Economics and the Management of Ocean Fisheries

1. Economics and the Management of Ocean Fisheries Gordon Munro Department of Economics and Fisheries Centre University of British Columbia Vancouver, Canada

2. Introduction World�s ocean fisheries are divided between capture fisheries �hunting fish in the wild aquaculture � fish farming While aquaculture is steadily growing in importance, we shall confine ourselves to capture fisheries capture fisheries pose a far greater management problem than does aquaculture

3. Importance of Ocean Capture Fisheries Although ocean capture fishery resources have been subject to overexploitation, these fisheries have annual harvests equal 80+ million tonnes, with first sale value of roughly US$ 70 billion Provide direct, and indirect employment to as many as 200 million particularly important to the developing world

4. Developments in Ocean Capture Fisheries There is clear evidence that ocean capture fishery harvests are reaching a plateau only increase through improved management That is not alarming �what is alarming is evidence increasing overexploitation FAO criterion: is stock at level capable of Maximum Sustained Yield (MSY)? (i) Stock at MSY level � Fully Exploited (ii) Stock above MSY level � Less than Fully Exploited (iii) Stock below MSY level - Overexploited

5. Growing Overexploitation According to the FAO, in 1950 no more than 5% of capture fishery stocks overexploited �by the early 2000s, this figure had jumped to 25%. A further 50% are in the Fully Exploited category Fully Exploited is not Overexploited, but fear that many Fully Exploited stocks are candidates for Overexploited category (but see later) Recent work by Daniel Pauly (co-winner, 2006 Volvo Foundation Prize) and R. Froese (2003) implies that FAO may be understating the problem

6. Global trend in the status of marine fisheries resources based on FAO statistics(Daniel Pauly and R. Froese, 2003)

7. Causes of the Problem How did we get into such a situation? What is to be done about it? We shall argue that economics lies at the heart of each of two questions view now being taken by marine biologists, e.g. Ray Hilborn, University of Washington, another co-winner of 2006 Volvo Foundation prize BUT! economists alone cannot solve problem �capture fisheries management inherently interdisciplinary in nature

8. The Economist�s Perspective All natural resources seen as real �capital� capital: any asset capable of yielding stream of economic returns through time capital, both human made and natural Can build up stock of capital through positive investment �sacrifice today, for hope of return tomorrow can also run down stock of capital -disinvestment

9. Renewable and Non-renewable Natural Resources Is the resource capable of growth? if yes � renewable; if no, non-renewable non-renewable, e.g. minerals � either zero investment, or disinvestement -mining renewable � zero investment means harvesting on a �sustainable� basis - skimming off growth; positive investment possible, by harvesting less than growth Capture fishery resource � quintessential renewable resource

10. Optimal Economic Management Capture fisheries management �from economic perspective � �real� asset management problem ideal: manage portfolio of capture fishery resources (assets) to maximize net economic benefits to society through time Actual management decidedly less than ideal sub-optimal management estimated to cost World economy up to US$50 billion per year

11. �Common Pool� Problems Capture fishery resources difficult to manage fish are mobile; not visible before capture; complex species interactions; environmental shocks Difficult in past to assign property rights to resources � fisheries typically open access, �common pool� �Common pool� �confronts fishers with socially perverse incentives � no interest in investing in resources � resources are there to be mined overexploitation of resources guaranteed

12. Serious Fisheries Management � A Recent Phenomenon Serious fisheries management only 60 years old If costs of fishing high, overexploitation of �common pool� fishery resources a minor problem this was the view, up until 20th century! � open access nature of ocean capture fisheries enshrined in doctrine of the Freedom of the Seas Turn now to evolution of international legal framework encompassing ocean capture fisheries

13. Freedom of the Seas 17th century doctrine -Hugo Grotius oceans divided into narrow coastal state territorial sea (5.5 km), and the high seas High seas fishery resources deemed to be res communis, the property of all . All nations to be allowed to fish unhindered on high seas economics �high cost of ocean fishing protected these resources in Grotius� day �assurances of Thomas Huxley in 1883

14. Coming of Overexploitation Technological advances in fishing -late 19th, 20th century- meant that high seas fishery resources were not inexhaustible, after all. �Common Pool� nature of resources led to expected results - mining of the resources Freedom of the Seas (pertaining to fisheries), as a result, has been steadily eroded, but a remnant remains

15. Mining of Fishery Resources: The Example of the North Atlantic Biomass -measure of size of resource; fishing intensity -fraction of resource harvested per period (fishing mortality)

16. Erosion of the Freedom of the Seas Heavy exploitation of ocean fishery resources led to attempts to control high seas fishing -culminating in the: 1982 UN Convention on the Law of the Sea - produced 200 nautical mile (370 km) Exclusive Economic Zone (EEZ) regime coastal state property rights to resources EEZs account for 90% of capture fishery stocks - drastic reduction in fisheries Freedom of the Seas

18. EEZ Regime Resource Management Issues EEZ regime mitigated, but did not eliminate, the �common pool� problem �exists within EEZs Fish are mobile �fish found to cross EEZ boundaries �gave rise to shared fish stock problem FAO estimates that as one much as one third of marine capture fishery harvests based on shared stocks.

