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Optimal Economic Policy for the Regulation of the Fishing Industry in Alaska

Posted: November 8, 2013 - 11:50am

The fishing industry has experienced significant changes over the past few decades. The demand for fish is rapidly increasing, not only because of population growth, but also due to a trend favoring healthier lifestyles. Studies and articles are seemingly published daily discussing the negative side-effects of red meat and the incredible benefits of fish. Fish are saturated with Omega-3 as well as with good proteins and relatively low amounts of bad fats and cholesterols. These noted health benefits mixed with the relative price increase of beef over the last 20 years has created a greater market for fish. In fact, as the study “Twenty-Five Year Meat Consumption Price Trends” published by Oklahoma State University states, “Since 2001, beef is the only meat to experience increased retail prices after accounting for inflation.” Although most Americans still prefer beef, the increase in cost, especially in relation to other options, creates a shift in demand toward fish, as fish is touted as a healthier and a relatively cheaper substitute. 

From a global perspective, as South Asia, Latin America, China, and other regions of the planet’s population increases in totality and in their respective middle classes, an expansion in demand is created because of a larger consumer base. According to the Fisheries and Aquaculture Department, over the past 30 years the global demand for fish has increased from about 50 million tonnes, or roughly 5.5 million short tons, to roughly 120 million tonnes, or 13.2 million short tons today (about 16 kilograms per capita) with a projection of around 150 million tonnes, or around 16.5 million short tons (about 20 kg per capita) by 2030. In short, the demand for fish has increased significantly with no indication of deceleration in the near future. However, as the demand continues to increase, supply and production will need to expand to accommodate the demand.
As in most markets, in the fishing industry when demand for a product increases, producers enter the market to render potential profit. To satisfy the demand for fish, producers utilize a variety of efficient fishing methods, such as sonar technology and more durable ships and equipment to expand their access to more fishing areas. Consequently, these methods often lead to overfishing, and the subsequent disruption of the oceans’ ecological framework.
Most marine ecologists and biologists argue that overfishing is single-handedly the greatest threat to the oceans’ ecological systems today. The threat is the result of fish unable to reproduce and develop at a sustainable rate to satisfy the elevated demand. For example, reports from the Dartmouth Undergraduate Journal of Science have shown that it only takes between 10 to 15 years of industrial fishing of a given species to wipe out nearly a tenth of the species. Commercial fishing has already caused many species to fade into extinction. Furthermore, even in some of the best managed waters in the world, such as the US’s eastern coast; have experienced a reduction of 99% in the shark population. In sum, overfishing is a current and significant issue that has severe ramifications ranging from extinction to permanent disruptions to the oceans’ ecological balance.
Protecting marine ecology is critical to places, such as Alaska, which heavily rely on the fishing industry. For example, in 2009, Alaska led the United Sates with $1.3 billion in value of landing, followed next by Massachusetts with only $400 million. The seafood industry has a huge impact on Alaska’s economy. It provides 165,000 U.S. jobs and employs 63,100 people in Alaska making it the largest private sector employer in the state. With a direct and secondary economic output estimated at $15.7 billion, the seafood industry in Alaska accounts for over 50% of all U.S. fisheries production. Hence, places that deeply depend on fishing, such as Alaska, must look at the long-term consequences to which this supply and demand conundrum can lead, and be proactive to safeguard this essential industry.
The question then shifts to: How can the market meet global demand without permanently altering the oceans’ natural structure? If demand continues to increase, and suppliers satisfy the demand to maximize profits, the protection of the oceans’ ecologies becomes the responsibility of regulatory bodies. Regulatory bodies are organizations that create policy to maintain an optimal and sustainable equilibrium. However, they are often challenged with devising a policy encouraging sustainable fishing while supplying the maximum number of fish to consumers. Cindy Chu describes an approach to achieve a balanced policy was created and implemented in eighteen countries, including the US, currently use ITQs (individual transferable quotas) to manage several hundred stocks of at least 249 species.
For instance, in 1996, the US regulatory bodies realized the detrimental effects of overfishing and passed the Magnuson-Stevens Fishery Conservation and Management Act. The purpose of this act was to “take immediate action to conserve and manage the fishery resources found off the coasts of the United States and the anadromous Species and Continental Shelf fishery resources of the United States.” The act created a council to manage quotas on the amount of a given species that can be fished. Although this type of policy may ultimately regulate and retard the amount of fish caught, it also encompasses consequences that are not optimal for either the producers or consumers.
Individual fishing quotas restrict the total quantity of a species that can be fished, typically in terms of weight and seasons. These ITQ’s are the popular policies enforced to regulate the fishing industry. The appeal to this type of policy is basic: Limit the amount of fish that can be caught to ensure that overfishing, and subsequent environmental effects, will be prevented. However, one of the problems with this type of policy is the sanctioned quota starts on a calendar day and goes through a specific season. Consequently, as there is a limit on the total catch for the entire season, producers are motivated to maximize the amount they supply to the market by fishing earlier in the season.
