Chapter 2

Summary of findings

2.1 RECENT TRENDS AND CHANGES IN FINANCIAL AND ECONOMIC PERFORMANCE OF MARINE CAPTURE FISHERIES

The recent studies carried out 1999 and 2000 confirm and validate the findings of the previous cost and earnings studies carried out between 1995 and 1997. Out of the 108 types of fishing vessels studied in 15 South American/ Caribbean, European, African and Asian countries, 105 or 97% had a positive gross cash flow and fully recovered their cost of operation. Only three types of vessels i.e. stownetters in China and semi-industrial and industrial shrimp and bottom fish trawlers in Trinidad and Tobago showed operational losses. When also considering the cost of capital i.e. the cost of depreciation and interest, 92 out of the 108 types of vessels or 85% showed a net profit after deducting the cost of depreciation and interest. This picture is even more positive as the one obtained from the various types of fishing vessels studied during the period 1995-1997 when only 61 out the 84 types of vessels studied or 73% had a positive net cash flow. The more positive picture is largely due to the inclusion of Norway, Thailand and two of the Caribbean countries where all types of fishing units studied showed net profits.

In the 10 countries, which participated in the previous as well as in the recent study, two countries showed marked improvements in the profitability of their fishing vessels i.e. France and Spain while two countries showed a declining profitability i.e. the Peoples Republic of China and Germany. In the remaining six countries i.e. the Republic of Korea, Indonesia, India, Senegal, Argentina and Peru, the situation was similar as during the previous study carried out between 1995 and 1997.

These overall positive results were also achieved because of higher prices paid to producers as compared to the previous study period. There were only few indications that fishing effort had been reduced and fish stocks had recovered. It was also observed that some fishing fleets had adapted themselves to new conditions dictated by depleted and changing abundance of resources and new access to markets in the context of globalisation by changing their fishing operations.

Examples of new trends in coastal fisheries include the expansion of use of trammel nets by traditional log rafts (kattumarams) on the Indian east coast, introduction of mini outrigger trawlers fishing for shrimp and demersal species in shallow waters off the Indian coast of Orissa and Bengal, replacement of day-boats by so called ice boats with improved onboard preservation facilities in the flying fish fishery of Barbados, modernisation and improvement of sloops and launches in Antigua and Barbuda to cater to the requirements of export markets, diversification of purse seining and pole and line fishing in Indonesia and modernisation and upgrading of coastal vessels in the case of Thailand, Norway, France and Germany.

In offshore fisheries, the expansion/development of new profitable fisheries with high capitalisation and technology was observed. Examples include French and Spanish tuna seiners, German pelagic trawlers, Norwegian combination vessels equipped for pelagic trawling and purse seining as well as the operation of tuna longliners in India and Indonesia.

Those vessels, which had previously shown positive results but now incurred losses, were generally older vessels due to the fact that they continued to working on overexploited stocks. Examples are Chinese bottom pair trawlers of 25 to 28 m length, Chinese single bottom trawlers of 26 m length, Chinese stow-netters of 30,5 m length and Chinese purse seiners cum set netters of 36 m length, which all show net losses and the stow netter even operational losses while previously only the pair trawlers had shown a net loss though no operational losses. Indian purse seiners of 14 m length fishing mackerel and sardine in the Arabian Sea also showed net losses while previously making a net profit.

Senegalese purse seiners targeting small pelagics and fishing off the West African coast, which previously showed net profits had now turned to net losses though still recovering their cost of operations.

The situation also deteriorated for German cutter trawlers of 22 m to 32 m length fishing demersal fish stocks in North Sea and Baltic Sea as well as for German factory trawlers of 60 m to 80 m length fishing demersal fish resources off Greenland and in the waters of the European Union, which all show net losses though no operational losses while they previously showed a net profit.

Spanish pole and line vessels of 24 m also had turned to making net losses after making a net profit during the previous study period.

Types of vessels which had turned from making net losses to showing a net profit as compared to the previous studies include three types of Spanish tuna seiners of 56 m, 64 m and 70 m length and deep-sea trawlers of about 30 m length and three types of deep sea trawlers ranging from 15 to 24 m length.

While the cash flows and costs of depreciation and interest of each of the fishing fleets covered by the study are shown in ANNEX I, both negative and positive economic and financial results of fishing vessels are highlighted below.

2.1.1 Fishing vessels with negative economic results

As mentioned above, 16 out of the 108 types of fishing vessels covered by the study showed negative economic results after deducting costs related to depreciation and interest. The vessels with negative economic results included Chinese, Indian, Senegalese, Norwegian, German and French vessels as well as vessels from Trinidad and Tobago. Of these vessels, however, 13 had still a positive gross cash flow and only three types of vessels suffered operational losses.

More specifically, the findings were as follows.⁷

China

Compared to the previous study carried out between 1995 and 1997, catch rates and profitability generally declined, particularly in trawling. In 1998, many boats had to shift the operations away from East China Sea to the South China Sea, as fisheries resources, both demersal and pelagic resources are overexploited and at the time of the study domestic prices for fish were declining. Three types of fishing vessels targeting demersal resources, which were covered by the study and which have been or are still fishing in the East China Sea had negative results after deducting the cost of depreciation and interest targeting demersal These vessels were bottom pair trawlers of 25 to 28 m length ( net loss: $ 17 154), single bottom trawlers of 26 m length (net loss: $ 3 370), stow netters of 30,5m length (net loss: $ 16 930), purse seiners cum set netters of 36 m length (net loss: $ 19 731). Of these four types of vessels, only the stow netter also suffered operational losses while the two types of trawlers and the purse seiner cum set netter recovered their costs of operation and had positive gross cash flows.

India

Of the Indian vessels covered by the study, only one type of fishing vessels had a loss i.e. the purse seiners of 14,6 m length fishing in the Arabian Sea (net loss: $ 2 117). The reason for this seems to be the overexploitation of their main target species i.e. mackerel and oil sardine. The purse seiners, however, still recovered their costs of operation and had a positive gross cash flow.