19. Internationally Shared Fish Stocks

20. UN Fish Stocks Agreement In 1982, the management of straddling stocks seen as minor problem, but problem grew to crisis proportions over next decade �led to new UN conference (1993-�95) and UN Fish Stocks Agreement straddling stocks to be managed through Regional Fisheries Management Organizations (RFMOs). RFMO regime at early stage Turn now and discuss fisheries management at: (a) domestic (intra-EEZ), and (b) international level � will NOT go into EU Common Fisheries Policy in detail

21. Domestic Fisheries Management The central problem �counter the perverse fisher incentives created by �common pool� nature of capture fisheries do so in the face of great uncertainty uncertainty can be reduced, but never eliminated The two approaches to management FAO): Incentive Blocking Incentive Adjusting

22. Incentive Blocking Approaches Incentive blocking � obvious, and first, approach �block fishers from responding to perverse incentives If fishers have an incentive to overexploit resources �block them by harvest controls � e.g. Total Allowable Catches (TACs), and gear restrictions BUT harvest controls lead to new �common pool� problem, which economists call: Regulated Open Access

23. Regulated Open Access If harvest restricted, then restricted harvest becomes new �common pool�. Fishers have every incentive to compete for shares of valuable harvest Inevitable result: excess fleet capacity ��race for the fish� example of Alaska pollock fishery -US EEZ prize

24. Consequences of Excess Capacity Excess fleet capacity leads to: direct economic waste -investment in fleet capital that, from society�s point of view, is redundant also shortened fishing seasons -inefficient fishing and inferior product. Excess capacity is also a threat to the resource makes monitoring of harvesting more difficult -TAC often exceeded mass of unsatisfied vessel owners press for liberal TACs - TACs can easily become dangerously liberal FAO sees excess capacity as major threat to world fishery resources

25. Limited Entry Programs Regulated open access leads to additional incentive blocking measure -restrict number of vessels in fishery � limited entry limited entry programs often accompanied by vessel decommissioning schemes to eliminate existing excess capacity Limited entry programs �disappointing results: fishers� incentives unchanged fleet capacity a bundle of inputs �resource managers cannot control all inputs �fishers substitute uncontrolled for controlled inputs paradox of reduced number of vessels in fishery, but increased fleet capacity

26. Fisheries Subsidies Fisheries management problems aggravated by subsidies, often introduced to relieve distress in fishing communities Fisheries subsidies (worldwide) US$ 15-25 billion per year � conservative estimate roughly half are benign � in terms of management � the other half are malign, and intensify the perverse incentives the controversial decommissioning subsidies

27. Management Disasters The initial approach to resource management, as well as producing many disappointments, led to some outright disasters, one the most prominent of which was Northern Cod off Newfoundland Canada�s prize under EEZ regime Canada planned a resource investment program, after implementing its EEZ Nevertheless, in 1992 Canada had to declare a harvest moratorium on Northern Cod fishery, which remains to present day

29. Newfoundland Northern Cod1850 - 2000

30. Incentive Adjusting Approach Disappointment with Incentive Blocking approach has led to increasing emphasis on Incentive Adjusting approach Introduce measures that will adjust fisher incentives to make them compatible with society�s goals � possible measures: taxes �little used create de facto property rights for fishers ��rights base management�

31. Rights Based Management Rights based management takes three basic forms: individual harvest quotas �IQs fisher cooperatives community based fishery management schemes there are signs of convergence �also some outright blends Key- give fishers incentive to invest (positively) in the resource

32. Individual Harvest Quotas TAC divided into individual shares originally designed to curb race for the fish and excess capacity property rights to harvest shares IQs found to work best when they are: long term transferable � ITQs expressed as percentage of TAC, rather than fixed quantities 1. and 3. give fishers incentives to be concerned about long tem management of resource

33. ITQ Companies ITQ holders have incentive to coalesce into de facto companies, which in turn leads to fishers acquiring de facto (collective) property rights to resources ITQ �companies� called upon to bear management and enforcement costs become investors in resource � cover cost of research, develop more conservationist harvesting methods

34. Spread of ITQs ITQs negligible 20 years ago, now cover about 15 per cent of world capture fisheries Iceland and New Zealand the pioneers in EU can be found in some form in the Netherlands, Denmark and the UK prominent in Australia and Canada, growing importance in US

35. Alternatives to ITQs ITQs no universal panacea ineffective without good monitoring; objections on equity grounds infeasible in many developing coastal states Community based fisheries management �collective property rights to community group � examples: Japan and Chile Fisher cooperatives �once again fisher property rights to fisher groups - example: Alaska pollock evidence of convergence

