Fishing for Wealth in Coastal Fisheries

By

Donald R. Leal

Senior Fellow, PERC

U.S. commercial fisheries figure prominently in both the national and regional economies. In 2003, commercial fishermen harvested 4.3 million metric tons of fish valued dockside at $3.3 billion, an increase of 108.3 million pounds (up one percent) and $249.9 million (up eight percent) compared with 2002 (NMFS 2004a). By producing and marketing a variety of fishery products for domestic and foreign markets, U.S. commercial fisheries contributed $31.5 billion to the U.S. gross domestic product in 2003. Alaska led all states in dockside value of landings with $989.8 million, followed by Louisiana, $294 million; Massachusetts, $291.6 million; Maine, $283.8 million; and Washington, $170.2 million.

That said many fisheries face formidable challenges in terms of their own sustainability and their ability to co-exist with the growing demands from recreational fishermen,[1] marine eco-tourists (e.g., whale watching and reef diving), and ocean ecologists. Since 1999, seven species of groundfish off Washington, Oregon, and California have been declared overfished by the National Marine Fisheries Service. So have several crab fisheries off Alaska’s Bering Sea, and the federal government is embarking on a $100 million vessel buy-out program to reduce the size of the crab fleet. Red snapper in the Gulf of Mexico have suffered enormous waste under a management-induced fishing derby since 1990. In addition, conflicts between fishing interests and other ocean groups have intensified in recent years. Calls for expanding marine protected areas (MPAs) in which fishing is restricted or eliminated have been met with heavy resistance from fishermen. Right-to-fish laws are now being proposed in state legislatures and in Congress (e.g., Rogers 2003 and The Recreational Fishing Alliance 2003).

This paper argues that institutional change based on more fully delineated property rights in coastal fisheries can reverse the secular trend of wealth dissipation. In addition, such a change should be structured to allow for recognition of growing demands for ocean amenities.

Government Regulation: Largely a Failure

Nearly thirty years have elapsed since the United States extended its territorial limits to 200 miles from shore. Since then, U.S. commercial fisheries have been managed under a host of government regulations in an effort to counter the tendency for ocean fish stocks to be overfished under the classic “tragedy of the commons.”[2] These include restrictions on the size and power of fishing vessels, the types of fishing gear (e.g., net mesh size), the area where fishing is allowed, the length of the fishing season, the amount of fish a vessel is allowed to keep per fishing trip, the number of fishing trips a vessel can take in a season, and the landing size for fish.

Although fishing restrictions are designed to prevent depletion of fish stocks, its record in stock protection is mixed. In some cases there have been spectacular failures. For example, fish stocks in New England’s groundfish fishery collapsed in spite of a host of fishing restrictions (NMFS 1999, 1-7). Most U.S. fisheries have not reached such a state, but the risk of collapse is a real possibility. Just over 40 percent of the 215 U.S. fish stocks scientists assessed in 2003 are overfished or are being fished unsustainably (NMFS 2004b). Many of the remaining sixty percent could easily become overfished because regulators have been unable to prevent the tendency of a fleet to increase its fishing power—the ability to catch more fish in less time. Nor have they been able to eliminate the excessive number of fishing vessels and effort in many fisheries.

Such excesses can be financially devastating. For example, the number of full-time vessels in the Gulf of Mexico shrimp fishery more than doubled between 1966 and 1991, even as annual net revenues per vessel decreased about 75 percent to approximately $25,000 (in 1990 dollars). The actual annual catch of shrimp by full-time vessels was virtually unchanged. Two economists suggest that one-third of the fleet of more than 16,000 vessels and boats operating in 1988 could have efficiently harvested the same amount of shrimp (Ward and Sutinen 1994).

Restricting the number of participants in a fishery by limiting the available licenses—called limited entry—has become common in recent years as a modification of the regulatory approach. Unfortunately this approach has rarely been enough to prevent a rise in fishing power as a limited number of fishermen invest in new ways to catch more fish in less time. Consider the British Columbia halibut fishery during the 1980s. The maximum number of vessels in the fishery was limited to 435 in 1980, but over the next ten years the number of crew and amount of gear increased, resulting in greater fishing power. By 1990, with a season limited to six days, fishermen caught almost 50 percent more halibut than was caught in 1980, when the season was sixty-five days long (Grafton, Squire, and Fox 2000, 684, 686).

