Maximising Value in Multi-species Fisheries

About the author

Richard Newell is currently the Administrator of the U.S. Energy Information Administration. He is on leave from his position as Gendell Professor of Energy and Environmental Economics at Duke University in Durham, North Carolina. He previously served as the Senior Economist for energy and environment on the President’s Council of Economic Advisers and spent many years as a Senior Fellow at Resources for the Future. He has published widely on the economics of markets and policies for energy, the environment, and related technologies.

During Richard’s Ian Axford Fellowship exchange to New Zealand he was based at the Ministry of Fisheries and the Department of Prime Minister and Cabinet in Wellington where he evaluated research and policy analysis of New Zealand’s experience with individual transferable quota systems (ITQ).

Executive Summary

This report explores how the application of economic principles and bio-economic frameworks might further the Ministry of Fisheries’ overarching objective to “Maximise the value New Zealanders obtain through the sustainable use of fisheries resources and protection of the aquatic environment.” In order to maximise the value of fisheries, I put forward the principle that fish stocks should be managed at a level where the incremental value of catching fish is equal to the incremental value of leaving fish in the stock. As an unregulated fishery will tend to focus on the value of catch, and not the value of the stock, it becomes the specific role of public policy to provide the incentives for private actors to recognise the stock value part of this equation.

While the New Zealand Quota Management System (QMS) takes a big step in this direction by allocating the Total Allowable Commercial Catch (TACC) to individual fishers, the principle for setting the TACC itself has been almost exclusively biologically-based. Incorporation of economic information, in combination with the biological characteristics of different fish stock complexes, could provide the basis for significantly increasing the value of New Zealand fisheries by tailoring stock targets and catch targets to specific bio-economic conditions. In some cases such analysis may indicate that managing stocks at BMSY (so that they produce the maximum sustainable yield) is a value-maximising strategy. In other cases, it may be valuable to manage stocks well above BMSY, and in limited cases below BMSY. While some such adjustments have no doubt already implicitly occurred through the Total Allowable Catch (TAC)-setting and implementation processes, more systematic application of bio-economic frameworks would be beneficial in guiding these decisions.

I also highlight the point that landing fees on catch can be an alternative to quota as a means to controlling catch, and that New Zealand in fact employs a hybrid “quantity-price” system through its use of deemed values in combination with quotas. In cases where deemed values are paid and the catch exceeds the TACC, the deemed value (not the quota) in effect becomes the instrument controlling the level of catch. This recognition clarifies that the same principle that should apply to the setting of the target stock and TACC-that of representing the value of leaving fish in the stock-should also apply to the setting of deemed values, as these are just two different instruments for achieving the same end. While the concept of value has entered into the implementation of the deemed-value regime, its application to specific species and fish stocks could be improved through refinement and tailoring to the specific characteristics of individual fishery complexes.

I also find that the deemed value system has consequences for the redistribution of value in the fishery from quota owners to catchers and the Government, and raises the question of how associated revenues should be used. Deemed-value revenues are related to, but not equal to, the value lost by owners of quota for the stock on which deemed values are paid.

I raise the prospect that the policy instruments of individual quotas and deemed values could be used in tandem in managing multiple-species fisheries, to improve value and potentially alleviate some of the rigidity and tension that are otherwise inevitable in an inflexible Individual Transferable Quota (ITQ) system. This recognition is already implicit in the manner in which some TACs are set, and in the implementation of the deemed value system, but systematising this process would increase both value and transparency. Finally, I point out that these different instruments will tend to behave differently when one considers uncertainty in stock size, year-to-year stock recruitment, and other biological and economic variables. How to best employ quotas and deemed values to maximise value in the face of these uncertainties is an important area requiring further research and practical experimentation.

New Zealand has embraced the difficult task of managing a much larger number of species through tradeable quotas than any other country – soon to be over 70 species and 300 individual fish stocks and corresponding quota markets. Rather than leaving lower-value species outside the system, New Zealand has sought to bring all commercial species into the system. While this strategy appears to have been successful overall, it has created increasing tension in the system as catch limits for lower-value species in some cases become binding on higher-value target fisheries. As the target for establishing the TACs for individual fish stocks has been predominantly the biologically-determined Maximum Sustainable Yield (MSY), such tensions are inevitable under the current system.

