by
B.S. Brochmann
Director of Planning
Ministry of Fisheries
Oslo, Norway
Introduction
According to background documents received from FAO, the World Conference on Fisheries Management and Development which FAO is planning should draw special attention to the opportunities now available, through management, to improve the net social, economic and food-supply benefits from the fisheries. I shall concentrate on financial measures to “improve the net (economic) benefits from the fisheries”. I shall not say very much about improving social welfare and the food supply. In my opinion, first priority must be given to the economic benefits. This is obvious; in the long-run you can hardly make an unprofitable industry responsible for the food supply or social welfare.
I am going to speak about theory and practice. First, I shall give a brief summary of what measures economic theory recommends when the objective is to maximize the net profit of a fishery. Then I shall compare how practice corresponds with theory. Nor surprisingly, we observe an obvious distance between the two. Then I ask: What is the reason? Is something wrong with the theory? Or do political circumstances perhaps make it impossible to implement the recommended measures? Or perhaps the paramount objective of policy is not to attain maximum profit, and hence the recommended measures are irrelevant? In this short paper, however, I manage only to touch the surface of these complicated matters.
The theory as applied to a single stock exploited by one nation
The simple supposition is that only fishermen from one nation are harvesting the fish stock in question. In order to gain maximum net profit from the fishery, the economic theory of fishing recommends that fishing effort should be reduced as compared with the free-access situation. This reduction can be achieved either by imposing a tax on fishing, by implementing a licence scheme or by combining these two measures. There exists an optimum tax level and an optimum number of licences (or licensed catch-capacity) which, in the long-run, will maximize net profit (net profit = surplus left when all capital and running costs have been paid for, including a normal remuneration for the fishermen concerned).
The reason for the recommended reduction in fishing effort is that such a reduction will lead to a restoration of the resource stocks. Here it must be added that, according to the pure theory, the advantage of having a larger stock is not that it can sustain a higher catch level. Instead, the economic advantage of a large stock is that the greater the stock the more abundant the fish and the lower the cost per ton of fish caught. Thus profitability per vessel is increased. A net profit, a rent, can be achieved.
If reduced participation is achieved through imposing a tax on fishing, the net profit which emerges as the stock is allowed to increase accrues society, and the fishing sector experiences normal returns (normal as compared with those obtained elsewhere in society). If the reduced effort is promoted through licensing, should the licences be issued free of charge or should they be paid for? Economic theory does not recommend free licences. Instead, the recommendation is to sell off or to auction licences for an optimum level of fishing effort (capacity). In this case too, the net profit or rent of the fishery will accrue to the treasury and the fleet will gain normal returns.
Practice: A single stock - One nation
In practice, a tax on fishing or a system of auctioning fishing licences is exceptional. Instead, if the authorities intervene, they most likely will behave contrary to the mentioned recommendation and give economic support to the fishing industry. The argument very often is the low level of income which typically is found in remote areas heavily dependent on the fisheries. The immediate impact of such a subsidy scheme will be a higher level of income among the fishermen. The effect of a higher level of income will probably be reduced migration from these areas and increased participation in the fishery involved, as compared with what it would have been without this kind of intervention. Together with ongoing technological progress, this may in the long run result in over-exploitation of the stock(s) being fished. If this happens, the catch overall will be reduced and subsidization will have to be increased in order to compensate for the drop in catch.
Increased support in this way prevents the adjustment in the level of participation which would otherwise take place when catch per vessel drops. Since high fishing effort will thus be perpetuated, the stock may very soon be depleted and the need for support of the fishermen affected will be further increased. This in short is how a crisis in the fishing industry may arise. In fact, the sequence described above has occurred several times in more than one country.
If a limited-licence programme is introduced in response to increased catch capacity and fear of over-exploitation, the licences are normally issued free of charge to the holders. Management of the licensing system, however, will be difficult to carry out. Since existing fishing effort proved to be too high, a licence scheme which gives the vessels previously participating the right to continue fishing (the normal case) and only newcomers are refused entry, will not be sufficient to restore the stock, especially if technological progress goes on at the same time. Sooner or later, even a limited number of licensed vessels will be able to over-fish the stock.
Alternatively, the crisis may be postponed by giving licences to only a few of the active vessels or by means of a buy-back programme. As the stock is restored, the privileged licence-holders may gain a profit which is excessive in relation to that obtainable in a competitive market. There will be pressure from “outside” fishermen seeking to obtain licences. At the same time, the licence-holders themselves will apply for permission to increase the capacity of their vessels. The rest of the society may well consider the generally high income level among the licence holders to be unjust. The investment level in the regulated fishing fleet will most probably be excessive, due to the windfall profits earned, and catching capacity may be expected steadily to increase despite the restricted licensing programme. Over time, the stock will again be threatened by over-fishing. This, together with increased capital and running costs, is likely to eliminate undue profits. It may be of some comfort that the handling of a licence scheme will be easier when the profit of a fishery has faded away.
The theory: A single stock exploited by two nations
When analysing this case, we must distinguish between two types of situations: one when the two countries are cooperating and one when they are not.
