The Sunken BillionsEconomics and Reform in EU fisheries

Kieran KelleherFisheries and Oceans Specialist

Fifth International Fisheries Conference“Fisheries sector viability with and without support”

Tallinn, 27 November 2015 1

key messages

the case for economic reform in fisheries is overwhelming

the ongoing losses far outweigh the costs of reform in EU fisheries

fisheries reform is essentially a political and economic problem

it cannot be solved through technical approaches and public financial support

without aligning incentives and equitable structural adjustment

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contents

I. the “Sunken Billions” studiesII. an example of fisheries reformIII. the EU’s “sunken billions”IV. reform in the EU’s fisheriesV. conclusions parting thoughts

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I. The Sunken BillionsThe economic justification for fisheries reform

the study the results

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the study (2008)

present the story of the world’s depleted and overexploited marine fisheries in economic terms

raise awareness at global and national levels targeting ministries of finance, economics and planning

complement existing agendas, e.g. ecosystem approach, poverty reduction, climate change

provide a global estimate economic losses resulting from ineffective fisheries governance: “the Sunken Billions”

global bio-economic model - verifiable, replicable, commercial harvest

modalities and costs of transition ….. ?

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the results – decreasing productivity 75% of stocks overexploited (in economic terms) global marine world’s capture fisheries production has been

stagnant for nearly two decades and for demersal resources for three decades

numbers of fishing vessels and fishers have continued to increase

fishing technologies have grown more efficient productivity decreasing, weak fisheries management has

generally nullified any productivity gains

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results – annual ‘loss’ of $50 billion