Limited entry also falls short when a fishing fleet suffers from overcapacity and nothing is done to reduce the size of the fleet. Such is the case in the multi-species groundfish fishery off Washington, Oregon, and California. In 1994, the Pacific Fishery Management Council authorized a limited entry system to restrict the number of boats in the groundfish fishery to current participants, but it did nothing to reduce overcapacity (Ad-Hoc Groundfish Strategic Plan Committee 2000, 5). Now, the fishery faces new fishing restrictions because of severe depletion of species like bocaccio. A formerly abundant West Coast groundfish, bocaccio has plummeted by more than 95 percent since the late 1960s, the result of being overfished and caught as bycatch in other fisheries. Although bocaccio can no longer be commercially targeted, scientists believe it could take at least a century to recover (Garrison 2002, 217-210).

Individual Transferable Quotas (ITQs)

In recent years a growing number of fisheries around the world have adopted individual transferable quotas (ITQs) (e.g., see Hannesson 2005). Unlike any of the previous regulatory systems, which “address only the symptoms,” property rights approaches like ITQs “fundamentally tackle the cause by altering basic incentive structures” in fisheries (Wilen and Homans 2000, 4). Functionally, ITQs not only limit the number of participants in a fishery, they limit the amount of fish that each fisherman/quota holder can catch. In a fishery with ITQs, a government authority sets the total allowable catch (TAC) for the season, and each fisherman has a right to catch a certain share, expressed as a percentage, of the TAC. Thus, a fisherman who holds a 0.1 percent share in the Gulf of Mexico red snapper fishery is entitled to catch 3,000 pounds for the season if the government sets the TAC at 3,000,000 pounds.

ITQs are attractive for two main reasons. First, each quota holder faces the certainty that his or her share of the TAC will not be taken by someone else. Thus they remove the destructive race for fish, a pervasive problem in traditionally regulated U.S. fisheries (U.S. Commission on Ocean Policy 2004, 244)). Second, because ITQs are tradable, the problem of fleet overcapacity and corresponding excess fishing effort dissipates as more efficient fishermen—those who adopt cost-reducing or value-enhancing methods—buy out those who are ready to retire or pursue other work.

New Zealand, Canada, and Iceland use ITQs in most of their commercial fisheries. Australia uses them in many of their fisheries, and the United States, Greenland, and the Netherlands use ITQs in some of their fisheries. Overall, ITQs have generated higher incomes for fishermen, improved product quality for consumers, reduced fleet excesses, and nearly eliminated instances in which the actual overall catch exceeds the total allowable catch set by fishery managers (e.g., see Arnason 1996; National Research Council 1999; and Repetto 2001).

Wilen and Homans (2000) point out that ITQs and similar approaches are providing important insights into the types of impacts and sources of wealth dissipation that have come out of traditionally regulated fisheries. One example is the Alaska halibut fishery. Under the old regulatory regime, federal managers tried to prevent the overall catch from exceeding the total allowable catch by shortening the length of the fishing season. The seasons got shorter and shorter, but with shares of the total allowable catch up for grabs fishermen tried to catch as much as they could, as fast as they could, in a race for fish. Under these conditions, the actual catch often exceeded the total allowable catch (Dinneford et al. 1999). By the early 1990s, halibut fishermen were limited to fishing during just two to three 24-hour fishing openings a year. Not only did profits fall and consumers receive mostly frozen fish, but halibut fishermen had to fish in hazardous weather.

