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Excessive levels of harvesting capacity are a serious problem facing fishery managers in the new millennium. Mace (1996) identified “[over]capacity as the single most important factor threatening the long-term viability of exploited fish stocks and the fisheries that depend on them,” requiring a significant reduction in existing global fishing capacity for levels to become commensurate with sustainable resource productivity.

As well as being biologically unsustainable, the level of overcapacity observed in the mid-1990s was also economically unsustainable, relying on subsidies to persist. Garcia and Newton (1997) estimated that world fishing capacity would need to be reduced by 25 percent for revenues to cover operating costs and by 53 percent for revenues to cover total costs.

While some have identified overcapacity as the primary reason for overfishing in domestic and global fisheries, both overfishing and overcapacity are really symptoms of the same underlying management problem - the absence of well-defined property or user rights.

In the absence of management, i.e. free and open access, fishers do not have any right to any particular quantity of fish, nor can they prevent others from harvesting the resource. Limiting their own activity in an attempt to conserve the resource results in no benefits to themselves, as others can increase their activity and benefit immediately. As a consequence, there is no incentive to restrict output even though the combined effect of each individual’s actions results in reduced stock size and future potential yields and profits.

Hence, under free and open access, excessive levels of fishing effort develop that can result in the both total yields and economic benefits falling well below their potential levels. Restrictions on access through the introduction of fisheries management can reduce this problem, but may still lead to the development of excessive levels of fishing effort if the property rights problem is not addressed.

For this reason, fisheries managed through restrictions on global levels of inputs (e.g. basic limited entry schemes) or outputs (e.g. global TACs) are considered to effectively operate as open access and are often termed “regulated” open access.

Property rights have been developed in most primary industries. For example, in agriculture, farmers either purchase or lease the land they farm, and have exclusive access to that land. Mining rights give individuals similar exclusive access to certain areas for the extraction of oil or other mineral resources. In forestry, rights to harvest are generally given to a limited number of individuals who are given exclusive access to particular areas.

As in fisheries, these rights have not always been clearly defined, leading to their unproductive use. For example, farming of common land in eighteenth century England led to lower yields through overexploitation, while gold rushes in the middle of the nineteenth century resulted in the considerable quantities of labour and other resources being used unprofitably. In areas where unrestricted access to forests still exists, unsustainable levels of harvest are observed and the forest resources are becomes overexploited.

If the property rights problem could be corrected, the incentive system under which the fishers would operate should result in increased efficiency of fisheries harvesting and improvements in fish stock abundance as capacity levels decline. However, solutions to this fundamental management problem are not simple for a variety of technical, political and social reasons.

Concerns about food security, and the economic and financial impacts of adjustment on fishers and fishing communities are also important considerations for fisheries managers. These impacts are also not confined to the commercial sector, but affect all consumptive and non-consumptive users of living marine resources, including recreational fishers and the general public. As a consequence of these other concerns, property-rights based management systems are not always considered appropriate, and the problem of overcapacity needs to be addressed using other measures.

In fisheries where property right management systems are deemed not to be appropriate, explicit capacity management systems need to be introduced. In its simplest form, a capacity management system can be considered as a set of policies and tools aimed at apportioning the fleet size in order to achieve some desired level of exploitation so as to achieve the multiple objectives of management.

This requires an assessment of the existing and desirable level of fishing capacity, and decisions as to how this capacity is best utilized to achieve the management objectives. For example, in some instances a lesser quantity of fully utilized capacity may be preferable, while in other cases more capacity that is less utilized capacity may be desired. The mechanisms for achieving these goals also need to be addressed.

Unfortunately, fish harvesting capacity concepts are not as clearly understood as other fisheries management concepts, such as overfishing. The purpose of this report is to present an intuitive overview of the key issues involved with the assessment and management of capacity in fisheries. To maintain simplicity, not all aspects of the capacity management problem are addressed. These problems and issues are addressed in more detail (with consequent greater complexity) in other FAO reports and in Volume 2 of this document.

