data are col- lected fishers are often reluctant to provide com- Harvests from species with a strong tendency to plete and accurate information and available congregate in relatively dense schools or shoals Table 4 Global Fleet Profits Current and Previous (1993) Studies 1993 FAO study* Current estimate Value of catch 70 78.8 Fuel costs 14 22.5 Labor costs 22.7 22.7 Other operating costs 55.9 28.1 Operating profit/loss 22.6 5.5 Total cost of capital 31.9 10.5 Global fleet profitability (deficit) 54.4 5.0 Source: See above. Author's calculations. FAO 1993 (* base year 1989). Sunk_021-030.qxd 10/6/08 12:35 PM Page 29 Estimate of Net Economic Loss in the Global Marine Fishery 29 (such as herrings, anchovies and sardines) are targets less valuable fish stocks (in some cases often little influenced by the overall biomass of the operates in deeper waters on the continental stock (Hannesson 1993). The opposite is true for slopes), or targets species at lower trophic levels. species which are relatively uniformly distributed This is known as "fishing down and through the over the fishing grounds (such as cod or sharks). food webs." In this situation of overfishing the For these species harvests tend to vary proportion- higher proportion of lower values species tends ately with the available biomass for any given level to depress the average price of the aggregate of fishing effort. catch. The schooling parameter reflects these features However when the reverse takes place, under a of fisheries and normally has a value between zero governance regime which restores biomasses and and unity. The lower the schooling parameter, the the health of fish stocks, the average price will tend more pronounced the schooling behaviour and the to rise. However, this generalization must be qual- less dependent the harvest is on biomass. For ified in terms of the trophic level of the target many commercial species (for instance many bot- species. If the target species is a high-value prey tom dwelling, or demersal species and shellfish) it species (e.g. shrimp) then rebuilding the stock would be close to unity (Arnason 1984). For of predators (e.g. fish at a higher trophic level that pelagic species (such as tuna, herring or sardine) it eat shrimp) may in fact reduce average prices is often much lower (Bjorndal 1987). A schooling (Hannesson 2002). Nevertheless, in general, as parameter of less than unity leads to a discontinu- stocks rebuild there will tend to be more, larger ity in sustainable yield and revenue functions. fish in the catch. Larger fish are generally (but not These discontinuities are of concern because they always) more valuable which results in a higher correspond to a fisheries collapse if fishing effort is average price for the global catch. maintained above that level for some time. Under an effective fisheries management sys- In the harvesting function for the global fishery, tem, the unit price of landed fish usually increases, the aggregate schooling parameter should reflect sometimes substantially (Homans and Wilen 1997; the schooling behaviour of the different fisheries. Homans and Wilen 2005). For example, in ITQ- An average of schooling parameters by fishery based fisheries (one of many choices for improved groups weighted by their maximum sustainable fisheries management), the average price of land- yield levels gives an aggregate schooling parame- ings increases substantially compared to the price ter of approximately 0.7, which is the value used in before introduction of the ITQ scheme (Herrmann this study (see Appendix 4). 1996). The reasons include more selective fishing practices, better handling of caught fish and better co-ordination between demand for fish and the supply of landings. The increased price is not nec- 2.4.8 Elasticity of Demand with Respect essarily related to the more valuable composition to Biomass of the catch referred to earlier. Finally, there is In the global fisheries model employed in this growing evidence that heavily fished resources are study, the average price of landings depends on less stable (Anderson et al. 2008), so stock recovery the global marine commercial biomass according is likely to stabilize supplies and prices and to a coefficient referred to as the elasticity of improve the efficiency of harvesting. demand with respect to biomass. The model uses a value of 0.2 for this parameter, which means, that if the global biomass doubles, then the average 2.4.8 The Fixed Cost Ratio price of landing increases by 20 percent. The coefficient and the value of the coefficient are In this study the loss of potential rents is estimated based on following rationale. as the difference between rents in the base year and Fishing activities initially target the most valu- maximum sustainable rents, that is, maximum able fish stocks and the most profitable fisheries. rents where biomass (the fish stock) and the capital These high-value species tend to be (but are not stock (fleet) are in equilibrium. This equilibrium always) those high in the marine food chain. As prevails when fish stocks have been rebuilt and the fishing effort increases the most valuable when the fleet has fully adjusted to the sustainable stocks become depleted and the fishing activity catch levels. During the period of fleet adjustment, Sunk_021-030.qxd 10/6/08 12:35 PM Page 30 30 The Sunken Billions: The Economic Justification for Fisheries Reform or long-run economic change, the capital costs, 2.4.8 Management Costs and Subsidies normally regarded as fixed costs, are actually vari- As explained in section 1.9.2 [#check] the costs of able. Therefore, for the purposes of comparing fisheries management are not included in the bioe- base year and maximum sustainable rents all costs conomic model. Subsidies are not separately iden- are considered variable costs and for these theoret- tified in the cost estimates. The existence of ical reasons, the fixed cost ration is set to zero in subsidies reduces the observed costs so that the these calculations. This does not mean that capital reported deficit may be underestimated. These costs are ignored in this study but that, for the pur- additional factors underline the conservative poses of the rent loss calculation in this study, they nature of the rent loss estimate. are regarded as variable. Sunk_031-036.qxd 10/6/08 12:43 PM Page 31 3 Results 3.1 MAIN RESULTS The loss of net benefits expressed as foregone rents is estimated to be in the order of $50 billion in 2004, the base year. Because of model and input data limitations, this estimate is best considered as the most probable value of a range of possible values. Specifically, the most probable point estimate of the global fisheries rent loss is $51 billion with an 80 percent confidence level that the value is between $37 billion and $67 billion. The rent loss estimate ranges between $45 and $59 billion in the base year, depending on whether the underlying biomass growth function applied is the Schaefer logistic or the Fox function. Table 5 summarizes the main results of these calculations for the two bio- mass growth functions. The Fox biomass growth function estimates a higher current fisheries rents loss primarily because the current level of overexploitation is substantially greater when the Fox func- tion applies. A priori, there is no reason to choose one biomass growth function above the other and the point estimate of $51 billion assumes an equal probability of each function applying. Based on the loss of net benefits in 2004, the real cumulative global loss of wealth over the last three decades period is estimated at $2.2 trillion. This estimate is made by assuming a linear relationship between the rents and the state of the world's fish stocks as reported by FAO at various intervals since 1974. The estimated rent loss in the base year (2004) is projected from 1974 to 2007, and raised on the basis of the changing percentage of global fish stocks, reported by FAO as fully or overexploited. A conservative opportunity cost of capital of 3.5 percent is assumed. Details of the estimate are provided in Appendix 4. To maximize sustainable rents from the global fishery, the model indicates that fishing effort should be reduced by between 44 and 54 percent depending on whether global commercial fishery biomass growth is better described by the logistic or the Fox biomass growth function. Biomass levels more than double in the case of the logistic and triple in the case of the Fox biomass growth function compared to the base year estimates. In both cases, sustainable marine fishery harvests are reduced by about 4 million tons compared to the base year harvest. 31 Sunk_031-036.qxd 10/6/08 12:43 PM Page 32 32 The Sunken Billions: The Economic Justification for Fisheries Reform Table 5 Main Results--Point Estimates of Rents Current Optimal Difference Units Logistic Fox Logistic Fox Logistic Fox Biomass Million tons 148.4 92.3 314.2 262.9 165.8 170.6 Harvest Million tons 85.7 85.7 80.8 81.6 4.9 4.1 Effort Index 1.00 1.00 0.56 0.46 0.44 0.54 Profits $ billion 5.000 5.000 39.502 54.035 44.502 59.035 Rents $ billion 5.000 5.000 39.502 54.035 44.502 59.035 A summary of the results of the sensitivity analy- benefits from fisheries. The different approaches14 sis and the conficence intervals for the rent loss to estimating current and potential rents or similar estimate is provided in section 3.4 below. indices of net benefits, precludes a synthesis of all the available studies in a coherent manner as part of this study. However, Table 7 and the supple- 3.2 EVIDENCE FROM OTHER mentary table (Table 19) provided in Appendix 4 STUDIES demonstrate that potential rents range from a sig- 3.2.1 Global Studies nificant fraction of the current fishery revenues to multiples of the current fishery revenues. Several Although this study is not directly comparable fisheries managed in a scientific and responsible with previous studies, all studies (Table 7) carry manner, may yet continue to under-perform with the same message: at the aggregate level, the cur- regard to rent generation (Kirkley et al. 2006). For rent annual net benefits from marine capture fish- example, the potential economic benefits from eries are tens of billions of U.S. dollars less than the rebuilding seventeen overfished stocks in the potential benefits. Society continues to be a net United States is estimated at $567 million, or contributor to the global fisheries economy approximately three times the estimated net pre- through depletion of the national and global fish sent