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| The traditional command and control approaches to fisheries management which focus on input restrictions and total catch limits, fail to provide incentives for those who fish to do so efficiently and do not give industry a long-term stake in the future of the fishery (Grafton et al. 2006a). These approaches often result in effort creep (increases in fishing power) and excessive and wasteful competition, with both inappropriate levels and combinations of inputs used to catch fish (Kompas et al. 2004). The negative consequences of input and output controls are illustrated by recent experience in Australia’s Commonwealth fisheries. In the past 10 years, the Australian Government has committed $90 million a year to fisheries research and development, undertaken buybacks of fishing effort, implemented detailed scientific fishery management plans which incorporate strong stakeholder involvement and expanded its National Representative System of Marine Protected Areas. Despite such strategies, substantial effort creep in input-controlled fisheries, and the inability to decrease total allowable catches (TACs) when necessary in output controlled fisheries, have contributed to a number of fish stocks managed by the Australian Government being assessed as overfished. Larcombe and Begg (2008) report 11 stocks managed by the Australian Government were assessed as overfished in 2007 and six stocks were assessed as subject to overfishing. The economics of many fisheries has also suffered. ABARE surveys have consistently shown close to zero net returns in most Commonwealth fisheries in the past several years (Kompas and Gooday 2005). In Commonwealth fisheries the government holds title to the resource on behalf of the Australian community as a whole, meaning the government has primary responsibility for ensuring the net value of the resource to the Australian community is maximised. In the absence of government intervention, resources will not be allocated to fishing activities in an efficient manner by the market. As a result, governments have a specific role to play in preventing the market failures which occur in open access fisheries and lead to unsustainable harvests and the dissipation of economic returns. This is in stark contrast to the role government plays in other sectors of the economy. For example, it would be possible for the government to artificially increase returns for a particular industry by limiting the supply of a good to less than that demanded. However, while this intervention would benefit those producing the goods in question, there would be a loss to consumers through increased prices and a loss in economic efficiency because insufficient resources would be employed in producing the good in question. This is not the case with fisheries resources. Government intervention can eliminate unnecessary increases in fishing costs from ‘race to fish’ behaviour and constrain the resources used in the sector to an efficient level. Any intervention to improve on the biological and industry profitability outcomes achieved under open access will effectively determine the potential profitability of the fishery. Requiring fishery managers to pursue economically efficient management ensures government intervention produces the largest benefits possible. In this sense it is important to note fisheries can be managed in an ecologically sustainable manner without producing net economic benefits, and in some cases produce net costs, to the Australian economy. Management regimes will determine the net return the community receives from the use of its fishery resources by controlling the total level of harvests (by whatever means) and contributing to the incentive structure fishers operate within. In the absence of a fisheries royalty charge, the only return the community receives from the commercial use of fisheries resources is through the profits made by commercial fishers. Management regimes that do not effectively control fishing harvests and effort do not allow for the returns to be maximised from expenditure on fisheries management and research. Part of the solution to over-fishing and unprofitable fisheries is to adopt the right target level of effort, or catch, in the fishery. The correct target maximises profits regardless of changes in prices and the costs of fishing. It is also necessary to implement this target with an instrument that gives industry a rights-based incentive to protect the fishery. In other words, maximising economic yield requires setting catch and effort levels appropriately and for industry to have an effective property right to the harvest which removes the incentive for a wasteful and inefficient ‘race to fish’ and ensures the fishery is economically efficient. An efficient outcome is important because it protects fish stocks and guarantees sustainability, and also ensures resources will be allocated to the fishery in a way that minimises the cost of harvesting. Finding the right target and the best instrument requires an assessment procedure, along with a set of tools to analytically determine the best economic approach to the fishery. An economically efficient outcome occurs when the sustainable catch or effort level for the fishery as a whole maximises profits, or creates the largest difference between discounted total revenues and the total costs of fishing. This point is referred to as Maximum Economic Yield (MEY). This target changes with changes in the price of fish and the cost of fishing but, if appropriately set, will always imply that fishery profits are maximised. When the price of fish decreases or the cost of fishing increases, the target calls for larger fish stocks and less fishing effort. When the price of fish increases or the cost of fishing decreases it is appropriate to fish more intensively, with larger effort or catch levels. For profits to be maximised, the fishery must also apply a level of boat capital and other resources in combinations that minimise the costs of harvest at the MEY catch level. In other words the fishery cannot be over-capitalised, and to minimise the cost of a given harvest, vessels must use the right combinations of inputs such as gear, engine power, fuel, hull size and crew. There are a number of benefits to pursuing economic efficiency in a fishery. First, profits are maximised regardless of changes in the price of fish or the cost of fishing. Profits may be low when the price of fish is low or the costs of fishing are high (for example, because of an appreciation of the exchange rate in Australia or the rising price of fuel), but will still be maximised under this target. Pursuing economic efficiency will also ensure the costs of harvesting are minimised, which improves the international competitiveness of domestic fisheries and the resilience of the industry to economic and environmental shocks. Also, an efficient level of catch at MEY is a sustainable harvest and as such is preferable to a biological target like maximum sustainable yield (MSY). Depending on prices and costs, profits can be zero or even negative at MSY. If sustainability is the goal, as it should be, it makes sense to select a sustainable yield which guarantees the largest return from the use of the community’s fish resources regardless of the circumstance. In addition, at most biological growth rates, as well as practical discount rates and (stock dependent) harvesting costs, pursuing economic efficiency will imply an equilibrium stock of fish larger than that associated with MSY. In this sense the efficient level of harvest at MEY is more ‘conservationist’ than MSY, and provides additional environmental benefits and added resilience to unforeseen environmental shocks to the fishery. Finally, pursuing economic efficiency helps prevent over-capitalisation and ensures resources are allocated to the fishery at correct levels, with surplus vessel and fishing capital allocated to their next best alternative uses in the economy. Along with MEY measures there are a number of other useful indicators, such as direct efficiency measures (eg. stochastic frontiers) and productivity indicators. Stochastic frontiers measure vessel level efficiency to determine whether harvest is at its maximum level, given inputs, or whether the cost of fishing at a given harvest level is minimised. This report discusses and illustrates the methods used in the assessment of fisheries and provides case studies to illustrate how these methods can be employed in specific Commonwealth fisheries. The focus is on MEY, productivity measures and stochastic cost and production frontiers. |
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