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Financial Viability of the Fishery

This indicator has two components (described below):

  • Financial Viability of Active Vessels
  • Financial Viability of Shoreside Businesses

Financial Viability of Active Vessels

What does this indicator measure?

This indicator measures changes in the profitability of fishing operations that participate in the catch share fishery by measuring changes in the landings and associated gross revenues of the operations, together with changes in their fixed and variable costs.

Why is this indicator important?

A fundamental economic question about the management of any fishery is whether it results in the increased financial viability of fishery participants. The transferability of catch shares is expected to lead the more-efficient fishermen to buy additional catch shares from the less-profitable fishing firms. The departure of less-efficient vessels from the fishery and ability of remaining fishermen to take advantage of economies of scale in production should lead to a decrease in average per-unit harvesting costs and a consequent increase in the overall profitability and economic efficiency of the fishing sector. In addition, fishermen holding catch shares have exclusive access to a specific portion of the total fishery catch; consequently, they are better able to make operational changes without fear that someone else will catch their fish. Individuals may seek to get the best value out of their catch share allocation by changing fishing gear, fish-handling methods, fishing seasons and areas, and fish targeted. For example, fishermen may be able to improve the financial viability of vessels by taking advantage of a year-round, flexible fishing season to land fish when prices are highest.

At the same time, however, the catch share program will impose on fishermen additional costs, such as increased at-sea and shore-side monitoring costs and cost recovery fees, which could reduce the financial viability of some fishing businesses. The cost of catch share leasing may also be substantial for many vessels (Cost of Fishery Management to Private Industry). The change in financial viability that results from the catch share program may differ significantly by fleet segment, including vessel length group and home port.

How is this indicator measured?

The key metric of this indicator is an estimate of net revenues of vessels engaged in the catch share fishery. This metric can be calculated using gross (ex-vessel) revenue and cost estimates obtained from vessel cost-earnings surveys and other data collection methods. In addition, changes in profitability will be reported according to the components of the net revenue calculations, including landings, gross revenues, fixed costs (overhead costs such insurance, moorage and dockage charges, vessel maintenance, etc), and variable input costs (fuel, food, oil, water, bait, etc. purchased for each trip). The uniformity of the distribution of net revenues across the fleet will be described  for each major species and all species combined.

In some cases, these metrics will be examined in greater detail to better understand cause-and-effect relationships. For example, gross revenues will be analyzed using two additional metrics—annual average price by major species and attainment of catch share allocations by major species. While output price is ultimately a function of market forces (supply and demand), fishermen can increase the price they receive for their catch through market timing and by improving product quality. The percentage of target species catch share caught is a function, at least in part, of both the ability of fishermen to avoid constraining (“choke”) species and constraining species quota availability (overall quota amount as well as a well-functioning quota market).

It is important to note that other indicators can be used in combination with the current indicator as an index of the financial viability of fishing operations. For example, longer fishing seasons may indirectly contribute to improved economic performance as they eliminate seasonal market gluts, congestion effects, and localized depletion. Conversely, as noted, increased compliance costs, including at-sea and shore-side monitoring costs, may reduce the financial viability of some fishing operations (Cost of Fishery Management to Private Industry).

What are the strengths and limitations of this indicator?

While no clear consensus has emerged among economists about the best way to measure economic performance in fisheries, net revenue is a conventional and comprehensive yardstick of financial viability. A potential limitation specific to the net revenue metric is that the vessel-level economic data required are often not readily available  Other difficulties may include apportioning revenues and costs to the catch share fishery for boats that operate in multiple fisheries and obtaining accurate economic data for boats operating within a large and vertically integrated business structure.

Another challenge of this indicator is that changes in financial viability are not solely attributable to the catch share program. They reflect an array of concurrent factors, including, but not limited to,changes in marine fuel prices, annual catch limits, weather conditions, and other changes in the fishery management regime, such as the number and sizes of area closures. Identifying other contextual factors that are known to affect the economic performance of fishery participants and assessing their relative influence may be problematic.

Financial Viability of Shoreside Businesses

What does this indicator measure?

This indicator measures changes in revenues or costs that affect the profitability of shoreside businesses that participate in the fishery.

Why is this indicator important?

Shoreside businesses in the seafood marketing chain (processors, dealers, retailers) or that provide fishing-related goods and services (e.g., fuel, ice, gear) may be affected when management of a fishery is changed to a catch share program. For example, if the number of vessels active in the fishery declines, the amount of landings in any given port could increase or decrease, depending on where the remaining vessels choose to bring their catch, and the timing of landings throughout the year could also change. A substantial decrease in landings caused by consolidation and changes in fishing patterns could force other dealers and processors to cease their participation in the fishery. In addition, the improved ability of fishermen to choose when and where they deliver their catch may shift the balance of bargaining power to fishermen and increase the competitive pressure among dealers and processors to outbid each other for fish. . Conversely, a catch shares program may help stabilize relationships between the harvesting and processing sectors by introducing the opportunity for vessels to enter into longer-term contracts with processors/buyers for a certain amount of fish for a set price.

How is this indicator measured?

We will be analyzing changes in the number of active vessels by home port and changes in gross revenue of landings by landing port. This will give an indication of the effects of the catch share program on shoreside businesses in particular ports. To the extent information is available, we will also determine specific effects on shoreside businesses by examining changes in the number of dealers and processors by port and their wholesale revenues, operating days, and throughputs per day.

What are the strengths and limitations of this indicator?

Data limitations and confidentiality restrictions may preclude a direct measurement of the impact of the catch share program on the financial viability of shoreside businesses participating in the catch share fishery.