Senegal

Both types of industrial vessels fishing from Senegal had negative economic results at the time of the study i.e. deep sea trawlers (net loss: $ 24 429) and purse seiners targeting small-pelagics and fishing off the West African coast (net loss $ 39.596). Overcapitalization, high maintenance costs and low yields on fully exploited resources fished in competition with artisanal fisheries seem to be the main reasons for the unsatisfactory economic performance. Both types of vessels though still had a positive gross cash flow and recovered their costs of operations.

Norway

In the sample covered by the study, only one type of fishing vessel had negative results after considering the costs of depreciation and interest i.e. Norwegian pout trawlers of 35 m length fishing in the North Sea and Skagerrak (net loss: $ 117.243). The reason for their unsatisfactory economic performance was that the resources fished by pout trawlers had fallen to a very low level. They are, however, recovering as indicated by recent surveys. As in most of the other case, Norwegian pout trawlers still had a positive gross cash flow and recovered their costs of operation.

Germany

Three types of German fishing vessels had net losses after deducting the costs of depreciation and interest i.e cutter trawlers of 22 m to 25 m length ($ 11.251) and cutter trawlers of 28 m to 32m length (net loss: $ 33.692) fishing demersal fish stocks in North Sea and Baltic Sea as well as factory trawlers of 60 m to 80 m length fishing demersal fish resources off Greenland and in the waters of the European Union (net loss: $ 225.569). Different levels of overcapitalization and low yields due to overexploitation seem to be the main reasons for the unsatisfactory performance. All three types of vessels though recovered their cost of operations and had a positive gross cash flow.

France

Of the 11 different types of French fishing vessels covered by the study, only the deep sea trawlers of 17 m to 19 m length fishing for Norwegian lobster in the North Sea had negative results after taking into account the costs of depreciation and interest (net loss: $ 13.927). Low yields on by-catches of demersal fish from overexploited stocks explain the result. The French Norwegian pout trawlers still had a positive gross cash flow and recovered their cost of operation. ⁸

Spain

Of the 10 types of Spanish fishing vessels studied, two had negative economic results after considering the cost of depreciation and interest. Both vessels are pole and liners of 18 and 24 m and their net losses amounted to $ 13 636 and $ 17 881, respectively. As boats of these classes of vessels in Spain are rather old with reasonable levels of depreciation and as they are targeting Albacore tuna the stock of which is in a good condition, the negative results should be considered as transitory and not as caused by overcapitalisation or overexploitation. Both types of vessels had positive gross cash flows and fully recovered their costs of operation.

Trinidad and Tobago

Of the five South American and Caribbean countries included in the study, only two types of fishing vessels in Trinidad and Tobago had negative net results. These were semi-industrial trawlers of 9-12 m length fishing in the Gulf of Paria for shrimp and bottom fish (net loss: $ 2446) and industrial trawlers of up to 24 m length exploiting the same resources in the Gulf of Paria as well as in the Columbus Channel and off the North coast of the country. The semi-industrial and industrial trawlers from Trinidad and Tobago though showed still a positive gross cash flow and more than recovered their costs of operation. The negative results after depreciation and interest could possibly be explained by the rather limited resources fished. Shrimp resources in the Gulf of Paria have been intensively exploited since 1990 and overfishing might already have occurred as early as 1993.

On the other hand, in the workshop, where the findings of the studies were discussed, participants from other Caribbean countries raised the question whether the earnings of these types of vessels were under-reported as similar vessels in neighbouring countries fishing the same resource had positive economic results after depreciation and interest.

2.1.2 Fishing vessels with positive economic results

Out of the 108 types of fishing vessels studied in 15 South American/Caribbean, European, African and Asian countries Caribbean over the period 1998 - 2000, 105 or 97% had a positive gross cash flow and fully recovered their cost of operation. Only three types of vessels i.e. stow netters in China and semi-industrial and industrial shrimp and bottom fish trawlers in Trinidad and Tobago showed operational losses. When also considering the cost of capital i.e. the cost of depreciation and interest, 92 out of the 108 types of vessels or 85% showed a net profit after deducting the cost of depreciation and interest.

The economic performance and financial performance (where information on cost of capital investment is available) of the types of vessels with positive net results after deducting the cost of depreciation and interest are shown below. The economic performance is assessed through the ratio net profit/total earnings (NP/TE). The financial performance is assessed through the ratio net profit/capital investment also called return on investment (ROI).

China

Of the seven types of Chinese fishing vessels studied, only three made a net profit after deducting the cost of interest and depreciation i.e. squid jiggers, set netters and three boat purse seiners. There results though were not as good as during the previous study period. As mentioned above, the difficult economic situation of Chinese marine capture fisheries was caused by overfishing in the East China Sea and related restrictions and closing of fishing grounds introduced by the Government and by declining domestic fish prices. Two of the economically successful types of vessels were targeting demersal resources and one fished pelagic resources.

TABLE 1

Positive economic results of Chinese fishing vessels

Regarding differences in their cost structure, it can be noted that purse seiners have relatively higher labour costs and fishing gear maintenance and repair expenses than single trawlers.

As above figures show, Chinese squid jiggers, set netters and purse seiners operated very efficiently during the year of the study and managed to adjust themselves to restrictions regarding the access to traditional fishing grounds and to a decline of domestic fish prices. This was achieved through exploration of new fishing grounds and by reducing the cost of operation. As a result, the wages of crew onboard set netters, stow netters and bottom trawlers declined considerably when compared to the previous study carried out in China.

Republic of Korea

All 10 categories of Korean vessels operated profitably as shown below. Eight types of vessels were targeting demersal resources and two pelagic resources.

While trawlers and seiners performed very well, Korean stow netters and squid jiggers showed rather modest results.

TABLE 2

Positive economic/financial results of Korean fishing vessels

Both types of pelagic fishing vessels i.e. purse seiners and midwater trawlers performed well.

Thailand

All 10 types of Thai vessels included in the study operated profitably as shown below. Six of the vessels were involved in demersal fishing operations and four in pelagic fishing.

