Nearly all of the major fishery resources of the world are either overharvested or are fully utilized. The Food and Agriculture Organization of the United Nations (1996) reports in The State of World Fisheries and Aquaculture that nearly 60 percent of the world's major fisheries are either mature or senescent. An earlier report by FAO (1994) reports that of 44 percent of the fish stocks for which formal stock assessments were available, 16 percent were overfished, 6 percent depleted, and 3 percent were slowly recovering. The 1996 FAO report indicates that of the 200 major fish resources of the world, 35 percent were overfished, 25 percent were fully fished, and 60 percent needed urgent management.
Although many factors have been identified as responsible for the overfishing problem of many of the world's fisheries, excess harvesting or fishing capacity has been widely recognized as the primary problem which must be addressed to control overfishing (FAO, 1996). This is the classic case of too many resources chasing too few fish. Mace (1997) in a keynote address to the World Conference on Fisheries, for example, identified overcapacity as the key problem afflicting marine capture fisheries. Mace furthermore estimated that during the past 20 years, the harvesting capacity of the world's fisheries increased at a rate equal to eight times the rate of growth of landings.
Even in the absence of overfishing, it is increasingly recognized by nations that a fishery may have unnecessarily high harvesting capacity and overcapitalization. In the cases of excess harvesting capacity and overcapitalization, nations realize the tremendous economic waste of resources. These wasted resources could be better utilized elsewhere in an economy, to give society the maximum possible benefits from the fishery resource.
The problems of excess harvesting capacity and overcapitalization were well recognized in the early 1900s. Warming (1911) even published an excellent paper on the economic waste associated with excess harvesting capacity. Fishing capacity and overfishing were major topics of the London Conference on Overfishing in 1947. Yet, it has only been in the past decade that many nations have begun to seriously address the problems of excess harvesting capacity and overcapitalization.
The concepts and the measures of harvesting capacity and capitalization in fisheries could benefit from additional attention. A Department of Fisheries and Oceans Canada report, the authors observe, Within the fishery, capacity-related concepts are defined and employed by biologists, resource managers, and economists. Each group defines capacity in terms that are useful for addressing their own particular needs and concerns.
Capacity is a short-run concept, since at least one input (typically the capital stock) and the state of technology are held fixed at some level. Capacity is the potential output level in the short run. The potential output may be technologically derived, and hence defined relative to the maximum possible physical output given technically efficient and full utilization of all fixed, quasi-fixed, and variable factors of production. The potential output also may be defined relative to an economic optimum such as the output which minimizes cost or maximizes revenue or profits. The potential output also could be defined in terms of social issues and concerns where the issues and concerns enter as constraints on total capacity production. Capacity in fisheries, with its stock-flow production technology - whether capacity is technologically or economically derived, depends on the level of the resource stock, where the resource stock also establishes an upper limit on capacity in any given time period. Capacity utilization is simply the ratio of observed output to capacity output, however determined.
A review of all the various definitions of capacity indicates that capacity refers to the maximum potential harvest which could be realized given maximum use of variable factors of production such as fuel and labour and the full utilization of capital, such as the vessel, engine, equipment, gear, and other fixed factors. In this case, the concept of capacity is defined in terms of a physical or primal-based measure. The technologically-derived, primal-based concept simply equates to the production frontier or maximum possible catch which could be obtained given full and efficient utilization of all fixed and variable factors of production and the resource or fish stock not constraining production. That is, if resources were not limiting and a fleet could efficiently and fully utilized the vessel gear, other fixed factors, and all variable inputs, the total potential catch which could be realized would equal the capacity of the fleet. If the maximum potential harvest exceeded some allowable or desirable target level, the fleet would have excess harvesting capacity.
More recently, an economic-based definition of capacity has become of increasing concern to resource managers. Specifically, nations are starting to define capacity in terms of the amount of capital, level of other fixed factors, and levels of variable inputs (e.g., fuel and crew) needed to harvest a desired quantity of fish at minimum. An OECD Fisheries Committee defined harvesting capacity as the level of capacity required to harvest a desired quantity of fish at the minimum cost (OECD, 1996). If the fixed factors are in excess of those levels necessary to harvest a desired catch level at minimum cost or relative to allocative efficiency, the fishery has excess harvesting capacity in an economic sense.
The definitions and subsequent measures of capacity and the utilization of capacity, capital, and effort must explicitly allow for multiple-species or multiple-product fisheries, multiple fisheries (e.g., vessels often fish in more than one fishery in a given time period), heterogeneous capital and vessel characteristics, and the concept of a fishing industry (i.e., all fisheries of a nation constitute the fishing industry for that nation).
The purpose of this report is to develop appropriate measures of capacity and capacity utilization. In so doing, however, it is essential to review and offer a wide variety of definitions of capacity, capacity utilization, harvesting capacity, variable input utilization, and capital utilization. The report also considers numerous concepts which are related to capacity and capacity utilization (e.g. standardization of fishing effort, and optimum fleet configuration). The report also considers empirical methods for measuring capacity given the data typically available on fisheries.
