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Supply regimes in fisheries
ARTICLE IN PRESS
Marine Policy 30 (2006) 596–603 www.elsevier.com/locate/marpol
Supply regimes in fisheries Max Nielsen Food and Resource Economics Institute, The Royal Veterinary and Agricultural University, Rolighedsvej 25, 1958 Frederiksberg C, Denmark
Abstract Supply in fisheries is traditionally known for its backward bending nature, owing to externalities in production. Such a supply regime, however, exist only for pure open access fisheries. Since most fisheries worldwide are neither pure open access, nor optimally managed, rather between the extremes, the traditional understanding of supply regimes in fisheries needs modification. This paper identifies through a case study of the East Baltic cod fishery supply regimes in fisheries, taking alternative fisheries management schemes and mesh size limitations into account. An age-structured Beverton–Holt based bio-economic supply model with mesh sizes is developed. It is found that in the presence of realistic management schemes, the supply curves are close to vertical in the relevant range. Also, the supply curve under open access with mesh size limitations is almost vertical in the relevant range, owing to constant recruitment. The implications are that the effects on supply following from e.g. trade liberalisation and reductions of subsidies are small in several and probably most fisheries worldwide. r 2005 Elsevier Ltd. All rights reserved. JEL classification: Q21; Q22 Keywords: Backward-bending supply; Regulated open access; Regulated restricted access; Mesh size regulation; Beverton–Holt model
1. Introduction The purpose of this paper is to contribute to the understanding of supply regimes in fisheries through a bio-economic supply analysis of East Baltic cod. Issues like under what circumstances the current fishery limit future supply and what the role of management for the supply is are addressed. When fisheries management schemes are changed you need to know potential effects on the future supply. Does supply remain unchanged, or is there a risk of commercial extinction implying zero supply? Understanding the role of the effects of fishery on supply allows for an assessment of the effects of alternative fisheries management policies on the price of fish products. Supply regimes in the East Baltic cod fishery are identified and generalised in the present paper and long run implications discussed. This issue is important in understanding the price formation process on fish products, since such studies claim knowledge of both supply and demand. In most Tel.: +45 35 28 68 94; fax: +45 35 28 68 01.
E-mail address: [email protected]. 0308-597X/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.marpol.2005.09.004
sectors the supply curve is increasing, since the suppliers are willing to sell more, the higher the price. Fish supply is, however, only increasing when the fishery is managed optimally and the externality internalised, i.e. in case of sole ownership [1]. Furthermore, Copes introduce the backward-bending supply curve of the fishing industry in open access [1]. This approach is different from the supply regimes in most other sectors by being partly decreasing (backward-bending), since overexploitation might lower the stock and thereby future supply. The approach does, however, neither take into account mesh size regulation, nor that most fisheries worldwide including the East Baltic cod fishery are regulated by a mixture of regulated open and regulated restricted access. This is included in the present paper. The hypothesis is that even though the supply curve is backward bending in the present fishery, as well as in most fisheries worldwide, it is almost vertical in the relevant decreasing range. The issue is also of relevance to identify interactions between fisheries management and markets. I.e. knowledge of interactions is important to study the effects changing demand have on the fishery and how changed fishery and
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fisheries management affect markets. Provided that the hypothesis that the supply curve is approximately vertical in the relevant range holds, the price is determined solely by demand, given exogenous supply. Thereby, it is easy to include knowledge of demand in fisheries policies. The issue is important from a modelling point of view. The point of departure in all known studies estimating inverse demand systems on first-hand fish markets is the assumption of exogenous supply [2–5]. Hence, provided that the hypothesis holds, it support the reliability of the results obtained in studies of inverse demand. Provided that the supply curve obtains other forms in the relevant range, this paper question the reliability of former results. Finally, the issue is interesting in relation to the ongoing WTO negotiations on fisheries subsidies and trade liberalisation in fish products. Fisheries subsidies were given special attention and put on the agenda in the negotiations during the Ministerial Meeting in Doha in 2001, due to their perceived negative effects on the world fish stocks [33]. But in the cases where the supply curve is vertical in the relevant range, i.e. where the hypothesis holds, changed subsidies have no effect on the sustainability of fish stocks. Distortions remain, but since this is also the case in most other sectors, the consequence is that fisheries subsidies do not demand special attention in relation to subsidies in other sectors. Trade liberalisation in fish products have continuously been and remain on the agenda in the WTO negotiations for decades as a non-agricultural product. But recent research has warned that the effects might be surprising and counterintuitive due to externalities in production [6]. Given that the supply curves are vertical in the relevant range, however, effects on supply are small, although the surprising and counterintuitive effects holds in some cases. In the economic literature, supply regimes in fisheries is not an extensive research area, although some work has been done. The literature departs from Copes who introduce the idea of the backward-bending supply curve of the fishing industry [1]. Clark elaborates further on the theoretical deduction of the supply curve [7]. Schulz use the backward-bending supply curve in a partial equilibrium set-up and discuss the relationship between long run stocks of marine mammals and trade policy [8,9]. Stone study the link between fisheries subsidies using a theoretical bioeconomic model [10]. Bjorndal and Nostbakken estimate the backward-bending supply curve quantitatively for North Sea herring [11]. Simultaneously, another direction develops where supply elasticities are identified estimating profit and revenue functions for different fleet segments [12–14]. Based on these studies, Asche and Hannesson notes that ‘‘most supply elasticities reported for fishermen seem to be low and often very low’’ [15]. A third direction departs from the backward-bending supply curve and develops in a general equilibrium framework [6,16–20]. The theme is that advantages with free trade in renewable resources, which are not managed
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optimally, exist only under certain conditions and for certain types of countries. The reason is that overexploitation might follow from the opening of trade and the consequence that the active use of trade policies in certain situations is optimal from an economic point of view. Hence, in the literature known articles departs from either open access or optimal management. Given open access, the supply curve would be backward bending and approach zero, predicting that increased fishery might cause extinction of stocks and zero steady-state supply. Contrary, given optimal management, the supply curve would be increasing, predicting that increased fishery rise supply. These two points of departure are, however, rather extreme, since management exist in most fisheries worldwide in the form of either regulated open access or regulated restricted access. Technical conservation measures, such as mesh size regulation, is also present in most fisheries. An empirical reliable supply model necessarily needs to take the management system into account. In this paper, a long run age-structured bio-economic supply model is developed and used to identify the supply in the East Baltic cod fishery under alternative fisheries management schemes and in the presence of mesh size regulation. Where former approaches build on the Schaefer production function [21], the present approach is based on a Beverton and Holt agestructured bio-economic model with constant recruitment [22]. Mesh size regulations are included through the age structuring. Quotas and input limitations are also included. Furthermore, the supply curve is calibrated, as opposed to the estimated curve in [11]. Calibration is chosen to be able to analyse the role of fisheries management explicitly. The author is not aware of any articles identifying supply curves empirically on the basis of age-structured bio-economics models, thereby taking mesh size regulation into account. The author is neither aware of articles discussing the form of supply curves under regulated open access or regulated restricted access. This paper explores both. 2. The model Studies of supply of fish products have foundations in the theory of exploitation of renewable resources, based on negative externalities in the production. Supplies of wild caught fish are distinct from the supply of other goods, where it is possible to react to favourable market conditions by increasing the production. This is not an option in fisheries, since overexploitation may result. The approach undertaken here focuses on steady state equilibriums, since the fish stocks need time to adjust. Hence, the focus is on the long run with the short run analysis differing considerably. The reason is that the stock is not significantly reduced in the short run. Even though fishermen may be able to switch their fishing to target particular species, the total fishing capacity limits the supply in the short run in most situations. In the extreme, however, it may be possible to catch the total of the stock