TABLE 3

Positive economic/financial results of Thai fishing vessels

Except for the push netters and pair trawlers of 14-18m length, other Thai fishing vessels exploiting demersal resources reached good to excellent economic and financial results even though the fisheries resources they exploit are already fully or overexploitated. It seems unlikely that the present economic performance can be sustained also in future unless strict management measures are introduced.

Recently, the use of push nets has been banned in many areas of Thailand as this non-selective gear damages the sea bottom and has a destructive effect on fisheries resources and on the coastal environment. In this context it is interesting to note that push netters are less profitable than otter board trawlers of the same size.

Regarding the profitability of trawlers it is intersting to observe that in the case of smaller trawlers of 14 to 18 m length, single trawling is more profitable than pair trawling as the increased cost of operation of pair trawling is not matched by an equal or even higher increase in catches. In the case of larger trawlers of the length range of 18-25 m, however, pair trawling is more profitable than single trawling as the increase in catch is proportionally higher than the increase in costs.

All types of Thai fishing vessels included in the study that exploit pelagic resources had excellent economic and financial results With the exception of the 18-25 m pair trawler, purse seiners have been more profitable in Thailand than trawlers.

TABLE 4

Positive economic/financial results of Indonesian fishing vessels

Indonesia

The Indonesian sample consisted of pelagic fishing vessels only as trawling is banned in Indonesian waters. All of the seven types of vessel covered by the study in Indonesia showed a net profit after deducting the cost of depreciation and interest.

Above figures show that all types of fishing vessels studied in Indonesia had very satisfactory economic and financial results. In terms of financial efficiency or return on investment, the smaller pole and liner and the Bali Strait purse seiner were the most efficient types of vessels and the tuna longliner the least efficient. In terms of economic performance or the ratio of net profit to total earnings, the Bali Strait purse seiner and the smaller Java Sea purse seiner were the most succesful types of vessels and the smaller pole and liner and the tuna longliner the least successful ones.

India

Of the eight types of fishing vessels covered by the study in India, eight showed a net profit after deducting the cost of interest and depreciation. Six of these vessels were targeting demersal resources and one pelagic resources.

With the exception of the gillnetter/trawler, all categories of Indian fishing craft. included in the study, which exploit demersal resources showed good to excellent results. The best results were shown by the smaller vessels.

TABLE 5

Positive economic/financial results of Indian fishing vessels

The good economic and financial results of Indian tuna longliners fishing in the Indian Ocean confirm the validity of the orientation towards exploiting so far underexploited offshore resources.

Different from the case of Thailand and as mentioned above, purse seiners in India fishing in the Arabian sea have been less profitable than trawlers during the period of study because of the overexploitation of their main target species i.e. mackerel and oil sardine.

Senegal

Of the six types of vessels covered by the study in Senegal, four showed a net profit after deducting the cost of depreciation and interest. Two were targeting demersal resources and the other two pelagic ones.

TABLE 6

Positive economic/financial results of Senegalese fishing vessels

The good performance of the Senegalese handliners is related to increased prices for exported fish. Above figures confirm the efficiency of Senegal artisanal purse seiners already shown in the previous study in Senegal.

Norway

All twelve types of Norwegian fishing vessels covered by the study showed a net profit after deducting the costs of depreciation. Ten of the types of vessels targeted demersal resources and two pelagic ones.

TABLE 7

Positive economic/financial results of Norwegian fishing vessels

Above economic results of vessels targeting demersal resources are rather modest but show an improvement as compared to previous years. They also suggest that after several years of improved efforts in fishery management in Norway, coastal fisheries are again on the right track towards economic viability and sustainability.

The results suggest that coastal purse seining in Norway is presently less profitable than industrial one (not covered in this report), but still economically viable.

Regarding the relationship between size of vessel and profitability it is interesting to observe that in the case of all types of vessels shown in above table i.e. gillnetters, coastal fishing boats, longliners and shrimp trawlers, larger vessels were more profitable than their smaller counterparts.

Germany

Of the seven types of German fishing vessels covered by the study, four showed a net profit after deducting the cost of depreciation and interest. Of these, three types of vessels were involved in demersal fishing and one in pelagic fishing.

Coastal trawlers reach reasonable to good results while bigger ones, as shown in the previous chapter, have negative results due to insufficient fishery resources, heavy fuel and marketing costs as well as higher depreciation charges.

TABLE 8

Positive economic/financial results of German fishing vessels

Large German pelagic trawlers working partly off the African coast within the framework of European Union fishing agreements show a satisfactory economic performance.

It is also interesting to note that cutter trawlers catching demersal fish are more profitable than shrimp trawlers of the same size, mainly because of lower costs of operation.

France

Of the eleven types of French fishing vessels covered by the study. ten showed a net profit after deducting the cost of depreciation and interest. Of these, eight were fishing demersal resources and two pelagic ones.

TABLE 9

Positive economic/financial results of French fishing vessels

The best performance of vessels targeting demersal resources is shown by small-scale handliners targeting high value fish.

Above findings show that after a long period of decline, coastal purse seining for small pelagics has again become profitable. In comparison, purse seiners targeting bluefin tuna in the Mediterranean have almost always been profitable and showed a good economic performance also at the time when the study was undertaken.

When comparing the performance of coastal trawlers and giillnetters, it is interesting to note that gillnetters are more profitable than trawlers, which have lower costs of operations than gillnetters but even lower earnings.

Spain

Of the ten types of Spanish fishing vessels covered by the study, eight showed a net profit after deducting the cost of depreciation and interest.

All trawlers show similarly modest positive results.

The Spanish Oceanic tuna fishing fleet showed a satisfactory economic performance and can be expected to continue to do so as long as international prices stay at the level as in 1998 when the data was collected. When comparing different sizes of tuna longliners it is interesting to note that the smallest size of 56 m length showed the best economic peformance.

TABLE 10

Positive economic/financial results of Spanish fishing vessels

Antigua and Barbuda

Of the seven types of fishing vessel of Antigua and Barbuda covered by the study, all were targeting demersal resources i.e. lobster and bottom fish and all were operating profitably.

TABLE 11

Positive economic/financial results of Antiguan & Barbudan fishing vessels

The economic results for all vessels targeting lobster and bottom fish look very promising except for the sloop which just reach the break even point.

