ANNEXES

ANNEX 1: Workshop agenda

“Fiscal reforms for fisheries - to promote growth, poverty eradication and sustainable management”: a workshop and exchange of views

Agenda

Secretariat: Support unit for International Fisheries and Aquatic Research (SIFAR), FAO Fisheries Department (www.sifar.org; www.onefish.org)

Facilitator: Dr Stephen Cunningham, Institut du développement durable et des ressources aquatiques (IDDRA)

ANNEX 2: List of participants

1. STATES

GUINEA

Mr Abdourahim Bah
Directeur national de la pêche maritime
BP 307
Conakry
Tel.: + 224 41 52 28
e-mail: [email protected]

INDIA

Mr Yugraj Yadava
Director
Bay of Bengal Programme
91, St Mary’s Road
Abhiramapuram
Chennai-18
Tel.: +91 44 24 93 61 88
e-mail: [email protected]

KENYA

Ms Nancy Gitonga
Director of Fisheries
P.O. Box 58187
Nairobi
Tel./Fax: +254 20 37 44 530
e-mail: [email protected]

Mr Robin Achoki
Principal Economist
Ministry of Finance
P.O.Box 30007,
Nairobi
Tel: +254 020 22 80 08
e-mail: [email protected]

MAURITANIA

Mr Lemhaba Ould Sidi
Directeur général adjoint des impôts
BP 233
Nouakchott
Tel.: +222 529 70 44
e-mail: [email protected]

Mr Chérif Ould Toueileb
Directeur des études et de l'aménagement
des ressources halieutiques
Ministère des pêches
BP 137
Nouakchott
Tel.: +222 529 13 39
e-mail: [email protected]

MOROCCO

Mr Hassan El Filali
Economiste
Ministère des pêches maritimes
Nouveau quartier administratif
Agdal-Rabat
Tel.: + 212 37 68 83 38
Fax: + 212 37 68 83 36
e-mail: [email protected]

Mr Hachim El Ayoubi
Ingénieur halieute
Ministère des pêches maritimes
Nouveau quartier administratif
Agdal-Rabat
Tel.: +212 37 68 81 16
Fax: +212 37 68 82 13
e-mail: [email protected]

MOZAMBIQUE

Mr Herminio Lima Tembe
Director for Economics
Ministry of Fisheries
P.O.Box 1723
Maputo
e-mail: [email protected]

Ms Claudia Tomás
Head of Department of Fisheries Administration
Ministry of Fisheries
P.O.Box 1723
Maputo
Tel.: +258 1 30 09 61
e-mail: [email protected]

Ms Maria Ascensao Pinto
Deputy Director
Small-Scale Fisheries Development Institute
Ministry of Fisheries
Maputo
Tel.: +258 1 49 66 64
e-mail: [email protected]

PAPUA NEW GUINEA

Mr Jonathan Manieva
Industry Liaison Co-ordinator
National Fisheries Authority.
P.O. Box 2016
Port Moresby
Tel.: + 675 309 04 44
Fax: + 675 320 20 61
e-mail: [email protected]

SENEGAL

Mr Ndiaga Gueye
Directeur des pêches maritimes
Ministère de la pêche
1 rue Joris
BP 289
Dakar
Tel.: +221 821 65 78
e-mail: [email protected]

Mr Bâ Boubacar
Directeur
Cellule des études et de la planification des pêches
Ministère de la pêche
1 rue Joris
BP 289
Dakar
Tel.: +221 821 94 69
Fax: +221 823 80 37
e-mail: [email protected]

SOUTH PACIFIC

Ms Josie Tamate
Project Economist
Forum Fisheries Agency
P.O. Box 629
Honiara
Solomon Islands
Tel.: +677 21 124
Fax: +677 23 995
e-mail: [email protected]

UGANDA

Mr Keizire Boaz Blackie
Senior Fisheries Economist
Department of Fisheries Resources
Ministry of Agriculture, Animal Industry & Fisheries
P.O. Box 102
Entebbe
Tel.: +256 77 40 22 34
e-mail: [email protected]