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in the short run, thereby obtaining a high level of supply. Hence, the short run supply curve will be globally increasing and concave, until the supply equals the whole stock. In particular if the stock has schooling nature. The reason for focusing on the long run is that the fishing industry differs from other industries mainly in the long run. In the short run supply curves in fisheries are globally increasing and similar to other industries. In the long run, over-exploitation may result in lower future production possibilities, as opposed to other industries. In the following it is implicitly assumed that the discount rate is zero. The reason is that if it were positive, the long run discounted supply curves for all types of supply regimes would, according to [7], be backward bending at sufficiently high rates. The studies are based on traditional fisheries economics and in particular the Copes introduction of the backward bending supply curve of an open access fish stock [1]. This curve is deduced as the average cost curve on the basis of the Schaefer production function [21]. Supply increase until the maximum sustainable yield (MSY), decreases afterwards and approaches zero at infinitive high prices. The supply curve might also be deduced on the basis of an agestructured approach based on Beverton and Holt, assuming constant recruitment and taking different fishing mortalities of different year classes into account [22]. The supply curves in the present paper are based on the Beverton and Holt approach and are thus deduced from the yield per recruit curve assuming that the total cost curve is linear. Following [7], the recruitment R, which is the number of fish entering the fishery, is assumed constant over time and the number of fish dead at time t is assumed given by (1). dN ¼ ðM þ F ÞN; dt
Nð0Þ ¼ R,
(1)
where M is the natural mortality and F is the fishing mortality. The weight of one fish w(t) at the age t is given by the von Bertalanffy weight function wðtÞ ¼ að1 bevt Þ3 , where a, b and v are positive constants. The total biomass Bt of one year class is then identified as Bt ¼ NðtÞwðtÞ. Based on Clark [7], it is assumed that all year classes are in equilibrium, are identical and that the natural mortality is constant over time. On this basis a discrete bio-economic model, which is applied to the empirical identification of supply curves, is developed [23]. The biomass and the landings H of year class t, both measured in weight, are functions of the fishing mortality level L.1 Bt ¼
20 X
Bi;t1 eðM i þLF i Þ ,
(2)
i¼1 1
The fishing mortality level L is introduced to adjust the fishing mortalities for all year classes (the F’s) with the same factor, that is, a 10% increase in L implies that all F’s increase 10%.
Ht ¼
20 X i¼1
Bi;t
ðLF i Þð1 eðM i þLF i Þ Þ , ðM i þ LF i Þ
(3)
where B0;t ¼ R and i relates to age classes. The fishing mortality level L is assumed to be a function of fishing effort E, L ¼ E, and the total cost C is a linear function of fishing effort. C ¼ cE;
c40
(4)
where c is the parameter of the cost function. Market equilibrium is determined where the price is equal to the average cost. C . (5) H This equilibrium rule is for an open access fishery in which the long-run profit of fishermen by definition is zero and yield per recruit equals total costs. Fishing mortality is assumed at an initial level of one. This normalisation relates policy changes in the fishery to the basic equilibrium and is achieved by fixing the parameter c of the total cost curves.2 In this model the yield per recruit and the supply curves are alike, since the total costs are linearly increasing in L. hence, for a fishery performed with nets the supply curve is deduced as a transformation of the yield per recruit curve. This deduction is shown graphically in Fig. 1. For an open access fishery with medium mesh sizes, i.e. mesh sizes where the fish always have the opportunity to spawn before being caught. It appears that with medium mesh-sizes the curves become backward bending. The turning point is known as the MSY. In contrast to a curve derived from the Schaefer function, it will not converge against zero with increasing price. The reason is, that the present age-structured model assumes unchanged recruitment. This implies that it is impossible to extinguish the fish stock. The supply function for an optimally managed fish stock and for stocks managed between maximum economic yield (MEY) and open access equilibrium, such as regulated open and restricted access,3 are identified in the East Baltic cod case below. First, however, data for the fishery must be presented.
P¼
3. Data Data are provided for a case study of the east Baltic cod fishery. The fishery takes place in the Baltic Sea east of the island of Bornholm. Several EU countries are active in the 2 The model is ‘‘closed’’ by determining c such that yield per recruit equals total cost where L ¼ 1. This procedure corresponds to a comparative-static analysis where changes between the basic and a new period are identified. The advantage of this procedure is that detailed knowledge of the cost structure of fishermen is unnecessary. 3 Regulated restricted access is defined as a management system with perfect control of all inputs at a fixed quota level above MEY. Regulated open access is defined as having no input control at a fixed quota level above MEY.
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Price P
Yield per recruit
TC YMSY/R
PMSY QMSY
FMSY (I)
Fishing mortality F
(II)
Quantity Q
Fig. 1. Deduction of the supply curve from the yield per recruit curve: (I) yield per recruit and total cost curves and (II) open access supply curve.
Table 1 Assumed valuesa Total
P R M T L F N W
Price Recruitment Natural mortality Cohorts and years Fishing mortality level Fishing mortalities Initial population Weight per individual
1.27 217 0.2 20 1.00
Unit
Year classes 0
1
2
3
4
5
6
7
8+
0 217 0.12
0 178 0.24
0.06 146 0.49
0.19 122 0.63
0.89 63 0.89
1.05 22 1.28
1.27 4 2.10
1.29 1 3.37
1.21 0 5.98
h/kg Million
Million kg
Source: Biological values known from ICES [24–26] and landing prices from Eurostat [27]. a Biological values represent an average of 1997–2001 and economic values are from 2001.
fishery with Sweden, Denmark and Poland being the largest. Russia is the only non-EU country, but with limited activity in the fishery. The total catch was 91,000 tonnes in 2001, representing a landing value of approximately h115 million. The catch is used for domestic EU consumption, mainly in Germany, France and the UK, to which it is exported. The case study is based on assumptions of biological and economic values. The biological values are available from the International Council for Exploration of the Sea (ICES) and the economic values from Eurostat, as shown in Table 1. Prices are derived from the landings statistics, where recruitment to the fish stock is assumed constant over time and includes 217 million individuals annually. This is also the size of the initial population for year class zero, which falls subsequently. The fishing mortality is given for 20 different year classes. It increases with age until year 6, after which it remains stable. The fishing mortality for fish until year 2 is zero owing to the presence of mesh-size regulation. For year classes 2–6 the fishing mortality increases gradually, since the selectivity is not knife-edge. Based on these, only the parameter, c, of the cost function is missing. The reason is, that it is determined endogenously by claiming that yield per recruit is equal to total costs per recruit with the initial fishing mortality level of unity.
