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License Limitation in the British Columbia Salmon Fishery

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License Limitation in the British Columbia Salmon Fishery Environnement Canada Service des peches et des sciences de la mer LICENSE LIMITATION IN THE BRITISH COLUMBIA SALMON FISHERY Economics and Special Industry Services Directorate Pacific Region G. ALEX FRASER Technical Report Series No. PAC/T-77-13 c 1-- LICENSE LIMITATION IN THE BRITISH COLUMBIA SALMON FISHERY G. ALEX FRASER Technical Report Series No. PAC/T-77-13 Economics and Special Industry Services Directorate Pacific Region i - ACKN™11E!X;EMENI'S Although full responsibility for the interpretation contained in this study is accepted by the author, the contribution of Blake Campbell, fonner manager of the Pacific Fegion Econanics Branch, must be emphasised. In 1973, Mr. Ca:rrpbell embarked on a detailed account of the limited licensing prograrme in the British Colunbia Salrron Fis!Ecy. This study, based on an in depth personal k:nONledge gained over years of involverrent with the prograrme's develop:rait and administration, provided the frarrework for this present publica­ tion. Without Mr. campbell' s preliminary work, this present publication would have suffered greatly. The contribution of others must also be thankfully ack:ncwledged. Several people read and made ca:ments on earlier drafts. The final work includes sugges­ tions from lbb M:>rley, Will McKay and Jay Barclay of the Econanics unit and Rick Lyrner of the University of British Colunbia. A special note of thanks should go to Dr. C.H.B. Newton, the current director of Econanics and Special Industry Services (Pacific Region), for both his encouragement and his k:nONledgeable ideas and carrrents. Last, but by no means least, thanks should go to Shehenaz Bhatia for her typing of the preliminary and final drafts. G. Alex Fraser, Research Econanist, Econanics and Special Industry Services Directorate, Pacific Region, Vancouver, B.C. June, 1977 - ii - LICENSE LIMITATION IN 'IHE BRITISH COLUMBIA SALMJN FISHERY INDEX ACKN<l'JLEDGEMENTS Pg. (i) INTroou::TION Pg. (vi) CHAPI'ER I - THE HISTORICAL AND THEnRETICAL BACKGIDUND - Pg. 1 The First Attempt - Pg. 1 The Second Attempt - Pg. 3 Sanford Evans Ccmnission - Pg. 5 The Theoretical Base - Pg. 6 Sa:>tt Gordon Analysis - Pg. 7 An AH;>lica.tion to the Salnon Fishery - Pg. 11 The Sinclair Report - Pg. 18 The Aftennath - Pg. 21 CllAPI'ER II - THE IMPLEMENTATIOO OF LICENSE LIMITATIOO - Pg. 24 Phase I - Pg. 25 Phase II - Pg. 29 Phase III - Pg. 32 Conclusion - Pg. 34 CllAPTER III - PIDGAAMME EFF.El:TIVENE'SS - Pg. 36 Fleet and Resource Characteristics - Pg. 37 Vessel Nu:nbers - Pg. 40 Labour Input - Pg. 45 capital Input - Pg. 47 Free Entry capital Growth - Pg. 52 Surrmary - Pg. 54 - iii - CHAPI'ER IV cnrcLUSICNS Pg. 56 - Current License Fees - Pg. 56 - The Distortion of Investment - Pg. 58 - The Effect on Non-Salmon Fisheries - Pg. 59 - Proposed Solutions - Pg. 59 - Conclusion - Pg. 61 APPENDIX A CAPITAL GR:>W1'H UNIER FREE ENTRY - Pg. 63 BIBLIOGPAPHY - Pg. 70 - iv - LIST OF FIGURES I. Optimal Exploitation - Pg. 8 II. Exploitation Under Free Entr:y - Pg. 10 III. Sustainable Yield Curve -· Pg. 12 IV. Sustainable Revenue and Total Cost - Pg. 13 v. Regulated Free Entr:y - Pg. 15 LIST OF TABLES TABLE III-1 SaJroon Landings by Species, 1967 - 1976 - Pg. 38 TABLE III-2 Trends in Salmon Fleet Size, 1966 - 1976 - Pg. 41 TABLE III-3 Gear category Breakdown. of Active Salm::>n Fleet, 1966 - 1975 - Pg. 43 TABLE III-4 Active Fleet Single and canbination categories (Selected Years) - Pg. 44 TABLE III-5 Trends in Labour Input to the Salm::>n Fishery - Pg. 46 TABI.E III-6 Values of 137 Vessels Newly Constructed in 1969 - Pg. 49 - v - LIST OF TABLES (continued) TABLE III-7 Estimated Average License Values, 1973 - 1975 - Pg. 50 TABIE III-8 Estimated Naninal and Feal capital :Employed (Selected Years) - Pg. 51 TABLE III-9 Predicted Fleet capital Value Under Free Entry - Pg. 53 TABIE IV-1 Salrron License Revenues as a % of Total Resource Value - Pg. 57 TABLE A-1 Capital Stock and Landed Value in the Salroc>n Fishery, 1926 - 1956. - Pg. 63 - vi - IN'l'roDUCTICN License limitation in the British Colunbia salnon fishery is not entirely new. In fact, it first made its appearance in 1889, a scant 19 years after the establis!:ment of the first c:x:rorrercial cannery in the province. Without doubt this early attraction was largely due to the peculiar nature of the res:mrce; salmon, because of their spawning patterns and migratory behaviour, are extremely susceptible to depletion and indeed absolute extinction. This possibility made the need for government action very irrrnediate. Consez:vation was the major "raison d'etre" for the early licensing schemes and in many respects detennined their eventual failure. As time proceeded, a tentative recognition of other