Mr Godfrey Bahiigwa
Senior Research Fellow
Economic Policy Research Centre
Makerere University
P.O.Box 7841
Kampala
Tel.: +256 41 54 10 23
Fax: +256 41 54 10 22
e-mail: [email protected]

2. INTERNATIONAL ORGANIZATIONS

DFID, UK

Mr Paul Steele
Environmental Economics Advisor
Department for International Development
1 Palace Street
London SW1E 5HE
e-mail: [email protected]

EUROPEAN COMMISSION

Mr Andreas Laggis
European Aid Cooperation Office
AIDCO/C/68/35
B.P. 1049
Brussels
Belgium
Tel.: +32 22 99 27 60
e-mail: [email protected]

FAO

Mr Richard Coutts
Sustainable Fisheries Livelihoods Programme (SFLP)
Tel.: +39 06 57 05 60 27
e-mail: [email protected]

Mr George Everett
Senior Fishery Planning Officer
Fishery Policy and Planning Division (FIPP)
Fisheries Department
Tel.: +39 06 57 05 64 76
e-mail: [email protected]

Mr Benedict Satia
Fishery Policy and Planning Division
International Institutions and Liaison Service (FIPL)
Tel.: +39 06 57 05 28 47
e-mail: [email protected]

SUPPORT UNIT FOR INTERNATIONAL FISHERIES AND AQUATIC RESEARCH - (SIFAR)

Mr Tim Bostock
Executive Secretary
Tel.: +39 06 57 05 59 59
e-mail: [email protected]

Mr Peter Manning
Coordinator
ACP Fish II Feasibility Study
Tel.: +39 06 57 05 58 60
e-mail: [email protected]

Mr Fabio Pittaluga
Sustainable Fisheries Livelihoods Programme/SIFAR
Tel.: +39 06 57 05 52 57
e-mail: [email protected]

Ms Christiana Udoh
SIFAR/ACP
Tel.: +39 06 57 05 30 61
e-mail: [email protected]

3. OTHER PARTICIPANTS

Mr Stephen Cunningham
Institut du développement durable et des ressources
aquatiques (IDDRA)
1 Les Terrasses de Marianne
135 rue Nivose
34000 Montpellier
France
Tel.: +33 467 99 67 66
e-mail: [email protected]

Mr Arne Eide
University of Tromso
Breivika
N. 9037
Tromso
Norway
e-mail: [email protected]

Mr Jon Klepsvik
Institute of Marine Research
Centre for Development Cooperation in Fisheries
Bergen
Norway
Tel.: +47 55 23 85 00
e-mail: [email protected]

ANNEX 3: Workshop background papers

Information sheet 1: Resource rent^[13]

What is resource rent in fisheries?^[14]

The concept of resource rent is fundamental to this workshop. Consideration of what happens to resource rent, or potential resource rent, associated with the utilization of a natural resource such as fisheries has important implications for the success of a national development strategy.

The concept of resource rent

Resource rent is a concept that relates the demand for a natural resource to its scarcity. It may be defined as revenue accruing in excess of that needed to cover costs, when costs include a return to capital and labour, to risk and to entrepreneurship.

Resource rent refers to profits in excess of the “normal” profits that entrepreneurs would expect to earn through any other enterprise in the economy. Normal profits are not some fixed rate of profit but essentially represent the opportunity costs of the fishing enterprise.

When the demand for a renewable natural resource exceeds the capacity of the resource to supply, it begins to produce a rent. In these circumstances, where there is not a sufficient supply of the natural resource to meet the demand for it, it is not possible for fishing enterprises to respond to price increases by producing more on a sustainable basis. Once the fishery has been fished down to the optimum productive level of biomass, any further increases in catch will result in a reduction of the biomass below the level of optimum productivity, and eventually to smaller catches at greater cost. Ultimately the limit of what can be produced is determined by how much the resource can produce. This induces people in the marketplace to compete to secure a share of the limited production for themselves. Profits in excess of what could be considered normal profits are generated and these are referred to as resource rents.