Barbados

Both fishing vessels covered by the study in Barbados were targeting the pelagic flying fish resource and showed a net profit after taking into consideration the cost of depreciation and interest.

TABLE 12

Positive economic/financial results of Barbadian fishing vessels

The table shows that in Barbados, larger boats with insulated fish holds targeting flying fish and undertaking longer trips have better economic and financial results than smaller boats, which undertake only day trips, probably because of relatively lower fuel expenses and running costs.

Trinidad and Tobago

Of the three types of shrimp trawlers studied in Trinidad and Tobago, only the smallest one shows a net profit while semi-industrial and industrial ones incur losses.

TABLE 13

Positive economic/financial results of Trinidadian fishing vessels

In Trinidad and Tobago, small-scale shrimp trawlers are profitably operated while larger shrimp trawlers suffer operational losses as shown in the previous chapter. Because of their lower running costs and scale of operation, they seem to be superior to larger vessels in an area with scarce demersal fisheries resources.

Argentina

All three types of vessel covered by the study in Argentina targeted demersal resources and showed a net profit. However, the results are not as good as during the previous period of study. While running costs have generally increased over the last few years catches and earnings declined.

TABLE 14

Positive economic/financial results of Argentinian fishing vessels

Inspite of strict limitations on hake fishing in Argentina, ice trawlers still seem to have positive economic results but in order to achieve and sustain these results, crew wages and shares have severely dropped since 1996.

Peru

Of the five types of vessels studied in Peru, two targeted demersal resources and three fished pelagics. All types of vessels show a net profit after deducting the cost of depreciation and interest.

TABLE 15

Positive economic/financial results of Peruvian fishing vessels

Compared to hake trawlers in Argentina, hake trawlers in Peru have a lower profitability due to high fuel costs (nearly 50% of TE) and of a comparatively lower price for hake (132$ / ton).

As the price of fish meal was lower in 1999/2000 compared to the 1996/1998 period when the previous study was untertaken in Peru, it resulted in a less favourable performance of purse seiners in Peru, which nevertheless still performed reasonably well. Considering the performance of different sizes of purse seiners in Argentina, their economic results are very similar.

2.2 The impact of Government financial transfers on the financial performance of marine capture fisheries

Working group 1 of the inter-regional workshop on the "Techno-Economic Performance of Marine Capture Fisheries and the Role of Economic Incentives, Value Addition and Changes of Fleet Structure" examined the impact of Government financial transfers on the financial performance of individual fishing enterprises in seven selected countries of East, South-east Asia, South Asia and of Europe i.e. the Peoples Republic of China, the Republic of Korea, Thailand, India, Norway, France and Germany ¹⁰ . The authors of the country case studies carried out the analysis. In addition to the information contained in the country case studies, which is summarised in APPENDIX I, the authors had brought with them additional information on Government financial transfers to the fishing industry in their respective countries and used this information in their calculations.

The following picture emerged regarding the impact of Government financial transfers on the profitability of fishing operations.

China

Since 1999, the Government of the Peoples Republic of China tries to control fishing effort and to limit the expansion of fishing capacity in order to protect fish resources. A strategy of "zero growth" of marine capture fisheries is being implemented and the Government tries to prevent an increase in the number of fishing vessels. The management measures, which are in place, include licensing systems for fishing vessels by fishing areas, closed areas and seasons and the establishment of MSYs and MEYs for commercially important species. In line with this policy, Government financial transfers to marine capture fisheries have been greatly reduced. At present, capital subsidies and loans are provided in China on a limited scale by fisheries authorities and local Government authorities for only two purposes, which are related to the conservation of the environment and fishery resources i.e.

• for the construction of fibreglass fishing vessels to reduce the use of wood for boat construction;
• for fishing vessels, which exploit new fishing grounds and use non-traditional (in the Chinese context) fishing methods such as oceanic long-liners, factory trawlers and large-scale squid-jigging vessels.

Of the seven types of "traditional" fishing vessels, which have been studied in China i.e. bottom pair trawlers of 25 to 28 m length, single otter board trawlers of 36 m length, set netters of 29.5 m length, stow netters of 30.5 m length, squid jiggers of 43.5 m length, 3 boat purse seiners of 27.8 m and 42.4 m length and purse seiners cum set netters of 36 m length, none availed of any direct or indirect cost reducing or revenue enhancing Government financial transfer.

As mentioned in the previous chapter and shown in ANNEX I, two out of the seven types of vessels showed a negative gross cash flow i.e. the stow netter and the purse seiner cum set netter. After further deducting the cost of depreciation and interest, four out of the seven types of vessel show a net loss i.e. the previously mentioned two types of vessel and also the bottom pair trawler and the single otter board trawler, which still had a positive gross cash flow.

In terms of topics for further study on economic incentives issues and Government financial transfers in the case of China, it was proposed to study the economic impact of subsidies in support of exploitation of new fishing grounds and use of new fishing methods and to identify suitable economic incentives for the facilitation of occupational change from marine capture fisheries to coastal aquaculture.

Republic of Korea

The Republic of Korea is presently implementing a fisheries structural adjustment programme with a view to reduce fishing fleet capacity. This programme also includes a fishing vessel "buy back" component under which the Government makes direct payments to fishing vessel owners for decommissioning of fishing vessels. With the view to ensure the economic viability of the presently operating fleet, Korea has a number of revenue enhancing and cost reducing Government financial transfers in place. These include price support payments, crew insurance support, tax exemptions on fuel and income tax exemptions for distant-water vessels, favourable interest rates for loans and other cost reducing transfers.

A comparison of the economic performance of the eight types of Korean vessels, which have been covered by the study with and without cost reducing and revenue enhancing Government financial transfers is shown in table 16 below. It is obvious that without subsidies, three out of the eight types of vessels covered by the study i.e. offshore stow netters, offshore jigging vessels and Eastern Sea trawlers would have a negative gross cash flow while the other five types of vessels i.e. large purse seiners, anchovy mid-water trawlers, large otter board trawlers, large pair trawlers, large Danish seiners and Eastern Sea trawlers would still have a positive though much reduced gross cash flow.

