Economics of fishing operations
Catching a large bluefin tuna
Courtesy of NOAA/Antonio Pais
Revenues and costs mainly determine the economics of fishing operations. Revenues depend on species and quantities caught and prices obtained, which again depend on marketing channels and markets, seasonal fluctuations and other factors. The main cost factors are capital investment and operation costs, which can be divided in labour costs, running costs and vessel costs.
The major components of labour costs are wages and other labour charges such as insurance and employer's contributions to pension funds. Running costs are principally composed of fuel, lubricants, cost of selling fish, harbour dues, cost of ice, food and supplies for the crew.
The major elements of vessel costs are vessel and gear repair and maintenance expenses and vessel insurance. In addition, fishing operations also have external costs, which are sometimes difficult to quantify. External costs are defined as costs which are created by a fishing enterprise for others, i.e. other enterprises or society, for example through depletion of fish stocks or destruction of the coastal ecosystem.
The economic and financial performance of fishing operations is generally assessed with the help of two indicators. For the assessment of the economic performance of a fishing vessel, as in the case of other economic enterprises, the ratio between net cash flow and total earnings (NCF/TE) is used. This ratio is a general indicator of economic profitability/viability of enterprises as it shows the amount of total earnings required by a certain type of fishing vessel in order to generate a given amount of net profit. The financial performance is assessed with the help of the rate of return on investment (ROI). The ratio shows how much money needs to be invested in a fishing enterprise in order to generate a certain net profit.
The economic performance of fishing operations is affected by various factors including fluctuations in revenue, perishability of product, falling yields i.e. catch per unit of effort, static or falling demand, unforeseen increases in the cost of key inputs, and catch and effort restrictions. Theory suggests that in an open-access, unregulated fishery, the fishery will eventually end up producing at the point where total revenue equals total costs.
The collection of empirical information on the economics of fishing operations by the FAO Fisheries Department began in 1995 in close cooperation with fisheries research institutions and national fisheries administrations in selected countries in Asia, Africa, Latin America and Europe.
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, which suggested that, despite heavily exploited fisheries resources, marine capture fisheries are an economically and financially viable undertaking. The studies show that out of the 108 types of fishing vessels examined 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.
The cost of the crew and the equipment factor greatly in operational costs
Courtesy of NOAA/Jose Cort
Among 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 People's 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 capitalization 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 30,5m 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.