Conditions where resource rent accrues

In fisheries there are two sets of conditions in which resource rent is generated:

1. When a fishery is developing, that is, when the supply is still sufficient to meet the demand, regardless of whether there is an effective management regime in place. As fishing effort targeting the stock increases, the fish stock is fished down to its optimal level of productivity, at which point the resource rent is maximized. It is precisely the presence of this resource rent which, under conditions of open access, leads to an increase in fishing effort until all the resource rent is dissipated.

2. In a mature fishery where there is a management regime that effectively limits fishing effort. The more effective the management regime is in limiting fishing effort to the level at which the harvest is economically optimized, the greater will be the rent realized.

Magnitude of resource rents

Resource rents associated with some fisheries can be very large. This is particularly true of many high value ground fish species, such as hake. The US National Marine Fisheries Service estimated net revenue for New England groundfish was about 65 percent of gross revenue, indicating a high percentage of resource rent (FAO, 1992). Technically attainable rents for many mature fisheries typically exceed 50 percent of the landed value of the catch (Arnason, 1991).

Resource rent will vary over time according to environmental/physical and biological parameters and market conditions.

Influence of environmental variation

The degree of dispersion or aggregation of a particular stock will determine, in part, how costly it is to catch. Variations in costs relating to changing environmental conditions which vary from year to year have an impact on how much resource rent is generated.

The marine environment on which southern Africa’s hake stocks depend is variable and the variation in the associated costs of harvesting the resource are reflected in the catch per unit of effort (CPUE). Figure 1 for South African hake demonstrates this.

Changing market conditions

The following changing market conditions also have an impact on the generation of resource rent:

• Supply and demand: shortfall in supply is likely to result in price increases and higher rents being generated until the point is reached where market resistance to further price rises brings about a substitution effect. Oversupply in relation to demand will reduce prices and may eliminate rent associated with a particular stock. What is more generally the case in relation to ground fish species is that supply cannot meet the demand, thus inducing consumers to compete for what is available, creating a scarcity value.

• Species characteristics: different fish species represent vast differences food product quality and thus attract market prices. Such factors as fat content, texture, structure and size affect both their suitability for processing, market acceptance and price. Differences can even be marked between same species and groups. Inter- and intra-species differences in size also impact on in price per kilogram. These factors including size makeup of the catch, therefore, also have an important bearing on its value and on the resource rent that might be associated with it.

• Post-harvest handling and value-added: fish that have been handled well post-harvest is often able to command substantially higher prices on (albeit more volatile) international fresh fish markets. Fish frozen at sea can attract better prices than land-frozen product where the quality may suffer; there is also a significant difference in the unit cost of production. Clearly, therefore, significant differences in the revenue may result from the adoption of one processing strategy over another. The decision which strategy to adopt has considerable implications for the realization of potential rent.

• Impact of management: changes in the property rights regimes associated with the harvesting of a particular stock may themselves bring about a change in the form in which product is marketed and thus the extent to which rents are associated with it.

Natural resource abundance, rent and economic growth

It is by no means assured that a country will realize the wealth associated with the natural resources with which it is endowed, simply because they are exploited. A country with abundant natural resources is conceptualized as possessing wealth waiting to be released when the resources are exploited. However, Sachs and Warner (1995) demonstrated how economies with a high ratio of natural resource exports to GDP, tend to have low growth rates. One explanation for this phenomenon is that the countries fail to capture the resource rent and make good use of it. These authors cite cases where development has not followed from the utilization of resources. It requires a focused effort directed towards making good use of resource rent thereby ensuring that the wealth tied up in the natural resources is used for the good of society as a whole.

An understanding of resource rent generation, or of the potential rent associated with a particular resource, is essential to making informed policy decisions that will lead to a productive process that optimizes the use of the resource for society as a whole.

Information sheet 2: Fiscal issues in fisheries exploitation and management^[15]

Until recently, fiscal arrangements in fisheries were concerned almost entirely with subsidies of one kind or another - fuel subsidies, investment codes, exemptions from import duty, technological assistance, etc. This situation continues to prevail in many, if not most, of the world's countries.

However, there has been a gradual awareness that well-managed fisheries can produce great wealth. And related to this, that it is precisely this great wealth that drives unmanaged or badly managed fisheries towards overexploitation, first in terms of overcapacity and then in terms of overfishing. Fisheries managers have little choice therefore but to put wealth on the agenda if lasting improvements are to be achieved.

