Potential Applications of Experimental Methods to Alaska Fisheries Issues Gunnar Knapp Professor of Economics Institute of Social and Economic Research University of Alaska Anchorage July 2, 2003

Seminar Outline Brief overview of Alaska fisheries Brief overview of Alaska fisheries management Brief overview of Alaska fisheries issues Discussion of potential applications of experimental methods to Alaska fisheries issues Discussion of potential “pilot” projects OBJECTIVES: Stimulate thinking about potential applications of experimental methods to Alaska fisheries issues Identify potential “pilot” projects

Seminar Outline Brief overview of Alaska fisheries Brief overview of Alaska fisheries management Brief overview of Alaska fisheries issues Discussion of potential applications of experimental methods to Alaska fisheries issues Discussion of potential “pilot” projects OBJECTIVES: Stimulate thinking about potential applications of experimental methods to Alaska fisheries issues Identify potential “pilot” projects

Alaska has five major fisheries*: Salmon (Sockeye, Pink, Chum, Coho, Chinook) Herring Groundfish (Pollock, Cod, Rockfish, others) Crab (Tanner, King, Dungeness) Halibut * A fishery is the industry engaged in harvesting and processing of fish of a particular species or species group.

Groundfish—mostly Alaska pollock-- account for most of the volume (weight) of Alaska fish harvests

But salmon, crab, halibut and herring harvests command higher prices than groundfish—making all five species group significant contributors to the value of Alaska fisheries. The term ex-vessel value refers to the value received by fishermen when they sell round (raw) fish to processors.

The wholesale value (after processing) of Alaska fish production averaged more than $2.5 billion during the 1990s.

Alaska Salmon Fisheries Salmon runs are generally healthy Managed by State of Alaska Small boats fishing from shore Main types of gear: dift gill net, set gill net, seine, troll Seasonal summer employment in tens of thousands 27 limited-entry fisheries for specific areas and gear groups Fisheries vary widely in species mix, number of permits, average catch volumes, average catch value, average permit prices Major products canned salmon, frozen salmon (Japan), fresh salmon (US) Dramatic decline in markets & value since 1980s due to farmed salmon competition and other factors have led to an “economic crisis”

Alaska Groundfish Fisheries Main species are Alaska pollock & Pacific cod Alaska pollock is by far the largest US fishery by volume Resources are in good condition and catches are stable; management is considered conservative Fisheries under challenge by environmentalists over bycatch and declining marine mammal populations Large boat fishery—corporate owned factory trawlers and large trawlers delivering to large onshore plants Main products are surimi & roe (sold mainly to Japan) and fillets (sold worldwide) Market conditions good (partly due to tighter world supply due to decline of Russian catches) Managed by federal government Overcapitalization of Bering Sea fishery ended by American Fisheries Act (AFA), which established co-ops Intense discussions underway about “rationalization” of other groundfish fisheries

Alaska Crab Fisheries Main species are king crab, tanner crab, dungeness crab Abundance is highly variable; subject to boom and bust in resource due primarily to natural factors (rather than overfishing) Fished using pot gear King crab and tanner crab fisheries are medium-large boat fisheries in Bering Sea and Gulf of Alaska; Dungeness crab fisheries are smaller-boat fisheries in southeast Alaska King and tanner crab fisheries are technically under federal control but are managed by the State under a framework management plan. Major markets are Japan and US Fisheries are overcapitalized; active discussions are underway about how to restructure or rationalize the fisheries Bering Sea crab fishing is one of the most dangerous occupations in the United States

Alaska Herring Fisheries Herring runs are generally healthy Managed by State of Alaska Small boats fishing from shore Main types of gear: dift gill net, seine Seasonal spring employment in thousands; generally short fishery Mostly limited-entry fisheries for specific areas and gear groups Major products is frozen round herring shipped to Japan where the herring roe is extracted for use in making luxury herring roe products (kazunoko) Dramatic decline in prices in recent years due to Japanese economic downturn and declining demand for kazunoko

Alaska Halibut Fishery Second oldest Alaska fishery after salmon Harvested by long-line gear by vessels ranging from small ( 65’) Resources in generally good condition Main products are fresh and frozen halibut sold to US markets Managed by federal government; catch quotas set by International Pacific Halibut Commission Dramatic management change in 1995: –Prior to 1995 open-entry “derby” fishery in which thousands of vessels competed in intense very short openings as short as two 24-hour periods per year –1995 establishment of Individual Fishing Quota system; fishery now lasts nine months, a much higher share of product is fresh and prices have increased –Largest U.S. IFQ-managed fishery by far; IFQ management controversial; method of quota allocation subject of intense debate

