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 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. Concurrently, it was difficult to reduce the nunber already alloted to the established operators. 1 These various pressures detennined an early demise for this first experi ment in license limitation. By the 1892 season, once more the river was open to unlimited entry, and by 1893, the nunber of licenses issued had more than l David J. Reid - "Foreign f.'br:toPJly capital in the Fraser River SaJ..rron Canning Industry"' (unpublished), pg. 29-31 3 - doubled to 1,072. 1 THE S:ro::tm ATrEMPT 'As the first attenpt at limited entry was restricted to the Fraser River, the secxm.d was limited to the Northern areas of the province. In this region, the factor of jndependan.t fishennen was much less in evidence, the vast majority of the fleet being direct cannery operators. For this reason, the limitation was placed on canneries rather than directly on the number of boats or operators. The 1907 report of the camri.ssioner of Fisheries for British o:>lunbia noted that "there has been in the last~ or three years a ccnsiderably large increase in the mmber of boats engaged in the fisheries." The report continued: ••• there is danger, fran the constantly increasing efforts to catch the fish, that a condition similar to that which fl.CM exists upon the Fraser River may be created. Both the canners and Inspector of Fisheries for the northern district appreciate this, and very wisely in my judgement, are advo cating that the Government should not pennit the industry be further prosecuted under present conditions; and also, in consequence of the increase in the nunber of canneries and boats engaged in the fishery, that no additional canneries smuld be pe:rmitted to be constructed in the North, and that a limit be placed upon the nunber of boats which the existing canneries should be pe:rmi tted. to operate. In response, the Gover.rm:mt passed the "r:aninion Fishery Regulations" of 1908 which required a license to conduct cannery operations. At the same time, it was announced that no new salmon cannery licenses would be issued for Northern British o:>lunbia. Of course, these actions by themselves could not reach the root of the problem; under a canpetitive system the individual processors still had the incentive to expand their l Report on Fisheries of Csnada, 1893, pg. 283 - 4 - limitation on entry also created the possibility for a rent realization by the established canners, thus paving the way for the establis:J:rnent of a boat allotment a::.rnrnittee by these operators. This camnittee of three allocated boats to each cannery on the basis of fonner pack production, floor area and equipnent in the plant. Under this allot :rrent a total of 850 boats were allowed to fish the Skeena and 750 River Inlets while other rnajor fisheries of the North coast 'Were given similar qootas. Private allotnient continued for two years but broke down during the 1909 season due to dissent.ion anong the participants. Father than allow its demise, the Provincial Government through its Deputy Minister of Fisheries, took over responsibility in 1910. 'As a consequence, the 1911 armual report of the Provincial Fisheries Department noted: .•• accepted and enforced by both (Provincial and Federal) authorities, (boat rating) pro'V'eQ Eminently workable and has resulted in the solution of a problem which has wrecked nany of the salmon fisheries of the Pacific Cbast and has constantJ.y threatened all. 1 But perhaps this opinion was a trifle prenature. While undoubtedly the second atterpt at license limitation was nore successful than the first, again the major drawback was a failure to recognize its full implications. While it was considered primarily a m=a.sure for resource conservation, as in the Fraser River experiment, the unforseen result was the creation of a resource rent. Due to the construction of the prograrrme, this return inevitably accrued to the established cannery operators in the fonn of excess profits resulting in a natural demand fran other entrepreneurs to enter the "closed sh:Jp". Until 1914, this demand was generally ignored, * however, 1 "Rep:>rt of the Crnmi.ssioner of Fisheries for British Colunbia", 1912, p:::r. 7. * H SANFDRD - EVANS C(M.ITSSION This announcement inevitably resulted in dissatisfaction among the established processing cx:mpan.ies and irrmediate representations were made to Ottawa. The end result wa.s a R:>yal Cmmission (under the chainnanship of W. Sanford Evans) to investigate the problems of the British Columbia salm:m industry. The analysis and recxmnendations of this report are .innensely interesting in their considerable prescience. For the first tirre a public policy for fisheries was outlined in the following tenns: It is clear public duty not merely to conserve the supply of salnon in its present proportion, but to increase it until each year it reaches the econanic maximun and it seems to us equaJ.ly clear that all conditions surrounding the industry should as far as possible be stabilized and the excessive use of capital and labour obviated or prevented • • • The solution of this problem would not seem to be fotmd in encouraging or pennitting the arploy ment of rrore capital or rrore labour than can efficiently perfonn the work. The public interest can be served in other ways. The privilege engaged by those who fish in tidal waters is not only fundamentally a public right but the public stand related to the industry as taxpayers and consuners. If the cost of production becanes too great all hope of aavaritage to the pUblic as oonsuners will disappear. I (underlinings are those of this author) • * In 1916 alone, the following n6N licenses were issued: (i) C:Osse-Millerd Packing co. Ltd., Sunnyside Cannery - Skeena River (ii) Robert Johnson - Rivers Inlet Plant (iii) Robert Chambers - Smith Inlet SOUICE: Cicely Lyons - 1''Salm::m: Our Heritage", Pg. 311 1 .As quoted on Page 17, ":EEpert of the Carrnissioner of Fisheries for British Columbia", 1917. 6 - In reccmnending further limitation in the cannery industry, the carrnission stated that it did so "1.1f0n the oondition that excess profits, if any, shall go to the public and that exploitation in fact as well as motive shall be eliminated fran the industry" • Here in 1917, is clear recognition of major p:>ints in the modem econanic theory of fisheries. The recognition that free entry will result in higher than necessa:ry costs of production; that the rent which should no:rma.lly accrue fran the resource will be dissipated. The recognition of the consequences of limited entry for those who are allowed to participate and its solution in the taxation of "excess profits" • Clnfortunately, the findings of this Ccmnission and its rea:mnendations -were generally ignored. The Dcminion THE THIDRETIQliL BASE I:n the following years the oonservation goals of license limitation were achieved by means of increasingly stringent gear, area and time restrictions on the fishery. The question of license limitation appeared completely and finally banished to the realm of history. In 1953 and 1954 this situation began to change 7 - dramatically; in these years the theoretical 'INOrk of a Canadian econanist, H. Srott Gordan, radically revised thinking on fisheries rnanage:nent. The major effect of Gordon's 'INOrk was the final destruction of the pure ronservation argurent for fisheries management. Qu:>ting Burkenroad, he said, "the t1'magement of Fisheries is intended for the benefit of man not fish; therefore, the effect of management upon fish stocks cannot be regarded as beneficial per se". 1 He rontinued, "(f)ocusing attention on the maximization of the catch neglects entirely inputs of other factors of production which are used up in fishing and must be accounted for as costs". 2 By bringing in this concept of costs, Scott Gordon, convincingly argued for a roncentration on "net ecananic yield" as opposed to "biological yield" in fisheries management. Fran a theoretical viewpoint he shOYted that the optirnun utilization of a re5ource is achieved where the social value of production less its social cost of production, is maximized. Of course, in this he said little rcore than Sanford Evans, but the great strength of this analysis was the description of this goal's frustration in a free entry fishery. In his examples, Scott-Gordon used, for ease of exposition, the case of delrersal fish, that is relatively non-migrato:ry bottan dwellers. However, the conclusions are applicable to other species such as salmon although not the fonnal econanic analysis. In the following section a general outline of Scott-Gordon's hypothesis is given;then,an application to the specific case of the salmon fishery is attempted. SCOTI' GJRIXN ANALYSIS The use of the demersal case allows the assumption of various distinct fishing grot.mds, each with differing qualities. For the purposes of exposition, in this study three will be assured. The first is ccmparatively rich while the second is f(X)rer and the third yet poorer again. As a conse:::I'.leilce, the total (and thus average) product to be gained f:ran equivalent exploitation of each ground is 1 H. Scott Gordon - "The Econanic Theory of a Ccrcmon Property Res-ource: The Fishery" - Journal of Political Eronany, 1954, Pg. 124. 2 Ibid. I Pg. 128 8 - greatest on the first and least on the third. On all grounds, as exploitation increases, the available stocks ci.re drawn down and average product decreases. Two additional assurptions are added to make the system o:mplete. First the price of the product is assuned unaffected by the le:vel of production in this fish=ry. This is v'al.id if the production of the fishery is small in relation to world or national production as a whole. Second, the average cost of produc tion is assured unaffected by the level of effort in the fishery, that is, Average Cost= Marginal Cost at all levels of production. This is valid if the fishing sector is small in relation to the eronany as a whole. On this bcl.sis, FIGJRE I presents a graphical illustration of the relevant cost and revenue curves on each hypothetical fishing ground. FIGJRE I GROUND 1 GROUND 2 GROUND 3 $ $ $ a c · '> ~ f .\. '>.. · Le AC MC ~ " "' AP/AR 0 .. ···· · , MP/MR x y Exploitation AP/AR PP /AR = Average Product/Average Revenue • • . since the level of catch The optimal degree of utilization of each particular fishing ground is defined as "that which maximizes • • • the difference between total cost on the 1 one hand and total receipts, on the other''. Fran basic rnirco-ea:manic thro:ry, this is attained where the marginal cost of exploitation on each fishing ground equals its marginal revenue.* In this particular case, the level of exploitation which maximizes this "net econanic yield" is ~ on ground 1, ~ on ground 2, and O on ground 3. Total revenue on ground 1 is described by the rectangle oabx, while total cost is defined by the rectangle ocfx. A similar analysis can be applied to ground 2, with the difference between total revenue and total costs represented by the shaded area gdeh. The third ground is effectively the extensive margin of the fishe:ry; at no positive level of exploitation does the revenue gained offset the costs of production, hence this ground remains unexploited. The difference between total revenue and total costs can be viewed as a differential rent accruing to the resource. The greater rent accruing on ground 1 as opposed to the others is the result of differential fertility in the three fishing areas. The shaded area (or lack of shaded area) represents the return (or lack of return) accruing to the resource simply by reason of its existence and individual characteristics. As noted, the significant feature of Gordon's analysis was his convincing argument that such optima.l allocation could not take place under free entry. As the natural resource is not private property, the rent it may yield cannot be appropriated by anyone. "The result is a pattern of o::rnpetition a:m:::mg fishenren 1 Ibid. I Pg. 129 * In his analysis Scott Gordon uses the concept of "fishing effort" rather than level of exploitation". Since that time, this concept has becx::rne one of considerable controversy regarding its precise definition. For our purposes the "level of exploitation11 is an adequate concept and avoids this controversy. 10 - which culmi.nates in the dissipation of the rent on the intra-marginal grounds". 1 The optimal allocation is not an equilibriun (that is, a stable allocation) in the free entry fishery. The individual fishennan under free entry does not care for rna.rginal revenue, but for average revenue, for this is what detennines his individual greatest total yield. In the optimal state, greater average revenue can be obtained on ground 1 than on ground 2 (oa as opfX)Sed to od) . Hence, exploitation on ground 1 will expand beyond the optimun. Similarly, greater average revenue can be obtained on ground 2 than on ground 3 (od as OP!?JSed to oi), hence exploitation on ground 2 will also expand beyond the optimun. Under free entry, stable equilibriun can only occur when the average revenue produced on all grounds is equal. This implies that exploitation proceeds on the intra-marginal grounds until averag-e revenue declines to that of ground nunber 3 (i.e. the marginal ground). Figure 2 illustrates this "free entry" equilibrium. FIGURE II GROUND 1 GROUND 2 GROUND 3 $ $ $ c g MC=AC AR AR 0 MR MR EJCploitation x -- -> a y - -> b MR AR l Ibid., Pg. 131 11 - Under free entry, exploitation will expand beyond Ox to Oa on grotind l; on ground 2, beyond Of to Ob; on ground 3 it renains at o. At these :i;:oints, the average revenue attainable on each ground is equal. However, at these levels of exploitalion in no C"..ase is there a difference between total oosts and total revenues;on ground 1, the total oost and total revenue are both described by the rectangle ocja; while on ground 2 by the rectangle ogkb. In effect, the rent that would nonra.lly accrue to the intra-marginal grounds has been dissipated; dissipated by over exploitation of the resource. While more fish may or may not be caught in total, the net eoonanic yield fran the resource, and thus net benefit to society is zero. AN APPLICATION TO THE SAIMN FISHERY To apply Scott Gordon's analysis to the salm::m fisher.J, it is necessary to oonsider several distinct fish stocks rather than fishing grounds. The B.C. salmon fishery due to its ccmparative wealth and ease of exploitation, is an intra-marginal stock very much the equivalent to ground mnnber 1 in Gordon's exposition. It is also useful to introduce the ooncept of the "sustainable yield" or "Schaeffer curve". If we assune a fish :i;:opulation in equilibriun with its natural envirornnent, it is clear that the net rate of growth of that :i;:opulation is zero. Each year addilions to the stock through reproduction are precisely offset by rarovals fran the stock through mortality. Into this situation man enters as a new predator. In exploiting the resource, man reduces the existing :i;:opulation below its natural equilibriun. As a consequence of this "thinning", there is less pressure on the natural envirornnent hence the rate of successful reproduction increases beyond that of the natural equilibriun. At 1 the sane time, by definition the natural rrortality rate has no reason to mange. In this new situation the rate of reproduction naN exceeds that of 1 All of the detail regarding the Schaeffer curve are drawn fran "Sare oonsidera tions of Population Dynamics and Econcmics in relation to the Manags:rent of the Carrnercial Marine Fisheries" - Milner B. Schaeffer - Journal of the Fisheries Research Board of Canada - Vol. 14 (1957), Pg. 669-681. 