The fishery is managed through the International Baltic Sea Fisheries Commission, consisting of all countries surrounding the Baltic Sea. These countries decide once a year upon the Total Allowable Catch (TAC). Subsequently, this TAC is allocated to the single countries with a share, which has been fixed for the last five years. Simultaneously, some of the countries use input management, such as capacity limitations and restrictions on the days at sea. Therefore, the management systems can be characterised as in between regulated open and restricted access. However, ICES [25] has questioned the effectiveness of the management system, since it has assessed unreported catches at an average 11% above TAC over the years 1997–2001. This is in particular the case in years where the TAC is close to being 100% utilised. Furthermore, while the level of the spawning stock biomass has been outside safe biological limits in recent years, TAC’s have been fixed at levels above ICES recommendations. Thus, the management system has not been applied in a way that secures sustainability. Therefore, even though regulated restricted access exists, it might also be realistic to analyse welfare in an open access situation. Hence, welfare analysis is performed assuming the presence of different management systems. On this basis supply regimes are identified in the present paper for the alternative hypothetic situations open access, regulated open access, regulated restricted access and optimal management, keeping in mind that a situation
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between regulated open access and regulated restricted access is probably the most reasonable characterisation of the present fishery. 4. Results
Price P
Price P
Price P
According to Clark [7], the shape of the yield per recruit curve depends on the fishing mortalities and the selectivity appearing from the use of e.g. mesh size regulation. At sufficiently small mesh sizes and large fishing effort, the yield per recruit curve is similar to the Schaefer based production function. That is, the Schaefer model is a special case of the age-structured approach. At sufficiently large mesh sizes the yield per recruit curve will be increasing in the relevant range. Between the two extremes, the yield per recruit curve remains backward bending, but will approach a positive yield, since the stock cannot be depleted. The recruitment can remain constant since the fish always have the opportunity to spawn before being caught. Using the East Baltic cod fishery as an example, the shapes of the supply curve in open access under three alternative assumptions on the selectivity is presented in Fig. 2. Since only the shapes of the supply curves are analysed, numerical values are not presented. For sufficiently small mesh sizes and at large fishing mortalities, the supply curve bends backwards and approaches zero at infinitely high prices, where for larger mesh sizes it approaches a positive quantity. For sufficiently large mesh sizes (mesh sizes constructed to catch fish older than 6 years) the supply curve is increasing in the relevant range. Fishing effort increases with prices and the position of the curves can be shifted with changes in key parameters. If, for example, the recruitment falls or the
natural mortality rises the curve will shift inwards, thereby reducing supply at given prices. It appears that the shape of the supply curve depends on the selectivity and since mesh size regulation is used in most fisheries, the supply curve of the medium mesh size situation might be the most common one. Furthermore, since fishing in several fisheries is on a level causing overexploitation, the common situation is also that fishing is well above the MSY. This implies that even with open access, the supply curve is approximately vertical for high prices. This point is to the knowledge of the author not raised in the literature. Although the situation with medium mesh sizes may apply in most fisheries, the situations with small and large mesh sizes also apply in some fisheries. In the following, however, focus is on the medium mesh size situation and supply curves in the presence of management are identified. Input and output management is analysed in three alternative schemes; regulated open access, regulated restricted access and optimal management (e.g. individual transferable quotas). Supply curves are shown in Fig. 3. It appears that the supply curves in regulated open and restricted access are similar. The supply curves follow the open access supply curve until a certain level above MSY and is then given by the quota. The economic optimal way to fix the quota under such a management scheme is to limit the fishing to the MEY, which can be shown to be below MSY. Traditionally, however, quota schemes are implemented only after problems in the fishery have been discovered, implying that fishing is well above MSY. The manager can then shift the vertical part of the supply curve to the right by reducing quotas in the short run, thereby
PMSY
PMSY QMSY
QMSY
Quantity Q
(a)
(b)
Quantity Q
Quantity Q (c)
Fig. 2. Shapes of the supply (average cost) curves in open access: (a) small mesh sizes, (b) medium mesh sizes and (c) large mesh sizes.
AC
Price P
Price P
MC
PMSY QMSY (a)
Quantity Q
(b)
Quantity Q
Fig. 3. Supply curves in the presence of fisheries management in the medium mesh size situation: (a) regulated open and restricted access and (b) optimal management.
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giving space for quota increases in the long run. Recovery plans are examples of such a policy. The supply curve in optimal management is given by the marginal cost (MC) curve and optimal management implies that both the output is maximised subject to the stock constraint and the costs are minimised. The supply curve is globally increasing and will approach a finite positive quantity. Hence, under optimal management the stock cannot be biologically overfished. All the different types of supply curves have the ability to explain the supply from different fisheries. Selective gears exist in most fisheries. In most developed countries restrictive gears are compulsory, where this may not be the case in some developing countries. Furthermore, all types of management schemes are used. Open access may be the situation in some developing countries, whereas optimal management exists in the form of individual transferable quotas in e.g. the Netherlands, Iceland and New Zealand. Therefore, the supply regime differs between fisheries, but since the majority of the world’s fish stocks according to the Food and Agriculture Organisation of the United Nations are either fully exploited, overexploited or recovering [28] and since the global overcapacity is 30–50% [29], the relevant area of the supply curve for most open access fisheries with medium mesh sizes is the almost vertical part. Regulated open access and regulated restricted access is, however, the situation in most fisheries. In the presence of these management schemes the relevant area is also the vertical part. But the supply curves are deduced for capture fish stocks without interactions with other fish species and for fish stocks owned by a single country. In the following, the relaxation of these assumptions is shown to affect the supply curves. The above supply curves are deduced for a fish stock owned by a single country and do not take into account that several stocks are shared among two or more countries. Provided that no long-term management agreement is in place between the owners, the supply curves must be adjusted, since the fishery of each country make up a negative externality for the others. In such a situation it is possible that supply of individual countries are both backward bending, vertical in the relevant range and globally increasing [30]. The above supply curves are further deduced for a single fish stock, and neither takes into account that some fish are predators and some are preys, nor that some species compete for the same feed. Changes in a prey stock affect the supply of a predator stock, since the feed base is changed. For example, increased fisheries on a prey stock result in starvation of the predators. Hence, increased fisheries on a prey imply that the supply curve of the predator stock is shifted inwards. Furthermore, changes in a predator stock affects the prey stock, since the number of prey fish eaten by the predators change. For example, increased fishing on the predator stock results in the survival of more fish and the supply curve shifts outwards. Finally, if two fish species compete
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for the same feed, a fall in one of the stocks will result in the rise of the other. The above supply curves are deduced for a capture fish stock. Today, however, a considerable share of the global supply of fish is raised on fish farms. Under such a production regime the supply curve of fish products may still be backward bending. According to [31], the condition is that fish feed is a scarce production factor. Fish feed may form a scarce production factor in fish farming due to overexploitation of industrial fish stocks. The reason is that for most farmed fish species it has only been possible to develop farming techniques using fishmeal as feed. In such a situation, the supply curve will depend on the management of the industrial fish stocks.