value of the fisheries without rebuilding capital and through subsidies. (Sumaila and Suatoni 2006). In a follow-up to this study, rent loss estimates for a representative 3.2.2 Case Studies range of fisheries will help tune the global rent loss estimate and raise stakeholder awareness on the A range of case studies strongly indicate the po- potential net benefits from improved governance tential for substantial increases in rents and net in specific fisheries. Table 6 Estimates of the Economic Losses from Global Marine Fisheries Source Estimate of losses Primary focus/drivers FAO 1993 $54 aggregate loss, or approximately Open access, subsidies 75% of the gross revenue Garcia and Newton 1997 $ 46 billion deficit Overcapacity, loss of high-value species Sanchirico and Wilen 2002 $ 90 billion (future projection) Rents in ITQ fisheries approach 60% to 70% of gross revenues. Wilen 2005 $ $80 billion Secure tenure World Bank 2008 $ 51 billion Comprehensive governance reform Sources: cited in table. Sunk_031-036.qxd 10/6/08 12:43 PM Page 33 Results 33 Table 7 Illustrative Rent Losses in Major Fisheries Assessed with the Model Used in this Study Base year Base year Rents loss as Fishery Base year harvest (1000 tons) revenues (million $) percentage of revenues Vietnam G. of Tonkin demersal multigear 2006 235 178 29% Iceland cod multigear 2005 215 775 55% Namibia hake demersal trawl 2002 156 69 136% Peru anchoveta purse seine 2006 5,800 562 29% Bangladesh hilsa artisanal multigear 2005 99 199 58% Sources: contracted case studies in progress FAO/ World Bank. See Appendix 4 for case study results and sources. 3.3 LINKAGES TO THE BROADER component accounts for an estimated $212 billion of ECONOMY which 65 percent, or $140 billion represents the post- harvest economy (Davidsson 2007). The down- 3.3.1 Contributions to Economic Growth stream benefits from a more efficient harvest sector and GDP are considerable, as illustrated the following exam- ples (Box 5). The upstream benefits are less evident, The fisheries rents that are generated may be though fleet and processing plant modernization invested in productive physical, human or social can contribute to wealth and economic growth. capital and the net gains from these investments The substantial value of noncommercial uses of can subsequently be reinvested. Thus, generating fisheries is not included in the rent estimates. For fisheries rents allows fishing economies to choose example, in the United States, the total national eco- a higher economic growth path. For countries that nomic impact from commercial finfish fisheries is are highly dependent on fisheries, harnessing the 28.5 percent of the impact created by marine recre- potential economic growth effects of fisheries ational fisheries (Southwick Associates 2006), and rationalization can substantially improve general in the case of the striped bass resources, which is economic welfare. shared between the commercial and recreational The upstream and downstream economic link- sectors, anglers harvest 1.28 times more fish, yet ages, or "multiplier effect" add significantly to the produce over 12 times more economic activity as a contribution of the fishing industry to the GDP and result (Southwick Associates 2005). Healthy coral wealth creation as the fishing industry is a base reefs provide a further example. In addition to the industry which supports economic activity in lost benefits from fisheries, destruction of coral reefs other sectors of the economy including services results in an estimated net present loss to society of (Arnason 1995, Agnarsson and Arnason 2007). In $0.1 to $1.0 million per km2 of reef (Cesar 1996). addition, the fishing industry is a disproportion- The depletion of global fisheries cannot be ately strong exchange earner in many developing attributed solely to fishing. Pollution, destruction countries, and to the extent that the availability of of wetlands and coastal zones, invasive species, cli- foreign currency constrains economic output, the mate change, and mineral extraction all play a role. economic benefits from the sector may be greater However, fishing is considered the greatest single than is apparent from the national accounts. For cause of such depletion (Millennium Ecosystem example, the contribution in the Pacific Islands has report). been estimated to be some 30 percent higher than usually presented in national accounts (Gillett and Discard reduction. Although by definition, dis- Lightfoot 2001, Zeller et al. 2006). An efficient and cards generally have no commercial value to the stable harvest subsector is the basis for maintain- discarder, they may have an economic value. It is ing the sector's contribution to GDP. likely that under improved fisheries manage- The study has focused on the marine fisheries ment--a necessary step to gain the full benefits to the point of landing, or first sale. However, from fisheries--discards of juveniles of commer- the seafood industry (including aquaculture), is a cially valuable species would be reduced. As a con- $400 billion global industry. The marine capture sequence, the sustainable yield of valuable species Sunk_031-036.qxd 10/6/08 8:23 PM Page 34 34 The Sunken Billions: The Economic Justification for Fisheries Reform Box 5 Downstream Efficiency Gains in Alaska and Peru The Bering Sea Pollock Conservation Cooperative did not operate under an ITQ system but created the incentives to generate substantial additional rents. This was done though by removing the less efficient vessels, extending the fishing season and allowing the operators to concentrate on product quality. The yield per ton of fish increased by approximately 10% and recovery of by-products such as high-value fish roe increased by 22 percent. The increased benefits occurred in the postcapture operations, but as a result of a more rational harvest regime and investments in the postharvest phase. The estimated loss of rents in the harvest sector of Peru's anchoveta fishery is in the order of $200 million per year. Fleet capacity is some 2.5 to 3.4 times the capacity required to harvest the total allowable catch set as a function of the MSY. However, the capacity of the fish meal plants is some 2.9­3.8 times that required to process the catch. The fishing season in the world's largest fishery has been reduced to less than 60 days per year with substantial loss of quality and wastage. If, under a rationalized and modernized postharvest sector, the current production of lower grade fish meal graduated to higher grade fish meal and greater a recovery of fish oil, the additional net revenues would be in the order of a further $228 million per year. Sources: Wilen and Richardson 2003, Paredes, et al. 2008. would probably increase, with a further increase Food price increases may- in the rent estimate. For example, if the global MSY increase rents: increased by 5 million metric tons, the estimate · if the increase in fish prices more than com- of rents loss would increase by some $6 billion pensates for higher harvest costs; per year. · if forage (fish meal) fisheries redirect catches to higher value food products; decrease rents: 3.3.2 The Effects of Higher Fuel · if lower-cost aquaculture products perma- and Food Prices nently capture market share from marine The impact of higher fuel and food prices on the capture fishery products; rent estimate is unclear. The effect depends on the · if they stimulate increased fishing effort. interplay between: (i) the impact of the fuel price Fuel constitutes a significant part of the cost of fish- change on the level of fishing effort; (ii) the price ing. Compared to the base year, 2004, there has elasticity of demand for fish in economies where been a substantial increase in fuel price, almost the cost of the entire food basket increases; and the doubling in 2007 (U.S. Energy Information Agency changes in per capita GDP, which underlie the 2007). As there is little likelihood that the fuel price demand for fish. The outcome of this interplay is will significantly fall in real terms in the future, the likely to be specific to the economy of individual cost of fishing in the base year may substantially fisheries and the markets for the products of that underestimate the cost in the future. Given the fishery. share of fuel in variable fishing costs, probable degree of substitution, the variable costs of fishing Fuel price increases may- effort in March 2008 were some 10 percent higher increase rents: than in 2004. This increase would reduce the esti- · if fishing effort decreases as a result of higher mated rents loss compared to the year 2004 by costs; about $4 billion. In contrast however, in fisheries · if fishing patterns change to less fuel inten- where there has been little adjustment in fishing sive modes; fleets and fishing practices since 2004, the rents loss decrease rents: has substantially increased compared to what was · if fuel subsidies increase; reported in the previous subsections (in other · if the aggregate global fishery becomes less words, the potential gain from fisheries rational- profitable. ization has substantially increased). Sunk_031-036.qxd 10/6/08 8:23 PM Page 35 Results 35 3.4 SENSITIVITY ANALYSIS AND Figure 22 for the logistic (Schaefer) and the Fox CONFIDENCE INTERVALS biomass growth functions, respectively. As can be seen in these figures, the rent loss esti- The rents loss estimates range from a minimum mate is most sensitive to changes in the assumed $30 billion (the logistic function and a 10 percent global MSY (maximum sustainable yield) and the lower MSY) to over $90 billion (the Fox function volume of landings in the base year. When the val- and 20 percent higher MSY). The results of the sen- ues for the other input data are kept constant, the sitivity of the rents loss estimate to up to 20 percent estimated rents loss increases with an increase in deviations in the input data are illustrated in the value of the MSY estimate and decreases as the Figure 22 Sensitivity Analysis of the Results (a) Logistic and (b) Fox Models Logistic function 80.0 70.0 60.0 50.0 loss 40.0 Rents 30.0 20.0 10.0 0.0 ­20% ­10% 0 10% 20% Percentage deviation MSY Landings Base price Net biomass growth (a) prof(t*) Schooling parameter Elasticity of demand Fox biomass growth 100.0 90.0 80.0 70.0 US$) 60.0 (b. 50.0 loss 40.0 Rents 30.0 20.0 10.0 0.0 ­20% ­10% 0 10% 20% Percentage deviation MSY Landings Base price Net biomass growth (b) prof(t*) Schooling parameter Elasticity of demand Sunk_031-036.qxd 10/6/08 12:43 PM Page 36 36 The Sunken