When considering the net profit (after deducting the cost of depreciation and interest) of the five types of Korean vessels, which had a positive gross cash flow also without subsidies, four would also still earn a net profit without subsidies and only one i.e. the large pair trawler would show a net loss. However, Government financial transfers contributed substantially to the gross cash flows and net profits of all types of Korean fishing vessels covered by the study.

The findings suggest, that during the year in which the cost and earnings data were collected, subsidies in the form of revenue enhancing and cost reducing Government financial transfers were necessary for only half of the eight types of Korean vessels studied to ensure that the vessels recovered their cost of operation and also generated enough income for reinvestment. The other half of the types of Korean vessels studied would have also been economically viable without subsidies and the subsidies actually played the role of increasing their profitability.

The three types of vessels which depended on subsidies even for a positive gross cash flow were interestingly enough two off-shore vessels i.e. the stow netters and the jigging vessels as well as trawlers fishing in the overfished Eastern Sea.

TABLE 16

Gross cash flow and net profit of Korean fishing vessels with and without revenue enhancing and cost reducing Government financial transfers (in US$)

Type of Vessel	offshore stow netter	offshore jigging vessel	Eastern Sea trawler	Purse seiner	anchovy midwater trawler	otter board trawler	pair trawler	Danish seiner
Gross cash flow without subsidy	- 38 781	- 24 927	- 50 380	763 715	107 268	109 470	13 048	29 943
Net profit/loss without subsidy	- 50 359	- 46 130	- 62 475	472 583	49 710	8 204	- 23 559	20 683
Gross cash flow with subsidy	15 096	24 573	80 666	1 402 354	298 826	431 307	261 515	104 360
Net profit/loss with subsidy	3 518	3 370	68 571	1 111 222	241 269	330 041	224 908	95 100

Thailand

Government policies aim at the reduction of fishing effort and fleet in the Gulf of Thailand and diversification of fishing effort to fishing grounds for tuna in the Thai EEZ and to fishing grounds outside the Thai EEZ through joint ventures and fishing agreements with neighbouring countries. As the overcapacity in the Thai fishing fleet is commonly acknowledged, Government financial transfers to marine capture fisheries in Thailand have been greatly reduced over the past decades. There are presently neither special capital subsidies available for the purchase of fishing craft and gear nor are there tax exemptions for the purchase of fishing inputs.

The only subsidy programme presently operated is the so-called diesel price reduction programme, which was recently introduced when fuel prices drastically increased. The programme consists of a tax exemption on fuel for certain types of vessels. The programme aims to ensure the profitability of certain types of fishing vessels in the light of sudden fuel price increases and thus to safeguard income and employment by reducing the operating costs of certain types of vessels on which the increase in the price of fuel had a particular negative impact. The need for the programme arose in the context of steep global and local increases in the price of diesel and unfavourable local currency exchange rates as a result of the financial crisis in Thailand and Southeast Asia.

Under this programme, owners of certain types of fishing vessels obtain discounted coupons for the purchase of diesel. Diesel can be purchased for 64% of the market price, which basically means that they are exempted from paying taxes on diesel. The fishing vessels need to be not longer than 18 m and they need to register under the programme. Only certain types of fishing vessel can register i.e. those operating otterboard trawls, pair trawls and push nets. At present, 78% of all vessels of above specifications i.e. 5 000 vessels are registered under the diesel price reduction programme.

Of the 12 types of otterboard trawlers, pair trawlers, push netters purse seiners and anchovy cast netters, which were covered by the Thai study, five types were eligible for the fuel subsidy programme. As mentioned in the previous chapter and also shown in ANNEX I, all 12 types of Thai vessels had positive gross cash flows as well as net profits.

The table below shows the impact of the tax exemption on diesel on fuel expenses, total running costs and on the gross earnings of the five types of vessels, which are eligible for the tax exemption.

TABLE 17

Gross cash flow, fuel expenses and total running costs of Thai fishing vessels with and without revenue enhancing and cost reducing Government financial transfers (in US$/year)

Type of Vessel	Fuel expenses			Total running costs			Gross cash flow
otterboard trawler	with subsidy	without subsidy	difference	with subsidy	without subsidy	difference in%	with subsidy	without subsidy
< 14 m	7 178	11 280	4 102	9 770	13 876	42	2 046	- 2 056
14 - 18 m	23 270	36 584	13 264	17 108	30 372	77.5	8 969	- 4 296
pair trawler 14 - 18 m	48 448	76 063	27 615	53 247	80 862	51.8	4 832	- 22 333
pushnetter < 14 m	4 453	6 990	2 837	5 476	8 013	46.3	846	- 1 691
14 - 18 m	18 703	29 314	10 661	21 064	31 775	50.6	2 478	- 8 183

The figures show that in the case of the five types of vessels, which had tax exemptions on fuel, their positive gross earnings were only achieved because of the tax exemption. Otherwise, their gross cash flows would have been negative. Thus these vessels actually depended on the fuel subsidy for their profitability while the other types of vessels, which were not eligible for fuel subsidies, did not. The diesel price reduction programme seems to have met its objectives by assisting exactly those types of vessels, which needed it for their profitability.

In the case of Thailand it can be assumed that measures like the diesel price reduction programme can only support economic viability in the short run as long as the problem of excess fishing fleet capacity is not resolved.

In terms of topics for future consideration and study with regard to Government financial transfers in Thailand, the following ones were suggested:

• impact of "indirect" Government financial incentives/economic incentives such as low licence fees and low harbour fees on fleet capacity
• use of Government financial transfers/economic incentives to counter negative socio-economic implications of reduction of fishing fleet capacity
• assessment of the cost of fisheries management and enforcement

India

In India as in other Asian countries, Government financial transfers to the fisheries sector have been gradually reduced over the last decades both in terms of funds transferred and in terms of programmes operated. At present, cost reducing Government financial transfers are available mainly for three segments of the fishing industry i.e. the small-scale fisheries sector with a view to improve incomes and well being of artisanal fisherfolk, for export oriented fish processing and marketing and for deep sea fishing.