5. Discussion In this paper, supply regimes in fisheries were identified hypothetically for alternative fisheries management schemes, using East Baltic cod as the case. The traditional understanding of the supply curve in fisheries being backward bending and approaching zero was found reliable only under pure open access. Since such a situation is not common worldwide, supplies under other more realistic management schemes were identified. Under open access combined with mesh size regulation, the supply curve remain backward bending, but since the model allowed different fishing mortality on different year-classes the curve was almost vertical at sufficient high fishing efforts. Hence, extinction of such stocks following from increased fishing effort is impossible, owing to the constant recruitment. Under regulated open access and regulated restricted access, the supply curve also remains backward bending, but at the decreasing part a quota makes the supply vertical at high fishing efforts. Under optimal management, such as individual transferable quotas, the supply curve is given by the marginal cost curve, which is globally increasing. Hence, several different supply regimes were identified, dependent on management and fishing effort. All the supply regimes are presumed to exist somewhere around the world. For example, open access remains in some developing countries, although more and more fisheries continuously become managed. Optimal management exist in other countries like Iceland, New Zealand and the Netherlands. These countries include a small but increasing number. Today regulated open access and regulated restricted access are present in most fisheries worldwide. Medium mesh sizes further exist in other open access fisheries. Moreover, since 75% of the global fish stocks are fully exploited, overexploited or recovering [28] and since the global overcapacity is 30–50% [29], fishing effort worldwide is assessed considerable above MSY. Hence, the supply curve is close to vertical in the relevant range in several and probably most fisheries worldwide. Thus, the hypothesis that the supply curve is approximately vertical
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in the relevant decreasing range holds in several and probably most fisheries worldwide. The implications of the findings are numerous, covering economic modelling and policy issues. The results suggest that supply analysis of open access fisheries with mesh size limitations needs to include year classes of fish if misleading results should be avoided. I.e. identifying a Schaefer based supply function as e.g. in [11], instead of a Beverton–Holt based with year classes and constant recruitment, might cause misleading results. This will be the case when it is more reasonable to assume exogenous recruitment, than to assume that recruitment follow the spawning stock biomass. Although recruitment fluctuates from year to year, it might be more reasonable to depart from the assumption of constant recruitment, since factors such as feet, predators, preys and the environment are more important determinants of the number of recruits than the spawning stock biomass. Furthermore, biologists have not been able to identify a unique relationship between spawning stock size and recruitment [32]. In situations where mesh size limitations exist and where recruitment is exogenous, the supply curve will be almost vertical at sufficient and normally realistic high fishing efforts. The misleading result thus follows from the option of extinction in the Schaefer approach, which due to constant recruitment does not exist in the Beverton–Holt approach. The results further suggest that since the institutional setting in most fisheries is regulated open access and regulated restricted access, modelling the fisheries as open access or optimal management might cause spurious results. Several studies of trade liberalisation in renewable resources [6,8,9,16–20] and of removing fisheries subsidies [10], departs from open access or optimal management. Analyses of such subjects needs necessarily to take into account that management are between the extremes, provided that results should be used as a realistic indicator for fisheries worldwide. The analyses of liberalising trade in capture fish products on the basis of a realistic management system modify the results obtained in the existent literature, since the effects on supply with the vertical supply curve is small. The result of falling supply and welfare following from trade liberalisation in e.g. the small exporter country, analysed in [6], will change to the result of almost unchanged supply in the presence of regulated open access and regulated restricted access. Furthermore, in the presence of regulated open access the price rise following the trade liberalisation can cause inefficient investment in fishing capacity, thereby giving rise to unchanged welfare. In the presence of regulated restricted access, the price rise following the trade liberalisation can cause increased profits and thereby welfare, since further investments are impossible. Hence, in the presence of realistic management schemes the result obtained in [6] of liberalising fish trade in e.g. a small exporter country should be modified. The analyses of removing fisheries subsidies on the basis of a realistic management system also modify the results
obtained in the existent literature. The results of the present paper points to small effects of removing subsidies on supplies in most fisheries. There are effects in e.g. open access fisheries, but since they do not represent the majority of the world fisheries, this is not the common situation. Under regulated open access and regulated restricted access, the effects depend on how large the removed subsidies are. Provided that they are sufficient large and given inelastic demand there will be an effect, since the removal of the subsidy shifts the supply curve up (thereby passing the kink in Fig. 3a). But if the removed subsidies are small, the supply remains unchanged, since despite the upward shift of the supply curve we remain on the almost vertical part of the curve. Thus, in most fisheries worldwide the remaining argument for the removal of subsidies relates not to supplies, but to lesser distortions and saved subsidies. Hence, in the presence of realistic management schemes the result obtained in [10] that ‘‘trade disciplines (including the removal of subsidies) should be more aggressively used in the campaign to reduce the pressure on stocks’’ holds only when sufficiently large subsidies are removed. On the other hand, the finding of a vertical supply curve in several and probably most fisheries worldwide support the basic assumptions of exogenous supply in estimations of inverse demand systems at first hand fish markets. The general finding of elastic demand in those studies are thus confirmed and the price formation process can be modelled with exogenous supply in several and probably most fisheries worldwide. Thereby, a link between the markets and the fisheries remain. This implies that knowledge of markets easily can be included in fisheries management and that knowledge of fisheries management and thereby supplies can reach the market players. References [1] Copes P. The backward-bending supply curve of the fishing industry. Scottish Journal of Political Economy 1970;17:69–77. [2] Ioannidis C, Whitmarsh D. Price formation in fisheries. Marine Policy 1987;11:143–5. [3] Barten A, Bettendorf L. Price formation of fish—an application of an inverse demand system. European Economic Review 1989;33:1509–25. [4] Burton M. The demand for wet fish in Great Britain. Marine Resource Economics 1992;7:57–66. [5] Jaffry S, Pascoe S, Robinson C. Long run price flexibilities for high valued UK fish species: a co-integration approach. Applied Economics 1999;31:473–81. [6] Brander J, Taylor M. International trade and open access renewable resources: the small open economy case. Canadian Journal of Economics 1997;30:526–52. [7] Clark C. Mathematical bioeconomics—the optimal management of renewable resources. 2nd ed. New York: Wiley; 1990. [8] Schulz C. Trade, policy and ecology. Environmental and Resource Economics 1996;8:15–38. [9] Schulz C. Trade sanctions and effects on LR stocks of marine mammals. Marine Resource Economic 1997;12:159–78. [10] Stone C. Too many fishing boats, too few fish: can trade laws trim subsidies and restore the balance in global fisheries? Ecology Law Quarterly 1997;24:505–44.
ARTICLE IN PRESS M. Nielsen / Marine Policy 30 (2006) 596–603 [11] Bjorndal T, Nostbakken L. Supply functions for North Sea herring. Marine Resource Economic 2003;18(4):345–62. [12] Squires D. Long-run profit functions for multiproduct firms. American Journal of Agricultural Economics 1987;69:558–69. [13] Kirkley J, Strand I. The technology and management of multi-species fisheries. Applied Economics 1988;20:1279–92. [14] Squires D, Kirkley J. Production quota in multiproduct Pacific fisheries. Journal of Environmental Economics and Management 1991;21:109–26. [15] Asche F, Hannesson R. Allocation of fish between markets and product forms. Marine Resource Economics 2002;17:225–38. [16] Chichilnisky G. North-south trade and the dynamics of renewable resources. Structural Change and Economic Dynamics 1993;4(2):219–48. [17] Brander J, Taylor M. International trade between consumer and conservationist countries. Resource and Energy Economics 1997;19:267–98. [18] Brander J, Taylor M. Open access renewable resources trade and trade policy in a two-country model. Journal of International Economics 1998;44:181–210. [19] Hannesson R. Renewable resources and the gains from trade. Canadian Journal of Economics 2000;33:122–32. [20] Emami A, Johnson R. Unilateral resource management in a 2country general equilibrium model. American Journal of Agricultural Economics 2000;82:161–72. [21] Schaefer M. Some aspects of the dynamics of populations importance to the management of commercial marine fisheries. Bulletin of the Inter-American Tropical Tuna Commission 1954;1:25–56. [22] Beverton R, Holt S. On the dynamics of exploited fish populations. Fisheries Investigation Series 1957;2(19).