36. Some Encouraging Signs Can now point to a string of fisheries, with Incentive Adjusting management measures that are clear success some examples FAO (2005) - some indications (still weak) that the trend towards overexploitation has leveled off - and perhaps about to be reversed

37. Marine Protected Areas (MPAs) In passing, one policy that is being advocated is that of sealing off segments of fisheries, as no fishing zones (MPAs) To be seen as a supplement to other fisheries management measures, not as an alternative �still have the incentive problem Economic case for MPAs �act as a buffer against unavoidable management errors similar to a financial portfolio holder putting part of portfolio in low yield liquid assets

38. International Fisheries Management Shared fish stocks the big international issue review of categories: transboundary and straddling Start off with transboundary stocks, which in 1982, was THE shared fish stock issue reasons for Would argue that EU Common Fisheries Policy can be seen as a cooperative transboundary stock management program, with cooperative mechanism, which is strong by world standards

39. Management of Transboundary Stocks 1982 UN Convention: coastal states sharing resource must seek to cooperate, but not required to reach agreement thus non-cooperative management allowed-the default option Two questions for economists: what are the consequences, if any, of the default option? what conditions must be met, if cooperative management regime is to be stable over long run?

40. Strategic Interaction There will (except in unusual circumstances) be a strategic interaction between/among states sharing resource harvest plans of one state will affect harvest plans of other states. economists forced to recognize strategic interaction, which they do by drawing upon theory of such interaction �better known as game theory 2005 Nobel Prize in Economics -T. Schelling and R. Auman -Nobel citation: �Why do some groups of ---countries succeed in promoting cooperation, while other suffer from conflict? Schelling and Auman have established game theory as the dominant approach to this age old question.�

41. Non- cooperative Management(the default option) Two classes of games: competitive and cooperative To answer Question (1), draw upon theory of competitive games The answer: serious risk that the �players� will be driven to adopt inferior, and possibly destructive, polices �The Prisoner�s Dilemma� (PD) -world�s most famous competitive game The case of Pacific salmon -Canada and the US

43. Pacific Salmon Canada and the US agreed in late �60s to manage cooperatively salmon resources from northern California to Gulf of Alaska very difficult, but negotiators driven on by manifestations of Prisoner�s Dilemma (PD), including �fish wars� treaty signed in 1985, but seized up in early �90s for 6 years. During period of treaty paralysis, PD returned with a vengeance. Conclusion: cooperation does matter; Question (2) must be addressed head on

44. Cooperative Management Some requirements for stable cooperative management arrangement: effective intra-EEZ management every �player� to receive economic benefits at least as great as it would get under non-cooperation stunningly obvious, but often ignored in practice

45. Some More Requirements c. maximize scope for bargaining through �side payments� (transfers) The North Atlantic Salmon Fund d. resiliency. Every arrangement likely to be subject to unpredictable environmental or economic shocks. If arrangement lacks resilience in face of such shocks, it will founder Pacific salmon again Norwegian Spring Spawning Herring

46. Straddling Stock Management Everything that we said about transboundary stock management holds, question - what needs to be added, if anything? Non-cooperative management - nothing more needs to added, except that threat of a �Prisoner�s Dilemma� type of outcome even greater , e.g. Grand Banks of Newfoundland

47. Cooperative Management of Straddling Stocks Cooperative management of straddling stocks more complex than that of transboundary stocks Straddling stocks to be managed through RFMOs, with coastal, and distant water, fishing states as participants -e.g WCPFC Two issues: illegal vs. unregulated fishing, and �free riding� the New Member problem

49. Illegal vs. Unregulated Fishing and Free Riding Non-members of RFMO fishing unauthorized in a member�s EEZ are guilty of illegal fishing- can be dealt with firmly. If non-members do same thing in high seas portion of RFMO - engaged in unregulated fishing - bad, but not clear what can be done about it Unregulated fishing open invitation to �free riding�, which can easily undermine RFMO

50. New Member Problem Under UN Fish Stocks Agreement , �charter� RFMO member cannot bar outright new members/entrants New Members and implicit free riding implicit free riding as damaging as the explicit form �Turning poachers into gamekeepers� and implicit vs. explicit free riding - the Great Dilemma

51. The Great Dilemma Recent cutting edge analysis concludes that, if control over unregulated fishing is weak, there will be cases in which there is no way out of the dilemma Implications � RFMO members will have to be granted at least de facto property rights to resources in high seas portion of RFMO high seas be such in name only unregulated fishing will become illegal fishing

52. Some Conclusions Economics does play a central role in capture fisheries management -fundamental importance of economic incentives facing fishers and states Open access fisheries lead to certain overexploitation, because of perverse fisher incentives Incentive Adjusting approach to domestic management, which gives fishers incentives to invest in resources, showing encouraging signs of success Fisheries subsidies, however, are an ongoing threat

53. Some More Conclusions International fisheries � shared stocks non-cooperation gives states incentive to overexploit resources Straddling stocks most difficult problem- need to eliminate unregulated fishing, which can be seen as arising from a Freedom of the Seas hangover