Billions: The Economic Justification for Fisheries Reform Table 8 Confidence Intervals for Rent Loss Estimate Confidence interval Range of estimated rents loss ($ billion) 95% confidence 26­73 90% confidence 31­70 80% confidence 37­67 value of landings in the base year increases. The Details of the stochastic distributions for the estimated rents loss is much less sensitive to input data and calculations of the resulting sto- changes in the values for other input data such as chastic distribution of the rents loss estimates are the price of landed catch, the schooling parameter described in detail in Appendix 3. The stochastic and the elasticity of demand (Figure 22). distribution of the rents loss estimates is nonnor- Based on stipulated stochastic distributions for mal and skewed to the right (longer tail to the left). the input data and calculated stochastic distribu- Combining the logistic (Schaefer) and the Fox tion of the rents loss estimates, a 90 percent confi- models in one distribution with equal probability dence interval for the estimated rents loss is $31 to leads to density and distribution functions as illus- $70 billion with the most probable estimate in the trated in Figure 23. order of $50 billion (Table 6). Figure 23 Density and Distribution Functions for the Estimated Rents Loss for Logistic, Fox and Combined Logistic and Fox Functions Density functions Distribution function 600 1 Combined y 400 0.5 Logistic requencF 200 Fox Probability 0 0 50 100 0 50 Rents loss (b. US$) Rents loss (b. US$) Sunk_037-042.qxd 10/6/08 12:46 PM Page 37 4 The Way Forward 4.1 FISHERIES REFORM MAKES ECONOMIC SENCE The study shows that an increasing number of fish stocks are over- exploited; overcapacity in fishing fleets remains high; the real income level of fishers remains depressed; and fish prices have stag- nated, even as the costs of harvesting continue to increase. Aquacul- ture has grown to approximately 50 percent of food fish production, which has contributed to supplies and price stabilization as demand for seafood has increased, particularly in China. Many thriving and profitable fisheries disguise the fact that at the aggregate level, the economic health of the world's marine capture fisheries is in a state of chronic and advancing malaise such that resilience to fuel price increases, to depressed fish prices and to the effects of climate variability and change is compromised. The esti- mated loss of potential net benefits is in the order of $50 billion per annum, or a cumulative loss of over $2 trillion since 1974. The annual loss is equivalent to approximately 64 percent of the landed value of the global catch, or 71 percent of the value of global fish trade in the base year (2004). These estimates, however, exclude the additional value of the environmental benefits of healthy marine ecosystems (such as tourism benefits from healthy coral reefs) and the value of efficiency gains along the value chain. In addition, the full costs of illegal fishing activities and subsidies may not be fully reflected and as such the estimated loss of potential benefits is conservative. These are among the many reasons why the economic objectives--increasing the net benefits and wealth from fisheries-- need to be at the center stage of efforts to resolve the crisis in marine fisheries. Public awareness and understanding of the potential and actual flows of economic benefits can inform the political economy of reform and help leaders move towards socially responsible and sustainable fisheries underpinned by sound scientific advice. National fisheries policies would benefit from a greater focus on maximizing net benefits, and choosing economic or social yield as an objective rather than continuing to manage fisheries with purely bio- logical objective of maximum sustainable yield as the key reference point. 37 Sunk_037-042.qxd 10/6/08 12:46 PM Page 38 38 The Sunken Billions: The Economic Justification for Fisheries Reform 4.2 REBUILDING GLOBAL downstream economy dependent on the sector, FISH CAPITAL and from consumers in countries where fish is a staple component of the diet. Most marine wild fish resources are considered to The World Bank has recently addressed the sub- be the property of nations. Governments are gen- sidies issue. The World Bank does not advocate erally entrusted with the stewardship of these subsidies as a response to recent food and energy national assets and their accepted role is to ensure price increases, but does support careful analysis, that these assets are used as productively as possi- monitoring, and balancing of competing needs for ble, both for current and future generations. The energy and food security (World Bank 2008a). depletion of a nation's fish stocks constitutes a loss The World Development Report 2008 (World of national wealth, or the nation's stock of natural Bank 2007) poses two questions with regard to capital. Similarly, the depletion of global fish input subsidies. First, `do the economic benefits stocks constitutes a loss of global nature capital. exceed the costs of subsidies?' The evidence pre- The annual global losses, conservatively estimated sented in this and other studies show that, in the to be in the order of $50 billion, justify increased case fisheries, the answer is almost invariably `no' efforts by national economic policy makers to and that the negative environmental externalities reverse this annual haemorrhage of national and generated by input subsidies are considerable. global economic benefits. The second question is `are input subsidies jus- There is enormous potential to rebuild global tified on social grounds?' The answer depends on fish stocks and wealth and increase the net benefits whether the alternatives are more cost-effective. In that countries could derive from their commercial the case of fisheries, subsidies often constitute a marine fisheries resources. politically expedient means of sidestepping the The rents may not be fully recoverable and challenge of addressing the alternatives, including efforts to rebuild global fish wealth incur eco- the challenge of helping fisher households to take nomic, social and political costs. Nevertheless, the up other gainful economic opportunities. Often sheer scale of the rent drain provides ample conceived as a short-term intervention, subsidies grounds for economic policy makers and planners tend to become entrenched at high cost to society to direct their attention to the rebuilding of and frequently confer more benefits on the more national, regional and global fish capital. Econom- affluent (for example, vessel owners) rather than ically healthy marine fisheries can deliver an the targeted poor (for example, vessel crew). The unending flow of economic benefits, a natural use of subsidies implies that solutions to the crisis bounty from good stewardship, rather than con- in fisheries lie within the sector rather than stituting a net drain on society and on global through local, regional and national economic wealth. growth. By creating perverse incentives for greater Rising fuel prices, declining fish stocks and the investment and fishing effort in overstressed fish- need for greater fish stock resilience in the face of eries, input subsidies tend to reinforce the sector's additional climate change pressures further rein- poverty trap and undermine the creation of sur- forces the arguments for concerted national and plus that could be invested in alternatives, includ- international actions to rebuild fish wealth. Rising ing education and health. food prices, a growing fish food gap for over 1 bil- The World Bank has suggested, that if input lion people dependent on fish as their primary subsidies are to be used, they should be tempo- source of protein, and the ungainly carbon foot- rary, as part of a broader strategy to improve fish- print of some fisheries adds to the rationale for eries management and enhance productivity. The reversing the rent drain. World Bank has emphasized investment in qual- ity public goods, such as science, infrastructure 4.2.1 Subsidies and human capital, in improving the investment climate and access to credit, in strengthening gov- The increasing prices of fuel and food are currently ernance of natural resources, including through (2008) combining to strengthen pressure for subsi- secure user and property rights and in collective dies. Such pressures stem not only from the har- action by a strengthened civil society (World Bank vest sector but also from the upstream and 2008a). Sunk_037-042.qxd 10/6/08 12:46 PM Page 39 The Way Forward 39 4.2.2 The Costs of Reform and enforceable the rights, the less the benefit loss (Scott 1955). In many countries, marine fishery The transition to economically healthy fisheries resources are considered to belong to the nation will require investment. Assessment of the costs of and governments are charged with the steward- reform and the improved governance required to ship of this public trust. In some instances, this has capture increased net benefits from marine capture undermined the traditional rights systems observed fisheries lies beyond the scope of this study; as by local communities and led to a de facto open does an assessment of the proportion of the poten- access condition. As the public or common pool tial net benefits that can feasibly be captured. The character of marine fish resources is often deeply benefits from stock recovery accrue over a longer embedded in law and practice, strengthening period and are shrouded in the uncertainties of the marine fisheries is often a complex undertaking ecosystem. that faces political, social, and legal challenges, Public funds have also been used to finance dif- requiring a good understanding of traditional ferent elements of reform including fisher retrain- rights systems, accepted practices, and culture. ing and early retirement. Buyback schemes are one Nevertheless, in order to increase the net benefits of the many strategies deployed to improve the from fisheries, the issue of tenure must be economic performance of fisheries and are gener- addressed (De Soto 2000). ally financed by public funds, although some cost The purpose of this study is not to be prescrip- recovery has accrued through charges on the tive with regard to marine fisheries tenure, but to remaining fishers. In Norway, Japan, and else- raise awareness of this link between tenure and net where, private funds have supported buybacks benefits (Costello et al. 2008). A greater under- (Curtis and Squires 2007) and dedicated