12 - rrortality; there is net population growth of the fish stock over time. In follo.ving years this net growth could be taken by man without changing the new man-made level of the fish population. For each level of hunan exploitation, the sustainable yield of the stock is positive. It is this population dynamic that the Schaeffer curve of Figure III atte:npts to illustrate. FIGURE III MSY I I Sustainable I Yield I I I I I I I I I Level of O "------l.------~--- Exploitation Em Ex Fbr lower levels of exploitation, the sustainable yield increases. 'As exploitation intensifies, sustainable yield reaches a rnaximun (at Em effort and .MSY landings), then declines towards its zero population equilibriun (Ex). Using Gordon's assunption of constant prices irrespective of landings in the fishe:ry, this same curve can be used to represent sustainable econanic rather than biological yield. By introducing costs, it is then possible to illustrate Scott Gordon's solutions in tenns of total rather than average revenue and costs. (See Figures IV A and B). - 13 - FIGURE IV Total Revenue and Costs ($) Total Cost A. Level of 0 Ea I Em Ebl Exploitation I I I Average Revenue and Costs ( $) I B. AC=MC AR Level of 0------~------~Ea Eb Exploitation MR 14 Average costs of exploitation are by Gordon's assunptions unaffected by the level of exploitation in the fishery. Consequently, the total cost can be described as a linear function of exploitation. Th.is is represented by the line "Total Cost" in figure DJ-A. "As outlined by Gordon, the optimal allocation of effort to a fishing ground (and consequently to a fishery as a whole) , is the one which maximizes the difference between total receipts and total costs. By mathematical definition this occ:urs where the slope of the total revenue curve equals the slope of the total cost curve (that is point Ea in figure IV-A) . This is identical to the point where marginal revern.ll2 equals marginal cost in figure DJ-B. In a free enb.y fishery, the hypothesis is that exploitation continues mtil average revenue is reduced to the level of average cost. This is represented by exploitation level Eb in figures IV-A and DJ-B. Here, the total cost of exploitation equals the total revenue gained - the rent accruing to the resource has been dissipated. In the particular example given, due to the shape of the cost curve, the equilibriun level of exploitation mder free entcy results in a stock level below that of maximun sustainable yield. In effect, exploitation draws the population below that required for its maximun net growth. In other cases where the costs of exploitation are greater the free entcy equilibriun may result in a population at, or greater than required for rnax.imun net growth. * However, in the case of the saJJmn fishecy, the illustrated case is more applicable. The peculiarities of this fishecy lends it to cxniparatively low rosts of exploitation. "As a consequence, the population in a free entcy situation can be drawn down to dangerously low levels - close to extinction. It is for this reason that Scott Gordon's "free entcy" equilibrium does not strictly apply in the B. C. salrron fishery. "As discussed previously, the government was early aware of the oonservation problem posed by this particular species - hence the attempts at license limitation and the increasingly stringent gear and area restrictions. In effect, a special case of the Scott-Gordon analysis is relevant. * this can be illustrated by simply shifting the TC curve of figure DJ A counter clor"....kwise. 15 - In general, the goal of oonservation measures over the years has been the attainment of max.imun sustainable yield. The various bidogically orientated C'OI1Straints on the fishery can be seen as limiting exploitation to that required for maximun yield in the long run. In tenns of figure V, exploitation is limited to Em along the cost curve TC'A. FIGURE V TCB Total Revenue and Costs ( $) TCA O ~wl ~ Ea Em Eb Ex Exploitation 16 If all else remained equal, this would detennine the creation of a rent within the f isher:y. * Total oosts would be Erna while total revenues would be Ernb; the rent accruing is represented by the difference (ab). However, it is unlikely that such a situation could hold even in the short tenn. While gear, area and time regulations can limit exploitation, they cannot limit the cost of that exploitation and in thanselves often raise that oost. The cost curve Teti. is really quite hypothetical. In effect, many of the conse.i:vation oriented regulations --- restrictions on gear, the exclusion of traps, etc., tend to raise the average and total. costs of exploiting the fisher:y. This "regulation effect" can be viewed as shifting the cost curve counterclockwise in figure V. The regulations ths:nselves at least partially dissipate the rent accruing due to regulation. If the entire rent is not dissipated in this manner, then free entr:y will uncbubtedly dissipate the remainder. By economic definition, if returns in the fishery are above their costs, then these returns are greater than attainable in alternative endeamurs. The inevitable oonsequence will be a shift of :productive factors (capital and labour) into the fishery fr:an other areas of the econany. This shift, hcwever, in this case cannot result in increased exploitation but rrerely increasing costs. Exploitation is effectively limited, but the arrount of capital and labour increases beyond that necessar:y to provide it at mini.mun cost. The final result of both factors, in tenns of figure V, is a aJUnterclock. wise shift in the total CX)St curve until the entire rent is dissipated (TCA to 'ICB). Thus, the free entry equilibriun in the saln:on fishecy can be viewed as a special case of the Sa:>tt Gordon hypothesis. It is a "regulated" free entr:y equilibriun . While the stock rana.ins at (or close to) that necessar:y to provide maximun sustainable yield, the p:::>ssible rent is dissipated, not by increased * But not maximun rent. The rent accruing fr:an the resource would be maximized where the slope of the sustainable yield and the total cost curves are equal. In all cases of J?OSitive costs of exploitation, this would occur to the left of MSY, (i.e .. at a level of exploitation less than necessar:y to maximize the biological yield of the resource). In tenns of figure v, specifically at J?Oint Ea. 17 - exploitation, but by increased average cost of that exploitation. SOME ADDITIOOAL CCNSIDERATICNS The imrediate implications of the preceding analysis can be sumtarized in ve:ry simple terms. Given the equilibriun tendency under free entry, the catch of fish in any one season must be regulated to ensure adequate escapement for long run preservation of the resource and maximisation of its long run yield. Such regulation implies that a certain quantity of the resource is available each year --- this quantity, with a given technology, can be harvested by a certain nunber of individual fishermen and fishing vessels. Free entry, however, detenn.ines that the actual nunber participating will be greater than the nunber required. The higher the value of the resource and the easier it is to exploit, the rrore excessive this over-capitalisation and excess labour usage. With a resource such as salrron, this problem can clearly reach an im:nense scale. Another consideration which is not as obvious, revolves around the cost of resource preservation. In such fisheries as salm::m, the task of ensuring that catch does not exceed its biological optimun is severely canplicated. Policing the regulations involves cost and the larger the fleet relative to its necessary size, the greater the exj?enSe involved. In British Cblunbia, traditionally, this expense was borne by government, and not by the actual participants in the fishery. In effect, the fishing industry oonsistently received an indirect subsidy fran public funds. Thus, f:ran society's view point, the net econanic benefit of the resource was not simply zero, but negative; exploitation of the resource under these conditions involved a social loss. A final consideration lay on the level of the individual fisherman. In tenns of pure econanic theo:ry, at least the returns to individual fishennen covered their costs. It covered the opportunity cost of their capital invest ment and the returns which cxmld be received fra:n alternative e:nployrrent. In reality, it was questionable whether this was valid. A luck factor was involved 18 in salmon fishing -- the chance of being in the right place at the right time to ensure a substantial ina::me -- the highly cyclical nature of the salrron runs with the prospect of a "bonanza" catch in years of large runs. It was hypothesised that this gambling aspect encouraged many fishermen to continue participating far beyond the confines of a purely econanic decision. A similar effect resulted fran the natural affinity of many towards fishing due to the challenge involved and the independance offered. In general, the problems of the salm::>n fisherj' lay on Th1o levels. First, fran the viewpoint of society as a whole, the exploitation of an extremely rich resource was a net liability rather than an asset. Heavy public subsidisation was required to ensure resource preservation. Second, fran t.he viewpoint of the individual fishennan, returns were often inadequate to canpensate for costs. Incorres in the industry lay generally belo;..;r those in other endeavours. THE SlliCl.AIR REPORI' Scott-Gordon's v.urk began a wide ranging discussion arrong acadanics, industry groups and gove:rnrnent adninistrators on the means of attaining rnaxiim.:ro econanic yield in fisheries. While it was agreed that free entry was the problan, the best means of limitation was the subject of considerable debate. Various proposals were put fo:rward, but without general concensus. In 1958, the Federal gove:rnrnent carmissioned an extensive study of the problan with respect to the British Colunbia salm::>n and halibut fisheries by the econanist Sol Sinclair. This study, published in 1960, was an exhaustive examination of the various means available for l.im.i.ting entry. One proposal put forward by a nunber of econcmists was the alternative of sole o;..;rnership. As stated by Scott Gordon, the problan of free entry was the pattern of canpetition arrong fishennen. Since the resource rent could not be appropriated by any individual, it was dissipated. By transforming the resource into sole o;..;rnership property of either gove:rnrnent or private enterprise, this canpetition 'W'Ould be prevented. It 'W'Ould be in the interests of a sole owner, in whatever fonn, to maximize returns by optimising exploitation of the resource. 19 - Ho.vever, in his analysis Sinclair identified. two important oonstraints on any public policy used to attain eoonanically efficient exploitation: (a) political acceptability and (b) adninistrative feasibility. In light of the fonrer oonstraint, he i:mrediately rejected the sole ownership alternative. He said -- "this • • • is • • • out of the question on mcmy legal, political, or social grounds quite apart fran any possible abuses that may arise out of the m:nopoly position --- • " 1 He continued, "(we) must therefore look for sane middle position in which the governm:mt assunes ownership, but pennits its use by private finns". 2 Two main directions for this middle :road were suggested: (1) a system of taxes on catch and/or the fishennen (2) a system of licenses that will restrict the entry of fishel:m:m. Of the first, Sinclair said --- "in theory and ease of application and imposition a tax is the simplest and least disturbing method of limitation of entry". 3 H~ver, frcm the viewpoint of political acceptability, Sinclair identified a nunber of irrrcense difficulties. The use of a tax to reduce entry is based on the assunption that it will discourage fishermen frcm fishing .•• Undoubtedly there will be sane that will respond in this fashion. Ho.vever ,, we cannot ignore the persistence of excess capacity in the fisheries despite the fact that earnings for many have been quite low. It is therefore doubtful if the imposition of a tax in itself will eliminate sufficient of the sub-marginal enterprises rapidly enough to bring about the desired optimum in the fisheries, unless the tax is set at a very high level. In the present situation with overcapacity and generally depressed earnings, it is hardly appropriate or P?litically 1 Sol Sinclair, "License Limitation - British Columbia", Pg. 101 2 Ibid., Pg. 102 3 Ibid., Pg. 103-104 20 - The alternative Sinclair presented is the simple restriction of entry with only token license fees. While in tenrJS of general administration this method is as simple as a tax, in tenrJS of specifics, various other probls:ns were identified. In theory, an optimal allotrrent of licenses requires perfect knowledge of the cost and production functions of each individual boat. Also, problans of law and politics are involved in tenrJS of a "fair" allottment of the restricted licenses. In consequence --- "(t)hese conditions preclude the developnent of a workable licensing system that could be instituted irrmediately or even in a short period of tine." 2 In light of the various qualifications with respect to both methods, Sinclair suggested that a gradual policy be implerren.ted --- one which would avoid rapid changes in the fisheries, and one which "can be modified as experience and knowledge about these new techniques are gained". 