Once the issue of wealth is on the agenda, the fiscal issue follows closely behind since fiscal arrangements will determine how the wealth is distributed.

1. Resource rent: the source of wealth in fisheries

There are many ways to think about resource rent. One way is to look at the problem in terms of resource ownership. Fish resources are clearly valuable, sometimes highly so. If they were owned by someone, that person would be in the position to charge a fee to those wishing to exploit their resources in exactly the same way as owners of fishing vessels, for instance, charge a fee to those who wish to use them (for example, for research cruises or for sport-fishing). The payment that the resource owner could receive is called the resource rent.

In the diagram above, the parabola represents both fishing revenue and sustainable fish production, on the twin assumptions that fish prices are constant and fish production is described by a Schaefer model. The straight lines from the origin represent fishing costs as effort expands, measured in terms of standard fishing vessels. The lower of the two lines represents all fishing costs except fishing enterprise profits. The difference between the two lines represents the profits that enterprises must earn if they are to stay in business in the long run.

If revenue exceeds cost (including this profit), as it does below effort levels of 16, then the fishery will be perceived to be exceptionally profitable and extra resources will be drawn into it until revenue equals cost. Note that the model predicts that fishing enterprises will remain profitable at the equilibrium point. The issue of fisheries management does not, therefore, turn on the profitability of fishing enterprises. There is some empirical evidence from FAO (Tietze et al., 2001) that supports this result showing that fishing enterprises are by and large profitable. It should, however, be noted that this model is a long run one, and that it is possible in practice for the equilibrium point to be overshot (costs exceed revenues) for some period of time. One also has to allow for variability in most parameters.

Nonetheless, the main problem is that in the process of the expansion of fishing effort, resource rent has been completely dissipated. It has gone to finance the overexpansion of the fishery. In this simple model, resource rent is maximised when effort is half the open access level. In this case, the effort level leading to resource rent maximization level would be around 8 standard units. Revenue generated by the fishery would then be 96 of which 64 would be resource rent and 32 exploitation costs. These latter would still include the profits of the fishing enterprises, although there would be fewer of them. Of course, the precise numbers are meaningless here but the ratios are not untypical of the real world.

It will also be noticed that in this case moving the fishery to the rent maximization level increases the amount of fish available, hence increasing consumer welfare.

2. Rent, access and incentives

An alternative way to look at resource rent is in terms of access conditions and the incentives that they create. Access to many fisheries has been, and in many cases continues to be, free and open. Under such circumstances, fishers perceive the resource rent below an effort level of 16 as extra profit and they are given an incentive to expand fishing effort. There is nothing irrational about fishers' behaviour taken individually but at the aggregate level the behaviour is irrational since it leads to overcapacity and overexploitation.

The problem that fishers face is that generally (there are some exceptions) they are not able to control aggregate behaviour and therefore they are forced to pursue their self interest, even though they may know that the group will lose out as a result.

In these circumstances, fishers need some higher authority to control the overall level of effort. It is somewhat ironic therefore that such higher authorities have often made the problem worse for instance by subsidizing fishing operations or by encouraging technological progress.

Looking at the diagram above, suppose that the fishery is in equilibrium at 16 effort units. Suppose that fishers are then subsidised for some reason, decreasing costs so that the lower of the two cost curves becomes relevant. The result is that overexploitation is worsened. And the same is true of technical progress that occurs in situations where access to the fishery remains free and open.

The same is also true of programmes that aim to increase fish prices (e.g. the focus on value added) although the diagram does not lend itself to the analysis of this problem.

The point is that under conditions of free and open access, what appears to be perfectly reasonable government policies of encouraging value-added products and technical progress in fishing can have the perverse effect of creating incentives for fishers to overexploit the resource yet further.

The key therefore lies in dealing with access conditions. Since it is free and open access which is the problem, the solution must either be that access is no longer free or that it is no longer open or some combination of the two. Most fishery management programmes have focused on closing access. A fiscal-based approach would focus on making access no longer free.