$50 billion annual rent drain (foregone potential benefits) in 2008 study

real incomes in fishing have declined at global level, profits (if any) are marginal subsidies ~ $20 billion per year national and global fish capital depleted countries lack ‘environmental accounts’

~~~~~~~~~~~~~~~~ $83 billion annual rent drain in 2015 study

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declining productivity, but increasing fishing fleets and fishing power

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II. Reform of Peru’s anchoveta fishery

rationale/ situation in 2007 World Bank intervention selected results issues

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situation in 2007

iconic importance as the world’s largest fishery (~50% of global fish meal supply)

massive fleet overcapacity quota closures - fishing season 55 days - up to

200,000 tons/ day(~ 20% of the annual Baltic catch in 1 day)

high discards/ wastage/ low fish meal quality fleets and processor debt ~ US$ 1 billion

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Processing capacity

30 million tons

overcapacity2005-07

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Fleet catching capacity

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Allowable catch2 – 8

million tons

La Nina

El Nino

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World Bank intervention

advocated an ITQ system undertook rent loss estimates and social impact studies

estimated $0.4 billion potential annual economic gains $0.3 billion environmental reform budgetary support

results triggered disbursements individual quota system one ‘result’ part of broad reform process (e.g. public expenditure,

transparency) linked to election cycle and political processes –

developed reform ‘consensus’

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the changing anchoveta fishery

2009

+ 200% fishing season 150 days - 85% closed area violations - 73% fishing effort (for same catch) - 47% landings small size fish - 29% accidents at sea ‘independent’ monitoring compensation fund …. corporate consolidation

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fishing season 55 days fleet overcapacity discards/ wastage $0.4 billion annual ‘loss’

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broad consensus for reform

Individual quota law

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more profits +50%less vessels -24%

Indicators Profits No. vessels Catch

2006 base base same

2009 +50.1% -24% same

Share of profits/ losses Fleet Fish meal plants

2006 27% 73%

2009 69% 31%

Trend Sector debt ($‘000) Profit ($’000)

2004-2005 -800 loss

2009 0 591u

very clear economic justification for fisheries reform14

political, social and economic trade-offs

By definition, the creation of exclusive use rights means that some gain and some loose.

Wealth distribution cannot be avoided – and thus issues of equity cannot be avoided … the difficulty in making those decisions will delay the evolution of property rights.

…. in an attempt to placate the losers, imperfections may be built into the systems that will preclude, or impede, optimum solutions.

Francis Christy, 1996

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issues in the reform process

quota concentration/ equity / alienation vessel owners IQ rights vertically integrated companies IQ rights displaced vessel crews - compensation fish meal plant owners - no IQ rights displaced fish meal plant workers - no compensation fiscal regime does not capture ‘super profits’ MCS deficiencies - increased incentives to cheat -

conversion rates unrealistic (landings to meal) despite independent monitoring

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III. The EU’s ‘Sunken Billions’

foregone rents subsidies shifting baselines and sustainability

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scale of foregone rents EU catch value €6.9 billion* fleet GVA €3.4 billion gross profit €1.3 (excl. subsidies)

EU foregone rent as a proportion of $83 billion (5.5% of global catch) = $4.6 billion, but overfished stocks EU >60% - global 30%

…so EU foregone rents ≈ €6? billion per year

* STECF, 2013, excl. Greece +418

public support to EU fisheries

EMFF €0.9 billion (though some post-harvest/ non-harvest activities)

Member State co-financing of EMFF €0.9? fisheries agreements €1.3 billion cost of fisheries management 5% landed value = €0.3 costs of ‘free’ use of public infrastructure, e.g. ports ? ‘free’ use of natural capital import tariffs on €19 billion at 3.5% = €0.7 billion

market distortion ≈ 50% of gross profits ‘paid’ by consumers total public support approx. €4 billion/ year

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returns on public support for EU fisheries appear poor

foregone rents €6 billion public support €4 billion returns:

capture fisheries: net profits €1.3 billion/ GVA €3.4 billion + linked economy, e.g. processing

net profit €1.6 billion; GVA €6.4 billion + social benefits, e.g. coastal communities

employment capture 150,000 + processing 120,000

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guiding rules for public support

separate the politics from the metrics do the benefits outweigh the costs ? – generally not! are subsidies socially necessary? are alternatives more cost effective?

who captures the benefits: elite, workers, society? if possible phase out, in particular subsidies that

increase or maintain fishing effort and overcapacity, .. if not … subsidies should be: temporary and part of broader fisheries strategy complement investments in good governance

including improved productivity and fiscal coherence

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III. Reform in the EU

reform processes future approaches

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reform targets and processes

1. institutional ‘logjam’

2. vision and leadership

leadership – the capacity to translate vision into reality

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CFP is a ‘response’ to symptoms arising from the institutional logjam

CFP reforms often target the symptoms - not the ‘disease’ – unaligned incentives stocks, fleet capacity, productivity, employment measures working poorly if at all, e.g. fleet capacity reduction

(-2%/ year) versus technological progress (+2-3% per year) assumption: dealing with symptoms will fix the problems

incoherent units - jurisdiction, fishery, areas, stocks, tenure single species approaches - TACs, quota, shifting MSY

baselines few ‘whole of fishery’ vision, or approaches

what is the vision for the Baltic cod fishery in 2030 ? what is the pathway to build and achieve that vision ?

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capacity reduction – shifting baselines

Capacity reduction measures (USA): same length and kw

old

new

Trophy fish, Key West 1956Trophy fish, Key West 2007

Shifting baselines and the “recent normal” for MSY

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The last sturgeon in the Baltic Sea was caught in 1996 near Saarema Island – 135 kg and 2.7 meters.Narva River salmon harvests were 2,000–3,000 fish until the extinction of the sub-species in the mid-20th century due to dam construction.

tackling the logjam

consensus vision is needed across the political spectrum recognize reform is a political process that must be managed manage fisheries as more coherent economic units, rather

than stocks and fleets reforms may be incomplete and ‘messy’ … so built-in mechanism for adaptive management effective incentive structure fundamental dismantle the pervasive incentives, e.g. the New Zealand

(iwi/ ‘social’ trusts) or Alaska pollock models (coop. pool) solutions may not be within the fisheries sector

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V. conclusions- parting thoughts

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parting thoughts – public support

by definition, well managed fisheries make a net contribution to society

temporary public support may be required for social reasons, or e.g., to assist transitions, or recover from natural disasters

public support for EU fisheries has become a ‘permanent’ feature

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focus on managing the politics

the crisis in fisheries has been largely treated as a fish issue, rather than an economic, social and political issue

recognize that fisheries management and reform its a political process that must be managed

the challenge: turn economic justification into socially and politically acceptable reform pathways

reforms need political willingness and consensus vision across the political spectrum

champions – leaders that build consensus vision clear steps and milestones – beyond political cycles

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parting thoughts – fishery reforms capturing the sunken billions

greater understanding of management of reform processes is required – political opportunities, timescales, sequencing, equity, financing

aligning incentive structures fundamental reforms may be incomplete and ‘messy’ built-in mechanism for adaptive management equity. dealing equitably with the ‘losers’ is critical

to the political process solutions may not be within the fisheries sector

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Kieran KelleherFisheries and Oceans SpecialistkkelleherWB@gmail.com

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