A Retrospective Evaluation of Sustainable Yields for Australia's Northern Prawn Fishery: An Alternative View

ABSTRACT

The increasing interest in maximum economic yield (MEY) as a management target has been accompanied by considerable debate as to how MEY should be determined. Different interpretations as to how economic costs are treated may lead to different outcomes. For example, a recent paper by Wang and Wang (2012b) provided a retrospective analysis of a recent buyback program in a major Australian fishery aimed at moving the fishery to MEY and concluded that greater economic benefits would have been achieved had the buyback not taken place. However, the economic assumptions underlying this result are debatable. In this article, we provide our own analysis using corrected economic parameters and suggest that, had the buyback not taken place, industry profits from 2006 to 2009 would have been $22–25 million lower. These new findings are placed in the context of the events that led to the buyback taking place and we conclude that the buyback resulted in substantial benefits to the industry.

RESUMEN

El interés creciente de establecer el máximo rendimiento económico (MRE) como objetivo de manejo, ha suscitado un intenso debate en cuanto a cómo éste debe ser calculado. Las diferentes interpretaciones de cómo deben considerarse los costos económicos de una pesquería, han dado lugar a distintos resultados. Por ejemplo un artículo reciente de Wang y Wang (Fisheries, 37(9)) muestra el análisis retrospectivo de un programa de compra de embarcaciones de una de las más importantes pesquerías de Australia, con el objetivo de dirigir a la pesquería hacia el MRE, y se concluye que se hubieran logrado mayores beneficios económicos de no haberse establecido el programa de compra. No obstante, las suposiciones económicas detrás de esto, son controversiales. En este artículo se ofrece un análisis propio utilizando parámetros económicos corregidos y se sugiere que, de no haber tenido lugar la compra de embarcaciones, los beneficios industriales de 2006 a 2009 hubieran sido del orden de $22–25 millones menos. Estos nuevos hallazgos se contextualizan en los eventos que dieron lugar al programa de compra de barcos, y se concluye que dicho programa produjo en importantes beneficios para la industria.

ACKNOWLEDGMENTS

The authors are grateful to Sarah Jennings (UTAS) and Trevor Hutton (CSIRO) for suggestions on an earlier version of this comment, as well as the two anonymous journal reviewers. The views expressed in this article do not necessarily reflect those of ABARES.

Notes

1 NORMAC is a body that only makes recommendations to the Australian Fisheries Management Authority (AFMA). However there is a high incidence of AFMA accepting and implementing its advice. In addition, the Northern Prawn Fishery Resource Assessment Group provides scientific and economic advice to the AFMA and involves industry, scientists, economists, and managers.

2 Though it is possible and desirable to achieve both, different approaches to achieving biological sustainably can have very different consequences for economic performance; that is, the path to recovery is fundamental in terms of the flow of economic profits over time and hence the net present value of restructuring.

3 The Marine Stewardship Council is an independent and internationally recognized seafood ecolabelling certifier (see www.msc.org).

4 Full details on this decision, including comments by industry representatives, can be found in AFMA (2004).

5 Indeed, over the period examined by Wang and Wang (2012b), the Australian unemployment rate averaged 4.8% (Australian Bureau of Statistics 2012), substantially below the Organisation for Economic Co-operation and Development average over the same period (Organisation for Economic Co-operation and Development 2009).

6 The logic of this is that crew will only stay in fishing if they believe that they will earn at least as much as they might by being employed elsewhere. Fishing crew have largely generic skills that could equally be deployed in the mining and associated construction sectors.

7 Indeed, if resource rent extraction were an objective, then achieving MEY could be equivalent to maximizing the resource rent collected.

8 A further error made by Wang and Wang (2012b) was that the value referred to as “management costs” in the analysis was, in fact, fixed cash costs of which management costs were only a part. Other fixed costs also include (among other items) insurance, administration costs, and crew travel to and from the fishery. In 2008–2009 and 2009–2010, management costs only represented 19% and 22%, respectively, of total cash fixed costs (George et al. 2012).

9 The actual definition of MEY used in the fishery is a dynamic MEY definition. That is, achieving MEY is defined as maximizing the flow of discounted economic profits over time, and the management model identifies a trajectory to achieve this by specifying the number of years to the target. The aim, however, is still to ultimately identify a long-run equilibrium stock, effort, and catch level that the fishery should achieve (Dichmont et al. 2010).

10 More recent economic values have been published (e.g., Punt et al. 2011), but for consistency the same sources used by Wang and Wang (2012b) are used.

11 Consumer surplus is the difference between what consumers are willing to pay for a product and its actual price and represent the welfare benefits to consumers. Restricting supply to ensure higher prices reduces consumer surplus and effectively transfers benefits from consumers to producers.

12 This is likely to receive further attention in the fishery following third-party (Marine Stewardship Council) certification and the resultant differentiation of product from the other commodity grouping on the market.

13 This is a long-run argument, because in the short term assets (e.g., processing capital such as machinery) are less mobile and the ability of processors to alter their production is limited. However, as noted earlier, MEY is a long-run concept, and in the longer term these resources could be deployed elsewhere.

14 The profit function has been respecified here to make it easier to follow. The original model denoted vessel numbers as E, which can be confused with effort (defined previously as vessel numbers times days fished). The crew share was originally a component of c1 but expressed in terms of Crew share * Price. Reorganizing the profit function does not affect the outcome.