Seminar Outline Brief overview of Alaska fisheries Brief overview of Alaska fisheries management Brief overview of Alaska fisheries issues Discussion of potential applications of experimental methods to Alaska fisheries issues Discussion of potential “pilot” projects OBJECTIVES: Stimulate thinking about potential applications of experimental methods to Alaska fisheries issues Identify potential “pilot” projects

The challenge of fishery management: Fishery managers must balance many different objectives: Resource objectives Economic objectives Social objectives Allocation objectives

RESOURCE OBJECTIVES Don’t harvest too many fish –Don’t deplete the resource and reduce future harvests Don’t harvest too few fish –Don’t lose potential economic benefits from fish harvests Don’t harm the environment –Other fish species, marine mammals, sea birds

ECONOMIC OBJECTIVES Obtain high prices for the fish –Produce high-quality fish products –Produce products with high market demand –Harvest products at times when prices are good –Don’t produce so much that the price is depressed Keep costs low –Keep capital costs of boats and gear low –Keep operating costs of fuel and labor low An economically healthy industry

SOCIAL OBJECTIVES Employment –Employment for Alaskans Employment for local Alaskans Community stability

ALLOCATION OBJECTIVES Who should get to catch the fish? Who should get the economic rents from the fishery resource? POPULAR ALASKA ANSWERS: Citizens, not foreigners Alaskans, not outsiders Small boats, not big boats Small businesses, not big corporations OTHER ANSWERS: Fishermen who have caught fish in the past Fishermen who are most efficient Whoever will pay the most for the fish

Part of the challenge of fisheries management is balancing conflicting goals... What’s best for resource conservation isn’t best for profitability What’s best for profitability isn’t best for social goals Measures taken to meet objectives of resource conservation, profitability or social goals also affect allocation of fish

Types of Alaska Fishery Management Systems No Management Open Access (restrictions on time and gear, but not on participation) Limited Entry (restrictions on time, gear and participation, but not on individual catches) Rights-Based Management (restrictions on individual catches, fewer restrictions on time and gear) –Individual fishing quotas –Community fishing quotas –Cooperatives

Evolution of Alaska Fisheries Management No management Open access management (gear and time restrictions) Limited entry management Transferable permits (Salmon, 1974) Non-transferable permits (Crab, 1990s) Rights-based management IFQs (Halibut and Sablefish, 1995) Cooperatives (Pollock, 1999) Community Development Quotas (Bering Sea Fisheries, 1990s) King crab and tanner crab fisheries? (discussions underway) Gulf of Alaska groundfish fisheries? (discussions underway)

Jurisdiction over Alaska Fisheries Fisheries primarily within 0-3 miles of shore (salmon, herring) are managed by the State of Alaska Fisheries within miles of shore (halibut, groundfish, crab) are managed by the United States federal government.

The State has management authority for fisheries occurring primarily between 0 and 3 miles from shore. The federal government has management authority for fisheries occurring primarily between 3 and 200 miles from shore. Species groupManagement Authority SalmonState HerringState GroundfishFederal Government HalibutFederal government (quotas set by International Pacific Halibut Commission) CrabFederal government (management delegated to State under framework management plan)

State of Alaska Fishery Management Agencies Alaska Board of Fish –Citizen board appointed by Governor of Alaska (subject to confirmation by Legislature) –“Non-political” –Sets broad management policy –Manages not only commercial but also sport fisheries –Meets several times per year to hold hearings and vote on policies –No research staff –No budget for analysis Alaska Department of Fish and Game –Implements policies established by Board –Conducts some biological research –Very limited capabilities for economic analysis

The Alaska Constitution (1959) established the broad framework for Alaska fisheries management “Wherever occurring in their natural state, fish are reserved to the people for their common use.” “No exclusive rights of fisheries may be created” –Except “to relieve economic distress” –Provided basis for ban on salmon aquaculture because it was illegal to own broodstock The authority of the Board of Fisheries or the legislature to establish rights-based management approaches is limited, uncertain, and untested