Government financial transfers to small-scale fisheries are provided in the form of capital subsidies and direct payments for the construction of small wooden and FRP boats and the purchase of fishing gear (15% of the investment cost) and for the motorization of traditional fishing boats. In the latter case, the Government contributes Indian Rupees 10 000 and 12 000 respectively to the purchase and installation of outboard and inboard engines on traditional fishing boats.

There is also a small reduction on the price of diesel for fishing vessels of less than 20 m length, which amounts to Rs 0.35 per litre and which is basically a modest tax exemption.

Of the eight types of fishing boats covered by the study in India, only two were eligible for subsidies i.e. a sailing wooden log raft (kattumaram) of 5.5 m length using trammel nets and a 8.5 m motorised fishing boat using gillnets and hook and line.

The table below compares their performance with and without subsidies.

TABLE 18

Gross cash flow, fuel expenses and total running costs of Indian kattumaram fishing boat with and without cost reducing Government financial transfers (in Indian Rupees)

	without subsidy	with subsidy
Investment cost	35 375	21 569
Cost of operation	25 604	25 604
Income	129 600	129 600
Gross profit	103 996	103 996
Depreciation and interest	5 079	4 313
Net profit	98 917	99 683

TABLE 19

Gross cash flow, fuel expenses and total running costs of Indian gillnet/hook and line fishing boat with and without cost reducing Government financial transfers (in Indian Rupees)

	without subsidy	with subsidy
Cost of boat	100 000	85 000
Cost of fishing gear	61 500	52 275
Cost of outboard engine	30 000	20 000
Total investment cost	191 500	157 275
Cost of operation	145 808	143 308
Income	308 556	308 556
Gross profit	162 748	165 248
Depreciation and interest	40 100	32 655
Net profit	122 648	132 593

The figures show that both types of small-scale fishing boats also generate a net profit without subsidies and that the subsidies only lead to a slightly higher profitability of the fishing boats.

In terms of future studies on the use of Government financial transfers to fisheries in India, it was suggested to:

• quantify the amount of cost reducing and revenue enhancing Government financial transfers by sector of the fishery industry and relate it to the value of production including Government financial transfers to fish marketing and processing
• assess impact of Government financial transfers on various segments of the fishery industry i.e. the small-scale sector, offshore and deep sea fisheries, export oriented fish processing and marketing
• based on above, develop recommendations for continuation/discontinuation of Government financial transfers to fisheries also in the context of WTO agreements and commitments.

France

In the case of France as in the case of other members of the European Union such as Germany and Spain, which were covered by the study, the European regulations regarding subsidies apply since 1983. These regulations allow members of the European Union to provide to their fishery industry subsidies for the renewal or modernisation of their fishing fleets. Subsidy programmes have been implemented through the Financial Instruments for Fisheries Guidance (FIFG) since 1994 through co-financing of national Governments.

For the period when the cost and earnings data for France were collected, a rate of 30% of subsidy on capital investment was applicable, of which 25% was contributed by the French Government and 5% by the FIFG.

Furthermore, lower rates of interest for loans are available. The difference between average commercial rates of interest and rates of interest of fisheries loans was about 20% in 1998.

As far as the price of fuel is concerned, there are different rates on fuel for different sectors of the economy. As fisheries is not treated as a separate sector but grouped together with other sectors the fuel price is not considered here as subsidised and there are no direct Government financial transfers effecting the fuel price in France. In 1998, $ 0.15 was paid by fishing vessels in France per litre of fuel.

In order to assess the impact of subsidies on fishing vessels in France, the net results of three types of vessels are compared below, with and without capital and interest rate subsidies. The vessels are 10 to 12 m coastal gill-netters fishing on the Atlantic coast, 13 to 20.5 m trawlers fishing in the Atlantic Ocean and 27 to 33 m purse seiners fishing in the Mediterranean Sea.

The figures show that one out of the three vessel types, i.e. the coastal gill-netter would have a negative net cash flow without subsidies while the other two types of vessels i.e. the Atlantic Ocean deep sea trawlers and the Mediterranean tuna purse seiners would still have positive even though reduced net profits. In these cases, the subsidies were not really needed to ensure the financial viability of the fishing operations. The ratios of subsidies divided by total earnings show that the share of subsidies to total earnings is higher in capital intensive fisheries.

TABLE 20

Impact of subsidies on the economic performance

of French fishing vessels (in US$)

Type of Vessel	Gillnetter		Deep Sea Trawler		Tuna purse seiner
Total earnings	167 500		642 084		728 814
Running costs	13 744		146 330		125 423
Labour costs	79 455		255 484		279 661
Vessel costs	39 524		145 592		101 695
Gross cash flow	34 777		94 678		222 035
	with subsidy	without subsidy	with subsidy	without subsidy	with subsidy	without subsidy
Depreciation	20 627	29 467	29 557	42 224	118 644	169 491
Interest	4 631	5 789	8 419	10 524	16 949	21 186
Net Profits	9 519	- 479	56 702	41 930	86 442	31 358
Subsidies/total earnings	6 %	2.3 %	7.5 %

Norway

The total amount of Government financial transfers to the fisheries sector in Norway in relation to the total value generated through the sale of fish can be estimated as about 5%. Subsidies have been gradually reduced in Norway where the percentage has been previously as high as 30%. Many types of subsidies have been or are being phased out such as subsidised interest rates of loans and minimum price and income support measures. The remaining subsidies are cost reducing subsidies in the form of subsidies for the purchase of bait, subsidised insurance premiums, tax exemptions on fuel and investment subsidies.

Shipbuilding including the building of fishing vessels is presently also being subsidised at the rate of 6-9%. The funds are directly transferred to the ship building yards. The percentage of subsidy, however, is to be reduced in 2001 and this is expected to result in an increase of investment costs for fishermen. Investment subsidies are generally provided for specific types of vessels and for limited periods in accordance with specific fleet plans. Economic incentives are usually provided to compensate for low profitability. Presently, large coastal fishing vessels receive investment subsidies.