1.1 Capacity: effort, catch or vessels?

A main factor contributing to the confusion about capacity in fisheries is that different groups of people may have a different intuitive understanding of capacity.

Fishing technologists often refer to capacity in terms of the technological and practical feasibility for a vessel to achieve a certain level of activity, be it days fishing, catch or processed product.

Fisheries scientists often think of capacity in terms of fishing effort, and the resultant rate of fishing mortality (the proportion of the fish stock killed through fishing). Effort is itself a fairly abstract concept, as in theory it encapsulates all inputs employed in the harvesting process.

In practice, it is generally not possible to measure all inputs, so proxy measures (indicators) are used such as total days fished, number of pots deployed or kilometers of nets used. A relationship between the measure of effort and fishing mortality is assumed to exist. If total fishing mortality exceeds the desired target level (generally a biological reference point relating to maximum sustainable yield or some other precautionary reference point), the fishing mortality rate is too high because fishers have produced too much fishing effort. If regulations can be imposed to ensure that effort levels are in line with target fishing mortality rates, then capacity is not considered an issue and the fact that fleet size may be larger than required is somewhat ignored.

Fisheries managers generally have a similar view of capacity, but often link this more directly to the number of vessels operating in the fishery. This view is particularly prevalent where the fishery is managed through the use of input controls as fleet size and effort levels are the main control variables.

To many managers, capacity may be expressed in measures such as gross tonnage, for example, or in terms of total effort (e.g. standard fishing days). Assuming that there are no restrictions on effort, these measures may indicate that too many boats may potentially produce too high a catch, so overcapacity may be considered to exist if the fleet is larger than desired. Thus, a link is somewhat established between existing and target levels of effort and fleet size.

Fisheries managers may also be concerned with the rate of vessel utilization. Underutilized capacity may manifest itself as boats fishing less than their expected “normal” number of days (full use), and thereby catching less than their potential. This situation often occurs as a result of catch or effort restrictions. In this case actual fishing effort (and/or catch) figures underestimate “capacity” and a better indicator will be potential fishing effort, assuming normal use (and corresponding catch). With respect to assessing capacity, this implies that some consideration will be given to cost minimization.

The previous groups tend to think of capacity primarily in terms of inputs (an input perspective). In contrast, economists tend to consider capacity as some level of potential output that could be produced if the boat was operating at maximum profits[1] (an output perspective).

Operating at less than full capacity implies, therefore, that boats are not achieving their maximum profits, and that profits could be increased through increasing their output. In the short term, when stock sizes are given, profit maximization implies the full use of the vessels, which requires the application of a target nominal level of fishing effort (e.g. days fished) to achieve a target catch level.

The economic definition of full use incorporates short-term cost-benefit considerations (i.e. the additional revenue derived from an additional unit of output must at least equal, if not exceed, the additional cost of catching it). As a result, the full use level of catch and fishing effort from an economic perspective may be less than is technically possible for the boat to achieve or apply. In the long term, higher catches can be achieved at a lower level of exploitation, with the economic reference point being generally more restrictive than biological reference points.

The implications of the differences in the concepts are most apparent when considering fisheries management responses to the problems of excess capacity. For example, if the vessels fished for fewer days, then the level of effort would decrease and the “problem” of overcapacity would disappear from the perspective of the fisheries scientist. However, the problem would remain for the manager[2], and be worsened for the economist, as the reduced utilization would result in even lower levels of profitability.

Conversely, reducing the number of vessels in the fishery would result in the effort level also being reduced (satisfying the scientists) and directly reduce capacity from the manager’s perspective. As the reduction in the fleet size will allow the remaining boats to operate more effectively, the problem is also reduced from the economists’ perspective.

Despite their apparent differences, these different concepts of capacity are not necessarily incompatible and may even be considered complementary. Basic relationships between catch, effort and fleet size exist, although the level of utilization of the vessels may affect these.

