Prepared by Richard Newell, June 2004
with funding from the sponsors of the Ian Axford (New Zealand) Fellowships in Public Policy
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).
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:
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