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[23] Hilborn R, Walters C. Quantitative fisheries stock assessment: choice, dynamics and uncertainty. New York: Chapman & Hall; 1992. [24] International Council for Exploration of the Sea. Report of the Baltic Fisheries Assessment Working Group. Cod in Subdivisions 25–32. 2003/AFCM:21 CM:155–219. Available at www.ices.dk. [25] International Council for Exploration of the Sea. Report from the Advisory Committee on Fisheries Management. Cod in Sub-divisions 25–32 of the Baltic Sea 2003:22–28. Available at www.ices.dk. [26] International Council for Exploration of the Sea. Report from the Advisory Committee on Fisheries Management. Cod in Sub-divisions 25–32 of the Baltic Sea 2004:22–28, Available at www.ices.dk. [27] Eurostat. New Cronos Database. Available on http://europa.eu.int/ newcronos/ with password, accessed 2003. [28] Food and Agriculture Organisation of the United Nations. The State of World Fisheries and Aquaculture. 2001. Available at: www.fao.org/. [29] Garcia S, Newton C. Current situations, trends and prospects in world capture fisheries. In: Pikitch, Huppert, Sissenwine, editors. Global trends: Fisheries Management. Maryland, USA: American Fisheries Society Symposium, p. 20. [30] Nielsen M. Linkages between seafood markets, fisheries management and trade liberalisation: theory and applications. PhD thesis. University Press of Southern Denmark 2005. [31] Hannesson R. Aquaculture and fisheries. Marine Policy 2003;27:169–78. [32] Nordic Council of Ministers. The Status of Fisheries and Related Environment of Northern Seas. Theme North 2000:10. [33] World Trade Organisation. Ministerial Declaration. Doha November 2001.
Marine Policy 30 (2006) 596–603 www.elsevier.com/locate/marpol
Supply regimes in fisheries Max Nielsen Food and Resource Economics Institute, The Royal Veterinary and Agricultural University, Rolighedsvej 25, 1958 Frederiksberg C, Denmark
Abstract Supply in fisheries is traditionally known for its backward bending nature, owing to externalities in production. Such a supply regime, however, exist only for pure open access fisheries. Since most fisheries worldwide are neither pure open access, nor optimally managed, rather between the extremes, the traditional understanding of supply regimes in fisheries needs modification. This paper identifies through a case study of the East Baltic cod fishery supply regimes in fisheries, taking alternative fisheries management schemes and mesh size limitations into account. An age-structured Beverton–Holt based bio-economic supply model with mesh sizes is developed. It is found that in the presence of realistic management schemes, the supply curves are close to vertical in the relevant range. Also, the supply curve under open access with mesh size limitations is almost vertical in the relevant range, owing to constant recruitment. The implications are that the effects on supply following from e.g. trade liberalisation and reductions of subsidies are small in several and probably most fisheries worldwide. r 2005 Elsevier Ltd. All rights reserved. JEL classification: Q21; Q22 Keywords: Backward-bending supply; Regulated open access; Regulated restricted access; Mesh size regulation; Beverton–Holt model
1. Introduction The purpose of this paper is to contribute to the understanding of supply regimes in fisheries through a bio-economic supply analysis of East Baltic cod. Issues like under what circumstances the current fishery limit future supply and what the role of management for the supply is are addressed. When fisheries management schemes are changed you need to know potential effects on the future supply. Does supply remain unchanged, or is there a risk of commercial extinction implying zero supply? Understanding the role of the effects of fishery on supply allows for an assessment of the effects of alternative fisheries management policies on the price of fish products. Supply regimes in the East Baltic cod fishery are identified and generalised in the present paper and long run implications discussed. This issue is important in understanding the price formation process on fish products, since such studies claim knowledge of both supply and demand. In most Tel.: +45 35 28 68 94; fax: +45 35 28 68 01.
E-mail address: [email protected]. 0308-597X/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.marpol.2005.09.004
sectors the supply curve is increasing, since the suppliers are willing to sell more, the higher the price. Fish supply is, however, only increasing when the fishery is managed optimally and the externality internalised, i.e. in case of sole ownership [1]. Furthermore, Copes introduce the backward-bending supply curve of the fishing industry in open access [1]. This approach is different from the supply regimes in most other sectors by being partly decreasing (backward-bending), since overexploitation might lower the stock and thereby future supply. The approach does, however, neither take into account mesh size regulation, nor that most fisheries worldwide including the East Baltic cod fishery are regulated by a mixture of regulated open and regulated restricted access. This is included in the present paper. The hypothesis is that even though the supply curve is backward bending in the present fishery, as well as in most fisheries worldwide, it is almost vertical in the relevant decreasing range. The issue is also of relevance to identify interactions between fisheries management and markets. I.e. knowledge of interactions is important to study the effects changing demand have on the fishery and how changed fishery and
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fisheries management affect markets. Provided that the hypothesis that the supply curve is approximately vertical in the relevant range holds, the price is determined solely by demand, given exogenous supply. Thereby, it is easy to include knowledge of demand in fisheries policies. The issue is important from a modelling point of view. The point of departure in all known studies estimating inverse demand systems on first-hand fish markets is the assumption of exogenous supply [2–5]. Hence, provided that the hypothesis holds, it support the reliability of the results obtained in studies of inverse demand. Provided that the supply curve obtains other forms in the relevant range, this paper question the reliability of former results. Finally, the issue is interesting in relation to the ongoing WTO negotiations on fisheries subsidies and trade liberalisation in fish products. Fisheries subsidies were given special attention and put on the agenda in the negotiations during the Ministerial Meeting in Doha in 2001, due to their perceived negative effects on the world fish stocks [33]. But in the cases where the supply curve is vertical in the relevant range, i.e. where the hypothesis holds, changed subsidies have no effect on the sustainability of fish stocks. Distortions remain, but since this is also the case in most other sectors, the consequence is that fisheries subsidies do not demand special attention in relation to subsidies in other sectors. Trade liberalisation in fish products have continuously been and remain on the agenda in the WTO negotiations for decades as a non-agricultural product. But recent research has warned that the effects might be surprising and counterintuitive due to externalities in production [6]. Given that the supply curves are vertical in the relevant range, however, effects on supply are small, although the surprising and counterintuitive effects holds in some cases. In the economic literature, supply regimes in fisheries is not an extensive research area, although some work has been done. The literature departs from Copes who introduce the idea of the backward-bending supply curve of the fishing industry [1]. Clark elaborates further on the theoretical deduction of the supply curve [7]. Schulz use the backward-bending supply curve in a partial equilibrium set-up and discuss the relationship between long run stocks of marine mammals and trade policy [8,9]. Stone study the link between fisheries subsidies using a theoretical bioeconomic model [10]. Bjorndal and Nostbakken estimate the backward-bending supply curve quantitatively for North Sea herring [11]. Simultaneously, another direction develops where supply elasticities are identified estimating profit and revenue functions for different fleet segments [12–14]. Based on these studies, Asche and Hannesson notes that ‘‘most supply elasticities reported for fishermen seem to be low and often very low’’ [15]. A third direction departs from the backward-bending supply curve and develops in a general equilibrium framework [6,16–20]. The theme is that advantages with free trade in renewable resources, which are not managed