3. Resource rent: the three possibilities

In addressing the resource rent issue, there are only three possibilities, not mutually exclusive:

• First, as argued above, rent can be dissipated.

• Second, rent can be extracted by the management authority.

• Third, rent can be capitalized into the value of a suitable use right.

Combinations of all three are possible.

4. Need for appropriate instruments and institutions

In order for rent to be either capitalized or extracted, there is a need first to develop instruments and institutions that allow the wealth from the fishery to be created on a sustainable basis. Depending on the fishery, a variety of choices may be available.

The management authority then has to decide how much of the rent to extract. There appears to be good reasons not to attempt to extract all the rent. The most obvious relate to the enforcement difficulties of very high royalties, and also the disincentive effect. If fishers know that all rent will be extracted there will be little incentive for them to develop either revenue enhancing or cost reducing innovations, but both of these will be in society's interest. The best approach appears therefore to be a partnership between fishers and management.

5. Who is to do the exploiting?

The issue of wealth creation brings to the fore the related issue of who is to do the exploiting of the fish stock and under what conditions. One possibility is only nationals, another is only nationals who possess fishing vessels. Some countries allow foreign fishing, but usually under strict conditions.

The best known and perhaps most contentious of the arrangements including foreigners concern fishing agreements of one kind or another. Such agreements often involve developed countries (EU, USA, Japan) paying for their vessels to be given access to the resources of coastal states. In theory such agreements are subject to UNCLOS but a blind eye often seems to be turned to the surplus principle enshrined in that convention.

Be that as it may, both parties presumably gain from the exchange since such arrangements have continued for some time. And fishing agreements are clearly an important part of fiscal arrangements for some developing countries since a large proportion of central government revenue may depend upon them. In these cases, they usually represent by far the most important way in which rent is generated from the fishery.

As a general rule, it might be said that each restriction on who may exploit a fishery reduces rent potential, and from this point of view there are reasons to encourage foreign exploitation where it is more efficient.

But such agreements also raise some issues for developing countries. First, are foreign fleets genuinely more efficient or are they subsidized? In which case, does their presence represent a kind of dumping by the distant-water state.

Second, are domestic fleets unable to produce similar rents? Generally speaking, domestic fleets will have a much greater economic impact than foreign fleets, so that governments may even be prepared to sacrifice some rent in return for this impact. One of the criticisms that might be made of fishing agreements is that they have removed the pressure from many coastal states to manage their domestic fisheries in an economically efficient manner. As a result, the domestic industry, whilst apparently receiving favourable treatment, has in fact been disadvantaged compared to foreign fleets.

Third, are the fishing agreements sustainable? And what is the coastal state to do after the agreement if it should end? This question also raises the question of how domestic fleets are managed. If there is no effective system in place when the fishing agreement ends, a country risks not only losing the rent it obtains but also seeing domestic fishing capacity expand rapidly to fill the void whilst being unable to replace the rents.

6. What to do with fish resource rents?

If wealth can be extracted from the fishery, the question arises of what to do with it. This is clearly a question of general government policy and it is not the intention here to tell governments what to do. The purpose is simply to raise some issues.

Often the view is taken that because the rents have been generated by the fishery sector, they should be re-invested in that sector. But they could also be invested in the coastal sector more generally, or even economy-wide.

To some extent the best solution depends on the size of the rents. In countries such as Mauritania and even more so in the case of some island states, where rents provide a significant proportion of general government revenue, it makes sense for collection at national level to be overseen by the Finance Ministry.

In many cases however, fishery resource rents or potential rents are too small to warrant much attention at the national level. Hannesson (1993) suggested that as a general rule it makes sense to devolve rent collection to the highest level where it makes a difference. Obviously this is a bit subjective. In the case of Norway, where fishery rents are dwarfed by those from the oil industry, he suggested the creation of a coastal commission charged with their collection.

The ultimate devolution is of course to fishers themselves. This approach was taken by some of the pioneering countries in this field, including New Zealand and Iceland where fishing rights have simply been given to fishers. In the case of the latter at least, once the wealth thereby given away became apparent, as rights began to be traded, the policy has been called into serious question.