Suppose the objective is to maximize profitability. If the two countries are not cooperating, it will be pointless for one country to reduce the effort of its fleet in order to increase stock abundance. Increased abundance may in such cases only lead to increased participation and a higher fishing effort by the other country (presupposing free access). In due course, the previous low fish density will be re-established.
Let us assume that one of these countries, country No. 1, has a very high cost level as compared with that of No. 2. Both countries practice free access to the fishery. When the stock(s) is/are so reduced that fishermen from country No.1 finding the operation unprofitable must retire from the fishery, the average fisherman from country No. 2 may still find his level of earnings quite satisfactory and continue to expend effort until his net profit too fades.
If the two countries cooperate, however, they will have to agree upon the establishment and sharing of a total quota (TAC) for the stock(s). On way basis should the TAC be fixed? It is well known that fishery biologists have advocated a management policy that would provide a maximum sustainable yield (MSY) in physical terms, whereas economists argue for a stock level that would maximize the profitability of the fishing activity (MSP). Normally the stock level which corresponds to MSP is larger than the one corresponding to MSY. In practice, the concepts of MSY and MSP will be of minor interest for many years to come. Most stocks in the North-East Atlantic waters are over-exploited and have to be restored. The optimum growth rate of the stocks is, however, not a question of fishery biology: it has to be decided on the basis of economic and social considerations.
Two countries with different cost levels or social systems will not easily agree upon what should be the optimum growth rate for the stocks they share. On the other hand, obtaining some growth is far better than to continue the anarchy hitherto prevailing, which led to the current state over-exploitation. Because of this, even countries with very different economic systems tend to accept the recommendations of fishery biologists as a neutral and common platform and a reasonable basis for the fixing of TACs. Assume that country No. 1 has got its share of the TAC, i.e. its national quota. Suppose in addition that, with free access, the catch is expected to exceed this quota. The authorities will then have to regulate the fishing effort of the national fleet. Several instruments are at hand:
Stop systems: fishing operations may be halted when the quota is exhausted or the national quota may be divided into vessel (or vessel-group) quotas which means that each vessel is laid up when its quota is taken.
Gear restrictions: for instance, a maximum number of nets being permitted per vessel. The economic impact of gear restrictions normally is reduced efficiency of the factors of productions involved.
Licensing (limited entry): licences being issued free (which may give licence-holders excessive profits) or being distributed by auction.
A tax on fishing: the tax or royalty being levied so that participation is restricted to the effort required to harvest the national quota efficiently. The impact of such a tax is exactly the same as that achieved through auctioning the appropriate numbers of licences.
Practice: A single stock exploited by two or more countries
Since the establishment of 200-mile economic zones in the North-East Atlantic, the coastal States concerned have developed fruitful ways of cooperating in the management of fishery resources. All important fish stocks in these waters are now regulated by TACs and, year after year, the participating countries have managed to come to an agreement about the level and sharing of TACs. In my opinion, this bears witness to responsible, disciplined policies.
As expected, however, none of these countries impose a tax or other kind of charge on fishing as a means of obtaining an appropriate level of fishing effort. In fact, the tendency is rather for the authorities to behave contrary to theoretical directives: the fishery sector in many countries actually is being subsidized. The most common measure has been to subsidize investment. In recent years also, measures to lower fuel prices or to provide financial compensation for the high fuel prices have been implemented in some countries. In Norway, the prices fishermen obtain for fish landed are heavily subsidized by the government. Not surprisingly, these measures have stimulated investment in the fishery sector. The present level of investment is at least higher than what would have been the case without these and other subsidies.
The Norwegian case
To get an understanding of why the potential fishing effort in the Norwegian fishing fleet is so high that national regulations are necessary, a short historial introduction is needed.
The fishing fleet in Norway receives governmental economic support and every year negotiations to determine the extent of this support take place between the authorities and the Fishermen's Association. Originally, the basic objective of economic support for the fisheries was to improve efficiency and profitability in the fishing industry as a whole, so that this industry could develop independence of subsidization by the government. Measures designed to improve profitability were carried out but most of the support went to raise fishermen's income, e.g. through price subsidies on raw fish and reductions in the price of gear and bait.
This policy has been successful enough from the standpoint of fishermen's income enhancement. Average earnings per man/year in the Norwegian fishing fleet (vessels of 40 ft and above) as compared with wage levels in the industrial sector over the past decade are shown in Figure 1. With reference to the trend indicated, one must bear in mind that the income level in the industrial sector in Norway is relatively high, which makes the result achieved for fishermen even more impressive. On the other hand, to achieve this seemingly good result, the amount of subsidization had to be steadily increased, as shown in Figure 2.
In the early years, increased fishing effort (resulting in large part of the subsidy scheme) led to an almost corresponding increase in catch which in turn caused increased activity in the processing industry and in the diversified activities deriving from fishing and processing. The policy thus seemed successful. In the long run, however, the growth in the quantity of factors of production (gear, fuel, capital) could not produce a proportional growth in the catch. One after another, the available fish stocks became fully utilized. In some cases, it could be observed that an increase in the use of production factors in fishing was followed by a reduction in catch, indicating over-exploitation of the stock(s) involved.