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optimally, exist only under certain conditions and for certain types of countries. The reason is that overexploitation might follow from the opening of trade and the consequence that the active use of trade policies in certain situations is optimal from an economic point of view. Hence, in the literature known articles departs from either open access or optimal management. Given open access, the supply curve would be backward bending and approach zero, predicting that increased fishery might cause extinction of stocks and zero steady-state supply. Contrary, given optimal management, the supply curve would be increasing, predicting that increased fishery rise supply. These two points of departure are, however, rather extreme, since management exist in most fisheries worldwide in the form of either regulated open access or regulated restricted access. Technical conservation measures, such as mesh size regulation, is also present in most fisheries. An empirical reliable supply model necessarily needs to take the management system into account. In this paper, a long run age-structured bio-economic supply model is developed and used to identify the supply in the East Baltic cod fishery under alternative fisheries management schemes and in the presence of mesh size regulation. Where former approaches build on the Schaefer production function [21], the present approach is based on a Beverton and Holt agestructured bio-economic model with constant recruitment [22]. Mesh size regulations are included through the age structuring. Quotas and input limitations are also included. Furthermore, the supply curve is calibrated, as opposed to the estimated curve in [11]. Calibration is chosen to be able to analyse the role of fisheries management explicitly. The author is not aware of any articles identifying supply curves empirically on the basis of age-structured bio-economics models, thereby taking mesh size regulation into account. The author is neither aware of articles discussing the form of supply curves under regulated open access or regulated restricted access. This paper explores both. 2. The model Studies of supply of fish products have foundations in the theory of exploitation of renewable resources, based on negative externalities in the production. Supplies of wild caught fish are distinct from the supply of other goods, where it is possible to react to favourable market conditions by increasing the production. This is not an option in fisheries, since overexploitation may result. The approach undertaken here focuses on steady state equilibriums, since the fish stocks need time to adjust. Hence, the focus is on the long run with the short run analysis differing considerably. The reason is that the stock is not significantly reduced in the short run. Even though fishermen may be able to switch their fishing to target particular species, the total fishing capacity limits the supply in the short run in most situations. In the extreme, however, it may be possible to catch the total of the stock
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in the short run, thereby obtaining a high level of supply. Hence, the short run supply curve will be globally increasing and concave, until the supply equals the whole stock. In particular if the stock has schooling nature. The reason for focusing on the long run is that the fishing industry differs from other industries mainly in the long run. In the short run supply curves in fisheries are globally increasing and similar to other industries. In the long run, over-exploitation may result in lower future production possibilities, as opposed to other industries. In the following it is implicitly assumed that the discount rate is zero. The reason is that if it were positive, the long run discounted supply curves for all types of supply regimes would, according to [7], be backward bending at sufficiently high rates. The studies are based on traditional fisheries economics and in particular the Copes introduction of the backward bending supply curve of an open access fish stock [1]. This curve is deduced as the average cost curve on the basis of the Schaefer production function [21]. Supply increase until the maximum sustainable yield (MSY), decreases afterwards and approaches zero at infinitive high prices. The supply curve might also be deduced on the basis of an agestructured approach based on Beverton and Holt, assuming constant recruitment and taking different fishing mortalities of different year classes into account [22]. The supply curves in the present paper are based on the Beverton and Holt approach and are thus deduced from the yield per recruit curve assuming that the total cost curve is linear. Following [7], the recruitment R, which is the number of fish entering the fishery, is assumed constant over time and the number of fish dead at time t is assumed given by (1). dN ¼ ðM þ F ÞN; dt
Nð0Þ ¼ R,
(1)
where M is the natural mortality and F is the fishing mortality. The weight of one fish w(t) at the age t is given by the von Bertalanffy weight function wðtÞ ¼ að1 bevt Þ3 , where a, b and v are positive constants. The total biomass Bt of one year class is then identified as Bt ¼ NðtÞwðtÞ. Based on Clark [7], it is assumed that all year classes are in equilibrium, are identical and that the natural mortality is constant over time. On this basis a discrete bio-economic model, which is applied to the empirical identification of supply curves, is developed [23]. The biomass and the landings H of year class t, both measured in weight, are functions of the fishing mortality level L.1 Bt ¼
20 X
Bi;t1 eðM i þLF i Þ ,
(2)
i¼1 1
The fishing mortality level L is introduced to adjust the fishing mortalities for all year classes (the F’s) with the same factor, that is, a 10% increase in L implies that all F’s increase 10%.
Ht ¼
20 X i¼1
Bi;t
ðLF i Þð1 eðM i þLF i Þ Þ , ðM i þ LF i Þ
(3)
where B0;t ¼ R and i relates to age classes. The fishing mortality level L is assumed to be a function of fishing effort E, L ¼ E, and the total cost C is a linear function of fishing effort. C ¼ cE;
c40
(4)
where c is the parameter of the cost function. Market equilibrium is determined where the price is equal to the average cost. C . (5) H This equilibrium rule is for an open access fishery in which the long-run profit of fishermen by definition is zero and yield per recruit equals total costs. Fishing mortality is assumed at an initial level of one. This normalisation relates policy changes in the fishery to the basic equilibrium and is achieved by fixing the parameter c of the total cost curves.2 In this model the yield per recruit and the supply curves are alike, since the total costs are linearly increasing in L. hence, for a fishery performed with nets the supply curve is deduced as a transformation of the yield per recruit curve. This deduction is shown graphically in Fig. 1. For an open access fishery with medium mesh sizes, i.e. mesh sizes where the fish always have the opportunity to spawn before being caught. It appears that with medium mesh-sizes the curves become backward bending. The turning point is known as the MSY. In contrast to a curve derived from the Schaefer function, it will not converge against zero with increasing price. The reason is, that the present age-structured model assumes unchanged recruitment. This implies that it is impossible to extinguish the fish stock. The supply function for an optimally managed fish stock and for stocks managed between maximum economic yield (MEY) and open access equilibrium, such as regulated open and restricted access,3 are identified in the East Baltic cod case below. First, however, data for the fishery must be presented.
P¼
3. Data Data are provided for a case study of the east Baltic cod fishery. The fishery takes place in the Baltic Sea east of the island of Bornholm. Several EU countries are active in the 2 The model is ‘‘closed’’ by determining c such that yield per recruit equals total cost where L ¼ 1. This procedure corresponds to a comparative-static analysis where changes between the basic and a new period are identified. The advantage of this procedure is that detailed knowledge of the cost structure of fishermen is unnecessary. 3 Regulated restricted access is defined as a management system with perfect control of all inputs at a fixed quota level above MEY. Regulated open access is defined as having no input control at a fixed quota level above MEY.
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Price P
Yield per recruit
TC YMSY/R
PMSY QMSY
FMSY (I)
Fishing mortality F
(II)
Quantity Q
Fig. 1. Deduction of the supply curve from the yield per recruit curve: (I) yield per recruit and total cost curves and (II) open access supply curve.