With presently available information, it was found difficult to estimate how the cash flow of different types of vessels is affected by subsidies. As trawlers consume more fuel in their fishing operations than other types of vessels, they benefit more from energy subsidies. The purse seiner fleet being more capital intensive than other fishing fleets benefits more from the remaining investment subsidies.

It is possible, however, to quantify the various types of Government financial transfers in relation to the value of the total catch. It needs to be taken into consideration though that some of the subsidies shown in the table below have been or are being phased out in 2000 and 2001.

TABLE 21

Government financial transfers to the fisheries sector in Norway in relation to total catch value (in Million NOK)

Germany

Subsidies available from the European Union

Since 1993, the EU provides subsidies and financial services to European fishing fleets through a called "Financial Instruments for Fisheries Guidance (FIFG)". The main purpose of the FIFG is to help achieve a sustainable balance between fishing effort and fisheries resources, which are currently under threat from overcapacity of the European fishing fleets and to improve the structure and competitiveness of the European fishery industry. The FIFG instruments can help finance a wide range of projects to restructure the entire fishery industry and can also finance social measures.

Its principle measures include the adjustment of the fleet i.e. decommissioning of vessels and the creation of joint ventures with foreign partners in order to reduce fishing effort in European Community waters. The competitiveness of the fleet is also considered crucial and the FIFG provides support for building and modernising vessels. However, resources under the FIFG can only be used if the objectives of the Multi-annual Guidance Programmes agreed between Member States and the European Commission are achieved.

Two general principles guide the allocation of FIFG funds. Firstly, the national or the regional authorities concerned must make a minimum financial contribution. When the beneficiary of the funds is a company, it, too, must invest money in the project. Secondly, the level of FIFG aid varies according to the region in which the applicant resides. A higher level of funding applies for poorer regions.

The European Community participation may be up to 75% of the costs of projects in so-called Objective 1 (poorer) regions and up to 50% in the other regions. For investments in production, these rates are 50% and 30%, respectively.

This financing has been allocated mainly through the FIFG (Financial Instrument for Fisheries Guidance) and covers the whole of Germany's fisheries sector, from fleet modernisation to port facilities, and from aquaculture to the processing and marketing of products.

The priorities of the FIFG and its areas of operation in Germany were identified jointly by the European Commission and the German authorities in two separate documents, one concerning the former East Germany, which is eligible for assistance under Objective 1 regions and the other concerning the former West Germany.

National support by federal and regional ("Laender") funds

In addition to the assistance through the European Union, the German Federal Government offers financial assistance for

• investment measures
• purchase of used fishing vessels
• diversification to passive fishing methods or other stock conserving, energy saving or quality supporting techniques.

Financial support for investment measures is provided in the form of grants, loans or loan interest rebates and generally limited to vessels with a minimum length of 12 m. In the Baltic Sea, the minimum length of boats is 9 m, and in case of fishing vessels using passive fishing gear, the minimum length is 7 m. Support is only granted if the value of the subsidy does not exceed the maximum rate fixed by the EU.

Grants are provided for

• building of new vessels (up to 25% of investment cost)
• modernisation of fishing vessels (up to 20% of investment costs)
• purchases of used vessels and for measures for diversification to passive fishing methods (up to 10% of costs).

Loans (only for the cutter deep-sea fishery) at an interest rate of 2% annually for

• construction of new vessels and purchases of vessels (up to 30% of investment costs)
• modernisation measures (up to 60% of costs).

Loan interest rebates for modernisation measures in

• the trawler deep-sea fishery (up to 3%)
• in the cutter deep-sea fishery (up to 4%).

Furthermore, financial support is granted for capacity adjustment concerning

• temporary lay-up (premiums depending on the available annual budget)
• decommissioning of fishing capacities (only for the cutter deep-sea fishery) amounting to 2 000 DM/GT.

The financial support measures granted by regional ("Laender") funds are different and contain guarantees and some smaller additional investment grants. This supplementary aid from "Laender" funds amounted to 2 million DM in 1998.

Financing of the European Union, national financing from federal budget and supplementary support from regional administrations

The following tables give an overview of the financing of the European Union, national financing from the federal budget and supplementary support from Laender funds over the Period 1994-1999.

Of the total amount of 572 million Euro paid to the German fishery industry within the years 1994-1998, only those relating to adjustment of fishing effort and fleet renewal and modernisation can be considered as cost reducing and revenue enhancing Government financial transfer to the fishing fleet. These subsidies amount to 126 million Euro within the 4 years under consideration resulting in an average of about 30 million Euro per year.

TABLE 22

Government financial transfers in Germany - New "Laender"⁽¹⁾ (Brandenburg, Mecklenburg-Western Pomerania, East Berlin, Saxony. Saxony-Anhalt, Thuringia)

(ECU million)⁽²⁾

Field of action	FIFG (1)	Other EU Structural Funds (2)	National public financing (3)	Private financing (4)	Total Financing (1+2+3+4)
1. Adjustment of fishing effort	1.90	-	1.90	-	3.80
2. Fleet renewal and modernisation	20.50	-	2.05	18.45	41.00
3. Aquaculture	10.80	-	2.95	13.63	27.38
4. Protection of marine areas	1.64	-	0.54	-	2.18
5. Fishing port facilities	16.50	-	5.50	-	22.00
6. Processing and marketing of products	28.91	-	13.65	51.37	93.93
7. Product promotion	2.15	-	0.73	1.83	4.70
8. Other measures	1.10	-	1.10	-	2.20
9. Vocational training(3)	-	3.80	2.10	-	5.90
10. Socio-economic measures for fishermen	-	-	-	-	-
TOTAL	83.50	3.80	30.52	85.27	203.09

⁽¹⁾ Structural Fund operations in the fisheries sector in regions covered by Objective I (i.e. hose gross domestic product per capita is less than 75% of the Community average).
⁽²⁾ In December 1995, ECU 1= approximately DM 1.88.
⁽³⁾ These training measures do not appear in the operational programme for fisheries in Objective 1 regions, they are financed by the European Social Fund in Mecklenburg-Western Pomerania, and appear in the chapter for that region in the Community Support Framework for the Objective I regions of Germany.
⁽⁴⁾ These measures became possible with the amendment of Regulation (EC) 3699/93 in November 1995. The amount of these measures is still to be determined, within the overall total appropriation.
Source: European Commission

Assessment of impact of Government financial transfers on economic performance of German fishing vessels.

