NAAFE FORUM: ENSURING FISHERIES BENEFITS FOR ALL GENERATIONS DISCIPLINARY AND PERSONAL PERSPECTIVES ON “ THE FISHERIES PROBLEM ” by James E. Wilen Department of Agricultural and Resource Economics University of California, Davis NAAFE Forum University of British Columbia, Vancouver May 2005

Introduction PROBLEMCAUSE SOLUTION

HOW DOES FISHERIES SCIENCE CHARACTERIZE THE POLICY PROBLEM? PROBLEMCAUSE SOLUTION Greed Short sightedness Prospects of wealth Over-harvesting Habitat destruction Multi-species interaction By-catch Fishing down the food chain Tighter controls Precautionary principle Adaptive management Ecosystem management Networks of reserves

NOTABLE QUOTES “… the shortsightedness and greed of humans underlie difficulties in management of resources. ” “… wealth or the prospect of wealth generates political and social power that is used to promote unlimited exploitation of resources. ” “… management authorities must design, justify (politically) and administer (enforce) a collection of restraints on fishing activity. ”

HOW DOES ECONOMICS CHARACTERIZE THE FISHERIES POLICY PROBLEM? PROBLEMCAUSE SOLUTION Insecure property rights Race to fish - Over-capitalization - Excessive by-catch - Mixed species fishing - Habitat destruction - Political manipulation - Mixed use conflict - Perverse innovation Fix property rights problem - ITQs, IFQs, etc. - Cooperatives, TURFs

FARMING AS WE KNOW IT

SMALL IS BEAUTIFUL

EARLY CANADIAN FARMING

WEALTH AND INNOVATION PROFITS RENTS LAND VALUE WEALTH Innovation Competition Organization Capitalization Stewardship Sustainability The long view

IF FARMING WAS LIKE FISHING…

THE RACE TO FARM

THE FARM PARABLE Without secure access privileges to land: Zero surplus Zero land value Excessive capacity Resource degradation Low valued products Regulation Perverse innovation

THE WORLD FISHERIES PROFIT/LOSS STATEMENT Revenues$100B Costs$132B Net Loss$-32B Contribution to wealth: 0 Contribution to wealth: 0 Maintenance$43B Maintenance$43B Insurance$10B Insurance$10B Fuel$20B Fuel$20B Supplies$26B Supplies$26B Labor$33B Labor$33B

IRONICALLY … In most fisheries, there is no wealth, nor are there prospects for generating wealth. Reason: Without secure access privileges, fishermen devote all their competitive and innovation efforts to maximizing CATCH, rather than maximizing surplus VALUE. This drives costs up to revenues.

FIXING THE PROBLEM: ADDRESSING THE CAUSE IQs, IFQs, ITQs Results: race to fish replaced by race to create value Iceland (all fisheries) New Zealand (most fisheries) Australia Canada U.S. (four fisheries) (some fisheries) Slower fishing (value vs. volume) High-valued end markets More selective gear (less by-catch/discards) Reduced habitat destruction

time Profits Quota 0 ITQs Immediate market ga ins Long-term cost savings IMPACTS OF ITQS ON PROFIT

Rent Share SIGNIFICANT WEALTH CREATION EMBEDDED IN QUOTA VALUES Example: Capitalization factor Post-ITQ revenue gains Pre-ITQ ratio Lease price Ex-vessel price

Example: New Zealand Data from: James Sanchirico, “ Sustainable Fisheries: the New Zealand Experience ” presentation at the Fourth Annual International Sustainability Days Conference, Stanford University, October 13-16, See also Richard Newell, James Sanchirico and Suzi Kerr, “ Fishing Quota Markets ”, Journal of Environmental Economics and Management, 49 (3), , 2005.

QUOTA VALUE time ITQs 0 Total Quota Value 5~10Pre-ITQ revenues

WEALTH CREATION Constituency concerned with: Sustainability The long-view Innovation that increases value Reduced conflicts over Reduced conflicts over TACs TACs Pay for management Pay for management Cooperative science Cooperative science Stewardship ethic Stewardship ethic

Example: New Zealand Data from: James Sanchirico, “ Sustainable Fisheries: the New Zealand Experience ” presentation at the Fourth Annual International Sustainability Days Conference, Stanford University, October 13-16, See also Richard Newell, James Sanchirico and Suzi Kerr, “ Fishing Quota Markets ”, Journal of Environmental Economics and Management, 49 (3), , 2005.

HARVESTER CO-OPS Examples:Bering Sea Pollock Co-op Pacific Whiting Co-op Chignik Salmon Co-op

EXAMPLE: BERING SEA POLLOCK CO-OP

TURFS (Territorial Use Right Fisheries) Examples: Japanese Fishery Management Organization Chilean Management and Exploitation Areas Tokyo Shima district, Mie Prefecture

HOW TO REBUILD STOCK AND/ OR IMPLEMENT RESERVES (1) Without property rights Profits time 0 Implementation Potential Actual

HOW TO REBUILD STOCK AND/ OR IMPLEMENT RESERVES (2) With property rights Profits time 0 Implementation

Discussion (1) Fisheries management, and fisheries scientists, tend to focus on the symptoms rather than the cause of overfishing. The cause is not greed or the prospects of wealth.

Discussion (2) Rather, it is that current institutions and management channel self-interest to maximize catch rather than value. Consequence: no surplus value and no wealth in fisheries. Irony: it is the absence of wealth or prospects for wealth that eliminates the stewardship ethic.

Discussion (3) Solution: create secure access privileges – ITQs, harvester coops, or TURFs. Can be designed and implemented to address most objections. Result: real wealth will be created almost instantly. Moreover, expected wealth gains will also immediately be capitalized into access privilege values.

Discussion (4) My rule of thumb – 5~10 current revenues. This wealth immediately generates a constituency interested in preserving and increasing the capitalized value. Value-increasing competition and innovation only enhance the stewardship ethic.

THE END