Table 1 Assumed valuesa Total
P R M T L F N W
Price Recruitment Natural mortality Cohorts and years Fishing mortality level Fishing mortalities Initial population Weight per individual
1.27 217 0.2 20 1.00
Unit
Year classes 0
1
2
3
4
5
6
7
8+
0 217 0.12
0 178 0.24
0.06 146 0.49
0.19 122 0.63
0.89 63 0.89
1.05 22 1.28
1.27 4 2.10
1.29 1 3.37
1.21 0 5.98
h/kg Million
Million kg
Source: Biological values known from ICES [24–26] and landing prices from Eurostat [27]. a Biological values represent an average of 1997–2001 and economic values are from 2001.
fishery with Sweden, Denmark and Poland being the largest. Russia is the only non-EU country, but with limited activity in the fishery. The total catch was 91,000 tonnes in 2001, representing a landing value of approximately h115 million. The catch is used for domestic EU consumption, mainly in Germany, France and the UK, to which it is exported. The case study is based on assumptions of biological and economic values. The biological values are available from the International Council for Exploration of the Sea (ICES) and the economic values from Eurostat, as shown in Table 1. Prices are derived from the landings statistics, where recruitment to the fish stock is assumed constant over time and includes 217 million individuals annually. This is also the size of the initial population for year class zero, which falls subsequently. The fishing mortality is given for 20 different year classes. It increases with age until year 6, after which it remains stable. The fishing mortality for fish until year 2 is zero owing to the presence of mesh-size regulation. For year classes 2–6 the fishing mortality increases gradually, since the selectivity is not knife-edge. Based on these, only the parameter, c, of the cost function is missing. The reason is, that it is determined endogenously by claiming that yield per recruit is equal to total costs per recruit with the initial fishing mortality level of unity.
The fishery is managed through the International Baltic Sea Fisheries Commission, consisting of all countries surrounding the Baltic Sea. These countries decide once a year upon the Total Allowable Catch (TAC). Subsequently, this TAC is allocated to the single countries with a share, which has been fixed for the last five years. Simultaneously, some of the countries use input management, such as capacity limitations and restrictions on the days at sea. Therefore, the management systems can be characterised as in between regulated open and restricted access. However, ICES [25] has questioned the effectiveness of the management system, since it has assessed unreported catches at an average 11% above TAC over the years 1997–2001. This is in particular the case in years where the TAC is close to being 100% utilised. Furthermore, while the level of the spawning stock biomass has been outside safe biological limits in recent years, TAC’s have been fixed at levels above ICES recommendations. Thus, the management system has not been applied in a way that secures sustainability. Therefore, even though regulated restricted access exists, it might also be realistic to analyse welfare in an open access situation. Hence, welfare analysis is performed assuming the presence of different management systems. On this basis supply regimes are identified in the present paper for the alternative hypothetic situations open access, regulated open access, regulated restricted access and optimal management, keeping in mind that a situation
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between regulated open access and regulated restricted access is probably the most reasonable characterisation of the present fishery. 4. Results
Price P
Price P
Price P
According to Clark [7], the shape of the yield per recruit curve depends on the fishing mortalities and the selectivity appearing from the use of e.g. mesh size regulation. At sufficiently small mesh sizes and large fishing effort, the yield per recruit curve is similar to the Schaefer based production function. That is, the Schaefer model is a special case of the age-structured approach. At sufficiently large mesh sizes the yield per recruit curve will be increasing in the relevant range. Between the two extremes, the yield per recruit curve remains backward bending, but will approach a positive yield, since the stock cannot be depleted. The recruitment can remain constant since the fish always have the opportunity to spawn before being caught. Using the East Baltic cod fishery as an example, the shapes of the supply curve in open access under three alternative assumptions on the selectivity is presented in Fig. 2. Since only the shapes of the supply curves are analysed, numerical values are not presented. For sufficiently small mesh sizes and at large fishing mortalities, the supply curve bends backwards and approaches zero at infinitely high prices, where for larger mesh sizes it approaches a positive quantity. For sufficiently large mesh sizes (mesh sizes constructed to catch fish older than 6 years) the supply curve is increasing in the relevant range. Fishing effort increases with prices and the position of the curves can be shifted with changes in key parameters. If, for example, the recruitment falls or the
natural mortality rises the curve will shift inwards, thereby reducing supply at given prices. It appears that the shape of the supply curve depends on the selectivity and since mesh size regulation is used in most fisheries, the supply curve of the medium mesh size situation might be the most common one. Furthermore, since fishing in several fisheries is on a level causing overexploitation, the common situation is also that fishing is well above the MSY. This implies that even with open access, the supply curve is approximately vertical for high prices. This point is to the knowledge of the author not raised in the literature. Although the situation with medium mesh sizes may apply in most fisheries, the situations with small and large mesh sizes also apply in some fisheries. In the following, however, focus is on the medium mesh size situation and supply curves in the presence of management are identified. Input and output management is analysed in three alternative schemes; regulated open access, regulated restricted access and optimal management (e.g. individual transferable quotas). Supply curves are shown in Fig. 3. It appears that the supply curves in regulated open and restricted access are similar. The supply curves follow the open access supply curve until a certain level above MSY and is then given by the quota. The economic optimal way to fix the quota under such a management scheme is to limit the fishing to the MEY, which can be shown to be below MSY. Traditionally, however, quota schemes are implemented only after problems in the fishery have been discovered, implying that fishing is well above MSY. The manager can then shift the vertical part of the supply curve to the right by reducing quotas in the short run, thereby
PMSY
PMSY QMSY
QMSY
Quantity Q
(a)
(b)
Quantity Q
Quantity Q (c)
Fig. 2. Shapes of the supply (average cost) curves in open access: (a) small mesh sizes, (b) medium mesh sizes and (c) large mesh sizes.
AC
Price P
Price P
MC
PMSY QMSY (a)
Quantity Q
(b)
Quantity Q
Fig. 3. Supply curves in the presence of fisheries management in the medium mesh size situation: (a) regulated open and restricted access and (b) optimal management.
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giving space for quota increases in the long run. Recovery plans are examples of such a policy. The supply curve in optimal management is given by the marginal cost (MC) curve and optimal management implies that both the output is maximised subject to the stock constraint and the costs are minimised. The supply curve is globally increasing and will approach a finite positive quantity. Hence, under optimal management the stock cannot be biologically overfished. All the different types of supply curves have the ability to explain the supply from different fisheries. Selective gears exist in most fisheries. In most developed countries restrictive gears are compulsory, where this may not be the case in some developing countries. Furthermore, all types of management schemes are used. Open access may be the situation in some developing countries, whereas optimal management exists in the form of individual transferable quotas in e.g. the Netherlands, Iceland and New Zealand. Therefore, the supply regime differs between fisheries, but since the majority of the world’s fish stocks according to the Food and Agriculture Organisation of the United Nations are either fully exploited, overexploited or recovering [28] and since the global overcapacity is 30–50% [29], the relevant area of the supply curve for most open access fisheries with medium mesh sizes is the almost vertical part. Regulated open access and regulated restricted access is, however, the situation in most fisheries. In the presence of these management schemes the relevant area is also the vertical part. But the supply curves are deduced for capture fish stocks without interactions with other fish species and for fish stocks owned by a single country. In the following, the relaxation of these assumptions is shown to affect the supply curves. The above supply curves are deduced for a fish stock owned by a single country and do not take into account that several stocks are shared among two or more countries. Provided that no long-term management agreement is in place between the owners, the supply curves must be adjusted, since the fishery of each country make up a negative externality for the others. In such a situation it is possible that supply of individual countries are both backward bending, vertical in the relevant range and globally increasing [30]. The above supply curves are further deduced for a single fish stock, and neither takes into account that some fish are predators and some are preys, nor that some species compete for the same feed. Changes in a prey stock affect the supply of a predator stock, since the feed base is changed. For example, increased fisheries on a prey stock result in starvation of the predators. Hence, increased fisheries on a prey imply that the supply curve of the predator stock is shifted inwards. Furthermore, changes in a predator stock affects the prey stock, since the number of prey fish eaten by the predators change. For example, increased fishing on the predator stock results in the survival of more fish and the supply curve shifts outwards. Finally, if two fish species compete
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for the same feed, a fall in one of the stocks will result in the rise of the other. The above supply curves are deduced for a capture fish stock. Today, however, a considerable share of the global supply of fish is raised on fish farms. Under such a production regime the supply curve of fish products may still be backward bending. According to [31], the condition is that fish feed is a scarce production factor. Fish feed may form a scarce production factor in fish farming due to overexploitation of industrial fish stocks. The reason is that for most farmed fish species it has only been possible to develop farming techniques using fishmeal as feed. In such a situation, the supply curve will depend on the management of the industrial fish stocks.