In order to try and capture these alternative views of fishing capacity, FAO (2000) developed a definition of fishing capacity that was both input (e.g. effort, boat numbers, etc) and output (catch) based. Fishing capacity was defined as: the amount of fish (or fishing effort) that can be produced over a period of time (e.g. a year or a fishing season) by a vessel or a fleet if fully utilized and for a given resource condition. Full utilization in this context means normal but unrestricted use, rather than some physical or engineering maximum.

1.2 Capacity utilization, excess capacity, overcapitalization and overcapacity

The initiative to monitor and manage capacity instigated by the FAO through the International Plan of Action (IPOA) has also resulted in some confusion regarding definitions of key terms (if only because “capacity” is not defined in the IPOA). A distinction needs to be drawn between the concepts of capacity utilization, excess capacity, overcapitalization and overcapacity - concepts that are also often confused.[3]

Capacity utilization represents the degree to which the vessel is fully utilized. From an input based perspective, this may relate to the ratio of the number of days actually fished to the number of days the boat could potentially fish under normal working conditions. From an output based perspective, capacity utilization is the ratio of the actual catch to the potential catch (if fully utilized). This is understood, given prevailing resource conditions. Thus the two approaches will be equivalent only if one assumes that catch rates will remain the same in the short term even if effort expand.

Excess capacity exists when the potential catch or effort level exceeds the actual catch or effort level in a given period. It manifests itself in terms of capacity underutilization, and the existence of capacity underutilization implies the existence of excess capacity. Excess capacity is primarily a short-term[4] phenomenon that can arise for a number of reasons. For example, lower prices or temporarily higher costs (e.g. fuel price increases) may result in boats operating on average for fewer days than expected under more average conditions. Assuming the prices and costs return to normal levels in the future, then this form of excess capacity will be self correcting.

Excess capacity can also be caused by management. For example, stock recovery programmes may impose restrictions on catch or effort that results in the vessels being underutilized during the recovery process, but allows the vessels to be fully utilized when the stocks have increased. In such circumstances, the existence of excess capacity would not be considered problematic.

Excess capacity can also indicate, however, longer term problems in the fishery. If restrictions are imposed that limit catch or effort and these restrictions are likely to persist into the future, then it is likely that excess capacity is an indicator of overcapitalization in the fishery.

Overcapitalization is a longer-term problem for the fishery. In its simplest form, overcapitalization can be considered to exist if the fleet size is greater than that required to harvest a particular yield (which in many cases may be greater than the current yield). This can be illustrated for the simple case of a single fleet exploiting a single species.

In Figure 1, a yield curve is depicted that relates sustainable yield to fleet size[5]. In the simple fishery used in this example, growth is maximized at half the environmental carrying capacity of the stock. The level of growth is equivalent to the sustainable yield, as this can be removed through fishing indefinitely and will be replaced through natural growth the following year. If we assume a linear relationship between yield and effort for a given level of biomass, then the resultant sustainable catch-effort curve appears as given (Figure 1).

Figure 1. Example of a single species, single fleet fishery

In this simple example, the fishery is assumed to be operating under conditions of free and open access with a fleet size K producing a sustainable yield A, and the fleet is assumed to be fully utilized for the purposes of the example.

Higher yields could be achieved by reducing the fleet from K to K*. This would result in the generation of the maximum sustainable yield (MSY), a target level generally considered minimal in terms of ensuring sustainability and a point beyond which the stock is generally considered to be overfished. When costs of fishing are taken into account, a more desirable fleet size may be K**, giving a sustainable yield of B. In this example, the sustainable yield at K** is also greater than at K (i.e. B>A), although this is not necessarily always the case.

The difference between K and K* or K** represents the level of overcapitalization in the fishery.[6] This represents waste in terms of both the use of the resource and the benefits that may be generated from the fishing activity.

The additional capital, labour and fuel used in maintaining the fleet at K not only reduces the potential revenue that could be realized from the fishery, but also costs more to harvest the lower level of fish than is necessary. Greater catches (and revenue) could be obtained at lower total cost. The cost savings and potentially higher revenues generated with smaller fleet sizes can generate economic profits that can be used for the general benefit of the fishing communities or society as a whole.