In order to avoid such a result, several licence schemes were introduced at the beginning of the 1970s. The need to regulate fishing effort, of course, might well have arisen even without income support. There is no doubt, however, that increased raw-fish prices and lowered running costs stimulated investment and increased fishing effort. When the system of quotas was implemented, about 1976–77, excess capacity in relation to quotas became a prominent feature of the Norwegian fishing fleet.
The combination of (a) growth in the quantity of production factors involved in fishing and (b) stagnation or even a drop in catches, naturally has led to severe economic problems in the fisheries. The increased financial support for the fishing industry (Figure 2) may be understood against this background. Another explanation for the increasing deficit is that, after 1975, Norway has experienced a general loss of economic competitiveness, partly as a result of the oil-revenues from the North Sea. This development has squeezed profit margins in all Norwegian exporting sectors, including the fishing industry.
Were it not for governmental income support to the fishery sector, over-capacity in the Norwegian fishing fleet would not have occurred - at least it would not have been a permanent feature. This over-capacity necessitates the imposition of controls to restrict the catch. In the cod fisheries, there is free entry for coastal vessels but participating vessels are subject to gear restrictions and stop-periods. The cod catch of the deep-sea trawlers is regulated by a separate trawler-quota which in turn is divided among the trawlers. The over-capacity which makes these regulations necessary is an important reason for the present unhealthy economic situation in the cod fisheries. Even a fishing fleet with a capacity reasonably in balance with the cod quota would hardly be able to cover all costs, including normal remuneration for fishermen, because of the generally high cost and income levels prevailing in Norway.
Turning to the purse-seine fleet, fishing mainly for capelin, mackerel, sprat, etc., for reduction to fish meal and oil, we discover there also an evident excess of capacity. Fishing effort is regulated by means of individual vessel quotas, fixed in such a way that in the aggregate they equal the national quota. Only purse-seiners holding a licence get a catch quota. Owing to the excess capacity, if economic support were withdrawn from this fleet, losses would surely follow. The vessels, nevertheless, are so efficient that a purse-seining fleet, with capacity adjusted to match the quotas, would ensure the ship owners a profit in normal cases, despite high cost and income levels in Norway. Here we have an interesting example of a situation where it is possible to obtain a resource rent, i.e. a net surplus from a fishery, by imposing a licence fee or a levy on the catch, and still assure fishermen and shipowners of a “normal” level of remuneration.
Conclusions
The main conclusions so far are threefold:
Firstly, the licence schemes must be maintained, not for fear of over-exploitation, but chiefly to restrict investments in new vessels and overall participation in a fishery. A licence scheme thus works to counteract the expansive effects of State income support.
Secondly, in the Norwegian case, it is not necessary to impose a tax on a fishery to get rid of excess capacity. It is sufficient to withdraw support programmes.
My third conclusion is this: if, e.g. for political reasons, it is not possible to follow the advice which economic theory offers, namely to impose a tax on fishing, the opposite at least should be avoided. In the long run the latter will have severe and detrimental effects, both in economic and biological terms.
If the government intends to support sparsely populated areas, in order to raise income levels to prevent out-migration or for general social reasons, the appropriate measure would be economic support either to promote infrastructure (communications, education, public services, etc.) or to stimulate economic activity in different sectors of trade and industry - including fisheries, but on a non-discriminative basis. One should not appoint one single industry (i.e. the fisheries) to bear the burden of achieving societal goals (for instance, to maintain a pattern of settlement). The long-term impact of such a policy would probably be to ensure the fishing industry becoming a permanent deficit sector. That would in turn render it useless as a provider of secure and well-paid workplaces in the fishery-dependent areas.
My arguments may be said to be only of theoretical interest and of little relevance as guidance for a government eager to create new workplaces in remote coastal regions with low income level and a high rate of unemployment. If the national quota for a fish stock is far from being exhausted, because of low or zero economic return in the fishery, would it then not be wise to provide a price subsidy on raw fish if this would restore profitability and create economic activity? My answer is yes, but only on the condition that other industries and trades in these areas get the same support.
The possibility of “renting” the surplus quota to other countries should also be taken into consideration. The income of such a sale may be used to develop trade and industry in the coastal regions on a broad and differentiated basis.
If profitability is not high enough to ensure that the national quota is caught, even though the fish stock is healthy, the cause is to be found either in general high cost and income levels in the economy or in inadequate efficiency of the fishing fleet and/or the processing industry. Given the first set of conditions, nothing needs to be done, as the high income level probably reflects a high employment rate. In the case of inadequate efficiency, one should rather do something about the inefficiency instead of offering financial support to an inefficient industry. The Norwegian experience tells us that combining financial support for a specific sector and achieving increased efficiency in that particular sector is a very difficult performance.
Figure 1 Wage in the Industrial Sector and payment in the fishing fleet (vessels of 40 ft and above, at sea for 30 weeks or more per year) - average per man/year
Figure 2 Governmental support to the Norwegian fishing fleet - nominal and deflated amount