U.S. Federal Government Fishery Management Agencies North Pacific Fishery Management Council (NPFMC) –Establishes broad management policies –Members appointed from fishing industry by Governors of Alaska, Washington, Oregon –Meets six times per year; hundreds of people attend meetings to testify and attempt to influence policy –Council has its own research staff and additional funding to contract for research –Council carries out extensive analysis of management issues, both biological and economic –System designed to provide for management sensitive to concerns of industry (rather than bureaucrats) –But potential exists for conflicts of interest in highly political management decisions

National Marine Fisheries Service –Reviews and (usually, but not always) approves actions of North Pacific Fishery Management Council U.S. Congress –Sometimes directly intervenes in management issues (moratorium on ITQ management, pollock fishing cooperatives) –Alaska Senator Stevens is very powerful U.S. Courts –Environmental groups have successfully sued over management U.S. Federal Government Fishery Management Agencies (cont.)

Seminar Outline Brief overview of Alaska fisheries Brief overview of Alaska fisheries management Brief overview of Alaska fisheries issues Discussion of potential applications of experimental methods to Alaska fisheries issues Discussion of potential “pilot” projects OBJECTIVES: Stimulate thinking about potential applications of experimental methods to Alaska fisheries issues Identify potential “pilot” projects

Major Alaska Fisheries Issues Fish pricing and lack of trust between fishermen and processors The economic crisis is the commercial salmon fisheries –Responding to the market challenge of farmed salmon –“Restructuring” of salmon fisheries Allocation between commercial, sport and subsistence fisheries Overcapitalization and “restructuring” of the crab and Gulf of Alaska groundfish fisheries “Two-pie” issue—proposals for allocations to processors and/or communities Future of aquaculture in Alaska

Seminar Outline Brief overview of Alaska fisheries Brief overview of Alaska fisheries management Brief overview of Alaska fisheries issues Discussion of potential applications of experimental methods to Alaska fisheries issues Discussion of potential “pilot” projects OBJECTIVES: Stimulate thinking about potential applications of experimental methods to Alaska fisheries issues Identify potential “pilot” projects

Potential Goals of Experiments Related to Alaska Fisheries Issues Research: gaining understanding which will then be disseminated in other ways (publications, reports, etc.) Instruction: teaching students (non-industry participants) Extension: teaching industry participants: fishermen, processors, managers The goal has significant implications for: –Topics of experiments –Design of experiments –Degree of “realism” required –Participants’ interest and motivation –Number of participants –Potential timing and location of experiments

The most useful applications of economic experiments related to Alaska fisheries issues may be in extension Industry participants are actively involved in making decisions. Industry participants can best understand (and replicate?) motives of players in the industry There is a significant (but not necessarily recognized) need for education of managers, fishermen and processors Potential for participant feedback on experiment design

Potential Topic Areas for Experiments FISHERIES MARKET DYNAMICS Formation of ex-vessel salmon prices Dynamics of fresh halibut markets in IFQ Fisheries Dynamics of buyback prices in limited entry fisheries RESTRUCTURING OF FISHERIES MANAGEMENT Illustration of effects of management & restructuring options –Status quo –Fractional permits –Permit buybacks –Individual fishing quotas –Co-ops –Two-pie/Three-pie issues BROADER DYNAMICS OF FISHERIES MANAGEMENT Interaction of biological systems, markets, management systems over time –Dynamics of fisheries for “chaotic” fish species such as crab Bycatch implications of alternative management systems

Formation of ex-vessel salmon prices Unique market characteristics: –Fresh product must be delivered within hours of catches –Catch volumes unknown –Potential for processors to run out of capacity –Economies of scale for processors –Difficulty in separating deliveries of different fishermen or paying for “quality” –Worldwide highly volatile commodity market –Multiple products (canned, fresh, frozen, roe) –Multiple processor types (land-based, floating) –Limited entry for fishermen Importance –Longstanding suspicion between fishermen and processors –Frequent strikes –Bristol Bay price-fixing lawsuit

Dynamics of fresh halibut markets in IFQ Fisheries Fishing open March 15-November 15 Each fishermen has right to catch known volume of halibut Total quota known Fresh market, perishable product Frozen market alternative Market highly sensitive to total deliveries Economics of fishing trips (economies of scale, weather) Economics of processing (economies of scale) ISSUES: When should fishermen catch their quota? Is harvest timing optimal? Are there ways to make fishermen collectively better off?

Restructuring of Salmon Fisheries Limited entry management (fixed number of transferable permits) Salmon fishery in economic crisis