3 Also, he suggested that any p.rograrmre instituted should utilize those features of both methods rrost likely to produce the desirable results. Specifically, Sinclair recarrrended a gradual licensing prograrrme to begin. By making these licenses non-transferable, in ti.rre, atrition would create the econanic surplus that would raise the level of fishennen's remuneration. This would then allow procedure towards a more taxation oriented fonn of limited entry. After a five year rroratoriun on nE.".V licenses, Sinclair felt that they could be issued on a pennanent transferable basis under canpetitive bid. 1 Sol Sinclair, "License Limitation - British Colu:nbia", Pg. 106 2 Ibid., Pg. 197 3 Ibid., Pg. 110 21 - THE AFI'ER>iA'IH While sane of Sinclair's specific recx:mnendations have been adopted, many ha\le been adapted and others cx:.rnpletely forgotten. Undoubtedly though, the general philosophy of this report has been the basis of License Limitation in the British Columbia sa.lrcon fishery. It is due to this significance that the attitudes of the various interest groups in the fishery towards it are extremely irrportant. In general, the reactions were quite diverse. While rrost groups agreed with the principle of Limited Licensing, each had its own idea of the particular fonn a program:ne should take. This diversity and the political realities of the tirre were the major factors preventing rrore rapid progress in this area. 1 The U.F.A.W.U., the largest labour organization in the industry, while one of the most oonsistent proponents of License Limitation over the years, was one of the m)St critical toNards Sinclair's reccm:rendations. They oonsidered general (cyclical and seasonal) unemployrrent to be a far rrore important contributor to overcrowtling in the fisheries and suggested that alternative employment opportunities ~re not as readily available as the report implied. They took exception to the notion that a fishennan's earnings .....-ould be described in any sense as profits. Fishing equip:nent (toats and gear),, like that of an industrial crafts:m311, should be defined properly as the tools of a fisherman's trade. Also, the union rejected the argument that the right to fish was ca:nparable with rights to exploit other resources. For tl)at reason, and because it .....-ould discriminate against p:::orer fishennen, they opposed any increase in license fees, or distribution of licenses on the basis of carpetitive bids. Instead, they argued that licenses be distributed on the basis of seniority and degree of de:pendanoe on fishing as a source of ino::irne. 1 The United Fishennan and Allied W:>rkers' Union 22 - The Pacific Trollers 1 Association * also maintained that licenses be issued only to "loona fide fishennen", which they defined to mean an individual with at least 40% of their incane fran fishing. However, in their cc::xmen.ts the particular inte.rests of this organization -were also apparent. They held that over-crowding in tJne fishery was due to the enc:roachment of other operators into their territor.1. In effect, they held that their sector of the fleet was not over-crowded,, but that over-crowding in other fleet sectors was the basic problan. For this reason_>they suggested that only one type of salmon fishing license be held at one time. The Fishing Vessel OW:ners' Association, a grollp which drew its constituency f:rom the owners of larger vessels in the fleet, naturally chose a rather different approach in its sutmission. Unlike the U.F.A.W.U., they held that licensing should apply to vessels and gear rather than the individual fishe:r:rnan. As the owners of vessels they realized that their maximun benefit would be derived fran such an arranganent. If the license -were attached to the vessel, it is they, rather than their employees who would gain fran any capitalization of rental fran limited licenses. Finally, the Prince Rupert Fishennen's Co-Op adamantly opposed any fo:rm of license control. While they agreed with many of the points raised by the U.F.A.W. u., clearly their specific interest ran in a different direction. As the union was a large and powerful organization representing a large proportion of the labour force in the industry, it would tend to gain fran license limitation in that its i;:osition would be perpetuated and solidified. Co-operative organiza tions on the other hand represented a relatively small proportion of the fleet and in order to expand their influence, -were desirous of a rrore open and flexible fleet. * This group represents vessel ONners in a particular gear sector of the salnnn fishing fleet. The tv.Jo other gear sectors are the seine and gillnet. 23 - Many other opinions were expressed by other oi.--ganizations in the industry, each just as diverse as the four outlined. During the 1960' s , at various times the governrcent attempted to develop a cxmcensus view on ho.v license limitation should proceed, ho.vever, this proved irq:ossible. Each group was adamant about its particular viEM. In tenris of politics, while the necessity of a prograrrme was recognized, the reality of minority government intruded. The years 1962 through 1968 saw the formation of first Conservative and then Liberal minority govenurents. The conse::ruence was a nattrral reticence to implement politically sensitive prograrrroes without ronsensus opinion frc:rn industry groups. These years were very much twilight years. They SCh'/ the develoµnent of various licensing procedures that would lend thE!ClSel ves to restricted enti.-y at sane point. Also, considerable thought was given to the fonn a VvDrkable license control prograrrroe should take. However, this groun&vork only became effective with the election of a majority gove:rrurent in June of 1968. While the attitudes and opinions of the industry could not be ignored and indeed played a major role in future policy fonnulation, the necessity for an elusive concensus view was obviated. With the prerequisite of a government with a strong mandate, a new era arrived. 24 CHAPTER II THE IMPLEMENTATION OF LIMITED LICENSING In July 1968, within a nonth of the election, the newly appointed Minister of Fisheries, (Jack Davis) visited the W:!st Coast where he was given a o:rnplete briefing on the problems facing the Pacific area. During this sarre visit, he met representatives fran various fishing industry organizations. All of these, with the exception of the Prince Rupert Fishennen's Co-Operative, raised the necessity for sare fonn of salrron license control. Thus encouraged, the Minister instructed that a basic plan be prepared. In September, licensing prop:>sals were announced and the industry advised they would be effective for the 1969 fishing season. In keeping with the theoretical justification, the primary objective of the prograrme was the reduction of over-capitalisation and excess labour usage. By this rreans, it was intended to reduce the costs of production and create an eoonanic surplus that would first, raise the level of fisherrren's remuneration and second, provide a certain return to government to ccrnpensate for the use of this public resource and the increasing costs of resource management. Finally, it was hcped to achieve these ends with minimun dislocation of capital and labour currently employed. The plan devised ena:::mpassed four distinct stages. The first was to freeze the fleet at a stable level; the seoond was to effect gradual reduction in that fleet size; the third was to improve the standard of vessels participating in the fishe:ry; and the final phase was to introduce eronanically optimal gear and area regulations to the fishery. At the present time, the first three phases have been implemented while the fourth is being held in abeyance. This chapter reviews the timing, fonn and rationale for the specific regulations introduced. 25 - PHASE I With a few changes, the first phase followed the reccmrendations of the Sinclair report. Although both occurred, neither reduction in fleet size nor increase in license fees were significant features. The main point was to stabilise fleet size and prevent future expansion. The fleet was frozen by creating a specific salrron license in lieu of the general fishing license previously available. While the general license had been freely available to any individual, only thJse with cx:mnercial sa1rron landings in 1967 or 1968 qualified for the new license. In addition, in order to retain the license, it had to be renewed annually and participation in the fishery was required at least ever:y other year. In order to pay for increased administrative costs, license fees were doubled, but still remained naninal. The license was made a vessel license rather than a personal license on the individual fishennan. The rationale for this lay mainly in the administrative and policing necessities of the prograrrme. Under a personal licensing system, as the licensed individual rroved fran vessel to vessel, it would prove difficult to deter mine which vessels were fishing legally and which were not. Also, by making the individual the lim.i ted factor, a personal licensing systan would inadvertently encourage the substitution of capital for lahour in the fishery. At the same time, there would be no m=ans to prevent the influx of rrore capital intensive vessels to the fleet. * While "'l.lessel licensing can be equally deaned labour oriented, rrost Western fisheries technology is labour saving rather than labour using. * NCYl'E - One could hypothesise the end result of a personal licensing system as a large fleet of expensive, highly autanated vessels each with a crew of one individual fisherman. 26 :- Given this, the substitution of labour for capital was much less likely. Undoubtedly, vessel licensing posed equity problans for tlose fishermen who operated rental vessels or acted as crev.irren, but at least the vessel is a concrete clearly specified entity. In tenns of field rnanagarent, relatively simple to determine its status -- in tenns of actni.nistration, relatively easy to control its replacanent. In the decision to license vessels, a clear and logical trade-off was made between the advantages and disadvantages of the system. The vessels qualifying for the salrocn license were sub-divided into two categories on the basis of their perfonnance histo:ry. Vessels which landed in excess of 10, 000 pounds of pink or chun salm:>n (or an equivalent arrount of other salnon species), qualified for class "A" lirenses,. while those with smaller production records qualified for class "B" licenses. In moneta:ry tenns, the production cut-off between the two categories was approximately $1,250. License categorisation generally identified (i) serious fishennen in the sense that a reasonable incane was derived frcm the resource, (ii) part-tirre and recreational fishennen who made the majority of their incare frcm other sources. In tenns of specific regulations, under Phase I the only difference between the two categories lay in replacarent provisions. While both were entitled to full participation in the fishe:ry, class "A" vessels could be replaced if retired, but no such provisions were made for class "B" vessels. One major divergence between Phase I as implarented, and Sinclair's rea::mrenda tions lay in the provision for license transferability upon vessel sale. Sinclair proposed entirely non-transferable licenses for the first five years of the prograrme. In effect, he relied on the attrition rate over this period to significantly reduce fleet size. This approach was deemed infeasible for several reasons. If upon sale, the salnon license oould not be retained, clearly the sale value of vessels would be adversely affected. Fran the viewpoint of a retiring fishennen, this would prove an lirm2nse hardship. In effect, it Y.'Ould force individuals to continue particii;:ating against their will. In all likelih:xxl the attrition rate v.Duld be low, and the hardship caused inmeasurable -- other rrore satisfactory methods were required for fleet reduction. - 27 - As expected, the new regulations did not meet with unifonn approval. They ran inbo strong opposition fran various interest groups within the industry requiring certain additions and alterations. The U.F.A.W.U. strcngly opposed vessel based licensing. The main point in the union's opposition was that the prograrnre "increased the }?OW'er of the big ccmpanies that now dominate the 1 industry". They were voicing the fear that the various processing ccmpanies involved might extend their control over the nOW' limited fleet. By buying up class "A" licenses, they would exclude independant fishe.rrren and effectively undennine the bargaining _I:l()IHer of all fishennen. In answer to this criticism, a freeze was implemented on canpany ownership of class "A" vessels effective April 3rd, 1969. As of that date, ccmpany ownership was fixed at its then current nunber of vessels. In addition, a gcod deal of criticism was levelled by the Fishing Vessel CMner's Association against the provisions excluding non-salmon vessels fran obtaining salnnn licenses. It was held that the majority of these vessels traditionally fished for salnon during peak production years. Consequently, their exclusion fran the salmon fishery would detrin'entally affect both their long run incare and vessel values. In light of this criticism, the regulations regarding salmon licensing were relaxed --- rather than requiring participation in the salm:m fishery specifically, only participation in "fishing" was required. It soould be noted, in retrospect this rrodification caused serious problens for th,e licensing program:ne. While the