factors began to emerge. A recognition that social and eoonamic oonsiderations were also important elements in Fisheries Management decisions. HCM::!ver, this new attitude was slow in gaining wide acceptance. Undoubtedly, a major problem was the lack of theoretical base fran which to carry the argunent; only in the 1950' s with the fonnulation of the rrodern eoonamic theory of Fisheries, did the goals and :p:>ssibilities of license limitation begin to be seriously re-examined. A further 20 years was required before this re-examination bore fruit in a new licensing prograrrrne. In 1969 an exciting new era of experimentation began. The licensing progranme intl::Oduced that year was one of the bravest and rrost far readh.ing ever attempted. In its fonnulation, the goal of resource conservation, while important, was seoondary to the goal of socio-eoonamic rationalization. It has been an attempt by means of license limitation to pranote a strong and - vii - ec:onanically viable fishery; to not only protect the resource, but to ensure that both its exploiters and its ultimate owners (the people of canada) obtain a rnaxinn.rn benefit fran it. As one of the most advanced of its kind, the British Columbia progranme has generated considerable international and academic interest. In its positive aspect it has created a large number of precedents, while in its negative aspect it has amply illustrated the many pitfalls to be avoided. It is ooped this study offers a useful surmary of what is to be learned. In the later chapters, the actual structure and implerrentation of the prograrnrre is described and an attanpt is made to gua.ge its efficacy in obtaining its stated goals. However, before proceeding to this task, the historical events leading up to 1969 are outlined in sane detail. It is important for any analysis to identify the main social, political and econanic considerations which operated to fo:rm the eventual prograrrme. It is also important to learn what we can fran the failure of prior licensing schemes and the questions this raises for the present prograrrme. OiAPI'ER I THE HIS'IDRICAL AND THIDRm'ICAL BACKGroUND THE FIRST ATI'EMPT 'Ihe danger of over fishing in British Colunbia, particularly on the Fraser River, received increasing attention in the late 1880' s. The demise of salm:>n production on both the Sacram=nto and Colunbia rivers, ostensibly the result of over-exploitation, were current and highly relevant examples. As a consequence, in 1887, two Fraser River guardians drew attention to the pJssibilities in their annual repJrts. Guardian Charles F. Green, obServed that as many as 250 boats, fished in canoe Pass (on the LJ:Mer Fraser) , and St'¥_3-gested "as a partial remedy • • • that only a limited nunber of licenses be issued and that no cannery be allowed more than 40 boats, contract or otherwise". 1 Similarly, Guardian Jol:m Bute wrote: • • • in I'r¥ opinion it is about time that sane limi. t ... be placed on the nunber of nets allowed on this river and I think the Fisheries Depa.rtm::nt c:annot t.p soon take this matter into seri.OUs cxmsideration. In 1888, the Dcminion G:>vernment resp:>nded to these observations by reserving the right to determine the "nunber of boats, seines or nets ••• used on each stream" 3 in British Columbia. 1 Page 256 - Report on Fisheries of canada 1887 2 Page 257 - Ibid 3 Pa~ xiv - Report on Fisheries of canada 1888 2 - In 1889, a specific limit of 500 boats was plaoed on the Fraser River; 350 of these licenses went to the canneries and the remaining 150 to "outside" fishennen. The major flaw in this first attempt at limited licensing was a failure to understand the full implications of the :i;olicy. .As outlined by m::xiern eccnanic theory, a resource rent or excess profit accrued to those individuals who obtained the right of exploitation. In one fonn this encouraged a line-up of :i;otential independent fishennen demanding the right to fish the river. While few of these individuals were involved in pre-regulation days, it was a difficult :i;olitical problem to deny access to what was perceived as a public resource. Perhaps more darming, however, was the fonn of cannery licensing. Ori­ ginally fishing licenses were issued on the basis of canning capacity, then later on a straight pIO-rata basis. At the same time, there was no restriction on the growth in canning capacity which inevitably led to severe distortions in industry investment. Established processors constructed new facilities with the object, not of canning, but of securing an enlarged share of total cannery licenses, and new entrepreneurs were encouraged into the industry. Not surpris­ ingly the nunber of canneries on the Fraser increased fran twelve to eighteen between 1888 and 1891. With the opening of the new canneries, the government was in a poor position to deny them a share of the resource.
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