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2006-01-01 | Report

The Desirability Of Balanced Trade In Fish And Fish Products Among The Three BCLME Countries

Savy C.E., and A. Leiman. 2006. "The Desirability Of Balanced Trade In Fish And Fish Products Among The Three BCLME Countries. BCLME Project LMR/SE/03/02".
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A fishery run as a perfect monopoly seeking to maximize its profits over time, and secure in
its monopoly rights, will try to maximize the present value of its economic rents or profits over
time. To do this it will have to exploit the resource sustainably, keeping up the level of the
resource so as to keep up its catch per unit effort, and keep down its costs.

Its interests would be quite congruent with those of most state fisheries managers. The moment that the industry shifts away from pure monopoly and becomes competitive, the interests of the resource managers and of the firms become divorced. The gap between them grows greater the weaker the property rights regime, the shorter the lifetime of permits and the more open the access to the industry. Most attempts by the resource managers to rectify this problem and maintain the stock of fish at reasonable levels are not only bound to fail, but to do so at a cost, reducing the rents in the industry even further. The reason is that any state control operates as a contract between two parties: the state and the fisherman. The state may be acting in the fishing industry’s best interests, but the individual fisherman sees himself competing with others, and strives to maximize his personal welfare at the expense of the others in the industry. If every fisher is doing so, then the industry itself ends up behaving irrationally. Put simply, what appears rational to a profit maximizing fisherman as an individual is irrational for fishermen as a group if it is repeated by every other fisherman. The state has to pressure fishermen into acting in their own best long-term group interests rather than their own narrow and short-term personal interests. Effectively the managers of the fish resource in any country have to coerce a competitive industry into harvesting at the same rates and in the same manner that it would were it a fully informed pure monopoly, and to do so at the least possible cost.

In the Benguela ecosystem the problem is compounded by a number of factors:
· Some of the major fish species are straddling stocks; this means that the fish could
  not only be competed for by fishermen within a country, but by the fishing industries
  and state managers of the neighbouring countries across whose borders the fish
· The control systems, quotas, permit conditions etc across borders may not be
· The modelling of stocks on which controls such as TACs are based uses catch and
  survey data. Without collaboration each state may be making decisions about rates of
  harvest without having the full set of data available.

A point to stress is that all three countries in the BCLME have fisheries that are primarily
controlled through a TAC broken down into quotas. Although this is a classic first step in
ensuring efficient and sustainable fisheries, it is surprisingly unusual around the globe. The
existence of such control systems is genuinely advantageous to any policymaker aiming at
bio-economic efficiency. Indeed, the rules and regulations in place across the three countries
indicate careful thought and genuine understanding of the fisheries involved.

Despite this, each country in the BCLME has a history of problematic economic contracts. In
Angola the EU had a contract that allowed access to Angolan waters for a flat fee, but with
no limit on the catch, only a coarse control on the allowable effort in the form of a restriction
on the number of vessels. The profit maximizing response to such a contract is to use large
vessels, deploy as much gear as feasible, and fish as intensively as possible, trans-shipping
to cut the fishing down time. Add that the EU vessels had a poor history of record keeping,
and the contract was little more than an invitation to mine the resource. The contract was terminated recently, but some of the new bilateral contracts that have replaced it also have
problems. Every contract has strengths and weaknesses; the EU agreement meant that
European fishermen bore the entire risk that the fishing season would be poor, but only for
the two year life of the contract. One of the new agreements with Chinese investors to use
Chinese vessels in exchange for 70% of the catch made by those vessels means that the
risk of stock collapse is now shared by the local partner. On the other hand the agreement is
longer term and involves a local partner who has an interest in the sustainability of the
resource. Harvesting practices should therefore be more sustainable.

Historically Angola’s horse mackerel resource was exploited by Russian and East European
fleets. Many of these vessels are now operating in Namibian waters. The control of midwater
trawlers, and in particular of their impact on the more valuable hake resource, requires
careful design of contracts. The Namibian permit conditions, for example, restrict the depths
in which mid-water trawlers can operate. By keeping the vessels to deeper waters the
managers of the resource intend to prevent them from targeting hake and also to keep them
from depleting stocks of juvenile mackerel. A more controversial contractual feature that
comes out of the Namibian permit system is the separation of quota for a given species
according to the harvesting technology. The separation of the hake TAC into freezer-vessel
and wetfish quotas is intended to secure jobs in the industry. As with other interventions it
seems likely to have unintended consequences: it has become clear that this separation is
effectively imposing a tax on the industry and reducing its profitability. Conventional
economic theory argues for efficiency and equity as features of taxes – the question to be
asked before policies like this are introduced should be, ‘is there a more efficient way to
create jobs’? Maximizing the profitability of the industry, taxing the profits conventionally,
and then using the tax revenues to create employment, is the standard approach. Only
where the ability of government to deliver is in doubt would economics ordinarily recommend
distorting the industry to achieve the same ends.

In South Africa the fishing industry was historically extremely concentrated: a small number
of large operators dominating most of its sectors. The relationship between the state and the
industry since 1994 has largely focused on inducing changes to this industrial structure.
These adjustments to the industry have not been costless. Fishing and fish processing are
sectors that often demonstrate economies of scale and scope. Big firms and vertically
integrated firms are typically able to operate at lower cost and with less financial risk than
small operators. The reallocation of permit rights from large to small firms, combined with
requirements that new entrants actively invest in the industry, have raised the overall
economic risk profile of the industry in South Africa. Persons with fishing skills wishing to
enter and obtain quota have had to commit personal capital or enter into debt to meet the
permit conditions. They are consequently both more exposed and less resilient than
established participants. The political imperative for Black Economic Empowerment,
combined with the inherent volatility of fish stocks and fish markets, and lately the rising
operating costs of vessels, may clearly have unintended and unfortunate consequences.
These may be magnified or diminished by the contracts in place between the state and
fishing companies, and the rigor with which they are enforced.

The joint governance of the Benguela Current Ecosystem by the three states involved also
sets challenges. The collapse of the pilchard stock in the Northern Benguela has been
attributed, in part, to heavy fishing of this pelagic resource on both sides of the border, with
Namibian trawlers fishing in Angolan waters after the Namibian stock collapsed. The
principle that trawlers should follow fish, and that the stock should be treated as a single
entity irrespective of borders, is admirable. The lesson of the Northern Benguela pilchard
resource is that, even if the underlying permit conditions and contracts are sound,
international co-management for bio-economically efficient joint exploitation is only feasible if the stock assessments underlying it are solid. The foundations of a three country joint stock
assessment programme already exist, and the necessary scientific foundations are in place.
What is further needed is the cooperation of the three governments involved, and of the
fishing industries in all three states.

In making recommendations for a rights based system in the BCLME it seems clear that
there is little immediate need for major changes: the current systems of rules and regulations
are generally sound. There is room for marginal adjustments, but in general the regulatory
regime is sound. Unfortunately a regulatory regime is only as effective as the science
underpinning it and the compliance of those who use it. The monitoring of and systems of
penalties for non-compliance are the areas in which the greatest potential for improvement
lies. Probity and effort in administration and enforcement are prerequisites for efficient and
working contractual systems in any fishery. Given these, and a stress on the co-management
of the resource by industry and the state, the socio-economic contributions of the Benguela
fisheries could be restored.

Note: this document was written to accompany BCLME project LMR/SE 03/03, The BCLME
Commercial Rights Holder and Vessel Analysis and its accompanying database.