actual nu:rber of vessels added to the fleet was quite Sma.11 (160 at a max.intuu), many of these were relatively large groundfish trawlers and halibut longliners. In effect, a large pool of unused capacity was created which could be drawn into the fishery as it became nore lucrative. The met.hod developed was for the non-sal.rron vessel to be retired 1. U.F.A.w.u. Press Release - Septenber 6th, 1968 28 - fran the salrron fishery and to be replaced by an actual sa.lrron vessel. The original vessel then continued as before to fish non-salmon species. It is clear that this proress has mder:mined the progress of rationalisa tion. The final step taken in the first phase of the progranme was the creation of an appeal cxmnittee. It was not intended at this :ix>int to exclude any operator fran the fleet who was a "bona-fide" salrron fishenuan. On this basis, the appeal ccmnittee was to consider licensing vessels which did not meet the qualifications because <)f "special circunstances". An industry adviso:r:y o:mnittee was fonned * i!trld charged with the task of defining the tenn "special circunstances". This groi..:p maninously recamended the following: (i) a salmon fishing vessel constructed, tmder construction, or for which a contract had been signed prior to September 6th, 1968 (and that valid proof can be provided for). (ii) a vessel to be ao:pri.red by a fisherman. who had lost his vessel prior to September 6th, 1968 provided that the fisherman had not already acquired a vessel that was eligible to fish in 1969. (iii) a vessel o.vned by a fisherman that had a historic record of salrcon fishing prior to 1967 but which had not fished in 1967 or 1968 because the fisherman was tmable to operate for a canpassionate reason such as illness. Given these guidelines, the appeal ccmnittee handled the impressive nunber of 1,200 appeals within the first year of its existence. The majority of these were denied, but if the fishennen wished to proceed * NCfI'E - this group consisted of representatives fran the U.F.A.W.U., Native Brotherhood of B.C., Fisheries Association (a group representing the processing cx:mpanies), Fishing Vessel OWners Association and the Prince Rupert Fishennen's Co-Operative. 29 - further, the option of a direct appeal to the Minister was open. Hc:wever, after receiving an interpretation of the regulations, this option was rarely exercised. PHASE II As noted, under Phase I, the licensing prograrme was designed to limit fleet size, but did not address the problem of reducing that fleet fran its already over-capitalized level. This was the central focus of Phase II. The main features -were: (i) a sub.st:antial increase in licence fees (ii) the phase-out of the "B" licensed fleet (iii) the funding of a "buy-back" prograrnre. In addition, adjustments were made in the original regulations in response to vari01..11s problems that became apparent. Effective for the 1970 salrron season, license fees were increased fran their naninal level of $10.00 to $100.00 for category "A" vessels less than 15 net tons in capacity. Vessels larger than this -were faced with $200.00 fees in a rough attempt to make fees proportional to fishing capacity. Effective for the 1971 season, these fees were doubled to $200.00 and $400.00 respectively. * While "B" license fees -were kept at a $10.00 level, it was decided to phase these out in ten years. In the rreantirre they -were to retain full fishing privileges. It was hoped these provisions would enoourage operators to voluntarily opt for "B" status and eventual retirement fran the fishery. The decision to eventually el:im:inate the "B" fleet was both politically and econanically notivated. In the short run, the catch of these vessels was minimal, and their elimination would add little to the incane of the remaining fishermen. Hc:wever, part tirre and casual fishennen had been a oontentious issue for a nunber of years. The nore serious fishennen naturally objected to the nuisance hazard of amateurs crowding the f ishe:ry and taking a share of the * NOI'E - vessels under 30' in length were exempted fran these increases and retained. $100 license fees. 30 - limited catch they felt rightly belonged to than. At the sane time, with the now liJaited fleet size, there could be no guarantee that these vessels would ranain casual participants in the fishery. The possibility that the current owners would sell out in favour of nore serious participants was a definite threat. The long nm result might be an effective increase in effort fran these vessels that would circumvent the p:rograrme's intent -- the phase-out period was designed to canbat :both these problems. The final major feature of Phase II was the creation of the "Buy-Back" Programre. In order to speed up the rate of attrition, the proceeds of the higher license fees were channelled into a fund. Beginning in the 1971 season, this fund was used to enter the "A" licensed vessel market with the purpose of purchasing and retiring a proportion of the fleet. All "A" license holders were circularised with the details of the prograrrme. In effect, an offer was made to purchase any vessel subject to the follo,.;ring guidelines. The price offered was based on market value derived f ran two appraisals --- the first, carried out by a field representative of the Department of Fisheries and the second by an independent surveyor. The two appraisals, when in general agreareilt, were averaged and a 5% :bonus added (for sale to the buy-back porgrarrme) to arrive at a final price offer. This offer, the fisherman was free to accept or reject. In this way, the prograrrme effectively minimised coercion to leave the fishery --- the decision was purely vollIDtary. The vessels purchased through buy-back were offered for re-sale at public auction subject to the rider they could never be used in any British Columbia carrrercial fishery. The proceeds of these sales were re-channelled into the buy-back fund for additional purchases. On the whole, the p:rograrrme was a reasonable success. By the time of its suspension in 1973, it had socceeded in retiring 350 vessels, about 7% of the "A" licensed fleet. The prograrrme's suspension was necessitated by the record salnon harvest of 1973, 31 - and the consequent spiralling value of class "A" licenses. At the same time, there was no increase in the funds available £ran license fees. It became difficult to m=et vessel owners' asking prices and the nunber of vessels offered to the programne declined drastically. Other provisions of Phase II refined the original regulations in the light of experience. In 1969 and 1970, class "A" vessels when retired were replaced on a boat for boat basis. The result was in retrospect quite predictable. In the two years, 76 vessels with a total carrying capacity of 186 tons were rerroved and replaced by vessels with a total capacity of 596 tons. This subVP...rsion of the prograrrme' s intent required additional restrictions. Effective July 1970, a "ton for ton" replacement rule was brought into effect, stipulating that the replacement vessel could be no larger in capacity terms than the vessel re:roved. If an operator wished. to bring in a larger vessel, he could only do so by retiring additional vessel(s) up to the tonnage required. Various administrative problems were encountered with this regulation. All vessels greater than 15 net tons must, by law, be registered and surveyed by the Ministry of Transport. However, vessels smaller than this, including the vast majority of the sa.lrron fleet, are not constrained to do so. The Department of Fisheries statistics on the net tonnage of this group were nothing rrore than fishe:r:rren 1 s estimates. With replacement now based on tonnage, the fisherman was nON clearly encouraged to over-report this factor. To counter this tendency, and in the interests of equity, a table oonverting length to net tonnage was added to the regulations. When a vessel was registered, the actual net tonnage shown on the registration certificate was used as too relevant proxy --- when mrregistered, the vessel was measured and replacerent allowed on the basis of the length-tonnage conversion table. Even this was found insufficient to canpletely stop the trend towards larger replacement vessels. .A.n extrane example of this was evident when a small 30 foot Fraser River gillnet ('.re9istered at 5 net tons), was replaced by a 42 foot West 32 - Coast troller (at the same registered net tonnage). In Au:JUSt 1972, further restriction was effected limiting the length of the replaoement vessel to that of the vessel renoved. Also, under Phase II, the problem of g:rcwing ccrcpany control of the fishing fleet recurred. With the now shrinking fleet, if processors were allowed to retain their 1969 nunber of vessels, clearly their proportional share of the fleet ~uld increase. To avoid this, canpanies were advised that as fleet size declined, they v.ould be expected to make parallel decreases in their ~ fleet. Although this provision was never written into the regulations, the ccmpanies were personally advised by the Minister. The final problem dealt with under Phase II was the hardship caused to native Indian fishennen by the increased licence fees and more stringent license requirements. Many Indian vessels had been classified as "B" vessels under the sub-division of the fleet --- as such they were now faced with phase::>ut in ten years. Others, although categorized as "A" vessels, were small producers who were severely hurt by the substantial increase in license fees. The Indian problem derives f:ran the position of the fishery vis ii. vis native culture. Although m:my Indians are casual or part-time participants, canparative to most whites, fishing in this manner is an integral part of a traditional way of life. Given this, and a general lack of anployment alternatives in many isolated native ccm:mmities, the dependance on this source of incx:rne in both eoonanic and social terms is substantial. On this basis, special provisions were felt to be in order. These were forthcaning in the 1971 season with the creation of an A-I license. Natives who qualified were eligible for a $10 license fee subject to the rider they v.ould be ineligible for the buy-back programne. This, of course, in light of their failure to contribute to this pool of funds. The native was free tmder the provisions to sell his vessel to either native Indian or white, but if sold to a white, the vessel v.ould revert to "B" status unless all exanpted license fees were paid in full. PHASE III The third phase of the sa.ln'on rationalisation programme is really sanething of a 33 - misnaner. The main emphasis of this step was never viewed in te:rms of reducing fleet size. The actual goal was to improve vessel standards for the purposes of ooth improving the quality of product delivered, and the safety of the participants. This step had been under consideration for a nunber of years prior to 1969. In 1967, a vvorking group fonred to make reccmnendations in this regard noted that "the use of safety standards solely 'NOuld not provide an effective method of controlling entry to the salrron fishery". They rationalised that the nunber of vessels removed would be minimal, and the actual vessels rerroved would tend to be the smallest and least productive units. In keeping with this, vessel standards provisions, when finally implemented for the 1973 season, applied to all fishing vessels and not merely salmon vessels. Four general requirenents were involved: (i) holds must be at least 30 cubic feet and able to protect fish fran weather and oontamination (ii) insulation is required to protect fish holds fran the heat of the engine (iii) where the vessel is to hold fish for longer than 18 hours, it must have means of refrigeration and at least a 60 cubic foot hold (iv) a clean smooth non-toxic surface is. required in fish holds These standards are enforced by bi-annual inspection of each vessel and failure to pass implies revocation of all fishing privileges. As predicted, vessel standards had little effect on the nunber of vessels participating. Although many vessels failed at their first attempt, most owners 34 chose to upgrade rather than retire from the fishery. Out of an entire fleet in excess of 5, 000 vessels, only 95 A and 63 B category vessels were excluded in 1973 and only 79 A and 19 B category vessels in 1974. Also, it should be noted that these could be re-sul:mitted for inspection and re-enter the fishery at a later date. CGJCUJSION At this time, these first three phases are the full extent of the saJ..rron rationalisation program:ne. The as yet unimplanented final phase was to address the question of changing gear and area restrictions on the fishery. As explained in Chapter I, these various restrictions were developed over the years primarily for conservation purposes with little attention paid to econanic efficiency. As a consequence, they have a direct and detrimental effect on operating costs and thus relative retUills to fishing vessels and fishermen. The intent of Phase IV was to bring eronanic factors into line with conservation req:uiranents. It was felt, with the fleet shrinking in size, that the more obviously detrimental regulations could be reroved or adjusted. In 1972, the West Coast Salmon Fleet Develoµnent Crnmittee (including industry, academic and Depart:m:mt of Fisheries respresentatives} was struck to advance reccmnendations on this part of the prograrrrne. This ccmnittee was tmable to attain unanimity in its deliberations and in 1973, both a majority and minority report were sul:::rnitted to the Minister. The minority report, the W'Ork of the U.F.A.W.U., did little more than reiterate the union's opposition to the licensing prograrrme as it was implemented. The majority report, while offering useful suggestions on various facets of the programne as already implemented, did little to advance beyond these confines. Too little was known of the relative potential econanic efficiency of the various gear types operating in the fishery. Additional W'Ork was needed in this area before more definite suggestions could be 35 - offered. At the same time, the 1973 fishing season SCM drastic changes in the canplexion of the entire industry as a result of tmprecendented -world demand and soaring prices for salrron. These factors had a tremendous unsettling effect on the fleet and severe ccnsequences for the License Control Programme itself. It was felt advisable to await the return of stability before proceeding further. 