financial standing of this link implies public awareness of instruments have also been proposed (Dalton the potential and actual economic benefits from 2005). marine fisheries and how these benefits can be cap- The recurrent costs of management are not tured rather than dissipated. It calls for public addressed in the model. Substantial investment is awareness concerning who benefits and to what needed in the transition process to economically extent society underwrites those benefits. It calls healthy fisheries. The investment is required not for greater understanding of how a balance only in building technical capacity for fisheries between secure tenure and the social responsibil- management but in the institutional fabric of fish- ity for resource stewardship can be achieved at eries tenure at all levels: the fishers, the adminis- local and national levels. tration and the political levels. The recurrent costs of fishery management may decline under an eco- nomically healthy fisheries regime. For example, 4.2.4 Sustainable Fisheries is Primarily illegal fishing is likely to decline and the costs of a Governance Issue enforcement may decline. The cost of the regula- As stated in the World Summit for Sustainable tory burden on the fisher may also decline. The Development Plan of Implementation (WSSD PoI), allocation of the management cost burden between sound science and ecosystem approach are funda- public and private sectors presents challenges both mental underpinnings of sustainable fisheries for fiscal policy and management practice. (Articles 30, 36). However, the principal drivers of the overexploitation in marine capture fisheries 4.2.3 Net Benefits and Tenure and the causes of the dissipation of the resource rents and loss of potential economic benefits are It has long been understood that because the bene- the perverse economic incentives embedded in the fits of use are individual, but costs are shared, the fabric of fisheries harvesting regimes, reflecting a net benefits from use of common pool resources, failure of fisheries governance. such as fish stocks, will tend to dissipate (Gordon Sustainable fisheries are primarily a governance 1954; Hardin 1968). The nature of the rights over issue and the application of the fishery science the resources plays an important role in determin- without addressing the political economy of fish- ing the extent of that loss of net benefits; and it is eries is unlikely to rebuild marine fish wealth.15 suggested that, in general, the more clearly defined Restoration of marine fish wealth and rebuilding Sunk_037-042.qxd 10/6/08 12:46 PM Page 40 40 The Sunken Billions: The Economic Justification for Fisheries Reform the flow of net benefits implies fisheries gover- and mitigation of social and political costs, on the nance reforms with an increased emphasis on the financing of reform, on the timescale and sequenc- economic and social processes, informed by, rather ing of reform activities within political and invest- than centered on, biological considerations and rec- ment cycles, and on building consensus among ognizing solutions and opportunities provided in competing stakeholders and their political con- the broader economy outside the fisheries sector. stituencies. Fisheries reform can also be seen as part of a broader public policy agenda embracing fiscal reforms, pathways out of poverty, and 4.2.5 Fishery Reform Can Revolve greater transparency in stewardship and account- around the Axes of Sustainability, ing for natural capital. Productivity, and Equity A constructive dialogue on the political econ- Three axes of reform can be considered. A sustain- omy of reform requires a common understanding ability axis would maintain ecosystem and inter- among stakeholders of the potential net benefits generational integrity while underpinning the from marine fisheries, the current level of benefits physical basis for economic health. A productivity and transparency in the allocation of those bene- axis would aim to maximize rents by focusing on fits. A constructive dialogue on reform will require the economic efficiency of the harvesting regime. knowledge of the political and social costs and An equity axis would qualify the productivity benefits of reform options and informed stake- aspiration, addressing the social dimension of holder discussion on the alternatives (including resource allocation or benefit flows. transitions out of fisheries). Reforms may take time The maximum economic yield (or a similar and require forging a political consensus and proxy) is generally a more conservative harvesting vision spanning changes of government. Experi- target than maximum sustainable yield (Grafton ence shows that successful reforms may require et al. 2007). Framed within a broader ecosystem champions or crises to catalyze the process. approach, it satisfies both the sustainability and rent maximizing objectives. Advancing along the 4.2.6 Strengthening the Socioeconomic equity axis, the use of fisheries as a social safety Dimension of the Fisheries Dialogue net, for example, may involve some sacrifice of the A target set out in the World Summit for Sustain- productivity targets. By contrast, a narrow focus of able Development Plan of Implementation is the reform on productivity and rent maximization will restoration of fish stocks to maximum sustainable fail to address the real social and political costs of yield (MSY) levels by 2015. Harvesting at the MSY rebuilding fish wealth. level is unlikely to capture a substantial part of the A reform agenda calls for a greater understand- economic rents and can be regarded as a minimum ing of the political and social processes and drivers target. The MSY target also implies a focus on the of change in fisheries. It calls for approaches to dis- fish, and tilts towards a single species approach, mantling perverse incentives through appropriate rather than focusing on the underlying economic tenure and property rights systems and the phas- drivers, the political and social challenges to shar- ing out of subsidies that enhance fishing effort and ing the fish wealth, and the process of a reform. fishing capacity. Guidance on some elements of Nevertheless, as a first step in tracking progress reform processes are available, for example: on toward the restoration of fish stocks, countries, the limited entry (Townsend 1990; Cunningham and primary global stakeholders, could report both on Bostock 2005); on buyback schemes (Curtis and the state of fish stocks within their jurisdictional Squires 2007; Clark et al. 2007); on individual waters (see, for example, NMFS 2008; Department transferable quotas and property rights (Commit- of the Environment, Water, Heritage and the Arts tee to Review Individual Fishing Quotas 1999; 2008), and the level and distribution of benefits Shotton 1999; WHAT 2000; Grafton et al. 2008); on from the national fish wealth. community rights (Christy 1999; Willmann 1999); on governance and corruption (World Bank 2007; 4.2.7 Accounting for Fish Wealth World Bank and IUCN in press); and on the polit- Is a National Role ical economy of reform and the durability of reforms (OECD 2008; Kjorup 2007). However, It is a matter of considerable concern that the greater knowledge is required: on the assessment depletion of fish wealth - natural capital - normally Sunk_037-042.qxd 10/6/08 12:46 PM Page 41 The Way Forward 41 does not show up in the national accounts of coun- resource property rights demands both clarity on tries. One reason is that because of weak property and respect for the accompanying obligations rights in national and international fisheries and (Fisman and Miguel 20006). because of difficulties in establishing market prices Many traditional regimes distinguished rights for these resources, fisheries assets fall outside the to harvest from rights to benefits in acknowledge- asset boundary of the System of National Accounts ment that society at large also had a claim to the 1993. As a result, it has been possible to run down benefits of the harvest (Johannes 1978). The same fish resources and thus temporarily increase catch principles are successfully applied in a modern set- rates, which show up as an addition in the national ting, for example in fisheries in New Zealand (see accounts, without having to subtract the corre- Figure 40) and the Shetland Islands, where the sponding reduction in fish stock capital. In other tenure is vested in the community and harvest words, fishing nations have drawn upon the fish- rights largely `firewalled' from the fundamental ing sector's opaque natural capital account to wealth creation and capital formation functions. `artificially' improve the nation's GDP and simul- taneously using this capital to (temporarily) sup- 4.3 SUMMARY: port the operating accounts of fishers and the fishing companies. THE WAY FORWARD Ideally, the system of national accounts should, 1. Use the results of this study to raise aware- as a matter of course, include changes in natural ness among leaders, stakeholders, and the capital just as they do so for man-made capital. public on the potential economic and social Given their economic importance, the omission of benefits from improved fisheries governance. natural assets as fish stocks, from the national accounts entails a substantial oversight in eco- 2. Foster country-level and fishery-level esti- nomic accounting. National accounts including mates of the potential economic and social changes in natural capital are often referred to as benefits of fisheries reform and assessment of green accounts and specific guidance is readily the social and political costs of reform as a available on environmental accounting for fish- basis for national, or fishery level dialogue. eries (UN and FAO 2004, Danielsson 2005). Because of the deficit of information on the eco- 3. Build a portfolio of experiences on the nomic health of the world's fisheries, the World process of fisheries reform with a focus on the Bank report "Where is the Wealth of Nations" was political economy of reform, process design, unable to take account of fisheries. Greater aware- change management, social safety nets, and ness of the scale of this capital asset depletion at the timescale and financing. Draw on the the level of national policy makers and economic knowledge and lessons of reforms in other planners could build support for reform processes. sectors, in particular with regard to the impact on the poor and the effectiveness and equity of adjustment mechanisms. 