Under ITQs, the season increased from two- to three-one day openings a year to just over eight months a year. The extended season allowed fishermen to respond more effectively to consumer demand for fresh fish, resulting in higher dockside prices for fishermen (GAO 2002, 21). Safety has improved as fishermen were no longer forced to fish during stormy weather (Hartley and Fina 2002, 34). Gear loss and halibut mortality due to gear loss declined substantially, resulting in much lower gear replacement costs and less resource waste (Hartley and Fina 2002, 34). The overall catch no longer exceeds the total allowable catch (Dinneford et al. 1999). The number of vessels active in the fishery declined from 3,412 in 1994 to 1,612 in 1999, due largely to buying and selling quotas (NMFS 2000). All told, higher returns and good prospects have led to a dramatic rise in the value of quotas. In 1995, the first year of ITQs, the aggregate value of quotas was estimated to be just over $295 million. In 1998, the aggregate value of quotas had grown to nearly $495 million—a 67 percent increase in four years (Leal 2002, 13).

In the more challenging multi-species British Columbia groundfish fishery, ITQs are also proving beneficial. Before individual vessel quotas (IVQs)—a variant of ITQs—were introduced, the fishery was suffering from fleet overcapacity and vessel per-trip-catch limits that resulted in high bycatch and discard mortality,[3] declining income for fishermen, and economic instability throughout the industry (Jones 2003, 79-86). Under IVQs, crew and vessel earnings have increased. The year-round season has enabled fishermen to service the market with high quality fresh fish. The elimination of trip limits has resulted in improved operational efficiency. In addition, the number of processors has increased from 12 to 15 companies, helped along by a partial allocation of the total allowable catch to newly formed processor/fishermen teams.

Conservation has also improved markedly. Before IVQs, bycatch—the incidental catch of non-targeted species—and discard mortality were increasing. Under IVQs, fisherman successfully altered fishing strategies to reduce bycatch and discard mortality significantly (Jones 2003, 82-3). Prior to IVQs, fishery managers were unable to manage groundfish species individually and as a result many individual stocks were overfished prior to IVQs. With IVQs, fishery managers were able to focus on a stock-specific basis, with IVQs for each of the 55 stocks-specific target levels. Now, none of the target levels is being exceeded.

ITQs also have the potential to foster stewardship. In New Zealand, where ITQs are legally recognized property rights, fishermen play an active role in fisheries management. Through self-imposed levies, quota holders channel their own money into companies whose primary mission is to increase the abundance of scallop, orange roughy, oysters, rock lobster, snapper and other commercially valued fish stocks. For example, the Challenger Enhancement Company invested in its own research vessel, the FV Tasman Challenger, as well as in efforts to reseed scallop stock (Arbuckle and Metzger 2000). Through self-imposed regulations and enforcement, quota holders also play a pivotal role alongside government managers in helping the stock reach optimal size for higher returns.

Despite their success, implementing ITQs in the political arena can be difficult. Such has been the case in the United States where only four U.S. federal fisheries have adopted ITQs: the Mid-Atlantic surf clam fishery, the South Atlantic wreckfish fishery, the Alaska halibut fishery and the Alaska sablefish fishery. In 1996, Congress imposed a moratorium on ITQs in other federal fisheries. For many non-ITQ fisheries plagued by overcapacity and declining fish stocks, the problems had not reached a crisis and politicians opted for the status quos. Problems eventually reached a crisis stage for several fisheries by the next decade and the moratorium was allowed to expire October 1, 2002. At this writing, a number of high profile fisheries—Alaska’s Bering Sea/Aleutian Island crab fisheries, the Gulf of Alaska rockfish fishery, the Gulf Mexico red snapper fishery, and the West Coast groundfish fishery—are on the verge of implementing ITQs.

Private Harvesting Agreements

Another rights-based approach that has emerged in recent years is the private harvesting agreement. Such an agreement typically entails fishermen allocating harvest shares among themselves after government has limited entry in the fishery. In addition, the government may facilitate such agreements by identifying within a fishery individual fishing sectors that share a common trait. The government limits the number of license holders in each sector and then determines each sector’s share of the TAC. One sector may be the fleet that delivers fish to onshore processors, and the other sector may be the fleet that catches and processes fish onboard a vessel. Then fishermen in each sector allocate harvest shares among themselves as well as carry out certain monitoring and enforcement functions. Typically all or part of these allocations is transferable, but certain restrictions may exist.