36 - rnAPrER III - PIOGFAMME EFFECTIVENESS The 1976 season was the eighth full year of the latest salnon license experircent. During this period, Fisheries and Marine Service has given high priority to monitoring the progress of the programrre. Much of the infonnation presented in this chapter is drawn f:ran a m.tnber of primarily unpublished reports prepared by Depart:ment eoonanists in perfonning this task. Where necessary and possible, the infonnation has been extended and updated. It appears on a superficial level that the prograrcroe is a reasonable success. Since its iroplem:mtation, both the nunber of licensed salnon vessels and the nunber of vessels actively engaged in the salmcn fishery have shown substantial declines. Unfortunately, this trend is e..xt.rE:!rely deceptive --- rnore rigourous examination raises a good nunber of questions. As noted in the last chapter, the primary goal of license rontrol was the reduction of capital and labour input to the fishery. In this sense, vessel nunbers are no more than a proxy -- they are a proxy for the amount of capital and larour employed. As will be seen, it is a difficult task to attain adequate measures of the trends in these more basic factors, but the available infonnation does leave roan for ronsiderable doubt roncerning prograrcroe effectiveness. However, other factors also intrude; it 'WOuld be unfair to judge the prograntTE in a vacuun. The salnon fleet was not static when the progranme began, but on the rontrary the evidence sh:Jws that capital input rose substantially over the years irmediately preceeding license limitation. In keeping with the eoonanic theory of free entry, as the value of the salrron resource increased, so too did the oosts of exploitation. Since 1969, the value of the salmon resource has not only rontinued to rise, but at an overall 37 - faster rate than ever before. In addition, new markets have opened up (in particular, the Japanese market) which have created high demand for previously unexploited or under-exploited species. Salrron licensing can not be assessed independantly of these events; rather, such trends should be accounted for in assessing the p:rograrro:re's merit. FLEET AND RESOURCE CHARACTERISTICS Before proceeding to the prograrro:re evaluation, it is advisable to give sare consideration to various technical characteristics of the fleet and resource. These features should be borne in mind when examining the data presented in the following pages. The five salmon species * catght in British Cblunbia waters are generally harvested on their migration patch to fresh water spawning streams. This spawning migration marks the end of the life cycle and this varies anong species between two and five years. As a result, the cyclical recurrence of particular stocks in the fishery leads to wide fluctuations in the annual catch of each different species and in the aggregate catch of all species. Consequently, certain years are extranely unrepresentative of the general trends in the fishery. In this regard, the two years 1969 and 1975 are particularly noteworthy. While the catdl over the last ten years has averaged 141 million pounds (round weight), in each of these two years the catch dropped to slightly over 80 million pounds. At the other extreme, the years 1968 and 1973 saw landings between 180 and 190 million pounds. * NOIB: (i) sockeye, (ii) pink, (iii) chun, (iv) chinook, (v) coho - 38 - TABLE III-1 - SAIM:N LANDINGS BY SPOCIES 1967 - 1976 (000 LBS. rot.ND WEIGHT) ($000) SPRING so:::KEYE OJHO PINKS CHlMS 'IDTAL LANDING) LANDED --VALUE 1967 15,355 37,072 22,518 51,643 12,142 138,730 36,001 ) 1968 15,237 41,390 33,381 55,600 36,510 182,118 44 887 >3"_yZ.33 I \ I 1969 14,224 24,138 17,618 13,827 13,397 ' 83,204 27 I 810 ~ ; 1970 14,474 25,186 30,991 52,960 36,972 159,683 45,076 1971 . 19,184 38,203 31,068 38,866 11,947 139,268 44,476 1972 18,413 20,982 23,221 39,994 66,562 169,172 50,341 1973 16,659 47,457 24,802 29,335 72,228 190,481 99,998 1974 16,836 47,826 22,880 24,706 27,512 139,760 73,998) 1975 16,070 12,524 17,056 22,574 11,880 80,104 46 I 913 ~ 70, 9S' 1976 17,142 27,202 20,551 37,602 24,079 126,576 91, 942. 10 year average 16,359 32,198 24,319 36,711 31,323 140,910 56,144 SOUOCE : "Arumal Smmary of British Columbia catch Statistics" - Department of Fisheries and the Environment, Pacific Region. 39 - There are three basic gear types used in the British Columbia fishery -- purse-seine, gillnet and troll. These gears not only differ in their rroae of operation, but there is sane specialisation in the species exploited and the type of market supplied. While gillnets and seines are net operations, the troller uses a hook and line method. Net call3'ht fish tend to be marked or otherwise damaged by the mode of operation, hence seines and gillnets tend to primarily supply the canned line of salm:>n products while the trollers are the primary suppliers of the lucrative fresh-frozen market. This tendency is further obviated by the bonus system which operates in the fishery. While pay ment to net fishennen is generally based on tntlon-negotiated minimun prices with bonuses forquanti;t:Y production, the troller is paid premiun price for quality deliveries .. The purse-seine is the largest operation using a crew of five or rrore and vessels ranging in excess of 50 feet in length. In contrast, gillnet and troll tend to be one or two man operations. However, many of the vessels use two or rrore of the gears during the year, also many" salrocm vessels fish for other species during the year. Gi. ven these canplexities, it is necessary to use sane consistent classification system; the one used here has been used by Fisheries and Marine Service for many years. Any vessel which used seine gear in canbination with any other (including gillnet or troll) is considered a "seine canbination" . Any vessel which used gillnet gear in canbination with any other (except seine) is considered a "gillnet canbination" . Any vessel which used troll gear in a:rnbination with any other (except seine or gillnet) is considered a "troll canbination" . There a:re certain obvious weaknesses with this classification system which should be emphasized. For example, it pays little attention to the extent of fishing by gear type -- a vessel catching $10,000 by troll gear and $1,000 by gillnet is considered part of the gillnet fleet. Also, any vessel which catches even one salm:>n is considered an active salrron vessel irrespective of its major 40 - source(s) of incane. However, the advantage of the systan lies in the mutually exclusive and thus additive nature of the numbers involved. The canbination categories can be added with their respective single gear vessels to give seine, gillnet and troll groups of vessels. These in turn can be added to give the total active fleet of salmon vessels. VESSEL NUMBERS 'As noted, the trend in vessel m:mbers offers apparently impressive evidence of programre effectiveness. In each of 1967 and 1968 approximately 6,600 vessels engaged in the sal.m:>n fishery --- on the basis of participation in these bvo years, 6,932 vessels qualified for sal.m:>n licences in 1969. This mmber has gradua.lly declined lllltil by 1976, only 5,339 licensed salmon vessels, or 77% of the base fleet remains. Of this nunber, 623 are "B" licensed vessels slated for rerroval in 1980. The trend in active fleet size is equally impressive. In 1969, due to the poor salmon nms, there was a considerable inactive residual; that is, vessels which did not participate although qualified to ao so. Fully 828 vessels out of the original licensed fleet did not choose to participate in 1969. Although the trend in this inactive residual, due to the alternate year fishing rule and the high licence fees, is generally downwards, in 1975 there were still 390 vessels which did not utilise their sal.m:>n privilege. Between 1966 and 1969, approximately 6,600 vessels participated each year, while in 1975 only 5,017 >Yere actively engaged in the sal.m:>n fishe:ry. Table III-2 following stmnarises the preceding discussion. - 41 - TABLE III-2 - TRENDS IN SAI.M:N FLEET SIZE 1966 - 76 ( # OF VESSELS) YEAR "A" "B" 'IUI'AL NO. ACTUALLY INACTIVE LICENSED EN GA.GED RESIDUAL 1966 6,575 1967 6,639 1968 6,603 1969 5,870 1,062 6,932 6,104 828 1970 5,668 973 6,641 6,201 440 1971 5,344 984 6,328 5,806 522 1972 5,046 897 5,943 5,533 410 1973 4,996 734 5,730 5,254 476 1974 4,823 704 5,527 5,210 317 1975 4,775 643 5,418 5,028 390 1976 * 4,716 623 5,339 NOT AVAILABLE * Preliminary SOURCES: (a) Annual Licensing Statements - Fisheries and Marine Service, Vancouver, - (tmpublished) (b) Ino::rre by Gross Return Group - Unpublished. Surrmary Computer Run - Fisheries and Marine Service, Vancouver. The decrease in active salmon vessels can be examined. nore closely by classifying the nunber engaged according to the type of gear used. (See Table III-3, page (43). It is apparent that the decline did not affect all 42 - sectors of the fleet. OVer the first few years of license limitation, the seine sector remained relatively stable, at approximately 400 vessels, then increased dramatically to over 500 during the nost recent period. The reduc tion in fleet size is entirely concentrated in the gillnet and troll sectors of the fleet. As noted, of the three basic gear types utilised in the salnon fishery, purse seine represents the largest, rrost capital and labour intensive vessels. Consequently, these figures give a dramatic indication of the pattern taken by fleet reduction. While there was a substantial reduction in overall fleet size, it was the smaller rather than the larger vessels that were eliminated. The nunber of larger vessels involved actually increased by a variety of means. First, many of the non-salmon vessels originally licensed were m:Jdified into salnon vessels or were retired and replaced by new sallron seiners. seC:ond, many smaller vessels were retired, their licenses consolidated and thus "pyramided" into larger seine vessels. - 43 - TABIB III-3 - GEAR CATEOORY BREAKIXJV\N OF THE ACTIVE FLEET (# OF VESSELS) 1966 1967 1968 1969 1970 1971 1972 1973 1974 __1975 , Seiners 248 233 278 286 291 253 249 226 201 217 Seine Ccrrtbo. 155 181 120 83 135 152 148 231 325 266 Sub Total 403 * 414 * 398 * 369 * 426 * 405 * 397 * 457 * 526 * 483 * Gillnet 2,515 2,388 2,501 2,472 2,315 2,151 2,098 1,785 1,655 1,595 Gillnet Canbo. 1,176 1,479 1,327 949 1,189 1,064 948 1,315 1,465 1,335 * *1 Sub Total 3,691* 3,867* 3,828 * 3,421* 3,504 * 3,215 * 3,046 3,100 * 3,120 * 2,930 I Troll 2,375 2,231 2,244 2,208 2,141 2,045 1,959 1,520 1,397 1,429 I Troll Ccrnbo. 106 127 133 106 130 141 131 177 167 123 Sub Total 2,481 * 2,358 * 2,377 * 2,314 * 2,271 * 2,186 * 2,090 * 1,697 * 1,564 * 1,615 * 'lDI'AL 6,575 ** 6,639 ** 6,603 ** 6,104 ** 6,201 ** 5,806 ** 5,533 ** 5,254 ** 5,210 ** 5,028 *""' Source: (a) Ina:rne by Gross Fetum Group - Unpublished Surroary Ccinputer Run - 1971 to 1975 (b) Returns fran Fishing Vessels in British Colurrbia - Published - 1966-1970 - 44 - A further point outlined by Table III-3 is the trend in the various canbination categories of the fleet. Clearly, a vessel whidl can use a nunber of gears rather than a single operation is l'OC)re capital intensive. The various modifications required and the expense of the additional gear itself adds to both vessel value and operating oosts. In the seine sector of the fleet, the nunber of single operations actually declined over the period of license limitation. The overall increase in this fleet sector was entirely due to a substantial increase in the number of canbination units. , In the gillnet and troll sectors of the fleet, the entire decline in vessel nunbers centred in the single gear categories while the respective canbination categories ranained relatively constant or witnessed sane growth. TABIB III-4 - ACI'IVE FLEET SINGLE AND cnMBINATICN CATEOORIES (# OF VESSELS) 1966-1968 % OF 'roTAL 1973-1975 % OF TOTAL AVERAGE FLEEI' AVERAGE FLEET Seine Single 253 215 Gillnet Single 2,468 1,678 Troll Single 2,283 1,449 'roTAL SINGLE 5,004 76% 3,342 65% Seine canbo 152 274 Gillnet canbo 1,327 1,372 Troll Canbo 122 156 'IOI'AL ro.180 1,601 24% 1,802 35% 'roTAL FLEET 6,605 100% 5,144 100% 45 - For the decline in vessel nu:nbers to represent absolute proof of a decline in fishing costs, a necessary condition is that the vessels themselves represent a standard unit over the years. The evidence simply does not support such an assunption; on the contrary, it implies that the average fishing vessel has beo:rne larger and rrore capital intensive. Cost reduction due to declining fleet size is at least partially offset by increased investrrent in the fleet which remains. As a consequence, on the basis of vessel numbers alone the overall trend in fishing oosts is quite indetenninate. Analysis on a rrore detailed level is required to reach oonclusions on this issue. LABOUR INPUI' One means of measuring labour input to the fishery is in te:rms of the number of individuals anployed. A requirement for employment in the industry is a persooal fishing license which is freely available to any canadian citizen. Prior to salrron licensing, approximately 12,000 of these licenses were issued each year in British Colunbia. (See Table III-5). Since salrron licensing two trends are apparent. Between 1968 and 1972, the number of licensed individuals declined to less than 10,000, then frcrn 1972 onwards there was a consistent upward trend until by 1976 alrrost 14,000 licenses were issued. However, it is unlikely these figures are an accurate representation of trends in salrron employment. Sane of the individuals who took out personal licenses did not fish (the license fee is naninal) and sane of those who fished, did not fish for salrron (the license is not specific with regard to type of fishing). This latter consideration is particularly relevant since 1972 with the continuing expansion of markets for other B.C. fisheries prcx'lucts . One method of circumventing these problems is to base an estimate on the nurrber of vessels engaged and the average employment on these vessels. In 1970, Fisheries Service estimated average employnent on seine vessels as 5.5 men and on both gill. nets and trollers as 1. 