4.2.8 Rights to Harvest Fish Wealth Are Distinct from Rights to Benefit 4. Progressively identify a portfolio of reform from Fish Wealth pathways based on a consensus vision for The notion that harvesters (fishers) have an exclu- the future of a fishery founded on trans- sive, rather than a partial and conditional, right to parency on the distribution of benefits and the benefits from marine fisheries has tended to social equity in reforms. Common elements obscure the quest for increased social and eco- of such pathways could include: effective nomic benefits to society as a whole. This study stakeholder consultation processes; sound shows that, in aggregate, the benefits to society as social and economic justifications for change a whole are negative; that society underwrites the and an array of social and technical options, sector, through subsidies, by paying the costs of including decentralization and comanage- fisheries management and through depletion of ment initiatives to create more manageable capital (fish wealth). fishery units. A reform process will bend the Rights and obligations are mutually supporting trusted tools of fisheries management to new elements of governance and strengthened marine tasks. Sound scientific advice, technical Sunk_037-042.qxd 10/6/08 8:25 PM Page 42 42 The Sunken Billions: The Economic Justification for Fisheries Reform measures such as closed seasons, and effec- 6. In an effort to comply with the World Sum- tive registration of vessels and existing fish- mit for Sustainable Development Plan of ing rights are likely to form synergies with Implementation call for restoration of fish poverty reduction strategies, transitions out stocks, countries could, on a timely basis pro- of fisheries, social safety nets and community vide to their public an assessment of the state comanagement. of national fish stocks and take measures to address the underreporting or misreporting 5. Review fiscal policies in order to phase out of catches. subsidies that enhance fishing effort and fishing capacity and to redirect public sup- 7. Countries can further justify reforms in fish- port measures toward strengthening fisheries eries by recognizing that responsible fisheries management capacities and institutions and build resilience to the effects of climate avoiding social and economic hardships in change and reduce the carbon footprint of the the fisheries reform process. industry. Sunk_043-060.qxd 10/6/08 3:14 PM Page 43 5 Appendices Appendix 1. The Concept of Economic Rent in Fisheries Appendix 2. Model and Model Estimation Appendix 3. Stochastic Specifications and Confidence Intervals Appendix 4. Supplementary Data 43 Sunk_043-060.qxd 10/6/08 3:14 PM Page 44 44 The Sunken Billions: The Economic Justification for Fisheries Reform APPENDIX 1. THE CONCEPT OF Usually in common pool fisheries, the demand will ECONOMIC RENT push the supply to y0 (Figure 24), at which point there are no economic rents. At the other extreme, IN FISHERIES supply may be limited by a management regime Economic rent is defined as "the payment with the objective of maximizing fisheries rents. (imputed or otherwise) to a factor in fixed sup- Between these extremes, the various fisheries man- ply."16 This definition is formulated in terms of a agement regimes restrict the harvest quantity at factor of production and can be extended to cover different levels and in different ways. any restricted variable, such as fish catch. There is a cost associated with resource reduc- Figure 24, showing a demand curve and a sup- tion (a variant of capital reduction cost) for each ply curve is often used to illustrate Ricardo's the- level of harvest from the stock. This is entirely sep- ory of land rents. In the figure, the market price is arate from the cost of the harvesting activity as p. However, because the quantity of the factor (for such, which is included in the demand curve. This example, land) is fixed, the corresponding supply, cost18 is the economically appropriate supply y, would be forthcoming even if the price were price of fish. The resource reduction cost increases zero and the price, p, may be regarded as a surplus with the quantity extracted, or level of harvest. per unit of quantity. The total surplus is repre- This defines an economically appropriate supply sented by the rectangle p y also represents the . curve for harvest (Arnason 2006) as illustrated in economic rents attributable to the limited factor, y. Figure 25. The economic rents depicted in Figure 24 repre- The optimally managed fishery will set the sent rental income to the owner of the factor (for actual quantity of supply (allowable harvest) at y example, land) in fixed supply who rents it out to corresponding to the intersection between the sup- users. The economic rents do not, however, repre- ply and demand curves in Figure 25. At this level sent the total economic benefits of the supply y. point there will be a price of supply denoted by p This is measured by the sum of economic rents and in the diagram. The supply y gives rise to fisheries the demanders' surplus represented by the upper rents as indicated by the rectangle19 in the figure. triangle in the diagram. Thus, in the case depicted Under conditions of open access the supply is not in Figure 24, total benefits, those of the owner plus restricted and the quantity of extraction will be at those of the demanders,17 would be greater than y0 which corresponds to no rents at all. economic rents. Measurement of fisheries rents in fisheries However, in fisheries (as, indeed, in most other means estimating areas represented by such rec- natural resource use), the quantity of supply is not tangles and requires estimates of the demand curve fixed. At each point of time it is usually possible to for harvests. The demand curve for harvests extract more or less from the resource stock. Figure 25 Illustrative Resource Rents in a Figure 24 Economic Rents Resource Extraction Industry Supply Supply Intra- icerP marginal profits/rents icerP p p Demand Economic Demand rents Natural resource rents y y0 y y0 Quantity Harvest quantity Sunk_043-060.qxd 10/6/08 3:14 PM Page 45 Appendices 45 follows from the profit function of the fishing indus- Accordingly, fisheries rents are defined as: try. A simple form of this function is written as: (1) R(y,x) = wy(y,x) y. # w(y, x), So, to estimate fisheries rents requires a determi- where y is the harvest level and x the biomass of nation of the marginal profits of the fishing indus- the stock. The demand curve for harvest is defined try. To estimate maximum economic rents or even as the instantaneous marginal profits from harvest economic rents in equilibrium, a bioeconomic (Arnason 2006) and may be written as: model of the fishery is needed. wy(y, x), Sunk_043-060.qxd 10/6/08 3:14 PM Page 46 46 The Sunken Billions: The Economic Justification for Fisheries Reform APPENDIX 2. MODEL AND MODEL and, thus, is more resilient to high levels of fishing ESTIMATION effort than the logistic function. G(x) = a x - b x2, # # (Logistic) This Appendix sets out the details of the global # # # G(x) = a x - b ln(x) x (Fox, 1970) fisheries model employed in this study and explains how it can be applied. For harvesting the generalized Schaefer (1954) form is selected: The Basic Model Y(e,x) = q e xb, # # The basic model is the following aggregative fish- where the coefficient b indicates the degree of eries model: schooling behavior by the fish (normally b H [0, 1]). # (1) x = G(x) - y (Biomassgrowthfunction). The coefficient q is often referred to as the catcha- (2) y = Y(e,x) (Harvesting function). bility coefficient. # (3) p = p Y(x, x) - C(e) (Profit function). For the cost function the following linear form is 0y b 0e chosen # # (4) R K wy(y,x) y = ap - Ce(e) # y # C(e) = c e + fk, (Fisheries rents)20. where c represents marginal variable costs and fk Equation (1) describes net biomass growth, fixed costs. # denoted by the derivative, x K 0x/0t. The variable Under these functional specifications the com- x represents the level of biomass and y harvest. plete model becomes: The function G(x) represents the natural growth of # # # the biomass before harvesting. Equation (2) x = a x - b x2 - y, explains the harvest as a function of fishing effort, (5) or (Biomass growth functions). e, and biomass. Equation (3) defines profits as the # # # # # x = a x - b ln(x) x - y difference between revenues, p Y(e, x) where p # # denotes the average net landed price of fish, and (6) y = q e xb (Harvesting function). # # costs represented by the cost function C(e). Equa- (7) p = p y - c e - fk (Profit function). tion (4) specifies fisheries rents, R. This, as c # # # (8) b (Fisheries rents). explained in Appendix 1, is formally defined as R = p y - aqb y x- # (0p/0y) y. # Assuming biomass equilibrium, that is, x = 0, it is Of the six variables in this model, that is, x, y, p, possible to deduce from equations (5) and (6) the R, p and e, the first four may be seen as endoge- equilibrium or sustainable yield curves as a func- nous, that is determined within the fishery. The tion of fishing effort for the two biomass growth fifth, price, is exogenous, determined by market functions. The corresponding equilibrium revenue conditions outside the fishery. The sixth, fishing curves are illustrated in Figure 26, where the graph effort, e, may be seen as the control variable, that is, the variable whose values may be selected to max- imize benefits from the fishery. Figure 26 The Equilibrium Fisheries Model The Specific Model The basic model comprises three elementary func- tions; the natural growth function, G(x), the har- s Logistic Costs vesting function Y(e, x), and the cost function, C(e). aluev The specific model is defined by deciding on the form of these functions. iumr Fox Two variants of the biomass growth function, G(x), are used; the logistic function (Volterra, 1923) Equilib and the Fox function (Fox 1970). As explained pre- viously, the main difference between these two functions is that the Fox function exhibits higher Fishing effort biomass growth at relatively low biomass levels Sunk_043-060.qxd 10/6/08 3:14 PM Page 47 Appendices 47 of the cost curve is also depicted. The resulting fishing effort is not needed to run the model, and equilibrium diagram is usually referred to as that marginal costs and catchability, c and q do not the sustainable fisheries model (see, for example, play an independent role in this model. The ratio Hannesson 1993). of the two (c q) may be regarded as a single coeffi- The discontinuity in both equilibrium