The term “overcapitalization” was used in the above illustration rather than “overcapacity” as it related specifically to an input-based measure of capacity based on fleet size.

Overcapacity can be considered the generic term for excessive levels of capacity in th e longer term and relates to some long-term desirable level of capacity (the target capacity). This may be either some long-term target sustainable yield, or some long-term target level of capital employed in the fishery.

The relationship between overcapacity and excess capacity is not straightforward. It is quite possible for overcapacity to exist even in the absence of excess capacity (the short term measure).

For example, at fleet level K in Figure 1, all boats were assumed to be fully utilized, with biomass rather than effort being the factor resulting in the lower level of output. In such a case there would be no apparent excess capacity, although the fishery is considerably overcapitalized, and hence overcapacity exists.

In contrast, if the fleet were subject to an effort quota (e.g. days at sea restriction) such that each boat was not fully utilized, it may be possible to achieve MSY even with fleet size K. This is illustrated in Figure 2, where fishing effort - the product of both days fished and fleet size - replaces fleet size on the x-axis.

If permissible days at sea are reduced by some proportion so that the total effort level is aE(K) rather than E(K) (where a<1), it is possible that MSY could be achieved and maintained in the longer term.[7] However, the fleet size, K, is capable of producing considerably greater levels of effort, and could potentially, if not restricted, catch substantially higher catches in the short term (e.g. C) even though the long term sustainable catch at that fleet size is considerably lower (i.e. A).[8]

In such a case, the fishery would have both excess capacity and overcapacity even though the maximum sustainable yield was being achieved.

Figure 2. Example of a single species, single fleet fishery with underutilized capacity

As noted previously, excess capacity can exist for reasons other than through the existence of overcapacity. Identifying the cause of excess capacity is therefore important when assessing capacity in fisheries.

1.3 Target capacity and the objectives of management

As noted above, overcapacity is a relative measure, basically indicating that capacity is greater than some desired level. Reduced stock biomass, low yields and unprofitable fleets are not in themselves problems for managers of a fishery if the objective of fisheries management is to maintain or increase employment; then these “problems” are just consequences of achieving this objective. However, when reduced stock size is incompatible with the complete set of management objectives, overcapacity exists, and managers need to address the problem.

The fundamental objective of capacity management is to identify the desired level of capacity and bring the existing capacity into line with this target level. Further, this target level of capacity - either input or output based - also relates to some desired stock size and level of exploitation of the stock, so there is also an implicit (or, in some cases, explicit) target fishing mortality and stock level.

The optimal or target level of capital employed, fishing mortality or yield in a fishery will depend on the objectives of the fisheries policy.

The main goal of most fishery management programmes has been stock conservation. Fishery managers with this objective often use MSY as a target since it also represents the point of maximum production or yield from the resource. Doing this, in effect, captures several objectives: maximizing production from the resource, stock conservation, ensuring food security and enhancing self sufficiency.

Other reference points[9] have since been in use that have been judged more efficient to achieve sustainability objectives, accounting for resource characteristics and precautionary principle.

Unfortunately, MSY and related reference points do not correspond to the point of maximum net benefits in fisheries where positive operating costs exist. In addition, in most fisheries, MSY does not represent a stable equilibrium point in the market for that species except under a certain set of special market conditions. If prices vary with quantity landed, then achieving MSY may result in lower revenues than if lower quantities were landed. In such a case, this target is inappropriate as greater economic benefits could be achieved with either a smaller or larger fleet.

Managers also often have goals other than maximizing yield. Management based on the precautionary principle may result in a desire for higher biomass levels than under MSY, and therefore a smaller fleet may be preferred. Improving the economic efficiency of the fishery is another objective often considered in developing target capacity levels. If employment is a major consideration, then higher fleet sizes and lower sustainable yields may be preferred. Food security, political stability through employment, and international exchange, are among other reasons used to justify choosing a point that maximizes the overall benefits derived from the exploitation of fishery.