2 men. Assuning this has remained constant over the years, the resulting figures are presented in Table III-5. Even these estimates are subject to sare inaccuracy as they cannot reflect the - 46 - intensity with which the labour supply is used. To draw this into the calcula tions, the nunber of days fishing by gear type was used to estimate the number of man-days input to the fishery. These estimates are also presented in Table III-:-5. TABLE III-5 - TRENDS IN IABOUR INPUT 'ID THE SAIM:N FISHERY # OF PERSONAL ESTIMATED SAIMJN ESTIMATED MAN LICENSES ISSUED EMPLOYMENT D1l.YS FISHING {# OF INDIVIOOAIS) 1966 11,977 9,623 394,560 1967 12,117 9,747 400,050 1968 12,133 9,634 432,167 1969 10,492 8,912 333,645 1970 11,647 9,273 429,919 1971 11,015 8,709 375,705 1972 9,902 8,347 380,343 1973 11,717 8,270 380,937 1974 11,906 8,514 327,675 1975 12,578 8,111 275,115 1976 13,899 Nor AVAIIABIE 329,266 SOURCES: (a) Annual Licensing Statement - Fisheries Service, vanoouver (l.mpublished) (b) Ina:me by Gross Feturn Group - Unpublished Surrnary Corrputer Run - 1971-1975 (c) Feturns fJ::an Fishing Vessels in British Colurrbia - Published Statistical Reviews - 1966-1970 (d) British Columbia catch Statistics - Fisheries Service, Vanoouver, - Published Statistical Feview, 1966-1976. 47 - Prior to 1969, it appears that labour input to the saJ.Jron fishery was relatively oonstant at approximately 9,600 individuals and 400,000 man days per annun. In 1970, it recovered to its 1968 levels following the 1969 slu:np and has since, decreased significantly. In this area the license oontrol p:rograrnrre appears to be successfully inducing a decline. In all probability the reoord salrron harvest of 1973 'WOuld have led to a dramatic increase in labour intensity had it not been for the limitation prograrrme. In oontrast, labour input remained relatively constant. CAPITAL INPur Since 1966 and the advent of vessel licensing, each year individual fisher TIEil have been asked to estimate the market value of their vessels. These figures are then aggregated to give the only direct estirna.te of total fleet capital valre. Of course, there are certain problems inherent in such methodology; many of the vessels are old and the owners face a difficult tim= suitably valuing them. Also, there is sane tendency among fishenuen to be suspicious of the question's intent. However, fran year to year these figures should give a reasonably accurate representation of the trends in the market value of the fleet as a whole. Unfortmately, in recent years these trends do not necessarily represent those of fleet capital input. The problem here lies in the fonn of license limitation itself. Since the license is attached to the vessel and can only be transferred with the vessel, the tendency is for the value of the license to bea::me capitalized into the value of the vessel. Cbnsequently, market value no longer reflects simply the value of capital employed, but also the value of the license; the value of the license is detennined by the level of rent accruing in the fishe:ry and expectations regarding future rents. A.s such, it has no oonnection to the level of individual investment. This factor bea::m:!s particularly significant in 1973 and 1974. With the substantial ju:np in the value of salnon 48 - production in these years, and resultant high expectations and inccme levels, market value is a significant over-estimate of actual capital employed. In order to obtain a rrore accurate assessment of the trends in capital input, the market value assessments must be adjusted. In effect, the value of the licenses must be netted out. This task is ca:nplicated by a nunber of difficulties. First, since the license cannot be sold independantly of the vessel, there is no specific market for licenses that would facilitate tracking their values. Second, the value of licenses are not standard; with the ton for ton replacanent rule, value can be assured to accrue in proportion to the size of the vessel licensed. * The m:=thodology used here was to estimate the average capitalized value of licenses on the basis of a fleet sample. The sample was cx:xaposed of new vessels first entering the fleet in 1969. Since these vessels were first built in this year, the cwners should have an accurate idea of their true rost at this point in ti.Ire. Also, due to the pcx::>r salmon runs, low license fees and no actual attempt at this time to reduce fleet size, license values can be assuned negligible or at least extremely low. Cbnsequently, the market value stated for these vessels in 1969 can be considered a reasonable measure of the capital input they represent during this year. The next step was to track the estimated market values stated by the cwners of these vessels in following years. As can be seen in Table III-6, these values increase substantially over time. Several basic reasons for this change can be differentiated, in addition to the c2.pitalisation of license values. First, boat building rosts, like other costs in the econany over the last few years, have been subject to a high rate of inflation. Second, new equi:pnent may have been added to * NOI'E: However, this trend is not general. It appears that licenses of one or two tons are in relatively high demand for consolidation into larger units. 49 - the vessels. Finally, f:ran these two sources of increment to market value must be offset the result of depreciating value as the vessel becomes older. TABIE III-6 - V.ALUES OF 137 VESSELS NEWLY COOSTRJCI'ED IN 1969 (AS REPORrED BY VESSEL CW'IBRS) YEAR ro:rAL VALUE AVERAGE VALUE 1969 $3,488,020 $25,460 1973 $4,448,938 $32,474 1974 $7,027,004 $51,292 1975 $6,490,917 $46,941 SOURCE: "Canpetitiveness and Efficiency of the British Columbia SaJ.m::)n Industry" - Volune II - Unpublished - Underwood, McLellan and Associates and Edwin Reid and Associates. The pr.i:maiy assunption made in this analysis is that the depreciation of the vessels exactly offsets any increased value due to additional equiµrent. * This assunption implies that the increase in vessel values is entirely due to the effects of inflation and license rental. The inflation factor can be eliminated using the Statistics canada "Boat Building and Repair Index". Taking 1969 as 100, this index implies that the average capital input of $25,460 in 1969 is equivalent to $29,763 in 1973. In contrast, the average stated value of * NO'IE: Revenue Canada capital cost allowanre schedules pennit a 5% depreciation per annun on ccnmercial fishing vessels. It is unlikely that these vessels -would be extensively refitted so soon after building, henre this does not seen an unreasonable assunption. - 50 - the vessels in this year is $32,474. The difference between these bNo figures is assuned. to represent the value of the salmon licence in 1973. Table III-7 following sum:arises this calculation and extends it to the years 1974 and 1975. TABLE III-7 - ESTIMATED AVERAGE LICENSE VA.IDES 1973-1975 (1) (2) ( 3) (4) BOAT BUII.DING INFLA'IED A'IJERAGE A'VERA.GE 'VESSEL ESTIMATED AND REPAIR INDEX 'VESSEL VALUES VALUE (FISHER- LICENSE MAN'S ESTIMATE) VALUE 1969 100 $25,460 $25,460 0 1973 116.9 $29,763 $32, 4 74 $2,711 1974 134.2 $34,167 $51,292 $17,125 1975 146.9 $37,401 $46,941 $9,540 ColU1U1. (4) = ColU1Ul. (3) - ColU1U1. (2) Sources: (a) "Canpetitiveness and Efficiency in the B.C. Salrron Industry", Volume II - Unpublished, Underwood, McLellan and Associates and Edwin Reid & Associates (b) Statistics Canada - "Price and Price Indexes" - Publication #62-002. The estimates derived by this procedure appear realisitc. The vessel market value is requested at the beginning of the :season in oonjunction with the purchase 51 of the salrron license. At the beginning of 1973, industry sources estimated value at $4-500 per licensed net ton --- later in 1973 and early 1974, due to the record harvest and exceptional salrron prices it is k:no,.m that license values escalated drastically. In 1975, with lcwering expectations, license values are kno,.m to have slunped. All of these trends are reflected in the ·- estimates of Table III--7. On the basis of this evidence, the estimated average license values were used to calculate an adjustment for the entire fleet. In 1973, 4,587 class "A" vessels were engaged in the salmon fishery, :implying a total adjustment figure of $12.435 million. The estimated total market value for the entire fleet in 1973 was $117.705 million. Adjusting this figure, we arrive at an estimated Capital vallE for the fleet of $105.27 million. These and the equivalent figures for 1974 and 1975 are presented in the follcwing table in both nominal and real t.enns (i.e. adjusted for the inflation rate in ooat building and repair). TABLE III-8 - ESTIMATED NCMINAL AND PEAL CAPITAL EMPLOYED (1966 - 69 AND 1973 - 1975) --1966 --1967 1968 1969 1973 --1974 -1975 Estimated Fleet Market Value 60,622 68,131 72,860 80,052 117,705 219,258 204,235 Estimated License Adj ustrnent 0 0 0 0 12,435 79,032 43,331 Naninal capital Employed 60,622 68,131 72,860 80,052 105,270 140,226 160,904 Real Capital Errployed * 62,821 70,529 74,120 80,052 90,051 104,490 109,533 * Adjusted by Statistics can.ad.a Boat Building and Repair Index : 1969 = 100 SOURCES: Income by Gross Return Group - Unpublished Smrnary a:mputer Smrnary. 52 - It is clear that the license limitation prog-rai:me has not been a resound ing success in the area of capital investnent. Between 1969 and 1973, real capital input increased by 12% or an average of 3% per annum. Follo.ving the bunper season of 1973, capital input junped by a further 16% and in the follo.ving year another 5%. OVerall capital input has increased by fully 36% since the implementation of license limitation. At least in static terms, the prograrnrre has been an abject failure with respect to this part of its stipulated goals. FREE ENTRY CAPITAL GOOWI'H Hc:Mever, it "WOuld be invalid to judge the prograrnrre in purely static te:rm.s. In addition to sho.ving capital increase during the period of license limitation, Table III-8 also shOINS that capital g:rowth was far fran a new event. Between 1966 and 1968, real fleet capital input increased fran $63 to $74 million, or a 17% increase over this two year period. In canparison, capital g:rowth during license limitation does not appear drastic. The imnediate question is whether the limitation progr~ has slowed the rate of capital growth. To answer this question requires a return to the earlier theoretical sec tions of this study. As noted, the basic hypothesis is that costs in this industry increase in ronjunction with the value of the resource. As the value of the resource increases, so too does the anount of capital and labour employed. This suggests that capital gro.vth be examined in relation to the gro.vth in resource value rather than as an independant entity. In an attanpt to estimate the relationship between fleet capital and resource value under free entry, a nunber of linear regressions were run on annual data over the period 1926 through 1956. Ho.vever, the details of this analysis are relegated to an appendix with only the major findings presented here. (see Appendix A - page 63) · In short, the rrost successful specification was a distributed lag nod.el with fleet capital value a function of the landed value of the resource in current and 53 - past time periods. The regression results were as follows where the bracketed numbers are the "t" statistics on the relevant parameters: K = 1208 + .83 Kt l + .45 V t - t (19.55) (5.75) R 2 = .988 D - W = 1.74 w:here Kt = Naninal Fleet capital Value in the current year K l = Naninal Fleet capital Value in the previous year t- Vt = Naninal Landed Value of the salmon resource in the current year. This equation was an extren:ely good fit with close to 99% of the variation in fleet capital explained, while the Durbin-Watson test for the presence of serial auto-correlation was clearly negative at a 95% confidence level. On this basis the equation was used to predict the free entry capital value of the fleet in the years 1967 - 1969 and 1974 - 1975. These results are presented in the following table. TA.BIB III-9 - PREDICTED FLEET CAPITAL VALUE UNDER FREE "ENTRY ($000) ($000) % Predicted Capital Estimated Actual Predicted/Actual Value ~ital Value 1967 $65,308 $68,131 95.9% 1968 $75,540 $72,860 103.7% 1969 $71, 781 $80,052 89.7% 1974 $119,465 $140,226 85.2% 1975 $136,290 $160,904 84.7% 54 - It is ooticeable that in 1967 and 1968, the predicted capital value of the fleet closely approximates the actual ca.pi tal ernployed. In l:::oth cases the prediction lies with.in a 5% range; this is supporting evidence that the estimated function accurately describes capital input under free entry condi tions. In all years of license limitation covered (1969, 1974, 1975), it is noticeable that the predicted value is a significant and consistent under estimate of the actual capital employed. If this analysis is valid, there is a clear conclusion to be drawn. Rather than moderate the g:rowth in fleet capital in response to resource value, the license limitation prograrnne has actually stimulated capital g:raqth. This finding is of extrare significance for it draws into question the efficacy of the progrartm2 in not only an absolute but a relative sense. Given the apparent tendency t:ava.rds lesser labour input, perhaps scm= of the increased .invest::m:mt is due to substitution of ca.pi tal for labour in the industry. Also, since 1969 the lucrative roe herring fishery has cx:me into existence with a season in minimal conflict with salmon. As a consequence, many sal.mJn. operators have taken advantage --- part of the capital investment may be a simple cross effect that has not been acrounted for. Havever, since license limitation, an expectation factor has been created in the fishery; a ITOre optimistic view regarding future incane levels. It is entirely ronceivable that such attitudes have encouraged a high level of .investment canparative to free entry. If this is the case, then l.imited entry is an abject failure in both static and dynamic teDY\S. SUMMARY 'lb surcmarize the findings of this chapter: It is clear that the trends in fleet size alone are an inade;:iuate representation of the trends in salm:m fish ing costs. The decline in vessel nunbers has centred on the &naller vessels, and on the less capital intensive units. This is at least partially offset by 55 - the increase in the absolute nunber of larger vessels and in more capital inten sive units. The new vessels entering the fleet tend to be larger and many older vessels are being upgraded for canbination operations. To gain a mJre adequate representation of the trend in fishing costs requires a rrore direct examination of the trends in its two mJst basic ccmponents - narrely, capital and labour. With respect to labour, it appears the limitation programre has been a relative success. 