with funding from the sponsors of the Ian Axford (New Zealand) Fellowships
in Public Policy
Richard Newell is a Fellow at Resources
for the Future in Washington, D.C., where he is involved in economic
analysis of policy design and performance with an emphasis on incentive-based
policy and technological change. His research applications encompass
a range of environmental and natural resource issues including energy
efficiency, climate change, air pollution, and fisheries management.
Richard 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).
Executive Summary
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:
· Incorporate into decision-making 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, incorporating
both commercial and non-commercial values. It becomes the specific role
of public policy to provide the incentives for private actors to recognise
the stock-value part of this equation, that is the value of leaving fish
in the sea.
· Set the ends (stock and catch targets) and design the means of
policy (e.g. deemed values) in order to maximise value, not catch.
· Incorporate into stock strategies and fish plans an overall system
of bio-economic indicators for categorising and managing stocks.
· Target TACCs differentially for each fish stock based on the
biological and economic characteristics of each fishery.
· Set TACCs roughly where you want to go, and use the ITQ system
and deemed values to get you there with an appropriate degree of flexibility.
· Select a series of case studies, possibly in the context of stock
strategies, to do more thorough bio-economic analysis and follow up with
pilot projects to implement stock-tailored management approaches.
· In order to implement many of these recommendations, the Ministry
will need to incorporate both biological and economic information and
analysis into decision-making processes in a more systematic fashion.
Important information components that require tracking include data on:
costs, value, stock levels, growth rates, relationships between stock
size and costs, and measures of economic and biological uncertainty. A
lack of biological and economic information, and an inadequate use of
existing information, are hindering better fishery outcomes. Collecting
and using such information in a cost-effective manner present a significant
challenge.
· Evaluate existing TACCs with an eye toward reducing TACCs that
are not currently binding. Non-binding TACCs are an indication of low
profitability and conditions approaching open access.
· Reassess the TACCs for fish stocks that are taken primarily as
incidental catch and acting as a constraint on target fisheries. In setting
new TACCs for these stocks, have regard for achieving the value-maximising
yield from the fishery, including the value of related target stocks,
and recreational and customary fishing rights, subject to the constraint
that TACCs not be set above a level that would compromise the long-term
viability of the stock.
· Base deemed values should be set to approximate the unit stock
value (and unit profit) corresponding to the target catch. In cases where
the target catch is equal to the TACC, the deemed value should therefore
be set to approximate the price of Annual Catch Entitlement (ACE), when
catch is about equal to the TACC.
· TACCs should be set to reflect the value-maximising (or other
desired) target catch, and deemed values should be set on an iterative
basis to achieve that target on average. Repeated catches above the TACC
are either a signal that the TACC is inappropriately set, or that the
deemed value is too low. Likewise, TACCs that are not binding on catch
are probably set too high.
· The increments of the differential deemed-value schedule should
be based on the biological and economic characteristics of individual
fish stocks-in terms of both the catch increments and value increments-in
principle to reflect the increasing value of leaving fish in the stock.
· Redefine the basis for applying differential deemed values by
transitioning from deemed-value brackets based on individual catch-to-ACE
ratios to brackets based on aggregate catch-to-TACC ratios. Rates would
apply equally to all fishermen based on end-of-year values, possibly updated
throughout the fishing year. This would ensure that all fishers faced
the same price for taking fish from the stock.
· Move the end-of-year ACE true-up date from October 15th to November
15th, to allow more time for end-of-year balancing of catch with ACE.
Transaction costs in quota markets can also be reduced through measures
such as promotion of on-line trading and use of public auctions.
· It should be investigated whether deemed values can be recycled
to make deemed values a more distributionally-neutral instrument, without
undermining the incentives deemed values are designed to create.
· Where appropriate, reinvest deemed-value payments in research
and other efforts that lead to improved knowledge and increased value
of associated stocks. This acknowledges that deemed-value payments are
related to the value of catch in excess of TACC for a particular stock,
and returns that value to the stock.
· The current degree of uncertainty about many stocks, and the
importance of knowledge about stock size in determining appropriate TACCs
and deemed- value levels, indicate that there is a high value in increased
monitoring of stock abundance and environmental and economic conditions.
· Increase non-compliance penalties and enforcement in tandem with
deemed values and rates of overcatch.
· Require reporting of ACE and quota prices to reflect true prices,
so that this important source of information becomes a more accurate measure
of commercial value.
newellr.pdf (486k)