revenue cient, referred to as "normalized marginal cost." functions illustrated in Figure 26 is a common fea- ture in real fisheries (see, for example, Clark 1976). Estimation of Model Inputs In this particular case it occurs because a degree of schooling behaviour (b 1) has been assumed. The "specific fisheries model" (i.e., equations (5), Equilibrium profits from the fishery are maxi- (8) and (9)) contains six unknown coefficients c mized at a fishing effort level where the distance a, b, 1q2, b, p, fk. These have to be estimated from between equilibrium revenues and costs is great- data or determined in some other way. The model est. As can be seen from Figure 26 this occurs at also contains five unknown variables, namely, x, y, # different fishing effort levels for the two biomass and R as well as the change in biomass, x. The growth functions. model can be used to solve for three of these vari- Equilibrium fisheries rents are not generally ables endogenously. The other two have to be identifiable from a diagram such as Figure 26 and either estimated from data or determined in some fisheries rents are generally not maximized at the other way. In the rents loss calculations of this same effort level which maximizes profits. How- study, current or base year rents are compared to ever, for the specific model of this study, rents may maximum equilibrium rents. For the calculations be identified as the difference between equilibrium of maximum equilibrium rents, estimates of these revenues and the variable costs curve (i.e., a curve two variables are not required. First, the equilib- # parallel to the cost curve but passing through the rium biomass is constant, so x = 0. Second, the origin). Also, in this specific model, the rents and harvest, y is determined by the maximization exer- profits maximizing fishing effort levels coincide, cise. For the current rents calculations, estimates of although maximum rents may well exceed maxi- base year harvest and biomass growth, y(t*) and # mum profits. x(t*), respectively were obtained. The model A condensed form of the model may be inputs (coefficients and variables) that have to be obtained by combining equations (6) and (7) to estimated are listed in Table 9. yield: There are many ways to obtain estimates of the model input data listed in Table 9. As the quality (9) p = p y - ayqb y x- - fk # # # b of some global fisheries data sets is poor, the study has elected for a procedure which minimizes data (Profit function). requirements. The procedure is summarized as a This condensed form of the model, that is, equa- series of estimation formulae listed in Table 11. tions (5), (8) and (9), shows that knowledge of These formulae can be verified by the appropriate Table 9 Summary of Model Coefficients and Variables that Need to be Estimated Permissible Characterization values Biological coefficients Biomass growth function a Intrinsic growth rate (only for the logistic function) a 0 Biomass growth function b b 0 Harvesting function b Schooling parameter 0 b 1 Economic coefficients Cost function c q Marginal cost ratio c q 0 Cost function fk Fixed costs fk 0 Revenues p Net landings price p 0 Variables (in base year, t*) Landings y(t*) Volume of landings y(t*) 0 Biomass growth x(t*) Biomass growth Sunk_043-060.qxd 10/6/08 3:14 PM Page 48 48 The Sunken Billions: The Economic Justification for Fisheries Reform Table 10 Data for Estimation of Model Coefficients and Variables (i) Biological data Maximum sustainable yield MSY Biomass carrying capacity Xmax The schooling parameter b (ii) Fisheries data in a base year t* Biomass growth in year t* x(t*) Landings in year t* y(t*) Price of landings in year t* p(t*) Profits in year t* p(t*) Fixed cost ratio in year t*(fk/TC(t*)) e(t*) Table 11 Formulae to Calculate Model Parameters Unknowns Formulae Logistic function MSY # aN aN = 4 Xmax bN bN = 4 MSY # Xmax 2 # # Biomass in base year,xN(t*) xN(t*) = aN 4 bN # # (y(t*) 2bN a1 ; a1 - aN2 + x (t*)) b0.5b Fox function exp # # aN aN = MSY ln(Xmax) Xmax bN bN = MSY exp # Xmax # # Biomass in base year,xN(t*) (aN - bN # ln(xN(t *)) xN(t *) = x(t *) + y (t *) # # Normalized marginal cost, acq b N (p(t*) y(t*) - p(t*)) (1 - e) cN = # y(t*) xN(t*) # # Fixed coasts,fk N fk = (p(t*) y(t*) - p(t*)) e(t*) N The schooling parameter,bN b Landings in year t*,yN(t*) y(t*) Price of landings in year t*,pN (t*) p(t*) manipulation of the specific model above. The If the numerical value of e(t*) is known, the global data which is needed are listed in Table 10. numerical value of e* can be calculated for this The change in fishing effort from an initial to an expression. Otherwise, e* can be calculated as a optimal fishery can be calculated with the same fraction of e(t*), that is, as an index. basic data as listed in Table 10. More precisely, it The input values used for the estimations and can be shown that: their respective sources are listed in Table 12. p y* - w* # In a long-run economic equilibrium, all costs are # e* = w e(t*), where w = p y(t*) - w(t*), variable (Varian, 1984). This is because in the long- # run equilibrium all capital (the source of fixed where `*' indicate the final equilibrium levels of costs) has been adjusted. Therefore, in the move- variables and `t*' the base year values. ment to long-run equilibrium all so-called fixed Sunk_043-060.qxd 10/6/08 9:05 PM Page 49 Appendices 49 Table 12 Empirical Assumptions for Estimation of Model Coefficients Input data Units Value Biological data Maximum sustainable yield MSY m. metric tons 95 Carrying capacity Xmax m. metric tons 453.0 Fisheries data in base year (2004) Biomass growth in base year t* x(t*) m. metric tons 2 Landings in base year t* y(t*) m. metric ton 85.7 Price of landings in base year t* p(t*) 1000 $/ton 0.92 Profits in base year t* ß(t*) billion $ 5 Fixed cost ratio in base year t* e(t*) ratio 0 The schooling parameter b no units 0.7 Elasticity of demand with respect to biomass d no units 0.24 Effort (index or real base year effort) Fishing effort (fleet) in base year e(t*) index 1.00 Table 13 Calculated Model Coefficients (Implied) Logistic Fox Biomass growth parameter, a 0.839 3.486 Biomass growth parameter, b 0.002 0.570 Biomass, x(2004) 148.4 92.3 Normalized marginal costs, c/q 32.3 23.2 Schooling parameter, b 0.7 0.7. Fixed costs, fk 0 0 costs are in fact variable. In this study, the equilib- the base year are ignored. They are included but rium (or long run) maximum rents are going to be regarded as variable costs. compared to current rents. Therefore, within the On the basis of the empirical assumptions listed framework of this study, any fixed costs experi- in Table 12 and the formulae in Table 11, the model enced in the base year are taken to be variable coefficients can be calculated. The results are listed when considering the movement to the rents max- in Table 13. imizing equilibrium. This is equivalent to setting With the empirical assumption and the esti- the fixed cost ratio in the base year equal to zero. mates above, the condensed form of the global Note that this does not imply that the fixed costs in fisheries model employed in this study becomes: x 0.839 x 0.002 x2, (logistic biomass growth) (10) x 3.486 x 0.57 ln(x) x2, (Fox biomass growth) (11) ß(y, x) 0.918 y 32.8 y x0.7, (profits for the logistic). ß(y, x) 0.918 y 23.2 y x0.7, (profits for the Fox). (12) R(y, x) 0.918 y 32.8 y x0.7 (fisheries rents for the logistic). R(y, x) 0.918 y 23.2 y x0.7 (fisheries rents for the Fox). Sunk_043-060.qxd 10/6/08 9:05 PM Page 50 50 The Sunken Billions: The Economic Justification for Fisheries Reform In the same way as in Figure 26, the essence of the empirical global fisheries model can be illus- trated graphically (Figure 27). Figure 27 Graphical Illustration of the Global Fishery 120 Costs 100 80 60 Fox 40 Logistic 20 0 0.20 0.40 0.60 0.80 1.00 1.20 1.40 Sustainble revenues (Logistic function) Sustainble revenues (Fox function) Costs Sunk_043-060.qxd 10/6/08 3:14 PM Page 51 Appendices 51 APPENDIX 3. STOCHASTIC (vii) the schooling parameter are taken to be SPECIFICATIONS stochastic. (viii) elasticity of demand AND CONFIDENCE INTERVALS The remaining input parameter, the fixed cost ratio is assumed to be nonstochastic (see Appendix 2). Because of the uncertainties concerning the empir- ical values and assumptions underlying the global 5.3.1 Outcomes of the Monte Carlo fisheries model rents loss calculations, the out- Stochastic Simulations comes should be regarded as stochastic with asso- Logistic model (see Figure 28) ciated probability distributions. As the rents loss · Nonnormal distribution calculations involve a complex nonlinear function · Mean rents loss: $43.0 billion of the empirical data and assumptions, the analytic · Median rents loss: $44.5 billion equations for the probability distribution of these · Mode rents loss (approximately) $48 billion estimates are not readily obtainable. In order to · Standard deviation: $8.8 billion generate confidence intervals for the rents loss, · 95% Confidence interval: $ [20.2,55.7] billion reasonable probability distributions for the empir- ical data and assumptions are specified and Monte Fox model (see Figure 29) Carlo stochastic simulations (Davidson and · Approximately normal distribution MacKinnon 1993; Fishman 1996) were used to gener- · Mean rents loss: $59.0 billion ate probability distributions for the model inputs and · Median rents loss: $59.2 billion outcomes (fisheries rents and fisheries rents loss). · Mode rents loss (approximately) $52 billion Probability distributions for the following seven · Standard deviation: $9.0 billion input parameters were generated on the basis of · 95% Confidence interval: $ [38.8,74.6] billion 2,000 simulations drawing from the distributions specified here. The stochastic specifications are Difference between models. The difference summarized in Table 14 and the resulting outcomes between the two means appears to be highly sig- and distributions are illustrated in the following nificant at the 5 percent level. Assuming that the diagrams: two biomass growth functions (both illustrated in Figure 30) are equally likely: (i) the global maximum sustainable yield; (ii) the global biomass carrying capacity; · Mean rents loss: $51.0 billion (iii) biomass growth in the base year; · Standard deviation: $2.0 billion (iv) landings in the base year; · 95% confidence interval $ [26.3,72.8] billion (v) profits in the base year; Calculated rents and rents loss. Two thousand (vi) the landings price; and draws from the stochastic distributions