'lWo basic measures of erq;:>loyrrent in the fishery sho'.v a substantial decline over the years since 1969. In contrast, it appears the programre has fallen far short of its goal with respect to capital costs. In spite of license limitation, the capital value of the fleet has increased substantially in both real and ncminal te:.rm.s since 1969. Even accounting for the rapid increase in the value of the salnon resource leaves a good deal of question regarding programre viability. The response of invest rrent to shifts in resource value appears even rrore excessive than under free entry. 'While it is indeterminate whether this results solely fran limitation itself, or whether external factors such as new markets are also involved, it see:ns clear that the programre in its present fonn does not successfully control capital costs in the fishery. 56 - OIAPTER IV - CXNCLUSIONS The previous chapter was franed entirely in a long tenn perspective. It is advisable at this :p:>int to adjust to a shorter time horizon for it is frc:m this viewpoint that the major problems with the current prograrrnre can be ascertained. In the long tenn, the licensing prograrnrre appears largely in effective; in the short nm this has not been the case. The year 1973, due to both dranatic price increases and large salrr:on nms, saw the landed value of the resource aJrnost double. Invariably, tmder free entry, this "W'Ollld have signalled an irorrediate increase in the nunber of vessels involved in the fishery. With license limitation this was no longer :p:>ssible. Hence, licensing had an tmdoubted :p:>sitive effect on returns in this year. In the long run these returns are being dissipated and perhaps more rapidly than tmder free entry. The major problem appears to be that the majority of these returns were left in the hands of the fishenn.en themselves. While this was tmdoubtedly to their short nm advantage, in the long nm it has simply created an tmeronanic distortion of investment in the industry, and left them little better off than before. In addition, it has had dramatic side-effects for those fishenn.en who ~re involved in other (non-saJrnon) fisheries. The central focus of the problem was clearly realised even prior to 1973, and proposals have been continoously made to address it. Unforttmately, the solutions have :p:>litical ramifications that are ronsidered tmacceptable, thus to this point little has been done. CURRENI' LICENCE FEES The problems are ~11 illustrated by the current license fee structure. In 1969, the license revenues collected fran the salnon fishe:ry were less than $70,000; just sufficient to rover the administrative costs of the new program:ne. In 1970 and 1971, with the substantial increase in fees, returns rose to - 57 - a:pprox:L-nately $1 million and since have gradually declined with the decline in fleet size. Since 1971, due to the dramatic increases in the value of the salrron resource, license fees are generally declining as a proportion of total resource value. Overall they are quite marginal, averaging less than 1. 5% of total landed value. Table IV-1 following, smmarises this discussion. TABLE IV - 1 - SAI.M:N LICENSE REVENUES AS A. % OF TOI'AL RESOURCE LANDED VAllJE TOTAL LANDED LICENSE % VALUE ($000) REVENUES ($000) 1969 27,810 69.l 0.2% 1970 45,076 626.8 1.4% 1971 44,476 1,051.9 2.4% 1972 50,341 953.0 1.9% 1973 99,998 952.6 1.0% 1974 73,998 942.6 1.3% 1975 46,913 944.1 2.0% 1976 91,942 940.0 (est.) 1.0% License fees can be seen as a :rreans for government to appropriate rental fram the fishery. Given this, the failings of the present fee structure are abtmdantly clear. Shoi.t run rent accrues in proportion to the value of the salrron resource; on the other hand, current license fees are flat rate. Ir respective of hew gcxXl or poor the year, the rental appropriated from the resource is constant. This implies that in years such as 1973, the entire 58 - short run rent.al is left in the fishery. It is this rent which has provided the fuel for the dramatic increases in fishing rosts. THE DISTORI'ION OF INVESTMENT It is understandable that a primary political goal of the prog-ramne was to leave a proportion of any benefits to the fishermen themselves. This was undoubtedly the price for, if not support, at least acceptance of any licensing programne. However, the current stru.cture of the programne has taken this to an extrs:ne. At the same time, the provisions of the prog-ramne intended to prevent the dissipation of these returns have proven inadequate. Certainly, the additional returns accruing to the fisherman could not re dissipated in the entry of additional vessels, however there -were too many other loopholes. The programne did n::>t prevent, but simply distorted the investment process. The non-salmon vessels originally licensed -were retired and replaced by new salrron seiners; smaller vessels -were consolidated into larger; and finally, additional gear was added to allow oanbination operations. Rather than fleet size, increased returns \\/'ere reflected in the increasing capital intensity of the individual boat. It can be argued that this process is even more effectively dissipating the returns than free entry. The fact of license limitation has to a srreat extent created an expectation among fishennen of good returns in the future. This may be encouraging a higher rate of re-investment than was previously the case. While the expectation of additional entry may have had a moderating effect on investment decisions, no such influence now applies. Sane evidence points to a tragic over building programne that could not be sustained. Thus, with the return to relative normality in 1974 and the poor fishery in 1975, many oj;>erators -were severely hurt. In this respect the seine fleet is most notable, representing as it does the fleet sector which witnessed most rapid growth. 59 - THE EFFECT OF IDN-:SALMJN FISHERIES This over-build.ing and the conversion to canbination operations is having severe consequences for many other fisheries of the province. In many respects these other resources are an adjunct at the mercy of salm:m. The fact that an increasing proportion of the salmon fleet are geared for CXInbination operations means that they do so to a greater or lesser extent. This extent is determined by the characteristics of the salm:m fishery .L.'1 any given year. A poor salmon run determines a substantial increase in the exploitation of these other resources. The traditional participants in these fisheries are periodically faced with heavy canpetition for a share of the limited resource. At the sa:rre time, the salmon fleet is becoming increasingly dependant on these other resources to sustain itself. PPOPCSED SOLUI'ICNS As noted, the central problem with the current licensing plan has been recognised for sane time. To address it, nunerous suggestions have been put forward; these suggestions take b.vo general directions. First, it has been proposed to increase and change the structure of the license fee system. The main intent here is to siphon off sane of the excess returns that are fuelling investment in the fishery. Second, mrnerous additions to the regulations have been suggested with the main intent to increase difficulty in re-investing. Even among the original Phase II proposals, there were proposals to change the bas.is and structure of the license fees. A two tier license fee was suggested consist ing of: (a) a minirnun fee of $25.00 to cover administrative costs (b) a percentage fee based on landed value of catch It was proposed for 1970 that the latter be set at 1%, but with the additional proviso it be increased in each of the following four years until a :rnaxiroun of 5% was reached. These original profX)sals ran into strong opposition fran fishermen's groups who claimed that it ammmted to double taxation. Also, sane constitutional canplexities were encountered. A landings tax could be interpreted as a sales tax, and the right to such levies under the Canadian constitution lies in Provincial rather than Federal 60 - jurisdiction. 'As a consequence of these two factors, the original proposals were dropped. Undoubtedly though, their implementation would have had a significant positive effect for the licensing plan. In 1973, a proportion of the excess returns would have been siphoned off with a consequent direct o::.oling effect on investment. Also, and perhaps more importantly, a significant change in expectations might have occurred. With an increasing proportion of returns accruing to governrrent, investment may have been further rroderated. Since 1973, and with the resulting crisis, proposals for similar changes in the license fee structure were put forward. These more recent proposals in general circunvent the constitutional difficulties while retaining most advantages. The fo:rmula suggested ccmbines features of both percentage and flat rate license fee systems. Father than current year, it would be based on the landed value of the catch in previous years. The relevant percentage would be taken and divided by the number of vessels involved, the result being charged as a flat fee. While this circunvents the constitutional difficulty, the knowledge of increasing license fees should still discourage over capitalisation due to \IDUSual production years. Also, the option would remain open to increase the percentage taken folla.ving such years. Other prcposals put forward attempt to make it more difficult to increase invest- rrent in the fishery. The two major factors in increasing fleet capitalisation are: (i) the conversion of smaller vessels into larger seines, and (ii) the change fran single to multiple gear operations. Hence, the proposals in this vein attack these two areas. First, it is proposed to extend limited licensing fran the salrron fishery to all fisheries of the province. Second, it is proposed to change licensing fran its present species basis to a "gear-species" basis; that is, rather than requiring an "A" or "B" license, that specific licenses be required for participation in each of the gillnet, seine and troll fisheries. The first constraint would tend to obviate the trend towards multiple species operations by the failure to qualify for the necessary licenses. Transition would still be possible but incur the additional expense of licem;e purchase and the payment of additional license fees each year. Also, it would have the desirable side effect of protecting the traditional participants in these other fisheries. Similarly, the second 61 - constraint would tend to obviate the pyramiding of vessels into seiners and the transition towards multiple gear operations within the fishery. Again the transition would be possible, but again it would entail additional costs. CUrrently, these various licensing proposals are under consideration, however, advance in these directions is slow. 1'.s always, the administration of fisheries is an extrernely sensitive p:>liti cal issue. This is particular1 y noticeable with regard to dlanges in the current license fee structure. While the other fisheries of the province are being gradually licensed, no dlange in the license fee system appears forthccming. Undoubtedly, this is an error, for while the proposed fee changes attack the root of the problem, the other prop:>sals only attack its symptans. The basic problem is the excess returns left in the fishennen's hands. Unless scme of these returns are a:ppropriated by government, the current pressure on the licensing prograrrrre will not be dissipated. While plugging these loopholes will have a beneficial short run effect, in the long :run new loopholes will arise. This in turn. will simply require further restriction and ever increasing a::mplication of the regulations. Attacking fran this angle can only be self-defeating. CDNCLUSICN The earlier limited licensing plans applied in British Colunbia suffered fran a single major defect. They were viewed primarily as a means for resource conservation, and as sudl their full consequences if recognised, went dis""' regarded. Limitation created an econanic rent fran the resource; this rent, unencunbered by government, inevitably accrued to those canneries and individuals who obtained the right of resource exploitation. In both prior cases this created a general demand from those excluded, to enter the industry. In the Fraser River case, due to the programne fonnat, it also created within the industry an uneconanic distortion of investment. These pressures inevitably led to the eventual demise 62 - of the licensing progra:nrres. With the developnent of the rrodem econanic theory of fisheries, the forces that operate are n<::M well understood. In spite of this, it appears that little has been learned; the major problens with the current prograrrrne seem to bear an uncanny resamlance to those in the past. Due to the prograrrme structure, the majority of short run benefits are being allowed to accrue to the fishermen the:nselves. The inevitable result has been an uneconanic distortion of capital investment within the fleet, which is rapidly dissipating these benefits. Unless sanething is done, licensing is invariably aoanea. to failure once more. Unlike the past, it is improbable that these pressures will result in programne cancellation. However, large scale government intervention in the fishery has undoubtedly resulted in social costs. Small operators such as those in the "B" licensed fleet are being eliminated by goverrunent