Identification of an appropriate target capacity given multiple, and often conflicting, objectives is not a trivial exercise. Ideally, multi-objective bioeconomic models can be used to simultaneously determine fleet sizes and structures, catch levels and exploitation rates that best achieve the set of objectives (see Pascoe and Mardle (2001) for an example). However, the development of such models is not always feasible, requiring alternative methods, and these are addressed in more detail in Volume II of the report (Pascoe et al., 2004).

1.4 The need to assess fishing capacity

It could be argued that if a property rights based management system was introduced then there is little need to consider fishing capacity as an issue. In such a case, the costs associated with excess and overcapacity would be internalized (i.e. borne directly by the fishers themselves), and incentives would exist in the fishery for adjustment to take place to remove overcapacity.

In many cases, as mentioned above, property rights based management systems are not considered feasible either for technical (e.g. inability to estimate appropriate allowable catches), social or political reasons. In such instances, management through a combination of input and output controls is required. Under such systems, incentives exist for capacity to increase rather than decrease, so capacity management must form part of the overall management system.

In order to manage capacity, managers need to understand how much capacity currently exists in the fishery and what is the desirable level of capacity (i.e. the target level of capacity) that best meets the set of management objectives. As incentives exist for capacity to increase, managers also need to regularly monitor how capacity is changing over time. Consequently, regular assessments of capacity in the various fisheries for which they are responsible are essential.

Even in the case of property rights based management systems, there are still benefits from monitoring fleet capacity. Imperfect markets may result in some overcapacity persisting, which may reduce the effectiveness of the system. This is particularly the case during the transition to a property rights based management system, but may also persist after the system has been established. Under such circumstances, capacity management may be considered appropriate in order to correct for market imperfections (i.e. factors that may inhibit trade in property rights) and achieve the management objectives. Similarly, there are benefits in assessing capacity and capacity utilization in order to know what is happening within the fishery, where the overcapacity is going, its impact on other fisheries where rights have not been established, etc.

[1] Or maximum benefits if these two objectives differ.
[2] This depends on the objectives of fisheries management. In some cases, a larger fleet that is not fully utilized may be preferable to a small, fully utilized fleet. For example, during stock recovery the full fleet may be required to optimally take the catch when the stock is recovered, but the level of effort is too high to allow stock recovery. Effort limits that reduce capacity utilization in the short term may therefore be an optimal management decision.
[3] Some of these concepts were introduced in the previous section.
[4] Long-term and short-term do not refer to any specific length or period of time. These terms refer to the ability of an economic agent (such as a fisher) to adjust their use of inputs or outputs. All inputs and outputs can be adjusted in the long term, while at least one input or output cannot be adjusted in the short term. For example, in the case of fisheries, the capital input (the boat) is generally fixed in the short term, while fishing effort can be varied. In the long term, fishers can change their boat as well as alter their fishing activity.
[5] Underlying this yield curve is a relationship between biomass, growth rates and sustainable yield, and also between fleet size, biomass and yield.
[6] The pure economic definition of overcapitalization is the difference between the current level of capital (e.g. fleet size) and that which maximizes economic profits in the fishery. Even at MSY, the fishery is considered to be overcapitalized as greater profits could be earned by employing fewer boats (i.e. less capital).
[7] The mechanism for this is not apparent from Figure 2. Initially, catch levels would fall below the sustainable catch level, allowing the stock to recover. Catches increase as stock size increases until MSY is reached.
[8] The mechanism here is the reverse of the previous footnote. The higher catch level B is above the sustainable level of catch. As a result, stock sizes fall. Catches also fall over time with the declining stock size until catches are equal to the sustainable yield level at A. In effect, a series of short-term catch curves could be depicted for each level of stock. At the lower stock level, the short-term catch curve would intersect the sustainable yield curve where the yield is A.
[9] Reference points relate to either stock (biomass) levels or yields that are aimed at achieving different objectives. These may be either target levels, such as MSY, or critical levels, such as Bpa (the minimum biomass to ensure recruitment according to the precautionary principle).

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