described Table 14 Empirical Assumptions: Stochastic Specifications Standard Implied 95% Variable Point estimate Type of distribution deviation** confidence interval MSY 95 Log-normal 0.03 89.5 to 100.9 Xmax 453 Log-normal 0.1 370.9 to 553.3 b 0.7 Log-normal 0.05 0.63 to 0.77 x(t*) 2 Normal 3.0 8 to 4 y(t*) 85.7 Log-normal 0.015 83.2 to 88.3 p(t*) 0.918 Log-normal 0.03 0.865 to 0.975 ß(t*) 5 Normal 2.5 10 to 0 e(t*) 0 Log-normal 0.0 0 d 0.2 Log-normal 0.1 0.164 to 0.244 ** For lognormal distributions, the standard deviation may be interpreted as an approximate percentage deviation. Sunk_043-060.qxd 10/6/08 3:14 PM Page 52 52 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 28 Graphical Illustration of Logistic Model Stochastic Simulations Density function Distribution function 600 1 404 1 Prob (RL, z) y 400 H1 0.5 requencF 200 Probability 0 0 0 50 0 20 40 0 int 80 10 z Rents loss (b US$) Profits Figure 29 Graphical Illustration of Fox Model Stochastic Simulations Density function Distribution function 400 1 287 1 y Prob (RLF, z) 200 HF1 0.5 requencF Probability 2 0 0 20 40 60 80 0 40 60 19.4056 int 77.8277 30 z Rents loss (b US$) Profits Figure 30 Graphical Illustration of Combined Logistic and Fox Model Stochastic Simulations Density function Distribution functio 600 1 454 1 HSUM PProb (RLSUM, z) 400 HF HL 0.5 200 0 0 5×10­4 ­50 0 50 100 0 0 50 Sunk_043-060.qxd 10/6/08 3:14 PM Page 53 Appendices 53 Table 15 Estimated Rent Loss: Main Results ($ billion) Current (2004) Max. sustainable rents Rents loss 95% 95% 95% Mean confidence interval Mean confidence interval Mean confidence interval Logistic 5.0 [ 10.2, 0.0] 37.6 [4.7, 48.2] 43.0 [20.2, 55.7] Fox 5.0 [ 10.2, 0.0] 53.4 [41.4, 65.4] 59.0 [38.8, 74.6] Figure 31 Distribution of the Estimated Rents Loss Logistic Fox 600 400 y 400 y 200 requencF200 requencF 0 50 0 20 40 60 80 Rents loss (b. US$) Rents loss (b. US$) earlier were taken and the resulting rents and · 90% confidence interval: $[31.3,69.8] billion rents loss calculated. The latter is defined as the per year difference between the maximum attainable sus- · 80% confidence interval: $[36.5,66.9] billion tainable rents and those that pertain to the base per year year (2004). Both the current and the maximum rents estimates are stochastic. On this basis the 5.3.2 Details of the Probability distributions for the outcomes are derived and Distributions for the Input confidence intervals calculated. The stochastic Parameters specifications for the empirical assumptions are (i) Maximum sustainable yield (MSY) listed in Table 14. The key results of the two thousand draws MSY° MSY eu1, u1 N(0, s1), from the stochastic distributions described earlier where MSY° represents the stochastic maximum and the resulting rents are summarized in Table 6 sustainable yield and MSY the point estimate. The (in the main text), repeated for convenience in random terms u1 is assumed to be normally dis- Table 15 below. The distribution of the rents loss is tributed with mean zero and standard deviation illustrated in Figure 31. 1 . This specification implies that MSY° exhibits a Conclusion. In conclusion, the most reasonable lognormal distribution. In the stochastic simula- estimate of the global rents loss is: tions it is assumed 1 0.03. This gives rise to the · Mean: $51 billion per year with distribution illustrated in Figure 32. An estimated · 95% confidence interval: $[26.3,72.8] billion 5 percent confidence interval for MSY° is MSY° H per year [89.5, 100.9] million metric tons. Sunk_043-060.qxd 10/6/08 3:14 PM Page 54 54 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 32 Simulated Distribution of the MSY Figure 34 Simulated Distribution of Biomass Growth in Base Year, XDOT 400 300 y y 200 200 requencF requencF 100 0 90 95 100 105 110 0 MSY ­10 ­5 0 5 10 XDOT (ii) Biomass carrying capacity (XMAX) stochastic simulations it is assumed that s3 3. XMAX° XMAX eu2, u1 N(0, s2), This generates the distribution illustrated in Fig- ure 34. An approximate 5 percent confidence inter- where XMAX° represents the stochastic carrying val for XDOT° is XDOT° H [ 8, 4] million metric capacity of the global commercial biomass with tons. XMAX as the point estimate. The random variable u2 is assumed to be normally distributed with (iv) Landings in base year (Y) mean zero and standard deviation s2. This specifi- Y° Y eu2, u4 N(0, s4), cation implies that XMAX° exhibits a lognormal distribution. In the stochastic simulations, it is where Y° represents the stochastic landings in the assumed that s2 0.1. This leads to the distribu- base year and Y is the point estimate. The random tion illustrated in Figure 33. An estimated 5 per- variable u4 is assumed to be normally distributed cent confidence interval for XMAX° is XMAX° H with mean zero and standard deviation s4. This [370.9, 553.3] million metric tons. specification implies that Y° exhibits a lognormal distribution. In the stochastic simulations, s4 (iii) Biomass growth in base year (XDOT) 0.015. This gives rise to the distribution illustrated XDOT° XDOT u3, u3 N(0, s3), in Figure 35. A 5 percent confidence interval for Y° is y° H [83.2, 88.3] million metric tons. where XDOT° represents the stochastic biomass growth in the base year and XDOT is the point esti- (v) Profits in base year (Prof) mate. u3 is assumed to be normally distributed ran- PROF° PROF u5, u5 N(0, s5), dom variable with mean zero and standard deviation s3. This specification implies that where PROF° represents the stochastic profits in XDOT° exhibits a normal distribution. In the the base year and PROF the point estimate for Figure 35 Simulated Distribution Figure 33 Simulated Distribution of the XMAX of Landings, Y 400 400 y y 200 200 requencF requencF 0 0 200 300 400 500 600 75 80 85 90 XMAX Landings, Y Sunk_043-060.qxd 10/6/08 3:14 PM Page 55 Appendices 55 Figure 36 Simulated Distribution Figure 38 Simulated Distribution of Profits, PROF of Schooling Parameter, b 400 400 y y 200 200 requencF requencF 0 0 ­20 ­10 0 10 0.8 0.82 0.84 0.86 Profits in base year Schooling parameter, b these profits. u5 is a normally distributed random where b° represents the stochastic schooling para- variable with mean zero and standard deviation meter with b being the point estimate. The random s5. This specification implies that PROF° exhibits a variable u7 is assumed to be normally distributed normal distribution. In the stochastic simulations, with mean zero and standard deviation s7. This s5 2.5. This leads to the distribution illustrated specification implies that b° exhibits a lognormal in Figure 36. A 5 percent confidence interval for distribution. In the stochastic simulations it is PROF° is PROF° H [ 10, 0] billion $. assumed that s7 0.05. This gives rise to the dis- tribution illustrated in Figure 38. A 5 percent con- (vi) Landings price (P) fidence interval for b° is b° H [0.63, 0.77]. P° P eu6, u6 N(0, s6), (viii) Elasticity of demand (d) where P° represents the stochastic landings price, d° d eu2, u8 N(0, s8), P the point estimate of the landings price and u6 is assumed to be a normally distributed random vari- where d° represents the stochastic schooling para- able with mean zero and standard deviation s6. meter with d being the point estimate. The random This specification implies that P° exhibits a lognor- variable u8 is assumed to be normally distributed mal distribution. In the stochastic simulations, with mean zero and standard deviation s8. This s6 0.03. This gives rise to the distribution illus- specification implies that d° exhibits a lognormal trated in Figure 37. A 5 percent confidence interval distribution. In the stochastic simulations it is for P° is P° H [0.865, 0.975] $/kg. assumed that s8 0.1. This gives rise to the distri- bution illustrated in Figure 35. A 5 percent confi- (vii) Schooling parameter (b) dence interval for d° is b° H [0.164, 0.244]. b° b eu2, u7 N(0, s7), Figure 39 Simulated Distribution of Elasticity Figure 37 Simulated Distribution of Price, p of Demand, d 400 400 y y 200 200 requencF requencF 0 0 0.8 0.9 1 1.1 0.1 0.15 0.2 0.25 Price, P Elasticity of price Sunk_043-060.qxd 10/6/08 3:14 PM Page 56 56 The Sunken Billions: The Economic Justification for Fisheries Reform APPENDIX 4. SUPPLEMENTARY DATA Table 16 Motorized Fishing Fleets in Selected Major Fishing Countries, 2004 Country % of reported global marine catches* 2004 China Number 509,717 17% Tonnage (GT) 7,115,194 Power (kW) 15,506,720 EU-15 Number 85,480 6% Tonnage (GT) 1,882,597 Power (kW) 6,941,077 Iceland Number 939 2% Tonnage (GT) 187,079 Power (kW) 462,785 Japan Number 313,870 5% Tonnage (GT) 1,304,000 Norway Number 8,184 3% Tonnage (GT) 394,846 Power (kW) 1,328,945 Republic of Korea Number 87,203 2% Tonnage (GT) 721,398 Power (kW) 16,743,102 Russian Federation Number 2,458 3% Tonnage (GT) 1,939,734 Power (kW) 2,111,332 Sources: China: FAO fishery statistical inquiry; EU-15: Eurostat; Iceland: Statistics Iceland (http://www.statice.is); Japan: Japan Statistical Yearbook 2006 (http://www.stat.go.jp/english/data/nenkan/index.htm); Republic of Korea: Korea Statistical Yearbook 2005 Vol. 52; Norway: Statistics Norway (http://www.ssb.no) and Eurostat; Russian Federation: FAO fishery statistical inquiry, FAO FishStat; Concerted Action 2004. Notes: Some vessels may not be measured according to the 1969 International Convention on Tonnage Measurement of Ships. The Icelandic data exclude undecked vessels. The Japanese data refer to registered fishing vessels operating in marine waters. The Russian Federation data refer to powered decked vessels with a national licence. * excluding aquatic plants Table 17 Selected Examples of Relationship between Estimated MSY and Biomass Carrying Capacity Fishery MSY Carrying capacity Multiple (biomasss/MSY) Denmark cod 216 1443 6.68 Norway cod 602 2473 4.11 Iceland cod 332 1988 5.99 Denmark herring 666 4896 7.35 Norway capelin 2219 8293 3.74 Iceland capelin 1010 3669 3.63 Bangladesh Hilsa 286 1084 3.79 Source: ICES, FAO. Sunk_043-060.qxd 10/6/08 3:14 PM Page 57 Appendices 57 Table 18 Estimation of the Weighted Average Global Schooling Parameter Species group Imputed MSY Schooling parameter Weighted Salmons, trouts, smelts 1,016,854 1.00 0.007 Shads 426,754 0.50 0.002 Miscellaneous diadromous fishes 80,134 0.70 0.001 Flounders, halibuts, soles 1,392,052 1.00 0.014 Cods, hakes, haddocks 13,788,742 1.00 0.137 Miscellaneous coastal fishes 6,935,300 1.00 0.069 Miscellaneous demersal fishes 3,162,243 1.00 0.031 Herrings, sardines, anchovies 25,908,711 0.30 0.077 Tunas, bonitos, billfishes 6,243,122 0.60 0.037 