fiat, and entry to the industry for the younger generation is far more difficult than ever before. Although the programne was designed to minimise dislocation, sane dis location inevitably occurred. Under the present prograrrrne format, the social costs inherent in this will go unrewarded by any benefit; the entire exercise will have been to no purpose. - 63 - APPENDIX "A" - cAPITAL GOCw.rH UNDER FREE ENTRY The base data used m this analysis was drawn frcxn the publication "The Ccmrercial Salrron Fisheries of British Coluabia" - Statistical Baseb::x:>k Series, Number 3 (Econanics Service, Department of Fisheries, Ottawa, 1958). TABLE A-1 - CAPITAL STCCK AND I.ANIED VALUE IN THE SAIM:::N FISHERY - 1926 - 1956 LANDED VALUE capital Value Salmon Other Species Total of Craft -- ($' 000) ($I 000) ($'000) ($'000) 1926 7,492 8,563 6,769 15,332 1927 9,457 8,195 6,647 14,842 1928 9,535 8,154 6,480 14,634 1929 10,177 7,310 6,760 14,070 1930 10,597 8,178 4,695 12,873 1931 5,929 3,291 2,590 5,881 1932 6,067 3,443 1,289 4,732 1933 7,224 4,464 1,857 6,321 1934 7,824 5,793 1,537 7,330 1935 7,760 6,172 1,910 8,082 1936 8,187 5,155 2,349 7;504 1937 7,484 5,276 2,562 7,838 1938 6,994 6,331 2,338 8,669 1939 6;350 5,828 2,063 7,891 1940 7,127 5,504 3,563 9,067 1941 8,178 11,425 4,411 15,836 1942 9,353 12,794 5,621 18,415 1943 9,942 7,201 8,443 15,644 1944 11,527 7,256 10,077 17,333 1945 14,800 11,268 9,933 21,201 1946 17,491 12,812 8,560 21,372 1947 20,666 12,576 9,779 22,355 1948 25,198 19,953 12,691 32,644 1949 25,476 15,656 11,595 27,251 64 - TABLE A-1 - CONTINUED LANDED VALUE capital Value Salmon Other Species Total of Craft ($'000) ($I 000) ($' 000) ($'000) 1950 30, 76'3-- 24,336 12,009 36,345 1951 36,934 28,396 12,242 40,638 1952 42,161 19,555 10,603 30,158 1953 45,120 21,848 9,932 31,780 1954 43,318 23,579 11,465 25,044 1955 42 ,624 18,481 9,849 28,330 1956 43,143 21,356 15,241 36,597 As a first attempt to explain capital grc:Mth in the industry, capital input was regressed on both the landed value of salmon and of other species. The latter variable was included to isolate any extraneous investment effects caused by changes in the value of other species. A prime oonsideration was the relevant time horizon; clearly, under free entry the current period is of importance. A good season due to either high prices or above average runs should encourage irnrrediate entry of additional vessels. However, sane importance should also be attached to past time periods as it is unlikely a full adjustrrent could occur in one season. New vessels take time to build as does the upgrading of older vessels. In an att6tlpt to specify this, both the landed value of salmon and other resources lagged one year were included as independant variables. - 65 - The results were as follows, where the bracketed nunbers are the "t" statistics on the relevant para:neters: (1) Kt = -4149 + .82 Vt + 1.08 V + .26 0 - .25 0 l t-1 t t- (2. 90) (3.92) (. 43) (. 38) 2 R = .903 D - W = .87 where, Kt = Capital Value of Craft in the Current Period Vt = Landed Value of Salrron in the Current Period vt-1 = Landed Value of Sa.lrron Lagged One Year ot = Landed Value of Other Species in the Current Period = Landed Value of Other Species Lagged One Year 0 t-l 'I\.Jo problems were inmediately apparent. First, the Durbin-Watson test for the presence of serial auto-correlation was extremely positive at a 95% confidence level. On this basis it seemerl clear that the residuals were tracking. Serond, there was a high degree of multi-collinearity between all of the independant variables. The following is the correlation matrix: 0 v 0 vt-1 t-1 t t vt-1 1.00 .84 .86 .78 • 84 1.00 .82 .92 0 t-l Vt .86 .83 1.00 .85 ot .78 .92 .85 1.00 66 - In an attempt to address the first problem, a Cochrane-Orcutt trahsforma tion was performed and the regression re-run on the transformed residuals. * 'Ihe results of this procedure were as follows: (2) K = 52373 + .28 V + .11 V l + .63 0 + .24 Ot l t t t- t - (2.17) (. 84) (. 21) (. 64) 2 R in tenns of changes = .16 D - W = 1.03 Although all the variables showed the expected signs, only the landed value of saJmon in the current period was significant at 95% confidence. In general, the explanatory power of the specification was ve.ry low, with only 16% of the total variation in fleet capital explained. This result is not difficult to understand, given the high degree of multi collinearity between the independant variables. Since these variables rrove closely 1 together, the estimating procedure is very unstable and sensitive to randan errors. This is reflected in large variance (and subsequent low "t" statistics) of the estimators. In such circunstances it becanes difficult to establish that particular regressors influence capital input. Given this, the fact that the independant variable "Vt" is still significant, is particularly noteworthy. In order to better explain the variation in fleet capital, it was decided to re-specify the rrodel by dropping sane variables and extending the relevant time horizon. During the period in question (1926 - 1956), the vessels in the salrron fishing fleet tended to be highly specialised. On this basis, it was * NCfI'E: This procedure assunes the residuals are generated by a first order auto regressive scheme Ut = r ut-l + e, where U is the auto-correlated error term, and 0 < r < 1 and e is an independant randan variable with mean = 0 and variance = e:r-;z. 1 wonnacott and Wonnacott - "Econanetrics", pg. 61. 67 - expected that the influence of other resources on capital investrrent in the salrron fleet -would be minimal. This appear:ed. to be borne out by the regression results to this point. Hence, it was decided to drop the "other species" variables (O and O ) f:ran the rrodel. t t-1 With respect to the time horizon, it seemed clear that the previous specification of one lagged time period was inadequate to fully represent the effect of prior seasons in the investment decision making process. It seens reasonable that a nunber of past time periods were involved in a system such as: (3) K = a+bV +b V +b V ••• +e t t 1 t-1 2 t-2 t However, such a system is difficult to deal with. There are many regressors, 1 and all are closely related with multi-collinearity a serious problem. A reasonable simplifying assunption, since distant histo:ry has less effect than the present, is that the coefficients b. decrease exponentially over time. J i.e. b. = b >- j. j = 1, 2 ... J whereO On the basis of this assumption, equation (3) above, can be re-fo:r:mulated as: (4) (a) K =a+bV +bl.V l+bl.2 V 2···+e t t t- t- t and for the previous tilre period: 2 (4) (b) Kt-l =a+ b vt-l + b >- vt_2 + b A Vt_3 •.. + et-l if equation (4) (b) is multiplied by :\ and subtracted fram (4) (a) , rrost of the tenns drop out and we obtain: (5) Kt= a * + A Kt-l + b Vt+ et * where a * = a (1 -;\ ) e * e - >- e t = t t-1 1 Wonnacott and Wonnacott - "Econanetrics", Pg. 145 - the entire rrodel outlined in this section is derived fran the above source. Pg. 145-146 68 - In this fonn, a regression of K on Kt and V will yield estimates of t -1 t b, A and a • The nunber of regressors are reduced to two, and the problem of multi-rollinearity is largely overcone. 1 The results of this regression were presented in the main body of the text as follows: (6) Kt = -1208 + • 83 Kt-l + .45 Vt (19. 55) (5. 76) 2 R = .988 D - W = 1.74 'As noted, the explanatory power of this specification was high and the Durbin Watson test for the presence of serial auto-rorrelation was negative at 95% confidence. Sane interesting implications follav if we place these findings in the fonn of equation (3). (7) K = -7106 + .45 V + .37 V l + .31 V + .26 V -- + b An V t t t- t-2 t-3 t-n In this fonn, the relative impact of past tim:! periods bea::mes ve:ry clear. While the original investment impact of a change in the value of the salmon resource is quite mild (only .45 for eve:ry $1), the eventual impact is quite substantial. This can be dete:r:mined fran the infinite series: b+Ab+A2 b ••• Anb b .45 = = = 2.65 1 - ;\ .17 A $1 change in the value of the salmon resource eventually generates a $2.65 change in fleet capital value with the vast majority of the impact caning after a 1 wonnacott and wonnacott - "Econanetrics", Pg. 146 69 - significant time lag. Clearly this industr:y has historically adjusted slowly to changes in market ronditions. 70 - BIBLIOGRAPHY PUBLISHED BCDKS (1) Annual Reports of the Depart:nent of Marine and Fisheries - (1887 to 1918) - Queen's Printer, Ottawa. (2) Friedlaender, M.J. - "The Econanic Status of Native Indians in the British Colurrbia carrnercial Fishery, 1964 - 1973" - Fisheries and Marine Service, Vancouver, B.C., - Technical Report #PAC/T - 75-25 - 1975. (3) Lyons, Cicely - "Salmon: OUr Heritage" - Mitchell Press Limited - Vancouver, B.C., - 1969. (4) Mundt, J. earl {ed.) - "Limited Entry into the Ccm:rercial Fisheries" - IMS Publication Series - #IMS -UW - 75 - 1 - Seattle, Washington - 1974. (5) Mc:Eachem, D.B. - "The Licensed British Colunbia Carmercial Fishing Fleet" - Fisheries and Marine Service, Vancouver, B.C., Internal Report #I-73-1 - September, 1973. (6) Reid, David J. - "The Developnent of the Fraser River Salmon Canning Industry, 1885 to 1913" - Fisheries and Marine Service, Vancouver, B.C. - Report Series #NOB/ECCN 4-73 - July, 1973. (7) Sinclair, Sol - "License Limitation - British Colunbia", Depa.rtnent of Fisheries of Canada, Ottawa, 1960. (8) Wilson, W. Alan - "A Survey of Vessel ONner Investment in British Colunbia" - Fisheries and Marine Service, Vancouver, September, 1971. ( 9) Wilson, W. Alan - "A Survey of Fishermen' s Incanes in British Colunbia" - Fisheries and Marine Service, Vancouver, September, 1971. 71 - BIBLIOGRAPHY (cxmtinued) (10) Wilson, W. Alan - 11 Sorne Econanic Aspects of Ccmnercial Fishing in British Colunbia" - Fisheries and Marine Service, Vancouver, B.. C. - June, 1971. (11) Position Paper - "Salrron Vessel License Control Plan", Fisheries and Marine Service, Vancouver, July 1970. (12) West Coast Sal.m:>n Fleet Develq:ment Ccmnittee Report - Fisheries and Marine Service, Vancouver, B.C., - April, 1973. (13) ~nnacott, R.J. & V\tmna.cott, T .H. - "Econanetrics" - John Wiley & Sons, Inc. - Toronto - 1970- (14) Underwood, McLellan & Associates and Edwin Reid & Associates - "Canpetitiveness and Efficiency in the British Colunbia Salrron Fishe:ry" - Voluires I & II - Appendix 16 to the "Econanic Rationale for Salrron Enhancement." PUBLISHED ARI'ICLE'S (1) Gordon, H. Scott - "The Econanic Theo:ry of a Camon Property Resource: The Fishe:ry" - Journal of Political Econany - 1954, Pp. 124-42. (2) Pearse, Peter - "Rationalisation of Canada's West Coast Salrron Fishe:ry: An Econanic Evaluation" - Econanic Aspects of Fish Production - OECD 1972 - Pp. 1 - 26. 72 - BIBLIOGRAPHY ( oontinued) (3) Soott, Anthony - "The Fishery: The Objectives of Sole Ownership" - Journal of Political Eoonany - Volure 63 (1955) - Pp. 116-124. (4) Schaeffer, Milner B. - "Sane Considerations of Population Dynamics and Eoonanics in Felation to the Management of the Ccmrercial Marine Fisheries" - Journal of the Fisheries Research Board of canada - Volure 14 (1957) - Pp. 669-681. UNPUBLISHED (1) ca:rnp::ie11, Blake H. - "License Limitation in the British Colunbia Fishery" - (Volures I through IV) Fisheries and Marine Service, Vancouver - January, 1974- (2) Fraser, G.A. & McKay, W. - "L:iroited Entry and the Salnon Fishery of British Colunbia" - Econanics and Special Industry Services Directorate (Internal Report} Fisheries and Marine Service, Vancouver, June, 1976. (3) Fraser, McEachem & Hsu - "Discussion Paper on Licensing in British Coh.nnbia Fisheries" - Eoonanics and Special Industry Services Directorate (Internal Report) - Fisheries and Marine Service, Vancouver, February, 19 77. (4) Mc:Eachem, D.B. - "A Review of the Sall.ron Vessel License Cbntrol Prograrrme, 1968 to .June 1974" - Econanics and Special Industry Services Directorate (Internal Report) - Fisheries and Marine Service, Vancouver - July, 1974. (5) McKay, Will - "The "B" Licensed Fleet, 1969 - 1975" - Econanics and Special Industry Services (Internal Report) Fisheries and Marine Service, Vancouver, January 1976. 73 - BIBLIOGRAPHY (continued) (6) Reid, David J. - "Foreign M::>noFQly capital in the Fraser River Sa.lroc>n canning Industry, 1887 - 1913" - Unpublished TJ:'esis 01..1tline - July, 1972. DATA SOUICES (1) Annual Summary of British Columbia Catch Statistics (1966 - 1976) - Fisheries and Marine Service. (2) British Colunbia catch Statistics (1966 - 1976) - Fisheries and Marine Service, Vancouver. (3) FisheJ:"ies Statistics of British Colunbia (1966 - 1976) Fisheries and Marine Service, Vancouver. (4) Fishing Returns in British Columbia - Fisheries and Marine Service, Vancouver: (a) 1963 and 1964 (b) 1966, 1967 and 1968 (c) 1969 and 1970 (d) 1971 - 1974 (5) The Ccmnercial Salmon Fisheries of British Columbia - Statistical BasebJok Series, #3 - Depart:Irent of Fisheries of Canada, Ottawa, 1958. In addition to the above published sources, a number of unpublished rrore detailed ccmputer runs were used. The rrost imr::ortant of these were as follows: (a) Sunrnary Incx:rre Study by Gross Return 74 BIBLIOGRAPHY (o::mtinued) DATA SOURCES (continued) Group --- these studies are produced annually, using information fran submitted sales slips and license application fonris. The information is organized according to specific gear type and gross return group. It provides information on salrron production, total production, capital value and nunber of days fishing. (b) Surrnary Fishennan. 1 s Performance Tables --- tt.i.ese studies are produced using the sane information sources as above. The information is organised according to specific license type (A, B or C) , sane general year categories and these sub-divided according to length and net tonnage categories. It provides info:r:mation on nunber of vessels, their total production and capital value. (c) Detailed Income Study by C.F.V. nunbers --- these provide detailed information on all vessels that participated in all British Colunbia fisheries. They provide infonnation on class of license, vessel age, length, net tonnage, capital value, gear used, species caught, weight caught, $ value of catch and days fishing.