5. Discussion In this paper, supply regimes in fisheries were identified hypothetically for alternative fisheries management schemes, using East Baltic cod as the case. The traditional understanding of the supply curve in fisheries being backward bending and approaching zero was found reliable only under pure open access. Since such a situation is not common worldwide, supplies under other more realistic management schemes were identified. Under open access combined with mesh size regulation, the supply curve remain backward bending, but since the model allowed different fishing mortality on different year-classes the curve was almost vertical at sufficient high fishing efforts. Hence, extinction of such stocks following from increased fishing effort is impossible, owing to the constant recruitment. Under regulated open access and regulated restricted access, the supply curve also remains backward bending, but at the decreasing part a quota makes the supply vertical at high fishing efforts. Under optimal management, such as individual transferable quotas, the supply curve is given by the marginal cost curve, which is globally increasing. Hence, several different supply regimes were identified, dependent on management and fishing effort. All the supply regimes are presumed to exist somewhere around the world. For example, open access remains in some developing countries, although more and more fisheries continuously become managed. Optimal management exist in other countries like Iceland, New Zealand and the Netherlands. These countries include a small but increasing number. Today regulated open access and regulated restricted access are present in most fisheries worldwide. Medium mesh sizes further exist in other open access fisheries. Moreover, since 75% of the global fish stocks are fully exploited, overexploited or recovering [28] and since the global overcapacity is 30–50% [29], fishing effort worldwide is assessed considerable above MSY. Hence, the supply curve is close to vertical in the relevant range in several and probably most fisheries worldwide. Thus, the hypothesis that the supply curve is approximately vertical
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in the relevant decreasing range holds in several and probably most fisheries worldwide. The implications of the findings are numerous, covering economic modelling and policy issues. The results suggest that supply analysis of open access fisheries with mesh size limitations needs to include year classes of fish if misleading results should be avoided. I.e. identifying a Schaefer based supply function as e.g. in [11], instead of a Beverton–Holt based with year classes and constant recruitment, might cause misleading results. This will be the case when it is more reasonable to assume exogenous recruitment, than to assume that recruitment follow the spawning stock biomass. Although recruitment fluctuates from year to year, it might be more reasonable to depart from the assumption of constant recruitment, since factors such as feet, predators, preys and the environment are more important determinants of the number of recruits than the spawning stock biomass. Furthermore, biologists have not been able to identify a unique relationship between spawning stock size and recruitment [32]. In situations where mesh size limitations exist and where recruitment is exogenous, the supply curve will be almost vertical at sufficient and normally realistic high fishing efforts. The misleading result thus follows from the option of extinction in the Schaefer approach, which due to constant recruitment does not exist in the Beverton–Holt approach. The results further suggest that since the institutional setting in most fisheries is regulated open access and regulated restricted access, modelling the fisheries as open access or optimal management might cause spurious results. Several studies of trade liberalisation in renewable resources [6,8,9,16–20] and of removing fisheries subsidies [10], departs from open access or optimal management. Analyses of such subjects needs necessarily to take into account that management are between the extremes, provided that results should be used as a realistic indicator for fisheries worldwide. The analyses of liberalising trade in capture fish products on the basis of a realistic management system modify the results obtained in the existent literature, since the effects on supply with the vertical supply curve is small. The result of falling supply and welfare following from trade liberalisation in e.g. the small exporter country, analysed in [6], will change to the result of almost unchanged supply in the presence of regulated open access and regulated restricted access. Furthermore, in the presence of regulated open access the price rise following the trade liberalisation can cause inefficient investment in fishing capacity, thereby giving rise to unchanged welfare. In the presence of regulated restricted access, the price rise following the trade liberalisation can cause increased profits and thereby welfare, since further investments are impossible. Hence, in the presence of realistic management schemes the result obtained in [6] of liberalising fish trade in e.g. a small exporter country should be modified. The analyses of removing fisheries subsidies on the basis of a realistic management system also modify the results
obtained in the existent literature. The results of the present paper points to small effects of removing subsidies on supplies in most fisheries. There are effects in e.g. open access fisheries, but since they do not represent the majority of the world fisheries, this is not the common situation. Under regulated open access and regulated restricted access, the effects depend on how large the removed subsidies are. Provided that they are sufficient large and given inelastic demand there will be an effect, since the removal of the subsidy shifts the supply curve up (thereby passing the kink in Fig. 3a). But if the removed subsidies are small, the supply remains unchanged, since despite the upward shift of the supply curve we remain on the almost vertical part of the curve. Thus, in most fisheries worldwide the remaining argument for the removal of subsidies relates not to supplies, but to lesser distortions and saved subsidies. Hence, in the presence of realistic management schemes the result obtained in [10] that ‘‘trade disciplines (including the removal of subsidies) should be more aggressively used in the campaign to reduce the pressure on stocks’’ holds only when sufficiently large subsidies are removed. On the other hand, the finding of a vertical supply curve in several and probably most fisheries worldwide support the basic assumptions of exogenous supply in estimations of inverse demand systems at first hand fish markets. The general finding of elastic demand in those studies are thus confirmed and the price formation process can be modelled with exogenous supply in several and probably most fisheries worldwide. Thereby, a link between the markets and the fisheries remain. This implies that knowledge of markets easily can be included in fisheries management and that knowledge of fisheries management and thereby supplies can reach the market players. References [1] Copes P. The backward-bending supply curve of the fishing industry. Scottish Journal of Political Economy 1970;17:69–77. [2] Ioannidis C, Whitmarsh D. Price formation in fisheries. Marine Policy 1987;11:143–5. [3] Barten A, Bettendorf L. Price formation of fish—an application of an inverse demand system. European Economic Review 1989;33:1509–25. [4] Burton M. The demand for wet fish in Great Britain. Marine Resource Economics 1992;7:57–66. [5] Jaffry S, Pascoe S, Robinson C. Long run price flexibilities for high valued UK fish species: a co-integration approach. Applied Economics 1999;31:473–81. [6] Brander J, Taylor M. International trade and open access renewable resources: the small open economy case. Canadian Journal of Economics 1997;30:526–52. [7] Clark C. Mathematical bioeconomics—the optimal management of renewable resources. 2nd ed. New York: Wiley; 1990. [8] Schulz C. Trade, policy and ecology. Environmental and Resource Economics 1996;8:15–38. [9] Schulz C. Trade sanctions and effects on LR stocks of marine mammals. Marine Resource Economic 1997;12:159–78. [10] Stone C. Too many fishing boats, too few fish: can trade laws trim subsidies and restore the balance in global fisheries? Ecology Law Quarterly 1997;24:505–44.
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