Miscellaneous pelagic fishes 14,322,640 0.50 0.071 Sharks, rays, chimaeras 880,785 0.90 0.008 Marine fishes not identified 10,738,831 0.85 0.090 Crabs, sea-spiders 1,333,282 0.70 0.009 Lobsters, spiny-rock lobsters 233,825 0.70 0.002 King crabs, squat-lobsters 163,513 0.70 0.001 Shrimps, prawns 3,478,304 0.80 0.028 Krill, planktonic crustaceans 528,335 0.50 0.003 Miscellaneous marine crustaceans 1,427,312 0.70 0.010 Abalones, winkles, conchs 139,964 1.00 0.001 Oysters 302,526 1.00 0.003 Mussels 317,852 1.00 0.003 Scallops, pectens 804,349 1.00 0.008 Clams, cockles, arkshells 1,129,231 1.00 0.011 Squids, cuttlefishes, octopuses 3,892,145 0.70 0.027 Miscellaneous marine molluscs 1,596,036 0.90 0.014 Sea-squirts and other tunicates 21,331 1.00 0.000 Horseshoe crabs and other arachnoids 3,252 1.00 0.000 Sea-urchins and other echinoderms 140,461 1.00 0.001 Miscellaneous aquatic invertebrates 539,994 0.90 0.005 TOTAL 100,965,809 0.670 Sources: MSY values are the historical maximum catch as reported by Fishstat. The schooling parameters are assumed based on information on schooling parameters for several indicative species. Sunk_043-060.qxd 10/6/08 3:14 PM Page 58 58 The Sunken Billions: The Economic Justification for Fisheries Reform Table 19 Indicative Results of Selected Case Studies on Economic Rents in Fisheries Rent/revenue loss as percentage of base revenues or landed values Fishery base year % rent or proxy Source Vietnam Gulf of Tonkin demersal multi-gear, multi-species 2006 29% rent Nguyen and Nyuyen 2008 Icelandic cod demersal multi-gear, multi-species 2005 55% rent Arnason pers. com. Namibian hake trawl 2002 136% rent Sumaila 2007 Peruvian anchoveta purse seine 2006 29%* rent Paredes et al. 2008 Bangladesh hilsa artisanal multi-gear 2005 58% rents Gulf of Thailand demersal multi-gear multi-species 1997 42% net revenues Willmann et al. 2003 Yemen lobster - artisanal 2008 1653% net revenues based on Shotton pers com British Colombia salmon fishery 1982 76% rents Dupont, 1990 Cyprus fisheries 1984 5% revenue increase Hannesson 1986 Small-pelagic fisheries in northwest Peninsular Malaysia 1980­90 79% revenue Tai and Heaps, 1996 US Atlantic sea scallop 1995 75% Repetto 2002 US fisheries 2003 192% net present value Sumaila and Suatoni, 2006 New England Groundfish 1989 188% rents Edwards and Murawski 1993 Gulf of Mexico shrimp 1990s 50% present value Ward 2006 Western and Central Pacific tuna 1996 59% profit Bertignac et al. Norwegian trawl 1998 439% rents Ache et al. 2003 Japan coastal squid 2004 77% rents Hoshino and Matsuda Japan Pacific saury stick-held 2007 dip-net fishery 2004 89% rents Lake Victoria Nile perch (freshwater) 2006 61% rents Warui 2008 Danish mussel 2001­03 9% landed value Nielsen et al 2006 Swedish pelagic fishery 2001­03 50% landed value Nielsen et al 2006 Faroese pair trawl 2001­03 19% landed value Nielsen et al 2006 Norwegian coastal (ITQ) 2001­03 40% landed value Nielsen et al 2006 Sources: cited in table Notes: Values presented refer to different economic indicators and are not necessarily comparable. The table is provided to illustrate the fact that in many fisheries, substantial additional net benefits can be derived through responsible fisheries management with a focus on economic and social benefits. *economic returns from these fisheries are highly variable and heavily influenced by environmental factors or export markets, not merely by the effectiveness of the management regime. Sunk_043-060.qxd 10/6/08 3:14 PM Page 59 Appendices 59 Table 20 Projection of Rent Loss 1974­2007 ($ billion) Stocks Rents fully+over+depleted ($billion) Deflator** Year % index raised rent (billion) base indexed 2004 Deflated rent by year Cumulative rent at 3.5% 1974 0.61 0.80 39.8 40.5 53.5 0.36 14.8 15 1975* 40.5 58.4 0.40 16.1 33 1976 40.5 61.1 0.42 16.9 51 1977 40.5 64.9 0.44 17.9 72 1978 0.59 0.77 38.7 39.5 69.9 0.48 18.8 93 1979 0.63 0.82 41.2 42.0 78.7 0.54 22.5 120 1980 42.0 89.8 0.61 25.7 151 1981 0.63 0.82 40.9 41.8 98 0.67 27.9 185 1982 41.8 100 0.68 28.5 221 1983 0.69 0.91 45.4 46.3 101.3 0.69 31.9 262 1984 46.3 103.7 0.71 32.7 305 1985 0.68 0.90 44.8 45.7 103.2 0.70 32.1 349 1986 45.7 100.2 0.68 31.2 393 1987 0.69 0.90 44.9 45.8 102.8 0.70 32.1 440 1988 45.8 106.9 0.73 33.3 490 1989 0.69 0.91 45.4 46.4 112.2 0.76 35.5 544 1990 0.69 0.90 44.9 45.8 116.3 0.79 36.3 601 1991 45.8 116.5 0.79 36.4 659 1992 0.71 0.93 46.3 47.2 117.2 0.80 37.7 721 1993 47.2 118.9 0.81 38.2 786 1994 47.2 120.4 0.82 38.7 854 1995 0.70 0.92 46.0 47.0 124.7 0.85 39.9 925 1996 47.0 127.7 0.87 40.9 1,000 1997 0.73 0.96 48.0 49.0 127.6 0.87 42.6 1,079 1998 49.0 124.4 0.85 41.5 1,159 1999 49.0 125.5 0.86 41.9 1,243 2000 0.75 0.98 48.8 48.8 132.7 0.90 44.1 1,333 2001 48.8 134.2 0.91 44.6 1,425 2002 48.8 131.1 0.89 43.6 1,520 2003 48.8 138.1 0.94 45.9 1,621 2004 0.76 1.00 51.0 51.0 146.7 1 51.0 1,731 2005 51.0 157.4 1.07 54.7 1,848 2006 51.0 164.7 1.12 57.3 1,972 2007 51.0 172.6 1.18 60.0 2,103 2008 51.0 -- 1.18 60.0 2,239 Sources: FAO State of Marine Fisheries various years. * As the FAO's assessment of the state of marine fish stocks is not available for certain years, values from preceding year is used. ** Deflator: U.S. Labor Dept. All commodities. Sunk_043-060.qxd 10/6/08 3:14 PM Page 60 60 The Sunken Billions: The Economic Justification for Fisheries Reform Figure 40 Example of Increasing Wealth in New Zealand's Fisheries )ser 4000 has at 3500 quofo million alue (v $NZ3000 ht eal W 2500 2000 2001 2002 2003 2004 2005 2006 Quota share value Source: PROFISH Team, World Bank, based on New Zealand deepwater fishery monetary stock accounts. Sunk_061-062.qxd 10/6/08 2:29 PM Page 61 Notes PART 1 small-scale fisheries may be substantially under-estimated (The `Big Numbers' project). 1 Excluding aquatic plants 13 The use of EU cost data may overestimate capital cost be- 2 Nominal value: money value in different years; Real value: cause of the presumed higher capital intensity of EU fishing adjusts for differences in the price level in those years fleets. However, a comparison with Kurien's marine cap- 3 Estimate provided by FAO Fisheries and Aquaculture ture data set for India comprising primarily small-scale and Information and Statistics Service (FIES). All values exclude semi-industrial fishing fleets suggest that this is not the case. marine plants. The unit values from `FAO World Fishery Capital investment per unit of harvest show comparatively Production Estimated Value by Species Groups' were similar values: World (based on EU data) $1,494/ton; and weighted by the quantity of the respective marine catches in India $1,240/ton. In the case of depreciation costs, these 2004. Discards are assumed to have zero value. were estimated even higher, on average, in Indian than in 4 Preliminary results of a new World Bank/FAO/WorldFish EU marine fisheries. Center study indicate that this may be a substantial under- estimate with the current global workforce in the fisheries sector in the order of 100 million. PART 3 5 Data for South America has been adjusted to take low value fish for reduction into account. 14 A representative series of studies using a common method- 6 The International Labour Organization of the United ology is currently being undertaken by FAO and The World Nations recently adopted a comprehensive new labor stan- Bank under the World Bank's PROFISH Partnership. dard, the `Work in Fishing Convention' and the recommen- Results of several of these studies are presented in the dation will come into effect when ratified by 10 of the ILO's Appendix 4. 180 member states, of which at least eight are coastal states. 7 For thirteen different vessel types (from pirogues of 10 m up to super trawlers of 120 m) the coefficient increased on av- PART 4 erage from 0.54 in 1965 to 1.98 in 1995, or by about 366 per- 15 The Code of Conduct for Responsible Fisheries provides an cent in thirty years. overarching framework for sustainable fisheries. PART 2 PART 5 8 In some managed fisheries, increase in technological capac- 16 As defined by Armen Alchian (1987), in the New Palgrave ity has been limited by gear regulations and other fishery Dictionary of Economics and building on the classical theory management measures. by Adam Smith (1776) and David Ricardo (1817). 9 China, EU-15, Iceland, Japan, Norway, Republic of Korea, 17 Some authors refer to the demanders' surplus as intra- Russian Federation marginal rents. See, for example, Coglan and Pascoe (1999) 10 The impact of recent rises in fuel prices are discussed else- for the case of fisheries and Blaug (2000) more generally. where in this report. DFID (2004) provides a short overview of rents in fisheries 11 Taking as a basis data from more than 250 fisheries and spa- and Clark and Munro (1975) provide an overview of fish- tially resolved catch statistics for 2000, Tyedmers, Watson eries and capital theory. and Pauly (2005) estimated global fuel consumption at al- 18 Also called user cost by Scott (1955) and shadow price of the most 50 billion liters, equal to 42.5 million tons. On the basis resource by Dasgupta and Heal (1975). of country-by-country fishing fleet data, Smith (forthcom- 19 The rectangle, represented by the multiple p y in the figure . ing) estimated global fuel consumption at 38 million tons. corresponds to economic rents in the traditional (Smith- 12 As the production from small-scale fisheries tends to be Ricardian) sense as defined by Alchian. under-estimated, or under-reported, this value may be an 20 In Appendix 1, rent was defined as R K (y, x) y, where . y under-estimate. Chuenpagdee et al. 2006 suggest that 25 is the first derivative of the profit function, that is, marginal percent may be a minimum value. Current work in progress profits. For this particular fisheries model with fishing effort by FAO and WorldFish Center under the World Bank's rather than harvest as a control variable . y (y, x) p Ce PROFISH Program also confirm that production from 0e/ 0y. 61 Sunk_061-062.qxd 10/6/08 2:29 PM Page 62 Sunk_063-068.qxd 10/6/08 2:32 PM Page 63 References Agnarsson, S. and R. Arnason. 2007. "The Role of the Fishing Bertignac. Michel, Harry F. Campbell, John Hampton, and Industry in the Icelandic Economy." In T. Bjorndal, D.V. Anthony J. Hand. 2001. Maximizing Resource Rent From the Gordon, R. Arnason and U.R. Sumaila (eds.). Advances in Western and Central Pacific Tuna Fisheries. Marine Resource Fisheries Economics. Oxford: Blackwell Publishing. Economics, Volume 15, pp. 151­177 0738­1360/00. Ahrens, R. and Walters, C. 2005. 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