Quotas do, however, have two adverse side effects. First, since the majority of the fish is caught toward the beginning of a given season, the market is initially oversupplied and prices consequently decrease. Furthermore, because fish has a relatively short shelf-life, there is an additional downward pressure on prices to ensure that the entire amount of the product is sold before it spoils. For producers, any revenue is better than a fridge full of spoiled fish that cannot be sold. In addition, as time passes, prices spike as there is relatively little product left because the majority of the fishing quotas had already been met earlier in the season. Taken together, at first supply exceeds demand, thereby forcing prices down for consumers and lowering the profit-margin for producers. However, as time progresses, the oversupply is depleted and, because additional fish are unable to be caught, prices sharply rise and certain species may not be available at all.
Second, individual fishing quotas incentivizes suppliers to catch younger, and subsequently smaller and less meaty fish. Since seasons typically begin after reproduction cycles, the majority of fish available are not fully developed, yet they are still caught to ensure the producer’s market share. Therefore, because smaller fish do not weigh as much, the total number of fish caught increases. Furthermore, a higher number of younger smaller fish are caught to meet the quota, which curtails the total amount of fish able to reproduce for the next season.
As fishing quotas and licensing are dictated by regulatory agencies, there is the potential problem of favoritism or corruption. Craig Medred states, “the establishment of the council created by Magnuson-Stevens Fishery Conservation and Management Act quickly came to be dominated by commercial fishing interests that over the years appeared to treat the federal fisheries service as their own personal government agency.” For example, the 2012 Pacific Halibut–Sablefish IFQ Report points out the number of fishing license holders has declined by 44%, as the consolidation of the amount of suppliers and quota prices serves to prevent new entrants. This leads to unfair and suboptimal supply markets, thereby creating inefficiencies in the industry.
As opposed to ITQs, another option available to regulators is the implementation of tariffs. In the fishing industry, tariffs are taxes imposed on goods to monitor and regulate the supply of fish. This would prevent the limitations of the quotas and licensing options in several ways. First, because tariffs do not have quotas or limitations on allowable quantities, producers are better able to supply what is in demand. This allows markets to automatically adjust to various parts of the seasons or species. For example, quotas incentivize suppliers to maximize their catch early in the season, which results in an inefficient allocation of fish. However, tariffs allow for suppliers to catch whatever is currently in demand throughout the season because there is no limit to how much can be caught. Therefore the tariffs allow the market to have more efficient or optimal levels of fish supplied throughout the season. As a result, demand would be artificially decreased as the cost to consumers would increase by the rate of the tariff leveed. Hence, instead of regulators implementing fishing quotas, the open market determines what is in demand.
An additional benefit to tariffs is that there is less incentive among fishermen to maximize their supply early in the season. Instead, they prefer to hold out for larger more valuable fish. Tariffs could be seasonally adjusted so that in times when fish reproduce and supplies are being replenished, the tariff increases to slow fishing. Moreover, because tariffs are based on weight, there is less incentive for suppliers to catch smaller, underdeveloped fish, which would have less saleable meat.
Additionally as tariffs do not require fishing licenses, any potential producer can enter the market. This encourages healthy competition amongst suppliers and consequently ensures optimal prices to consumers because only the most efficient and effective fishermen would survive in an open market. The implementation of tariffs allows for the open market to determine demand and eradicates the need for fishing licenses that reinforce the power of regulatory bodies to control fishing markets. The revenue garnered from the tariffs could fund state research of the effects of overfishing and other environmental issues. Consequently, when there are higher levels of fishing, there would be subsequently higher levels of revenue that could be used to for research when it is needed most.
Regulators in places with fishing industry such as Alaska, Massachusetts, or other regions in the US or world, should consider the adoption of tariffs. Tariffs would not only utilize market forces to maximize supply to consumers at a rate that allows for sustainability, but also raise income that could be used for a variety of areas. Moreover, this type of policy could be used to curb environmental effects of the production and consumption in a variety of industries, from other types of seafood to logging emissions while still allowing market forces to dictate supply and demand. In conclusion, tariffs are not only as, if not more, effective than the quota system in curbing the environmental consequences in the supply and demand of natural resource dependent goods, but they also encourage more efficient adjustments in the given market. This, in addition to simultaneously raising state revenue that could be used to help further research, understand, and eventually curtail further ecological consequences of various natural resource dependent industries.

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