In this report, we restrict our attention to capacity and capacity utilization in commercial fisheries. We are not able to adequately consider capacity and capacity utilization in recreational fisheries. The output of a recreational fishery is typically the quality of the experience rather than the number of poundage of fish; of course, the quality of the experience can be related to expectations about the number and size of fish caught. Even if adequate measures of outputs could be developed, there remains the problem of characterizing the inputs. Presently, it is doubtful that sufficient data are available to develop measures of inputs for recreational fisheries; the only data which appear to be regularly available on input usage are number of angler trips by mode of fishing. Because of serious problems with defining and measuring capacity and capacity utilization, we assume that capacity and capacity utilization in recreational fisheries, while very important to resource managers, will be considered in allocating total allowable catches among competing user groups.
We also do not consider capacity and capacity utilization relative to uncertainty, dynamics, and labour skills. These are all possible important considerations for defining and measuring capacity and capacity utilization in fisheries. To some extent, labour skills will be reflected in capacity measures, but it would be quite difficult to separate the influences of labour and capacity utilization. Failure to adequately consider uncertainty may lead to erroneous conclusions about capacity and capacity utilization; we offer only limited review of capacity and capacity utilization under uncertainty. Last, inadequate treatment of the dynamic aspects of fisheries and capacity may lead to erroneous conclusions about excess capacity.
The ideal approach for assessing capacity and capacity utilization is thoroughly discussed in the economics literature. Using a dual-based specification of a cost or profit function, capacity and capacity utilization may be defined and estimated in terms of the tangency of the short-run and long-run average total cost curves. (This tangency indicates that, for a given output level, the firm is using the plant size that allows that output to be produced at the lowest average cost; or equivalently, that for a given plant size, the firm is producing the output level the existing plant was designed for.)
This definition of capacity assumes or requires that there be only one fixed or quasi-fixed factor of production (i.e., it is a short-run concept). In the event of multiple products and multiple quasi-fixed factors (such as different types of capital goods and/or resource stocks), capacity and capacity utilization may still be defined in terms of the tangency of the short and long-run total average cost curves, but the equality must be established conditional on the levels of the other quasi-fixed factors. Frequently, the heterogeneous capital stock is condensed to a single measure and capacity assessed for this capital stock conditional on resource stock levels. The dual-based economics approach makes substantial demands for data on costs, revenues, and quantities of inputs and outputs.
Even given the paucity of data, several approaches may be used to measure and assess capacity and capacity utilization in fisheries. The peak-to-peak method requires the least data B on outputs (landings) and vessel numbers B and hence has the widest applicability. Using only data on input and output levels, a stochastic production frontier and data envelopment analysis (DEA) can assess capacity, capacity utilization, capital utilization, and variable input utilization. All three approaches are well documented in the literature.
The stochastic frontier permits specification of output as a function of the inputs as typically done in conventional regression analysis. The frontier provides information about maximum output relative to a best-practice frontier. An additional error term is added to the specification; the additional error term represents technical inefficiency. Estimating the relationship between catch and input levels permits a determination of the frontier output which provides an indication of a physical or primal-based capacity output. Options for considering multiple outputs in stochastic frontier include the stochastic distance function, polar coordinates, canonical regression, and instrumental variables, although all of these options have some limitations.
In contrast to the stochastic frontier, DEA avoids the problems of dealing with multiple outputs and specification of the frontier function. The potential for specification bias is a common criticism of the stochastic frontier model. More important relative to possible downsizing schemes, DEA allows not only capacity and capacity utilization to be determined, but with appropriate data allows the identification of which vessels to target for removal from a fleet. DEA also allows the capacity of a fleet to be determined in which there are multiple products and multiple quasi-fixed factors. Capacity and capacity utilization for multiple fixed factors calculated with DEA, however, must be determined conditional on the other quasi-fixed factors. DEA also allows determination of capacity and capacity utilization subject to different allowable levels of by catch.
The remainder of this report is organized as follows: (1) Section 2 provides a discussion of many basic economic concepts necessary to understand the concepts of capacity and capacity utilization and provides the conventional economic definitions of capacity and capacity utilization; Section 2 also provides a comparative discussion on capital and effort utilization vs. capacity and capacity utilization and offers reasons why nations may be more concerned about capital and effort utilization than capacity and capacity utilization; (2) Section 3 provides a condensed literature review (a more comprehensive and detailed literature review is provided in Appendices V, VI, and VII); (3) Section 4 discusses implementation and methodological issues for measuring capacity, capacity utilization, capital, and capital utilization; (4) Section 5 discusses alternative empirical approaches to measure capacity, capacity utilization, and capital and effort utilization; (5) the last section, Section 6, offers a summary and conclusions. Sixteen Appendices provide more detailed discussions of the issues. The Glossary provides brief definitions and summaries of technical terms used in this report.