4.  EMPIRICAL EVIDENCE IN SUPPORT OF THE THEORETICAL MODEL

Although by no means as comprehensive as we would wish, there is some supporting evidence for the theoretical model outlined above. These are costs and returns data for fry gatherers and concessionaires and concessionaire buying and selling prices in Antique Province in 1976 as reported by Smith (1981). We have already shown in Table 1 the resource rents that can be earned by municipalities. The other two groups involved in the concession system are fry gatherers and concessionaires, and this supporting evidence allows us to determine what benefits, if any, these two groups earn from the concession system.

The major cost of fry gathering is labour, shown in Table 3, as the residual after deduction of operating expenses and depreciation from total revenues. The P5.60 average return per gathering man-day, though relatively low, is an accurate reflection of the low opportunity costs of fry gatherers. The average price received by gatherers covered by Table 3 was P21.90 per 1,000 fry. It was observed by one of the authors (Smith, 1981) that fry gatherers stopped fry gathering in mid-1977 when average price paid by concessionaires fell below P10.00 per 1,000 pieces, providing an indication that the price elasticity of supply is greater than zero.

The average prices received by gatherers (P_b) and concessionaires (P_m) in Antique Province during the period February 1976 to May 1977 (see Fig. 3), provide an indication of what the price elasticity of supply is in that area. Assuming the relationship between the two prices can be expressed by the relationship P_b = ε÷ (1+ε) P_m, the elasticity can be determined by substituting the average buying price P_b (P20.6) and the average selling price P_m (P41.1) into the formula. The result is an estimated price elasticity of supply ε = 1. A similar price relationship and elasticity estimate also existed in the Cagayan de Oro area of the Philippines during 1976 (see Fig. 4). Nation-wide in 1976, concessionaires paid P 26.70 per 1,000 fry and received P 52.70 per 1,000 fry, again demonstrating the consistency of this elasticity estimate.

The most convincing evidence that the theoretical model is a reasonable predictor of actual behaviour, and conditions can be found in the costs and returns of concessionaires (Table 4). Although covering a single year (1976), these data provide support for the argument that the concessionaires receive little if any resource rent or monopsony profits. In 1976, of 27 concessionaires for whom complete costs and returns data were collected, 17 incurred a loss while 10 earned a profit. The average net income of P 8,338 shown in Table 4 represents the return to the concessionaire's capital, own and family labour, management and risk. If the opportunity costs of capital and labour are subtracted from this net income, the average concessionaire in 1976 incurred a loss. ⁵

Of course, it could be argued that 1976 was an atypically bad year, but there is further evidence in Librero et al. (1976) that concessionaires also did little more than break even in 1974 when national fry catch has been estimated to be slightly higher than in 1976 (Smith, 1981).

The preceding discussion of the milkfish fry concessions in the Philippines demonstrates their potential as a TURF to generate positive resource rents which can be extracted by the coastal municipalities in the form of a concession fee. The system exhibits tendencies towards optimization of resource use, and although these are mitigated somewhat by imperfect information and by problems and costs of enforcement of the concessionaire's monopsony rights, there appear to be clear gains in economic efficiency under the concession system. In many respects, the concession system is not unlike the control of tuna exports by the Maldives Government which, as sole buyer, levies a tax on the product as described by Christy et al. (1981). The mechanism - taxes versus licences - is of course different, but both generate positive resource rents.

⁵  Investment cost of P 29,800 and concession fee of P 56,699 both at an opportunity cost of 9 percent per annum plus 109 man-days of own and family labour at P 30 per day, gives a total opportunity cost for these two items of P 11,055 or a loss of P 2,717.

Figure 3  Fry prices: Antique Province, 1976–77 Source: from Smith (1981) with permission of the publisher

a Only 2% of fry gatherers used a banca (dugout) in fry business

b Includes return on gatherer's investment

Source: from Smith (1981a) with permission of the publisher

Figure 4   Fry prices: Cagayan de Oro City, 1976–77
Source: from Smith (1981) with permission of the publisher

a It is the accepted practice of sellers (including fry gatherers) to provide extra “free” fry to buyers. It is part of the bargaining process (though often dictated by concessionaires) with fry gatherers usually having to provide up to 20% automatic allowance to concessionaires and with concessionaires in turn providing on average <10% automatic allowance to their buyers. The concessionaire thus pays gatherers for 1,000 pieces of fry but actually receives 1,200 pieces. The purpose of the automatic allowance, or “pasobra” as it is called, is to provide an allowance in advance for the expected mortality that occurs during the next stage in the marketing chain. However, measured average mortality of fry, while in possession of concessionaires, was only 5.8%, considerably less than the up to 20% allowance provided by gatherers. Even after adjusting for the “pasobra” that concessionaires provide to buyers, concessionaires are able to sell a portion of the “free” fry that they acquire from gatherers and hence on average sell larger quantities than they buy.

b Of 27 concessionaire respondents from whom complete cost and return data were collected, 17 lost in 1976 and 10 had positive net incomes.

Source: from Smith (1981) with permission of the publisher.