Unfortunately, no information is recorded to which fleet segments above cost reducing and revenue enhancing Government financial transfers have been made. Therefore, the amount of 30 million ECU (= US $) has been related to the tonnage (GT) of the different fleet segments.

Basing on this method, it has been calculated that about 485 ECU as cost reducing and revenue enhancing Government financial transfer has been paid per GT of the fishing fleet.

With a view to assess the impact of Government financial transfers on the profitability of the German fishing fleet, the following results were calculated using this admittedly rough method:

The figures suggest, that with the exception of the largest trawler, the other six types of German fishing vessels covered by the study still had a positive gross cash flow without subsidies. Subsidies, however, contributed significantly to the gross cash flow of larger trawlers and less significantly to the earnings of inshore vessels and smaller trawlers.

TABLE 23
Government financial transfers in Germany - Other "Laender"⁽¹⁾
(ECU million)⁽²⁾

Field of action	FIFG (1)	National public Financing (2)	Private financing (3)	Total financing (1+2+3)
1. Adjustment of fishing effort	6.76	10.78	0.00	17.54
2. Fleet renewal and modernisation	12.11	3.71	48.15	63.97
3. Aquaculture	6.97	2.14	27.73	36.84
4. Protection of marine areas	-	-	-	-
5. Fishing port facilities	5.49	1.68	21.83	29.00
6. Processing and marketing of products	38.89	11.90	154.63	205.42
7. Product promotion	2.46	0.75	9.77	12.98
8. Other measures	1.83	1.62	-	3.45
9. Vocational training(3)	-	-	-	-
TOTAL	74.51	32.58	262.11	369.20

(l) These measures under the Structural Funds Objective 5(a) (fisheries) cover the regions not covered by Objective 1 (for Objective 1 regions, see above)

⁽²⁾ In December 1995, ECU 1 = approximately DM 1.88.

⁽³⁾ These measures were introduced at a later stage, after the amendment of Regulation (EC) 3699/93. The amount of these measures is still to be determined, within the overall total appropriation.
Source: European Commission

TABLE 24

Impact of Government Financial Transfers on the Economic Performance of German Fishing Vessels (in DM)

Gross Cash Flow and Subsidies (1000 DM)
Type of vessel	Inshore and cutter deep sea fisheries				Shrimp fishery	Trawler deep sea fisheries
	Inshore vessel 10-12 m	Trawling cutter 15-20 m	Trawling cutter 22-25 m	Trawling cutter 28-32 m	Shrimper 12-20 m	Pelagic trawler 60-80 m	Groundfish trawler 60-80 m
Tonnage (GT)	10	40	130	200	40	4 500	2 180
GGF	33.9	164.2	175.2	244.7	117.7	4 873	913
Subsidies	9.1	36.5	118.5	182.4	36.5	4 163	1 988
GCF without subsidies	24.8	127.7	56.7	62.3	81.2	710	- 1 075

Summary

Regarding the impact of cost reducing and revenue enhancing Government financial transfers in the seven countries examined by working group I, important differences between countries could be observed. In two countries, belonging to the European Union and in India, there were strong indications that almost all types of vessels, which were covered by the cost and earnings study and which received subsidies would also have been profitable without subsidies. The subsidies played a role, however, in significantly increasing their earnings and profitability. In the Republic of Korea, the situation was mixed while in Thailand, those types of vessels. which could avail themselves of tax exemptions on fuel needed the tax exemption in order to have a positive gross cash flow.

During the discussion of the findings of working group I in plenary, it was observed that while the overall amount of subsidies provided to the economy over the last decades had greatly been reduced in most developing countries in the context of structural adjustment and financial sector reform programmes, it was noted that no detailed empirical information was available on the amount of Government financial transfers to the fishing industry. No information was available either on the impact of these types of subsidies, at the micro-level, on the financial performance of individual fishing enterprises. In the absence of this information, participants observed that in many countries, there did not seem to be any rational reason for providing subsidies.

Workshop participants from all countries expressed the view that there was a need to collect and analyse information on the quantity and impact of Government financial transfers. A study of the use and impact of Government financial transfers on fishing enterprises was identified as one of the priority areas for FAO's involvement in the future monitoring of the economic performance of marine capture fisheries.

The information to be generated by the study is expected to help to reduce and rationalise the use of scarce Government financial resources and to avoid that subsidies have a negative impact on fisheries resources and on the coastal environment. It was felt that the use of Government financial transfers should be restricted to specific situations only. These situations might include for example the diversification of fishing effort away from overexploited resources to underexploited ones and from inshore to offshore resources. They would also include protection of income and employment in artisanal fisheries in the absence of other employment opportunities. However, it was felt that Government financial transfers should always be of a limited duration and have specific justifications. Furthermore they should not lead to or sustain overfishing and have any negative impact on the coastal environment.

Regarding the kind of transfer to be used it was felt that in general, these should, as far as possible promote economic efficiency and not the development of inefficient enterprises. In this context, indirect cost reducing subsidies such as tax exemptions and provision of infrastructure were thought preferable to direct cost reducing and revenue enhancing subsidies such as capital subsidies for purchase of fishing craft and gear, price and income support measures etc.

⁷ For detailed cash flows see ANNEX I.

⁸ It was reported in the workshop that other types of French industrial trawlers not covered in the survey are also known as having negative net results i.e. trawlers of 33-38 m length and trawlers of 50-55 m length fishing overexploited resources in North Sea and North Eastern Atlantic. No data could be obtained, however, regarding the operation of these vessels.

⁹ Only three of the five types of Spanish trawlers are shown in this table as the other two not shown have very similar technical specifications and only fish in different fishing grounds but show similar results.

¹⁰ In the case of Indonesia, the authors of the country study informed that at the time of the study i.e. in 2000, Indonesia had no Government financial transfers to marine capture fisheries. This means that the Indonesian fishing vessels covered by the study were profitable without Government financial transfers..