In summary, the Fisheries Act and broad fisheries policies that implement it contain most of the basic tools necessary for increasing the value received from fisheries, although some modifications will probably be necessary. Many of these tools are, however, not being fully used, or are being used in a manner that is not individually tuned to the specific biological and economic characteristics of fish stocks or fishery complexes. Fish-stock strategies and fishery plans are two new approaches under development to respond to this need. Guiding principles for redesigning the use of available policy tools still need to be fully developed.

I conclude by offering the following recommendations:

Incorporate into decision-making the principle that fish stocks should be managed at a level where the incremental value of catching fish is equal to the incremental value of leaving fish in the stock, incorporating both commercial and non-commercial values. It becomes the specific role of public policy to provide the incentives for private actors to recognise the stock-value part of this equation, that is the value of leaving fish in the sea.

Set the ends (stock and catch targets) and design the means of policy (e.g. deemed values) in order to maximise value, not catch.

Incorporate into stock strategies and fish plans an overall system of bio-economic indicators for categorising and managing stocks.

Target TACCs differentially for each fish stock based on the biological and economic characteristics of each fishery.

Set TACCs roughly where you want to go, and use the ITQ system and deemed values to get you there with an appropriate degree of flexibility.

Select a series of case studies, possibly in the context of stock strategies, to do more thorough bio-economic analysis and follow up with pilot projects to implement stock-tailored management approaches.

In order to implement many of these recommendations, the Ministry will need to incorporate both biological and economic information and analysis into decision-making processes in a more systematic fashion. Important information components that require tracking include data on: costs, value, stock levels, growth rates, relationships between stock size and costs, and measures of economic and biological uncertainty. A lack of biological and economic information, and an inadequate use of existing information, are hindering better fishery outcomes. Collecting and using such information in a cost-effective manner present a significant challenge.

Evaluate existing TACCs with an eye toward reducing TACCs that are not currently binding. Non-binding TACCs are an indication of low profitability and conditions approaching open access.

Reassess the TACCs for fish stocks that are taken primarily as incidental catch and acting as a constraint on target fisheries. In setting new TACCs for these stocks, have regard for achieving the value-maximising yield from the fishery, including the value of related target stocks, and recreational and customary fishing rights, subject to the constraint that TACCs not be set above a level that would compromise the long-term viability of the stock.

Base deemed values should be set to approximate the unit stock value (and unit profit) corresponding to the target catch. In cases where the target catch is equal to the TACC, the deemed value should therefore be set to approximate the price of Annual Catch Entitlement (ACE), when catch is about equal to the TACC.

TACCs should be set to reflect the value-maximising (or other desired) target catch, and deemed values should be set on an iterative basis to achieve that target on average. Repeated catches above the TACC are either a signal that the TACC is inappropriately set, or that the deemed value is too low. Likewise, TACCs that are not binding on catch are probably set too high.

The increments of the differential deemed-value schedule should be based on the biological and economic characteristics of individual fish stocks-in terms of both the catch increments and value increments-in principle to reflect the increasing value of leaving fish in the stock.

Redefine the basis for applying differential deemed values by transitioning from deemed-value brackets based on individual catch-to-ACE ratios to brackets based on aggregate catch-to-TACC ratios. Rates would apply equally to all fishermen based on end-of-year values, possibly updated throughout the fishing year. This would ensure that all fishers faced the same price for taking fish from the stock.

Move the end-of-year ACE true-up date from October 15th to November 15th, to allow more time for end-of-year balancing of catch with ACE. Transaction costs in quota markets can also be reduced through measures such as promotion of on-line trading and use of public auctions.

It should be investigated whether deemed values can be recycled to make deemed values a more distributionally-neutral instrument, without undermining the incentives deemed values are designed to create.

Where appropriate, reinvest deemed-value payments in research and other efforts that lead to improved knowledge and increased value of associated stocks. This acknowledges that deemed-value payments are related to the value of catch in excess of TACC for a particular stock, and returns that value to the stock.

The current degree of uncertainty about many stocks, and the importance of knowledge about stock size in determining appropriate TACCs and deemed- value levels, indicate that there is a high value in increased monitoring of stock abundance and environmental and economic conditions.

Increase non-compliance penalties and enforcement in tandem with deemed values and rates of overcatch.

Require reporting of ACE and quota prices to reflect true prices, so that this important source of information becomes a more accurate measure of commercial value.

Maximising Value in Multi-species Fisheries

About the author

Executive Summary

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